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[Congressional Bills 108th Congress]
[From the U.S. Government Publishing Office]
[H.R. 1 Engrossed in House (EH)]

  1st Session

                                H. R. 1

_______________________________________________________________________

                                 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.
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
108th CONGRESS
  1st Session
                                 H. R. 1

_______________________________________________________________________

                                 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 TITLES.

    (a) Division A.--Division A of this Act may be cited as the 
``Medicare Prescription Drug and Modernization Act of 2003''.
    (b) Division B.--Division B of this Act may be cited as the 
``Health Savings and Affordability Act of 2003''.

SEC. 2. ORGANIZATION OF ACT INTO DIVISIONS; AMENDMENTS TO SOCIAL 
              SECURITY ACT; REFERENCES TO BIPA AND SECRETARY; TABLE OF 
              CONTENTS.

    (a) Divisions.--This Act is organized into two divisions as 
follows:
             (1) Division A--Medicare Prescription Drug and 
        Modernization Act of 2003.
             (2) Division B--Health Savings and Affordability 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 division A of 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 of this Act is as 
follows:

Sec. 1. Short titles.
Sec. 2. Organization of Act into divisions; amendments to Social 
                            Security Act; references to BIPA and 
                            Secretary; table of contents.
  DIVISION A--MEDICARE PRESCRIPTION DRUG AND MODERNIZATION ACT OF 2003

              TITLE I--MEDICARE PRESCRIPTION DRUG BENEFIT

Sec. 101. Establishment of a medicare prescription drug benefit.
Sec. 102. Offering of qualified prescription drug coverage under 
                            Medicare Advantage and enhanced fee-for-
                            service (EFFS) program.
Sec. 103. Medicaid amendments.
Sec. 104. Medigap transition.
Sec. 105. Medicare prescription drug discount card and assistance 
                            program.
Sec. 106. Disclosure of return information for purposes of carrying out 
                            medicare catastrophic prescription drug 
                            program.
Sec. 107. State Pharmaceutical Assistance Transition Commission.
Sec. 108. Additional requirements for annual financial report and 
                            oversight on medicare program, including 
                            prescription drug spending.
  TITLE II--MEDICARE ENHANCED FEE-FOR-SERVICE AND MEDICARE ADVANTAGE 
                     PROGRAMS; MEDICARE COMPETITION

Sec. 200. Medicare modernization and revitalization.
         Subtitle A--Medicare Enhanced Fee-for-Service Program

Sec. 201. Establishment of enhanced fee-for-service (EFFS) program 
                            under medicare.
                 Subtitle B--Medicare Advantage Program

                  Chapter 1--Implementation Of Program

Sec. 211. Implementation of medicare advantage program.
Sec. 212. Medicare advantage improvements.
            Chapter 2--Implementation Of Competition Program

Sec. 221. Competition program beginning in 2006.
                     Chapter 3--Additional Reforms

Sec. 231. Making permanent change in medicare advantage reporting 
                            deadlines and annual, coordinated election 
                            period.
Sec. 232. Avoiding duplicative State regulation.
Sec. 233. Specialized medicare advantage plans for special needs 
                            beneficiaries.
Sec. 234. Medicare MSAs.
Sec. 235. Extension of reasonable cost contracts.
Sec. 236. Extension of municipal health service demonstration projects.
Sec. 237. Study of performance-based payment systems.
       Subtitle C--Application of FEHBP-Style Competitive Reforms

Sec. 241. Application of FEHBP-style competitive reform beginning in 
                            2010.
             TITLE III--COMBATTING WASTE, FRAUD, AND ABUSE

Sec. 301. Medicare secondary payor (MSP) provisions.
Sec. 302. Competitive acquisition of certain items and services.
Sec. 303. Competitive acquisition of covered outpatient drugs and 
                            biologicals.
Sec. 304. Demonstration project for use of recovery audit contractors.
                TITLE IV--RURAL HEALTH CARE IMPROVEMENTS

Sec. 401. Enhanced disproportionate share hospital (DSH) treatment for 
                            rural hospitals and urban hospitals with 
                            fewer than 100 beds.
Sec. 402. Immediate establishment of uniform standardized amount in 
                            rural and small urban areas.
Sec. 403. Establishment of essential rural hospital classification.
Sec. 404. More frequent update in weights used in hospital market 
                            basket.
Sec. 405. Improvements to critical access hospital program.
Sec. 406. Redistribution of unused resident positions.
Sec. 407. Two-year extension of hold harmless provisions for small 
                            rural hospitals and sole community 
                            hospitals under prospective payment system 
                            for hospital outpatient department 
                            services.
Sec. 408. Exclusion of certain rural health clinic and federally 
                            qualified health center services from the 
                            prospective payment system for skilled 
                            nursing facilities.
Sec. 409. Recognition of attending nurse practitioners as attending 
                            physicians to serve hospice patients.
Sec. 410. Improvement in payments to retain emergency capacity for 
                            ambulance services in rural areas.
Sec. 411. Two-year increase for home health services furnished in a 
                            rural area.
Sec. 412. Providing safe harbor for certain collaborative efforts that 
                            benefit medically underserved populations.
Sec. 413. GAO study of geographic differences in payments for 
                            physicians' services.
Sec. 414. Treatment of missing cost reporting periods for sole 
                            community hospitals.
Sec. 415. Extension of telemedicine demonstration project.
Sec. 416. Adjustment to the medicare inpatient hospital PPS wage index 
                            to revise the labor-related share of such 
                            index.
Sec. 417. Medicare incentive payment program improvements for physician 
                            scarcity.
Sec. 418. Rural hospice 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. Recognition of new medical technologies under inpatient 
                            hospital PPS.
Sec. 503. Increase in Federal rate for hospitals in Puerto Rico.
Sec. 504. Wage index adjustment reclassification reform .
Sec. 505. MedPAC report on specialty hospitals.
                      Subtitle B--Other Provisions

Sec. 511. Payment for covered skilled nursing facility services.
Sec. 512. Coverage of hospice consultation services.
Sec. 513. Correction of Trust Fund holdings.
                TITLE VI--PROVISIONS RELATING TO PART B

                    Subtitle A--Physicians' Services

Sec. 601. Revision of updates for physicians' services.
Sec. 602. Studies on access to physicians' services.
Sec. 603. MedPAC report on payment for physicians' services.
Sec. 604. Inclusion of podiatrists and dentists under private 
                            contracting authority.
Sec. 605. Establishment of floor on work geographic adjustment.
                    Subtitle B--Preventive Services

Sec. 611. Coverage of an initial preventive physical examination.
Sec. 612. Coverage of cholesterol and blood lipid screening.
Sec. 613. Waiver of deductible for colorectal cancer screening tests.
Sec. 614. Improved payment for certain mammography services.
                       Subtitle C--Other Services

Sec. 621. Hospital outpatient department (HOPD) payment reform.
Sec. 622. Payment for ambulance services.
Sec. 623. Renal dialysis services.
Sec. 624. One-year moratorium on therapy caps; provisions relating to 
                            reports.
Sec. 625. Adjustment to payments for services furnished in ambulatory 
                            surgical centers.
Sec. 626. Payment for certain shoes and inserts under the fee schedule 
                            for orthotics and prosthetics.
Sec. 627. Waiver of part B late enrollment penalty for certain military 
                            retirees; special enrollment period.
Sec. 628. Part B deductible.
Sec. 629. Extension of coverage of intravenous immune globulin (IVIG) 
                            for the treatment of primary immune 
                            deficiency diseases in the home.
Sec. 630. Medicare coverage of diabetes laboratory diagnostic tests.
Sec. 631. Demonstration project for coverage of certain prescription 
                            drugs and biologics.
            TITLE VII--PROVISIONS RELATING TO PARTS A AND B

                    Subtitle A--Home Health Services

Sec. 701. Update in home health services.
Sec. 702. Establishment of reduced copayment for a home health service 
                            episode of care for certain beneficiaries.
Sec. 703. MedPAC study on medicare margins of home health agencies.
Sec. 704. Demonstration project to clarify the definition of homebound.
             Subtitle B--Direct Graduate Medical Education

Sec. 711. Extension of update limitation on high cost programs.
                  Subtitle C--Chronic Care Improvement

Sec. 721. Voluntary chronic care improvement under traditional fee-for-
                            service.
Sec. 722. Chronic care improvement under medicare advantage and 
                            enhanced fee-for-service programs.
Sec. 723. Institute of Medicine report.
Sec. 724. MedPAC report.
                      Subtitle D--Other Provisions

Sec. 731. Modifications to medicare payment advisory commission 
                            (MedPAC).
Sec. 732. Demonstration project for medical adult day care services.
Sec. 733. Improvements in national and local coverage determination 
                            process to respond to changes in 
                            technology.
Sec. 734. Treatment of certain physician pathology services.
Sec. 735. Clinical investigation of medicare pancreatic islet cell 
                            transplants.
Sec. 736. Demonstration project for consumer-directed chronic 
                            outpatient services.
              TITLE VIII--MEDICARE BENEFITS ADMINISTRATION

Sec. 801. Establishment of Medicare Benefits Administration.
         TITLE IX--REGULATORY REDUCTION AND CONTRACTING REFORM

                     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 Provider Ombudsman; 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.
                  Subtitle V--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 Active 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.
Sec. 954. Temporary suspension of OASIS requirement for collection of 
                            data on non-medicare and non-medicaid 
                            patients.
                           TITLE X--MEDICAID

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.
             TITLE XI--ACCESS TO AFFORDABLE PHARMACEUTICALS

            Subtitle A--Access to Affordable Pharmaceuticals

Sec. 1101. 30-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.
        DIVISION B--HEALTH SAVINGS AND AFFORDABILITY ACT OF 2003

TITLE XII--HEALTH SAVINGS SECURITY ACCOUNTS AND HEALTH SAVINGS ACCOUNTS

Sec. 1201. Short title.
Sec. 1202. Health savings security accounts and health savings 
                            accounts.
Sec. 1203. Disposition of unused health benefits in cafeteria plans and 
                            flexible spending arrangements.
Sec. 1204. Exception to information reporting requirements related to 
                            certain health arrangements.

  DIVISION A--MEDICARE PRESCRIPTION DRUG AND MODERNIZATION ACT OF 2003

              TITLE I--MEDICARE PRESCRIPTION DRUG BENEFIT

SEC. 101. ESTABLISHMENT OF A MEDICARE PRESCRIPTION DRUG BENEFIT.

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

         ``Part D--Voluntary Prescription Drug Benefit Program

``SEC. 1860D-1. BENEFITS; ELIGIBILITY; ENROLLMENT; AND COVERAGE PERIOD.

    ``(a) Provision of Qualified Prescription Drug Coverage Through 
Enrollment in Plans.--Subject to the succeeding provisions of this 
part, each individual who is entitled to benefits under part A or is 
enrolled under part B is entitled to obtain qualified prescription drug 
coverage (described in section 1860D-2(a)) as follows:
            ``(1) Medicare-related plans.--
                    ``(A) Medicare advantage.--If the individual is 
                eligible to enroll in a Medicare Advantage plan that 
                provides qualified prescription drug coverage under 
                section 1851(j), the individual may enroll in such plan 
                and obtain coverage through such plan.
                    ``(B) EFFS plans.--If the individual is eligible to 
                enroll in an EFFS plan that provides qualified 
                prescription drug coverage under part E under section 
                1860E-2(d), the individual may enroll in such plan and 
                obtain coverage through such plan.
                    ``(C) MA-EFFS plan; MA-EFFS Rx plan.--For purposes 
                of this part, the term `MA-EFFS plan' means a Medicare 
                Advantage plan under part C and an EFFS plan under part 
                E and the term `MA-EFFS Rx plan' means a MA-EFFS plan 
                insofar as such plan provides qualified prescription 
                drug coverage.
            ``(2) Prescription drug plan.--If the individual is not 
        enrolled in a MA-EFFS plan, the individual may enroll under 
        this part in a prescription drug plan (as defined in section 
        1860D-10(a)(5)).
Such individuals shall have a choice of such plans under section 1860D-
5(d).
    ``(b) General Election Procedures.--
            ``(1) In general.--An individual eligible to make an 
        election under subsection (a) may elect to enroll in a 
        prescription drug plan under this part, or elect the option of 
        qualified prescription drug coverage under a MA-EFFS Rx plan 
        under part C or part E, and to change such election only in 
        such manner and form as may be prescribed by regulations of the 
        Administrator of the Medicare Benefits Administration 
        (appointed under section 1809(b)) (in this part referred to as 
        the `Medicare Benefits Administrator') and only during an 
        election period prescribed in or under this subsection.
            ``(2) Election periods.--
                    ``(A) In general.--Except as provided in this 
                paragraph, the election periods under this subsection 
                shall be the same as the coverage election periods 
                under the Medicare Advantage and EFFS programs under 
                section 1851(e), including--
                            ``(i) annual coordinated election periods; 
                        and
                            ``(ii) special election periods.
                In applying the last sentence of section 1851(e)(4) 
                (relating to discontinuance of an election during the 
                first year of eligibility) under this subparagraph, in 
                the case of an election described in such section in 
                which the individual had elected or is provided 
                qualified prescription drug coverage at the time of 
                such first enrollment, the individual shall be 
                permitted to enroll in a prescription drug plan under 
                this part at the time of the election of coverage under 
                the original fee-for-service plan.
                    ``(B) Initial election periods.--
                            ``(i) Individuals currently covered.--In 
                        the case of an individual who is entitled to 
                        benefits under part A or enrolled under part B 
                        as of October 1, 2005, there shall be an 
                        initial election period of 6 months beginning 
                        on that date.
                            ``(ii) Individual covered in future.--In 
                        the case of an individual who is first entitled 
                        to benefits under part A or enrolled under part 
                        B after such date, there shall be an initial 
                        election period which is the same as the 
                        initial enrollment period under section 
                        1837(d).
                    ``(C) Additional special election periods.--The 
                Administrator shall establish special election 
                periods--
                            ``(i) in cases of individuals who have and 
                        involuntarily lose prescription drug coverage 
                        described in subsection (c)(2)(C);
                            ``(ii) in cases described in section 
                        1837(h) (relating to errors in enrollment), in 
                        the same manner as such section applies to part 
                        B;
                            ``(iii) in the case of an individual who 
                        meets such exceptional conditions (including 
                        conditions provided under section 
                        1851(e)(4)(D)) as the Administrator may 
                        provide; and
                            ``(iv) in cases of individuals (as 
                        determined by the Administrator) who become 
                        eligible for prescription drug assistance under 
                        title XIX under section 1935(d).
            ``(3) Information on plans.--Information described in 
        section 1860D-3(b)(1) on prescription drug plans and MA-EFFS Rx 
        plans shall be made available during election periods.
            ``(4) Additional information.--In order to promote the 
        efficient marketing of prescription drug plans and MA-EFFS 
        plans, the Administrator may provide information to the 
        sponsors and organizations offering such plans about 
        individuals eligible to enroll in such plans.
    ``(c) Guaranteed Issue; Community Rating; and Nondiscrimination.--
            ``(1) Guaranteed issue.--
                    ``(A) In general.--An eligible individual who is 
                eligible to elect qualified prescription drug coverage 
                under a prescription drug plan or MA-EFFS Rx plan at a 
                time during which elections are accepted under this 
                part with respect to the plan shall not be denied 
                enrollment based on any health status-related factor 
                (described in section 2702(a)(1) of the Public Health 
                Service Act) or any other factor.
                    ``(B) Medicare advantage limitations permitted.--
                The provisions of paragraphs (2) and (3) (other than 
                subparagraph (C)(i), relating to default enrollment) of 
                section 1851(g) (relating to priority and limitation on 
                termination of election) shall apply to PDP sponsors 
                under this subsection.
            ``(2) Community-rated premium.--
                    ``(A) In general.--In the case of an individual who 
                enrolls under a prescription drug plan or in a MA-EFFS 
                Rx plan during the individual's initial enrollment 
                period under this part or maintains (as determined 
                under subparagraph (C)) continuous prescription drug 
                coverage since the date the individual first qualifies 
                to elect prescription drug coverage under this part, a 
                PDP sponsor or entity offering a prescription drug plan 
                or MA-EFFS Rx plan and in which the individual is 
                enrolled may not deny, limit, or condition the coverage 
                or provision of covered prescription drug benefits or 
                vary or increase the premium under the plan based on 
                any health status-related factor described in section 
                2702(a)(1) of the Public Health Service Act or any 
                other factor.
                    ``(B) Late enrollment penalty.--In the case of an 
                individual who does not maintain such continuous 
                prescription drug coverage (as described in 
                subparagraph (C)), a PDP sponsor or an entity offering 
                a MA-EFFS Rx plan may (notwithstanding any provision in 
                this title) adjust the premium otherwise applicable 
                with respect to qualified prescription drug coverage in 
                a manner that reflects additional actuarial risk 
                involved. Such a risk shall be established through an 
                appropriate actuarial opinion of the type described in 
                subparagraphs (A) through (C) of section 2103(c)(4). 
                The Administrator shall provide a mechanism for 
                assisting such sponsors and entities in identifying 
                eligible individuals who have (or have not) maintained 
                such continuous prescription drug coverage.
                    ``(C) Continuous prescription drug coverage.--An 
                individual is considered for purposes of this part to 
                be maintaining continuous prescription drug coverage on 
                and after the date the individual first qualifies to 
                elect prescription drug coverage under this part if the 
                individual establishes that as of such date the 
                individual is covered under any of the following 
                prescription drug coverage and before the date that is 
                the last day of the 63-day period that begins on the 
                date of termination of the particular prescription drug 
                coverage involved (regardless of whether the individual 
                subsequently obtains any of the following prescription 
                drug coverage):
                            ``(i) Coverage under prescription drug plan 
                        or ma-effs rx plan.--Qualified prescription 
                        drug coverage under a prescription drug plan or 
                        under a MA-EFFS Rx plan.
                            ``(ii) Medicaid prescription drug 
                        coverage.--Prescription drug coverage under a 
                        medicaid plan under title XIX, including 
                        through the Program of All-inclusive Care for 
                        the Elderly (PACE) under section 1934, or 
                        through a demonstration project under part C 
                        that demonstrates the application of capitation 
                        payment rates for frail elderly medicare 
                        beneficiaries through the use of an 
                        interdisciplinary team and through the 
                        provision of primary care services to such 
                        beneficiaries by means of such a team at the 
                        nursing facility involved.
                            ``(iii) Prescription drug coverage under 
                        group health plan.--Any outpatient prescription 
                        drug coverage under a group health plan, 
                        including a health benefits plan under the 
                        Federal Employees Health Benefit Plan under 
                        chapter 89 of title 5, United States Code, and 
                        a qualified retiree prescription drug plan as 
                        defined in section 1860D-8(f)(1), but only if 
                        (subject to subparagraph (E)(ii)) the coverage 
                        provides benefits at least equivalent to the 
                        benefits under a qualified prescription drug 
                        plan.
                            ``(iv) Prescription drug coverage under 
                        certain 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)), but only if the policy was 
                        in effect on January 1, 2006, and if (subject 
                        to subparagraph (E)(ii)) the coverage provides 
                        benefits at least equivalent to the benefits 
                        under a qualified prescription drug plan.
                            ``(v) State pharmaceutical assistance 
                        program.--Coverage of prescription drugs under 
                        a State pharmaceutical assistance program, but 
                        only if (subject to subparagraph (E)(ii)) the 
                        coverage provides benefits at least equivalent 
                        to the benefits under a qualified prescription 
                        drug plan.
                            ``(vi) Veterans' coverage of prescription 
                        drugs.--Coverage of prescription drugs for 
                        veterans under chapter 17 of title 38, United 
                        States Code, but only if (subject to 
                        subparagraph (E)(ii)) the coverage provides 
                        benefits at least equivalent to the benefits 
                        under a qualified prescription drug plan.
                    ``(D) Certification.--For purposes of carrying out 
                this paragraph, the certifications of the type 
                described in sections 2701(e) of the Public Health 
                Service Act and in section 9801(e) of the Internal 
                Revenue Code shall also include a statement for the 
                period of coverage of whether the individual involved 
                had prescription drug coverage described in 
                subparagraph (C).
                    ``(E) Disclosure.--
                            ``(i) In general.--Each entity that offers 
                        coverage of the type described in clause (iii), 
                        (iv), (v), or (vi) of subparagraph (C) shall 
                        provide for disclosure, consistent with 
                        standards established by the Administrator, of 
                        whether such coverage provides benefits at 
                        least equivalent to the benefits under a 
                        qualified prescription drug plan.
                            ``(ii) Waiver of limitations.--An 
                        individual may apply to the Administrator to 
                        waive the requirement that coverage of such 
                        type provide benefits at least equivalent to 
                        the benefits under a qualified prescription 
                        drug plan, if the individual establishes that 
                        the individual was not adequately informed that 
                        such coverage did not provide such level of 
                        benefits.
                    ``(F) Construction.--Nothing in this section shall 
                be construed as preventing the disenrollment of an 
                individual from a prescription drug plan or a MA-EFFS 
                Rx plan based on the termination of an election 
                described in section 1851(g)(3), including for non-
                payment of premiums or for other reasons specified in 
                subsection (d)(3), which takes into account a grace 
                period described in section 1851(g)(3)(B)(i).
            ``(3) Nondiscrimination.--A PDP sponsor that offers a 
        prescription drug plan in an area designated under section 
        1860D-4(b)(5) shall make such plan available to all eligible 
        individuals residing in the area without regard to their health 
        or economic status or their place of residence within the area.
    ``(d) Effective Date of Elections.--
            ``(1) In general.--Except as provided in this section, the 
        Administrator shall provide that elections under subsection (b) 
        take effect at the same time as the Administrator provides that 
        similar elections under section 1851(e) take effect under 
        section 1851(f).
            ``(2) No election effective before 2006.--In no case shall 
        any election take effect before January 1, 2006.
            ``(3) Termination.--The Administrator shall provide for the 
        termination of an election in the case of--
                    ``(A) termination of coverage under both part A and 
                part B; and
                    ``(B) termination of elections described in section 
                1851(g)(3) (including failure to pay required 
                premiums).

``SEC. 1860D-2. REQUIREMENTS FOR QUALIFIED PRESCRIPTION DRUG COVERAGE.

    ``(a) Requirements.--
            ``(1) In general.--For purposes of this part and part C and 
        part E, the term `qualified prescription drug coverage' means 
        either of the following:
                    ``(A) Standard coverage with access to negotiated 
                prices.--Standard coverage (as defined in subsection 
                (b)) and access to negotiated prices under subsection 
                (d).
                    ``(B) Actuarially equivalent coverage with access 
                to negotiated prices.--Coverage of covered outpatient 
                drugs which meets the alternative coverage requirements 
                of subsection (c) and access to negotiated prices under 
                subsection (d), but only if it is approved by the 
                Administrator, as provided under subsection (c).
            ``(2) Permitting additional outpatient prescription drug 
        coverage.--
                    ``(A) In general.--Subject to subparagraph (B), 
                nothing in this part shall be construed as preventing 
                qualified prescription drug coverage from including 
                coverage of covered outpatient drugs that exceeds the 
                coverage required under paragraph (1), but any such 
                additional coverage shall be limited to coverage of 
                covered outpatient drugs.
                    ``(B) Disapproval authority.--The Administrator 
                shall review the offering of qualified prescription 
                drug coverage under this part or part C or E. If the 
                Administrator finds, in the case of a qualified 
                prescription drug coverage under a prescription drug 
                plan or a MA-EFFS Rx plan, that the organization or 
                sponsor offering the coverage is engaged in activities 
                intended to discourage enrollment of classes of 
                eligible medicare beneficiaries obtaining coverage 
                through the plan on the basis of their higher 
                likelihood of utilizing prescription drug coverage, the 
                Administrator may terminate the contract with the 
                sponsor or organization under this part or part C or E.
            ``(3) 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.
    ``(b) Standard Coverage.--For purposes of this part, the `standard 
coverage' is coverage of covered outpatient drugs (as defined in 
subsection (f)) that meets the following requirements:
            ``(1) Deductible.--The coverage has an annual deductible--
                    ``(A) for 2006, that is equal to $250; or
                    ``(B) 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 
                (5) for the year involved.
        Any amount determined under subparagraph (B) that is not a 
        multiple of $10 shall be rounded to the nearest multiple of 
        $10.
            ``(2) 80:20 benefit structure.--
                    ``(A) 20 percent coinsurance.--The coverage has 
                cost-sharing (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 20 percent; or
                            ``(ii) is actuarially equivalent (using 
                        processes established under subsection (e)) to 
                        an average expected payment of 20 percent of 
                        such costs.
                    ``(B) Use of tiers.--Nothing in this part shall be 
                construed as preventing a PDP sponsor from applying 
                tiered copayments, so long as such tiered copayments 
                are consistent with subparagraph (A).
            ``(3) Initial coverage limit.--Subject to paragraph (4), 
        the coverage has an initial coverage limit on the maximum costs 
        that may be recognized for payment purposes--
                    ``(A) for 2006, that is equal to $2,000; or
                    ``(B) 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 (5) for the year involved.
        Any amount determined under subparagraph (B) that is not a 
        multiple of $25 shall be rounded to the nearest multiple of 
        $25.
            ``(4) Catastrophic protection.--
                    ``(A) In general.--Notwithstanding paragraph (3), 
                the coverage provides benefits with no cost-sharing 
                after the individual has incurred costs (as described 
                in subparagraph (C)) for covered outpatient drugs in a 
                year equal to the annual out-of-pocket threshold 
                specified in subparagraph (B).
                    ``(B) Annual out-of-pocket threshold.--
                            ``(i) In general.--For purposes of this 
                        part, the `annual out-of-pocket threshold' 
                        specified in this subparagraph is equal to 
                        $3,500 (subject to adjustment under clause (ii) 
                        and subparagraph (D)).
                            ``(ii) Inflation increase.--For a year 
                        after 2006, the dollar amount specified in 
                        clause (i) shall be increased by the annual 
                        percentage increase described in paragraph (5) 
                        for the year involved. Any amount determined 
                        under the previous sentence that is not a 
                        multiple of $100 shall be rounded to the 
                        nearest multiple of $100.
                    ``(C) Application.--In applying subparagraph (A)--
                            ``(i) incurred costs shall only include 
                        costs incurred for the annual deductible 
                        (described in paragraph (1)), cost-sharing 
                        (described in paragraph (2)), and amounts for 
                        which benefits are not provided because of the 
                        application of the initial coverage limit 
                        described in paragraph (3); and
                            ``(ii) such costs shall be treated as 
                        incurred only if they are paid by the 
                        individual (or by another individual, such as a 
                        family member, on behalf of the individual), 
                        under section 1860D-7, under title XIX, or 
                        under a State pharmaceutical assistance program 
                        and the individual (or other individual) is not 
                        reimbursed through insurance or otherwise, a 
                        group health plan, or other third-party payment 
                        arrangement (other than under such title or 
                        such program) for such costs.
                    ``(D) Adjustment of annual out-of-pocket 
                thresholds.--
                            ``(i) In general.--Subject to clause (vii), 
                        for each enrollee in a prescription drug plan 
                        or in a MA-EFFS Rx plan whose adjusted gross 
                        income exceeds the income threshold as defined 
                        in clause (ii) for a year, the annual out-of-
                        pocket threshold otherwise determined under 
                        subparagraph (B) for such year shall be 
                        increased by an amount equal to the percentage 
                        specified in clause (iii), multiplied by the 
                        lesser of--
                                    ``(I) the amount of such excess; or
                                    ``(II) the amount by which the 
                                income threshold limit exceeds the 
                                income threshold.
                        Any amount determined under the previous 
                        sentence that is not a multiple of $100 shall 
                        be rounded to the nearest multiple of $100.
                            ``(ii) Income threshold.--For purposes of 
                        clause (i)--
                                    ``(I) In general.--Subject to 
                                subclause (II), the term `income 
                                threshold' means $60,000 and the term 
                                `income threshold limit' means 
                                $200,000.
                                    ``(II) Income inflation 
                                adjustment.--In the case of a year 
                                beginning after 2006, each of the 
                                dollar amounts in subclause (I) shall 
                                be increased by an amount equal to such 
                                dollar amount multiplied by the cost-
                                of-living adjustment determined under 
                                section 1(f)(3) of the Internal Revenue 
                                Code of 1986 for such year, determined 
                                by substituting `calendar year 2005' 
                                for `calendar year 1992'. If any amount 
                                increased under the previous sentence 
                                is not a multiple of $100, such amount 
                                shall be rounded to the nearest 
                                multiple of $100.
                            ``(iii) Percentage.--The percentage 
                        specified in this clause for a year is a 
                        fraction (expressed as a percentage) equal to--
                                    ``(I) the annual out-of-pocket 
                                threshold for a year under subparagraph 
                                (B) (determined without regard to this 
                                subparagraph), divided by
                                    ``(II) the income threshold under 
                                clause (ii) for that year.
                        If any percentage determined under the previous 
                        sentence that is not a multiple of \1/10\th of 
                        1 percentage point, such percentage shall be 
                        rounded to the nearest multiple of \1/10\th of 
                        1 percentage point.
                            ``(iv) Use of most recent return 
                        information.--For purposes of clause (i) for an 
                        enrollee for a year, except as provided in 
                        clause (v), the adjusted gross income of an 
                        individual shall be based on the most recent 
                        information disclosed to the Secretary under 
                        section 6109(l)(19) of the Internal Revenue 
                        Code of 1986 before the beginning of that year.
                            ``(v) Individual election to present most 
                        recent information regarding income.--The 
                        Secretary shall provide, in coordination with 
                        the Secretary of the Treasury, a procedure 
                        under which, for purposes of applying this 
                        subparagraph for a calendar year, instead of 
                        using the information described in clause (iv), 
                        an enrollee may elect to use more recent 
                        information, including information with respect 
                        to a taxable year ending in such calendar year. 
                        Such process shall--
                                    ``(I) require the enrollee to 
                                provide the Secretary with a copy of 
                                the relevant portion of the more recent 
                                return to be used under this clause;
                                    ``(II) provide for the Medicare 
                                Beneficiary Ombudsman (under section 
                                1810) offering assistance to such 
                                enrollees in presenting such 
                                information and the toll-free number 
                                under such section being a point of 
                                contact for beneficiaries to inquire as 
                                to how to present such information;
                                    ``(III) provide for the 
                                verification of the information in such 
                                return by the Secretary of the Treasury 
                                under section 6103(l)(19) of the 
                                Internal Revenue Code of 1986; and
                                    ``(IV) provide for the payment by 
                                the Secretary (in a manner specified by 
                                the Secretary) to the enrollee of an 
                                amount equal to the excess of the 
                                benefit payments that would have been 
                                payable under the plan if the more 
                                recent return information were used, 
                                over the benefit payments that were 
                                made under the plan.
                        In the case of a payment under subclause (III) 
                        for an enrollee under a prescription drug plan, 
                        the PDP sponsor of the plan shall pay to the 
                        Secretary the amount so paid, less the 
                        applicable reinsurance amount that would have 
                        applied under section 1860D-8(c)(1)(B) if such 
                        payment had been treated as an allowable cost 
                        under such section. Such plan payment shall be 
                        deposited in the Treasury to the credit of the 
                        Medicare Prescription Drug Account in the 
                        Federal Supplementary Medical Insurance Trust 
                        Fund (under section 1841).
                            ``(vi) Dissemination of information on 
                        process.--The Secretary shall provide, through 
                        the annual medicare handbook under section 
                        1804(a), for a general description of the 
                        adjustment of annual out-of-pocket thresholds 
                        provided under this subparagraph, including the 
                        process for adjustment based upon more recent 
                        information and the confidentiality provisions 
                        of subparagraph (F), and shall provide for 
                        dissemination of a table for each year that 
                        sets forth the amount of the adjustment that is 
                        made under clause (i) based on the amount of an 
                        enrollee's adjusted gross income.
                            ``(vii) Enrollee opt-out.--The Secretary 
                        shall provide a procedure whereby, if an 
                        enrollee elects to have the maximum annual out-
                        of-pocket threshold applied under this 
                        subparagraph for a year, the Secretary shall 
                        not request any information regarding the 
                        enrollee under subparagraph (E) for that year.
                    ``(E) Requesting information on enrollees.--
                            ``(i) In general.--The Secretary shall, 
                        periodically as required to carry out 
                        subparagraph (D), transmit to the Secretary of 
                        the Treasury a list of the names and TINs of 
                        enrollees in prescription drug plans (or in MA-
                        EFFS Rx plans) and request that such Secretary 
                        disclose to the Secretary information under 
                        subparagraph (A) of section 6103(l)(19) of the 
                        Internal Revenue Code of 1986 with respect to 
                        those enrollees for a specified taxable year 
                        for application in a particular calendar year.
                            ``(ii) Disclosure to plan sponsors.--In the 
                        case of a specified taxpayer (as defined in 
                        section 6103(l)(19)(B) of the Internal Revenue 
                        Code of 1986) who is enrolled in a prescription 
                        drug plan or in an MA-EFFS Rx plan or an 
                        individual who makes an election under 
                        subparagraph (D)(vii), the Secretary shall 
                        disclose to the entity that offers the plan the 
                        annual out-of-pocket threshold applicable to 
                        such individual under subparagraph (D).
                    ``(F) Maintaining confidentiality of information.--
                            ``(i) In general.--The amount of any 
                        increase in an annual out-of-pocket threshold 
                        under subparagraph (D) may not be disclosed by 
                        the Secretary except to a PDP sponsor or entity 
                        that offers a MA-EFFS Rx plan to the extent 
                        necessary to carry out this part.
                            ``(ii) Criminal and civil penalties for 
                        unauthorized disclosure.--A person who makes an 
                        unauthorized disclosure of information 
                        disclosed under section 6103(l)(19) of the 
                        Internal Revenue Code of 1986 (including 
                        disclosure of any increase in an annual out-of-
                        pocket threshold under subparagraph (D)) shall 
                        be subject to penalty to the extent provided 
                        under--
                                    ``(I) section 7213 of such Code 
                                (relating to criminal penalty for 
                                unauthorized disclosure of 
                                information);
                                    ``(II) section 7213A of such Code 
                                (relating to criminal penalty for 
                                unauthorized inspection of returns or 
                                return information);
                                    ``(III) section 7431 of such Code 
                                (relating to civil damages for 
                                unauthorized inspection or disclosure 
                                of returns and return information);
                                    ``(IV) any other provision of the 
                                Internal Revenue Code of 1986; or
                                    ``(V) any other provision of law.
                            ``(iii) Application of additional civil 
                        monetary penalty for unauthorized 
                        disclosures.--In addition to any penalty 
                        otherwise provided under law, any person who 
                        makes an unauthorized disclosure of such 
                        information shall be subject to a civil 
                        monetary penalty of not to exceed $10,000 for 
                        each such unauthorized disclosure. The 
                        provisions of section 1128A (other than 
                        subsections (a) and (b)) shall apply to civil 
                        money penalties under this subparagraph in the 
                        same manner as they apply to a penalty or 
                        proceeding under section 1128A(a).
                    ``(G) Information regarding third-party 
                reimbursement.--In order to ensure compliance with the 
                requirements of subparagraph (C)(ii), the Administrator 
                is authorized to establish procedures, in coordination 
                with the Secretary of Treasury and the Secretary of 
                Labor, for determining whether costs for individuals 
                are being reimbursed through insurance or otherwise, a 
                group health plan, or other third-party payment 
                arrangement, and for alerting the sponsors and 
                organization that offer the plans in which such 
                individuals are enrolled about such reimbursement 
                arrangements. A PDP sponsor or Medicare Advantage or 
                EFFS organization may also periodically ask individuals 
                enrolled in a prescription drug plan or MA-EFFS Rx plan 
                offered by the sponsor or organization whether the 
                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 
                Administrator and determined through a process 
                established by the Administrator) shall constitute 
                grounds for termination of enrollment under section 
                1860D-1(d)(3).
            ``(5) Annual percentage increase.--For purposes of this 
        part, 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 
        outpatient drugs in the United States for medicare 
        beneficiaries, as determined by the Administrator for the 12-
        month period ending in July of the previous year.
    ``(c) Alternative Coverage Requirements.--A prescription drug plan 
or MA-EFFS Rx plan may provide a different prescription drug benefit 
design from the standard coverage described in subsection (b) so long 
as the Administrator determines (based on an actuarial analysis 
approved by the Administrator) that the following requirements are met 
and the plan applies for, and receives, the approval of the 
Administrator 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 
                (as determined under subsection (e)) is at least equal 
                to the actuarial value (as so determined) of standard 
                coverage.
                    ``(B) Assuring equivalent unsubsidized value of 
                coverage.--The unsubsidized value of the coverage is at 
                least equal to the unsubsidized value of standard 
                coverage. For purposes of this subparagraph, the 
                unsubsidized value of coverage is the amount by which 
                the actuarial value of the coverage (as determined 
                under subsection (e)) exceeds the actuarial value of 
                the subsidy payments under section 1860D-8 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 (as determined under subsection (e)), to 
                provide for the payment, with respect to costs incurred 
                that are equal to the initial coverage limit under 
                subsection (b)(3), of an amount equal to at least the 
                product of--
                            ``(i) the amount by which the initial 
                        coverage limit described in subsection (b)(3) 
                        exceeds the deductible described in subsection 
                        (b)(1); and
                            ``(ii) 100 percent minus the cost-sharing 
                        percentage specified in subsection 
                        (b)(2)(A)(i).
            ``(2) Catastrophic protection.--The coverage provides for 
        beneficiaries the catastrophic protection described in 
        subsection (b)(4).
    ``(d) Access to Negotiated Prices.--
            ``(1) In general.--Under qualified prescription drug 
        coverage offered by a PDP sponsor or an entity offering a MA-
        EFFS Rx plan, the sponsor or entity shall provide beneficiaries 
        with access to negotiated prices (including applicable 
        discounts) used for payment for covered outpatient drugs, 
        regardless of the fact that no benefits may be payable under 
        the coverage with respect to such drugs because of the 
        application of cost-sharing or an initial coverage limit 
        (described in subsection (b)(3)). Insofar as a State elects to 
        provide medical assistance under title XIX to a beneficiary 
        enrolled under such title and under a prescription drug plan or 
        MA-EFFS Rx plan for a drug based on the prices negotiated by a 
        prescription drug plan or MA-EFFS Rx plan under this part, the 
        requirements of section 1927 shall not apply to such drugs. The 
        prices negotiated by a prescription drug plan under this part, 
        by a MA-EFFS Rx plan with respect to covered outpatient drugs, 
        or by a qualified retiree prescription drug plan (as defined in 
        section 1860D-8(f)(1)) with respect to such drugs on behalf of 
        individuals entitled to benefits under part A or enrolled under 
        part B, 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.--The PDP sponsor or entity offering a MA-
        EFFS Rx plan shall disclose to the Administrator (in a manner 
        specified by the Administrator) the extent to which discounts 
        or rebates or other remuneration or price concessions made 
        available to the sponsor or organization by a manufacturer are 
        passed through to enrollees through pharmacies and other 
        dispensers or otherwise. The provisions of section 
        1927(b)(3)(D) shall apply to information disclosed to the 
        Administrator under this paragraph in the same manner as such 
        provisions apply to information disclosed under such section.
            ``(3) Audits and reports.--To protect against fraud and 
        abuse and to ensure proper disclosures and accounting under 
        this part, in addition to any protections against fraud and 
        abuse provided under section 1860D-4(b)(3)(C), the 
        Administrator may periodically audit the financial statements 
        and records of PDP sponsor or entities offering a MA-EFFS Rx 
        plan.
    ``(e) Actuarial Valuation; Determination of Annual Percentage 
Increases.--
            ``(1) Processes.--For purposes of this section, the 
        Administrator shall establish processes and methods--
                    ``(A) for determining the actuarial valuation of 
                prescription drug coverage, including--
                            ``(i) an actuarial valuation of standard 
                        coverage and of the reinsurance subsidy 
                        payments under section 1860D-8;
                            ``(ii) the use of generally accepted 
                        actuarial principles and methodologies; and
                            ``(iii) applying the same methodology for 
                        determinations of alternative coverage under 
                        subsection (c) as is used with respect to 
                        determinations of standard coverage under 
                        subsection (b); and
                    ``(B) for determining annual percentage increases 
                described in subsection (b)(5).
        Such methods for determining actuarial valuation shall take 
        into account effects of alternative coverage on drug 
        utilization.
            ``(2) Use of outside actuaries.--Under the processes under 
        paragraph (1)(A), PDP sponsors and entities offering MA-EFFS Rx 
        plans may use actuarial opinions certified by independent, 
        qualified actuaries to establish actuarial values, but the 
        Administrator shall determine whether such actuarial values 
        meet the requirements under subsection (c)(1).
    ``(f) Covered Outpatient Drugs Defined.--
            ``(1) In general.--Except as provided in this subsection, 
        for purposes of this part, the term `covered outpatient drug' 
        means--
                    ``(A) a drug that may be dispensed only upon a 
                prescription and that is described in subparagraph 
                (A)(i) or (A)(ii) 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 
        outpatient 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) thereof 
                (relating to smoking cessation agents), or under 
                section 1927(d)(3).
                    ``(B) Avoidance of duplicate coverage.--A drug 
                prescribed for an individual that would otherwise be a 
                covered outpatient drug under this part shall not be so 
                considered if payment for such drug is available under 
                part A or B for an individual entitled to benefits 
                under part A and enrolled under part B.
            ``(3) Application of formulary restrictions.--A drug 
        prescribed for an individual that would otherwise be a covered 
        outpatient drug under this part shall not be so considered 
        under a plan if the plan excludes the drug under a formulary 
        and such exclusion is not successfully appealed under section 
        1860D-3(f)(2).
            ``(4) Application of general exclusion provisions.--A 
        prescription drug plan or MA-EFFS Rx plan may exclude from 
        qualified prescription drug coverage any covered outpatient 
        drug--
                    ``(A) for which payment would not be made if 
                section 1862(a) applied to part D; or
                    ``(B) which are not prescribed in accordance with 
                the plan or this part.
        Such exclusions are determinations subject to reconsideration 
        and appeal pursuant to section 1860D-3(f).

``SEC. 1860D-3. BENEFICIARY PROTECTIONS FOR QUALIFIED PRESCRIPTION DRUG 
              COVERAGE.

    ``(a) Guaranteed Issue, Community-Rated Premiums, Access to 
Negotiated Prices, and Nondiscrimination.--For provisions requiring 
guaranteed issue, community-rated premiums, access to negotiated 
prices, and nondiscrimination, see sections 1860D-1(c)(1), 1860D-
1(c)(2), 1860D-2(d), and 1860D-6(b), respectively.
    ``(b) Dissemination of Information.--
            ``(1) General 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. Such information includes the following:
                    ``(A) Access to specific covered outpatient drugs, 
                including access through pharmacy networks.
                    ``(B) How any formulary used by the sponsor 
                functions, including the drugs included in the 
                formulary.
                    ``(C) Co-payments and deductible requirements, 
                including the identification of the tiered or other co-
                payment level applicable to each drug (or class of 
                drugs).
                    ``(D) Grievance and appeals procedures.
        Such information shall also be made available upon request to 
        prospective enrollees.
            ``(2) Disclosure upon request of general coverage, 
        utilization, and grievance information.--Upon request of an 
        individual eligible to enroll under a prescription drug plan, 
        the PDP sponsor shall provide the information described in 
        section 1852(c)(2) (other than subparagraph (D)) to such 
        individual.
            ``(3) Response to beneficiary questions.--Each PDP sponsor 
        offering a prescription drug plan shall have a mechanism for 
        providing specific information to enrollees upon request. The 
        sponsor shall make available on a timely basis, through an 
        Internet website and in writing upon request, information on 
        specific changes in its formulary.
            ``(4) Claims information.--Each PDP sponsor offering a 
        prescription drug plan must furnish to each enrollee in a form 
        easily understandable to such enrollees an explanation of 
        benefits (in accordance with section 1806(a) or in a comparable 
        manner) and a notice of the benefits in relation to initial 
        coverage limit and the annual out-of-pocket threshold 
        applicable to such enrollee for the current year, whenever 
        prescription drug benefits are provided under this part (except 
        that such notice need not be provided more often than monthly).
    ``(c) Access to Covered Benefits.--
            ``(1) Assuring pharmacy access.--
                    ``(A) Participation of any willing pharmacy.--A PDP 
                sponsor and an entity offering a MA-EFFS Rx plan shall 
                permit the participation of any pharmacy that meets 
                terms and conditions that the plan has established.
                    ``(B) Discounts allowed for network pharmacies.--A 
                prescription drug plan and a MA-EFFS Rx plan may, 
                notwithstanding subparagraph (A), reduce coinsurance or 
                copayments for its enrolled beneficiaries below the 
                level otherwise provided for covered outpatient drugs 
                dispensed through in-network pharmacies, but in no case 
                shall such a reduction result in an increase in 
                payments made by the Administrator under section 1860D-
                8 to a plan.
                    ``(C) Convenient access for network pharmacies.--
                The PDP sponsor of the prescription drug plan and the 
                entity offering a MA-EFFS Rx 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 of the Administrator). The 
                Administrator shall establish convenient access rules 
                under this subparagraph that are no less favorable to 
                enrollees than the rules for convenient access to 
                pharmacies of the Secretary of Defense established as 
                of June 1, 2003, for purposes of the TRICARE Retail 
                Pharmacy (TRRx) program. Such rules shall include 
                adequate emergency access for enrolled beneficiaries.
                    ``(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 
                community pharmacy, rather than through mail order, 
                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 and an entity offering a MA-EFFS 
                Rx 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) for the purchase of prescription 
                drugs for which coverage is not otherwise provided 
                under the plan.
                    ``(B) Standards.--
                            ``(i) Development.--The Administrator shall 
                        provide for the development or utilization of 
                        uniform standards relating to a standardized 
                        format for the card or other technology 
                        referred to in subparagraph (A). Such standards 
                        shall be compatible with standards established 
                        under part C of title XI.
                            ``(ii) Application of advisory task 
                        force.--The advisory task force established 
                        under subsection (d)(3)(B)(ii) shall provide 
                        recommendations to the Administrator under such 
                        subsection regarding the standards developed 
                        under clause (i).
            ``(3) Requirements on development and application of 
        formularies.--If a PDP sponsor of a prescription drug plan or 
        an entity offering a MA-EFFS Rx plan uses a formulary, the 
        following requirements must be met:
                    ``(A) Pharmacy and therapeutic (p&t) committee.--
                The sponsor or entity must establish a pharmacy and 
                therapeutic committee that develops and reviews the 
                formulary. Such committee shall include at least one 
                practicing physician and at least one practicing 
                pharmacist independent and free of conflict with 
                respect to the committee both with expertise in the 
                care of elderly or disabled persons and a majority of 
                its members shall consist of individuals who are 
                practicing physicians or practicing pharmacists (or 
                both).
                    ``(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) shall take into account whether 
                        including in the formulary particular covered 
                        outpatient drugs has therapeutic advantages in 
                        terms of safety and efficacy.
                    ``(C) Inclusion of drugs in all therapeutic 
                categories.--The formulary must include drugs within 
                each therapeutic category and class of covered 
                outpatient drugs (although not necessarily for all 
                drugs within such categories and classes). In 
                establishing such classes, the committee shall take 
                into account the standards published in the United 
                States Pharmacopeia-Drug Information. The committee 
                shall make available to the enrollees under the plan 
                through the Internet or otherwise the bases for the 
                exclusion of coverage of any drug from the formulary.
                    ``(D) Provider and patient education.--The 
                committee shall establish policies and procedures to 
                educate and inform health care providers and enrollees 
                concerning the formulary.
                    ``(E) Notice before removing drug from formulary 
                for changing preferred or tier status of drug.--Any 
                removal of a covered outpatient drug from a formulary 
                and any change in the preferred or tier cost-sharing 
                status of such a drug shall take effect only after 
                appropriate notice is made available to beneficiaries 
                and physicians.
                    ``(F) Periodic evaluation of protocols.--In 
                connection with the formulary, a prescription drug plan 
                shall provide for the periodic evaluation and analysis 
                of treatment protocols and procedures.
                    ``(G) Grievances and appeals relating to 
                application of formularies.--For provisions relating to 
                grievances and appeals of coverage, see subsections (e) 
                and (f).
    ``(d) Cost and Utilization Management; Quality Assurance; 
Medication Therapy Management Program.--
            ``(1) In general.--The PDP sponsor or entity offering a MA-
        EFFS Rx plan shall have in place, directly or through 
        appropriate arrangements, with respect to covered outpatient 
        drugs--
                    ``(A) an effective cost and drug utilization 
                management program, including medically appropriate 
                incentives to use generic drugs and therapeutic 
                interchange, when appropriate;
                    ``(B) quality assurance measures and systems to 
                reduce medical errors and adverse drug interactions, 
                including side-effects, and improve medication use, 
                including a medication therapy management program 
                described in paragraph (2) and for years beginning with 
                2007, an electronic prescription program described in 
                paragraph (3); and
                    ``(C) a program to control fraud, abuse, and waste.
        Nothing in this section shall be construed as impairing a PDP 
        sponsor or entity from utilizing cost management tools 
        (including differential payments) under all methods of 
        operation.
            ``(2) Medication therapy management program.--
                    ``(A) In general.--A medication therapy management 
                program described in this paragraph is a program of 
                drug therapy management and medication administration 
                that may be furnished by a pharmacy provider and that 
                is designed to assure, with respect to beneficiaries at 
                risk for potential medication problems, such as 
                beneficiaries with complex or chronic diseases (such as 
                diabetes, asthma, hypertension, and congestive heart 
                failure) or multiple prescriptions, that covered 
                outpatient drugs under the prescription drug plan are 
                appropriately used to optimize therapeutic outcomes 
                through improved medication use and reduce the risk of 
                adverse events, including adverse drug interactions. 
                Such programs may distinguish between services in 
                ambulatory and institutional settings.
                    ``(B) Elements.--Such program may include--
                            ``(i) enhanced beneficiary understanding to 
                        promote the appropriate use of medications by 
                        beneficiaries and to reduce the risk of 
                        potential adverse events associated with 
                        medications, through beneficiary education, 
                        counseling, case management, disease state 
                        management programs, and other appropriate 
                        means;
                            ``(ii) increased beneficiary adherence with 
                        prescription medication regimens through 
                        medication refill reminders, special packaging, 
                        and other compliance programs and other 
                        appropriate means; and
                            ``(iii) detection of patterns of overuse 
                        and underuse of prescription drugs.
                    ``(C) Development of program in cooperation with 
                licensed pharmacists.--The program shall be developed 
                in cooperation with licensed and practicing pharmacists 
                and physicians.
                    ``(D) Considerations in pharmacy fees.--The PDP 
                sponsor of a prescription drug program and an entity 
                offering a MA-EFFS Rx plan shall take into account, in 
                establishing fees for pharmacists and others providing 
                services under the medication therapy management 
                program, the resources and time used in implementing 
                the program. Each such sponsor or entity shall disclose 
                to the Administrator upon request the amount of any 
                such management or dispensing fees and such fees shall 
                be confidential in the same manner as provided under 
                section 1927(b)(3)(D) for information disclosed under 
                section 1927(b)(3)(A).
            ``(3) Electronic prescription program.--
                    ``(A) In general.--An electronic prescription drug 
                program described in this paragraph is a program that 
                includes at least the following components, consistent 
                with uniform standards established under subparagraph 
                (B):
                            ``(i) Electronic transmittal of 
                        prescriptions.--Prescriptions must be written 
                        and transmitted electronically (other than by 
                        facsimile), except in emergency cases and other 
                        exceptional circumstances recognized by the 
                        Administrator.
                            ``(ii) Provision of information to 
                        prescribing health care professional.--The 
                        program provides for the electronic transmittal 
                        to the prescribing health care professional of 
                        information that includes--
                                    ``(I) information (to the extent 
                                available and feasible) on the drug or 
                                drugs being prescribed for that patient 
                                and other information relating to the 
                                medical history or condition of the 
                                patient that may be relevant to the 
                                appropriate prescription for that 
                                patient;
                                    ``(II) cost-effective alternatives 
                                (if any) for the use of the drug 
                                prescribed; and
                                    ``(III) information on the drugs 
                                included in the applicable formulary.
                        To the extent feasible, such program shall 
                        permit the prescribing health care professional 
                        to provide (and be provided) related 
                        information on an interactive, real-time basis.
                    ``(B) Standards.--
                            ``(i) Development.--The Administrator shall 
                        provide for the development of uniform 
                        standards relating to the electronic 
                        prescription drug program described in 
                        subparagraph (A). Such standards shall be 
                        compatible with standards established under 
                        part C of title XI.
                            ``(ii) Advisory task force.--In developing 
                        such standards and the standards described in 
                        subsection (c)(2)(B)(i) the Administrator shall 
                        establish a task force that includes 
                        representatives of physicians, hospitals, 
                        pharmacies, beneficiaries, pharmacy benefit 
                        managers, individuals with expertise in 
                        information technology, and pharmacy benefit 
                        experts of the Departments of Veterans Affairs 
                        and Defense and other appropriate Federal 
                        agencies to provide recommendations to the 
                        Administrator on such standards, including 
                        recommendations relating to the following:
                                    ``(I) The range of available 
                                computerized prescribing software and 
                                hardware and their costs to develop and 
                                implement.
                                    ``(II) The extent to which such 
                                standards and systems reduce medication 
                                errors and can be readily implemented 
                                by physicians, pharmacies, and 
                                hospitals.
                                    ``(III) Efforts to develop uniform 
                                standards and a common software 
                                platform for the secure electronic 
                                communication of medication history, 
                                eligibility, benefit, and prescription 
                                information.
                                    ``(IV) Efforts to develop and 
                                promote universal connectivity and 
                                interoperability for the secure 
                                electronic exchange of such 
                                information.
                                    ``(V) The cost of implementing such 
                                systems in the range of hospital and 
                                physician office settings and 
                                pharmacies, including hardware, 
                                software, and training costs.
                                    ``(VI) Implementation issues as 
                                they relate to part C of title XI, and 
                                current Federal and State prescribing 
                                laws and regulations and their impact 
                                on implementation of computerized 
                                prescribing.
                            ``(iii) Deadlines.--
                                    ``(I) The Administrator shall 
                                constitute the task force under clause 
                                (ii) by not later than April 1, 2004.
                                    ``(II) Such task force shall submit 
                                recommendations to Administrator by not 
                                later than January 1, 2005.
                                    ``(III) The Administrator shall 
                                provide for the development and 
                                promulgation, by not later than January 
                                1, 2006, of national standards relating 
                                to the electronic prescription drug 
                                program described in clause (ii). Such 
                                standards shall be issued by a 
                                standards organization accredited by 
                                the American National Standards 
                                Institute (ANSI) and shall be 
                                compatible with standards established 
                                under part C of title XI.
            ``(4) Treatment of accreditation.--Section 1852(e)(4) 
        (relating to treatment of accreditation) shall apply to 
        prescription drug plans under this part with respect to the 
        following requirements, in the same manner as they apply to 
        plans under part C with respect to the requirements described 
        in a clause of section 1852(e)(4)(B):
                    ``(A) Paragraph (1) (including quality assurance), 
                including medication therapy management program under 
                paragraph (2).
                    ``(B) Subsection (c)(1) (relating to access to 
                covered benefits).
                    ``(C) Subsection (g) (relating to confidentiality 
                and accuracy of enrollee records).
            ``(5) Public disclosure of pharmaceutical prices for 
        equivalent drugs.--Each PDP sponsor and each entity offering a 
        MA-EFFS Rx plan shall provide that each pharmacy or other 
        dispenser that arranges for the dispensing of a covered 
        outpatient drug shall inform the beneficiary at the time of 
        purchase of the drug of any differential between the price of 
        the prescribed drug to the enrollee and the price of the lowest 
        cost available generic drug covered under the plan that is 
        therapeutically equivalent and bioequivalent.
    ``(e) Grievance Mechanism, Coverage Determinations, and 
Reconsiderations.--
            ``(1) In general.--Each PDP sponsor shall provide 
        meaningful procedures for hearing and resolving grievances 
        between the organization (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).
            ``(2) 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 organization with respect to benefits 
        it offers under a plan under part C.
            ``(3) Request for review of tiered formulary 
        determinations.--In the case of a prescription drug plan 
        offered by a PDP sponsor or a MA-EFFS Rx plan that provides for 
        tiered cost-sharing for drugs included within a formulary and 
        provides lower cost-sharing for preferred drugs included within 
        the formulary, an individual who is enrolled in the plan may 
        request coverage of a nonpreferred drug 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.
    ``(f) 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 drugs (including a 
        determination related to the application of tiered cost-sharing 
        described in subsection (e)(3)) in the same manner as such 
        requirements apply to an organization with respect to benefits 
        it offers under a plan under part C.
            ``(2) Formulary determinations.--An individual who is 
        enrolled in a prescription drug plan offered by a PDP sponsor 
        or in a MA-EFFS Rx plan may appeal to obtain coverage for a 
        covered outpatient drug that is not on a formulary of the 
        sponsor or entity offering the plan if the prescribing 
        physician determines that the formulary 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.
    ``(g) Confidentiality and Accuracy of Enrollee Records.--A PDP 
sponsor that offers a prescription drug plan shall meet the 
requirements of section 1852(h) with respect to enrollees under the 
plan in the same manner as such requirements apply to an organization 
with respect to enrollees under part C. A PDP sponsor shall be treated 
as a business associate for purposes of the provisions of subpart E of 
part 164 of title 45, Code of Federal Regulations, 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).

``SEC. 1860D-4. REQUIREMENTS FOR AND CONTRACTS WITH PRESCRIPTION DRUG 
              PLAN (PDP) SPONSORS.

    ``(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) and 
                section 1860D-5(d)(2), the entity assumes full 
                financial risk on a prospective basis for qualified 
                prescription drug coverage that it offers under a 
                prescription drug plan and that is not covered under 
                section 1860D-8.
                    ``(B) Reinsurance permitted.--The entity may obtain 
                insurance or make other arrangements for the cost of 
                coverage provided to any enrollee.
            ``(3) Solvency for unlicensed sponsors.--In the case of a 
        sponsor that is not described in paragraph (1), the sponsor 
        shall meet solvency standards established by the Administrator 
        under subsection (d).
    ``(b) Contract Requirements.--
            ``(1) In general.--The Administrator shall not permit the 
        election under section 1860D-1 of a prescription drug plan 
        offered by a PDP sponsor under this part, and the sponsor shall 
        not be eligible for payments under section 1860D-7 or 1860D-8, 
        unless the Administrator 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) Negotiation regarding terms and conditions.--The 
        Administrator shall have the same authority to negotiate the 
        terms and conditions of prescription drug plans under this part 
        as the Director of the Office of Personnel Management has with 
        respect to health benefits plans under chapter 89 of title 5, 
        United States Code. In negotiating the terms and conditions 
        regarding premiums for which information is submitted under 
        section 1860D-6(a)(2), the Administrator shall take into 
        account the subsidy payments under section 1860D-8.
            ``(3) Incorporation of certain medicare advantage contract 
        requirements.--The following provisions of section 1857 shall 
        apply, subject to subsection (c)(5), 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 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.--
                Paragraphs (1) through (3) and (5) of section 1857(c).
                    ``(C) Protections against fraud and beneficiary 
                protections.--Section 1857(d).
                    ``(D) Additional contract terms.--Section 1857(e); 
                except that in applying section 1857(e)(2) under this 
                part--
                            ``(i) such section shall be applied 
                        separately to costs relating to this part (from 
                        costs under part C and part E);
                            ``(ii) in no case shall the amount of the 
                        fee established under this subparagraph for a 
                        plan exceed 20 percent of the maximum amount of 
                        the fee that may be established under 
                        subparagraph (B) of such section; and
                            ``(iii) no fees shall be applied under this 
                        subparagraph with respect to MA-EFFS Rx plans.
                    ``(E) Intermediate sanctions.--Section 1857(g).
                    ``(F) Procedures for termination.--Section 1857(h).
            ``(4) Rules of application for intermediate sanctions.--In 
        applying paragraph (3)(E)--
                    ``(A) the reference in section 1857(g)(1)(B) to 
                section 1854 is deemed a reference to this part; and
                    ``(B) the reference in section 1857(g)(1)(F) to 
                section 1852(k)(2)(A)(ii) shall not be applied.
            ``(5) Service area requirement.--For purposes of this part, 
        the Administrator shall designate at least 10 areas covering 
        the entire United States and to the extent practicable shall be 
        consistent with EFFS regions established under section 1860E-
        1(a)(2).
    ``(c) Waiver of Certain Requirements to Expand Choice.--
            ``(1) In general.--In the case of an entity that seeks to 
        offer a prescription drug plan in a State, the Administrator 
        shall waive the requirement of subsection (a)(1) that the 
        entity be licensed in that State if the Administrator 
        determines, based on the application and other evidence 
        presented to the Administrator, that any of the grounds for 
        approval of the application described in paragraph (2) have 
        been met.
            ``(2) Grounds for approval.--The grounds for approval under 
        this paragraph are the grounds for approval described in 
        subparagraph (B), (C), and (D) of section 1855(a)(2), and also 
        include the application by a State of any grounds other than 
        those required under Federal law.
            ``(3) Application of waiver procedures.--With respect to an 
        application for a waiver (or a waiver granted) under this 
        subsection, the provisions of subparagraphs (E), (F), and (G) 
        of section 1855(a)(2) shall apply.
            ``(4) Licensure does not substitute for or constitute 
        certification.--The fact that an entity is licensed in 
        accordance with subsection (a)(1) does not deem the entity to 
        meet other requirements imposed under this part for a PDP 
        sponsor.
            ``(5) References to certain provisions.--For purposes of 
        this subsection, in applying provisions of section 1855(a)(2) 
        under 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); and
                    ``(B) any reference to solvency standards shall be 
                treated as a reference to solvency standards 
                established under subsection (d).
    ``(d) Solvency Standards for Non-Licensed Sponsors.--
            ``(1) Establishment.--The Administrator shall establish, by 
        not later than October 1, 2004, financial solvency and capital 
        adequacy standards that an entity that does not meet the 
        requirements of subsection (a)(1) must meet to qualify as a PDP 
        sponsor under this part.
            ``(2) Compliance with standards.--Each 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 Administrator shall establish certification 
        procedures for such PDP sponsors with respect to such solvency 
        standards in the manner described in section 1855(c)(2).
    ``(e) Relation to State Laws.--
            ``(1) In general.--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, 
        except as provided in subsection (d)) with respect to 
        prescription drug plans which are offered by PDP sponsors under 
        this part.
            ``(2) Prohibition of state imposition of premium taxes.--No 
        State may impose a premium tax or similar tax with respect to 
        premiums paid to PDP sponsors for prescription drug plans under 
        this part, or with respect to any payments made to such a 
        sponsor by the Administrator under this part.

``SEC. 1860D-5. PROCESS FOR BENEFICIARIES TO SELECT QUALIFIED 
              PRESCRIPTION DRUG COVERAGE.

    ``(a) In General.--The Administrator shall establish a process for 
the selection of the prescription drug plan or MA-EFFS Rx plan through 
which eligible individuals elect qualified prescription drug coverage 
under this part.
    ``(b) Elements.--Such process shall include the following:
            ``(1) Annual, coordinated election periods, in which such 
        individuals can change the qualifying plans through which they 
        obtain coverage, in accordance with section 1860D-1(b)(2).
            ``(2) Active dissemination of information to promote an 
        informed selection among qualifying plans based upon price, 
        quality, and other features, in the manner described in (and in 
        coordination with) section 1851(d), including the provision of 
        annual comparative information, maintenance of a toll-free 
        hotline, and the use of non-Federal entities.
            ``(3) Coordination of elections through filing with the 
        entity offering a MA-EFFS Rx plan or a PDP sponsor, in the 
        manner described in (and in coordination with) section 
        1851(c)(2).
            ``(4) Informing each enrollee before the beginning of each 
        year of the annual out-of-pocket threshold applicable to the 
        enrollee for that year under section 1860D-2(b)(4) at such 
        time.
    ``(c) MA-EFFS Rx Enrollee May Only Obtain Benefits Through the 
Plan.--An individual who is enrolled under a MA-EFFS Rx plan may only 
elect to receive qualified prescription drug coverage under this part 
through such plan.
    ``(d) Assuring Access to a Choice of Qualified Prescription Drug 
Coverage.--
            ``(1) Choice of at least two plans in each area.--
                    ``(A) In general.--The Administrator shall assure 
                that each individual who is entitled to benefits under 
                part A or enrolled under part B and who is residing in 
                an area in the United States has available, consistent 
                with subparagraph (B), a choice of enrollment in at 
                least two qualifying plans (as defined in paragraph 
                (5)) in the area in which the individual resides, at 
                least one of which is a prescription drug plan.
                    ``(B) Requirement for different plan sponsors.--The 
                requirement in subparagraph (A) is not satisfied with 
                respect to an area if only one PDP sponsor or one 
                entity that offers a MA-EFFS Rx plan offers all the 
                qualifying plans in the area.
            ``(2) Guaranteeing access to coverage.--In order to assure 
        access under paragraph (1) and consistent with paragraph (3), 
        the Administrator may provide partial underwriting of risk for 
        a PDP sponsor to expand the service area under an existing 
        prescription drug plan to adjoining or additional areas or to 
        establish such a plan (including offering such a plan on a 
        regional or nationwide basis), but only so long as (and to the 
        extent) necessary to assure the access guaranteed under 
        paragraph (1).
            ``(3) Limitation on authority.--In exercising authority 
        under this subsection, the Administrator--
                    ``(A) shall not provide for the full underwriting 
                of financial risk for any PDP sponsor; and
                    ``(B) shall seek to maximize the assumption of 
                financial risk by PDP sponsors or entities offering a 
                MA-EFFS Rx plan.
            ``(4) Reports.--The Administrator shall, in each annual 
        report to Congress under section 1809(f), include information 
        on the exercise of authority under this subsection. The 
        Administrator also shall include such recommendations as may be 
        appropriate to minimize the exercise of such authority, 
        including minimizing the assumption of financial risk.
            ``(5) Qualifying plan defined.--For purposes of this 
        subsection, the term `qualifying plan' means a prescription 
        drug plan or a MA-EFFS Rx plan.

``SEC. 1860D-6. SUBMISSION OF BIDS AND PREMIUMS.

    ``(a) Submission of Bids, Premiums, and Related Information.--
            ``(1) In general.--Each PDP sponsor shall submit to the 
        Administrator the information described in paragraph (2) in the 
        same manner as information is submitted by an organization 
        under section 1854(a)(1).
            ``(2) Information submitted.--The information described in 
        this paragraph is the following:
                    ``(A) Coverage provided.--Information on the 
                qualified prescription drug coverage to be provided.
                    ``(B) Actuarial value.--Information on the 
                actuarial value of the coverage.
                    ``(C) Bid and premium.--Information on the bid and 
                the premium for the coverage, including an actuarial 
                certification of--
                            ``(i) the actuarial basis for such bid and 
                        premium;
                            ``(ii) the portion of such bid and premium 
                        attributable to benefits in excess of standard 
                        coverage;
                            ``(iii) the reduction in such bid resulting 
                        from the reinsurance subsidy payments provided 
                        under section 1860D-8(a)(2); and
                            ``(iv) the reduction in such premium 
                        resulting from the direct and reinsurance 
                        subsidy payments provided under section 1860D-
                        8.
                    ``(D) Additional information.--Such other 
                information as the Administrator may require to carry 
                out this part.
            ``(3) Review of information; negotiation and approval of 
        premiums.--
                    ``(A) In general.--Subject to subparagraph (B), the 
                Administrator shall review the information filed under 
                paragraph (2) for the purpose of conducting 
                negotiations under section 1860D-4(b)(2) (relating to 
                using OPM-like authority under the FEHBP). The 
                Administrator, using the information provided 
                (including the actuarial certification under paragraph 
                (2)(C)) shall approve the premium submitted under this 
                subsection only if the premium accurately reflects both 
                (i) the actuarial value of the benefits provided, and 
                (ii) the 73 percent average subsidy provided under 
                section 1860D-8 for the standard benefit. The 
                Administrator shall apply actuarial principles to 
                approval of a premium under this part in a manner 
                similar to the manner in which those principles are 
                applied in establishing the monthly part B premium 
                under section 1839.
                    ``(B) Exception.--In the case of a plan described 
                in section 1851(a)(2)(C), the provisions of 
                subparagraph (A) shall not apply and the provisions of 
                paragraph (5)(B) of section 1854(a), 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 proportion 
                referred to in subparagraph (A).
    ``(b) Uniform Bid and Premium.--
            ``(1) In general.--The bid and premium for a prescription 
        drug plan under this section may not vary among enrollees in 
        the plan in the same service area.
            ``(2) Construction.--Nothing in paragraph (1) shall be 
        construed as preventing the imposition of a late enrollment 
        penalty under section 1860D-1(c)(2)(B).
    ``(c) Collection.--
            ``(1) Beneficiary's option of payment through withholding 
        from social security payment or use of electronic funds 
        transfer mechanism.--In accordance with regulations, a PDP 
        sponsor shall permit each enrollee, at the enrollee's option, 
        to make payment of premiums under this part to the sponsor 
        through withholding from benefit payments in the manner 
        provided under section 1840 with respect to monthly premiums 
        under section 1839 or through an electronic funds transfer 
        mechanism (such as automatic charges of an account at a 
        financial institution or a credit or debit card account) or 
        otherwise. All premium payments that are withheld under this 
        paragraph shall be credited to the Medicare Prescription Drug 
        Trust Fund and shall be paid to the PDP sponsor involved.
            ``(2) Offsetting.--Reductions in premiums for coverage 
        under parts A and B as a result of a selection of a MA-EFFS Rx 
        plan may be used to reduce the premium otherwise imposed under 
        paragraph (1).
    ``(d) Acceptance of Reference Premium Amount as Full Premium for 
Subsidized Low-Income Individuals if No Standard (or Equivalent) 
Coverage in an Area.--
            ``(1) In general.--If there is no standard prescription 
        drug coverage (as defined in paragraph (2)) offered in an area, 
        in the case of an individual who is eligible for a premium 
        subsidy under section 1860D-7 and resides in the area, the PDP 
        sponsor of any prescription drug plan offered in the area (and 
        any entity offering a MA-EFFS Rx plan in the area) shall accept 
        the reference premium amount (under paragraph (3)) as payment 
        in full for the premium charge for qualified prescription drug 
        coverage.
            ``(2) Standard prescription drug coverage defined.--For 
        purposes of this subsection, the term `standard prescription 
        drug coverage' means qualified prescription drug coverage that 
        is standard coverage or that has an actuarial value equivalent 
        to the actuarial value for standard coverage.
            ``(3) Reference premium amount defined.--For purposes of 
        this subsection, the term `reference premium amount' means, 
        with respect to qualified prescription drug coverage offered 
        under--
                    ``(A) a prescription drug plan that--
                            ``(i) provides standard coverage (or 
                        alternative prescription drug coverage the 
                        actuarial value is equivalent to that of 
                        standard coverage), the plan's PDP premium; or
                            ``(ii) provides alternative prescription 
                        drug coverage the actuarial value of which is 
                        greater than that of standard coverage, the 
                        plan's PDP premium multiplied by the ratio of 
                        (I) the actuarial value of standard coverage, 
                        to (II) the actuarial value of the alternative 
                        coverage;
                    ``(B) an EFFS plan, the EFFS monthly prescription 
                drug beneficiary premium (as defined in section 1860E-
                4(a)(3)(B)); or
                    ``(C) a Medicare Advantage, the Medicare Advantage 
                monthly prescription drug beneficiary premium (as 
                defined in section 1854(b)(2)(B)).
        For purposes of subparagraph (A), the term `PDP premium' means, 
        with respect to a prescription drug plan, the premium amount 
        for enrollment under the plan under this part (determined 
        without regard to any low-income subsidy under section 1860D-7 
        or any late enrollment penalty under section 1860D-1(c)(2)(B)).

``SEC. 1860D-7. PREMIUM AND COST-SHARING SUBSIDIES FOR LOW-INCOME 
              INDIVIDUALS.

    ``(a) Income-Related Subsidies for Individuals With Income Below 
150 Percent of Federal Poverty Level.--
            ``(1) Full premium subsidy and reduction of cost-sharing 
        for individuals with income below 135 percent of federal 
        poverty level.--In the case of a subsidy eligible individual 
        (as defined in paragraph (4)) who is determined to have income 
        that does not exceed 135 percent of the Federal poverty level, 
        the individual is entitled under this section--
                    ``(A) to an income-related premium subsidy equal to 
                100 percent of the amount described in subsection 
                (b)(1); and
                    ``(B) subject to subsection (c), to the 
                substitution for the beneficiary cost-sharing described 
                in paragraphs (1) and (2) of section 1860D-2(b) (up to 
                the initial coverage limit specified in paragraph (3) 
                of such section) of amounts that do not exceed $2 for a 
                multiple source or generic drug (as described in 
                section 1927(k)(7)(A)) and $5 for a non-preferred drug.
            ``(2) Sliding scale premium subsidy for individuals with 
        income above 135, but below 150 percent, of federal poverty 
        level.--In the case of a subsidy eligible individual who is 
        determined to have income that exceeds 135 percent, but does 
        not exceed 150 percent, of the Federal poverty level, the 
        individual is entitled under this section to an income-related 
        premium subsidy determined on a linear sliding scale ranging 
        from 100 percent of the amount described in subsection (b)(1) 
        for individuals with incomes at 135 percent of such level to 0 
        percent of such amount for individuals with incomes at 150 
        percent of such level.
            ``(3) Construction.--Nothing in this section shall be 
        construed as preventing a PDP sponsor or entity offering a MA-
        EFFS Rx plan from reducing to 0 the cost-sharing otherwise 
        applicable to generic drugs.
            ``(4) Determination of eligibility.--
                    ``(A) Subsidy eligible individual defined.--For 
                purposes of this section, subject to subparagraph (D), 
                the term `subsidy eligible individual' means an 
                individual who--
                            ``(i) is eligible to elect, and has 
                        elected, to obtain qualified prescription drug 
                        coverage under this part;
                            ``(ii) has income below 150 percent of the 
                        Federal poverty line; and
                            ``(iii) meets the resources requirement 
                        described in subparagraph (D).
                    ``(B) Determinations.--The determination of whether 
                an individual residing in a State is a subsidy eligible 
                individual and the amount of such individual's income 
                shall be determined under the State medicaid plan for 
                the State under section 1935(a) or by the Social 
                Security Administration. In the case of a State that 
                does not operate such a medicaid plan (either under 
                title XIX or under a statewide waiver granted under 
                section 1115), such determination shall be made under 
                arrangements made by the Administrator. 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.
                    ``(C) Income determinations.--For purposes of 
                applying this section--
                            ``(i) income shall be determined in the 
                        manner described in section 1905(p)(1)(B); and
                            ``(ii) the term `Federal poverty line' 
                        means the official poverty line (as defined by 
                        the Office of Management and Budget, and 
                        revised annually in accordance with section 
                        673(2) of the Omnibus Budget Reconciliation Act 
                        of 1981) applicable to a family of the size 
                        involved.
                    ``(D) Resource standard applied to be based on 
                three times ssi resource standard.--The resource 
                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) Treatment of territorial residents.--In the 
                case of an 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 but 
                may be eligible for financial assistance with 
                prescription drug expenses under section 1935(e).
                    ``(F) Treatment of conforming medigap policies.--
                For purposes of this section, the term `qualified 
                prescription drug coverage' includes a medicare 
                supplemental policy described in section 1860D-8(b)(4).
            ``(5) Indexing dollar amounts.--
                    ``(A) For 2007.--The dollar amounts applied under 
                paragraphs (1)(B) for 2007 shall be the dollar amounts 
                specified in such paragraph increased by the annual 
                percentage increase described in section 1860D-2(b)(5) 
                for 2007.
                    ``(B) For subsequent years.--The dollar amounts 
                applied under paragraph (1)(B) for a year after 2007 
                shall be the amounts (under this paragraph) applied 
                under paragraph (1)(B) for the preceding year increased 
                by the annual percentage increase described in section 
                1860D-2(b)(5) (relating to growth in medicare 
                prescription drug costs per beneficiary) for the year 
                involved.
    ``(b) Premium Subsidy Amount.--
            ``(1) In general.--The premium subsidy amount described in 
        this subsection for an individual residing in an area is the 
        benchmark premium amount (as defined in paragraph (2)) for 
        qualified prescription drug coverage offered by the 
        prescription drug plan or the MA-EFFS Rx plan in which the 
        individual is enrolled.
            ``(2) Benchmark premium amount defined.--For purposes of 
        this subsection, the term `benchmark premium amount' means, 
        with respect to qualified prescription drug coverage offered 
        under--
                    ``(A) a prescription drug plan that--
                            ``(i) provides standard coverage (or 
                        alternative prescription drug coverage the 
                        actuarial value of which is equivalent to that 
                        of standard coverage), the premium amount for 
                        enrollment under the plan under this part 
                        (determined without regard to any subsidy under 
                        this section or any late enrollment penalty 
                        under section 1860D-1(c)(2)(B)); or
                            ``(ii) provides alternative prescription 
                        drug coverage the actuarial value of which is 
                        greater than that of standard coverage, the 
                        premium amount described in clause (i) 
                        multiplied by the ratio of (I) the actuarial 
                        value of standard coverage, to (II) the 
                        actuarial value of the alternative coverage; or
                    ``(B) a MA-EFFS Rx plan, the portion of the premium 
                amount that is attributable to statutory drug benefits 
                (described in section 1853(a)(1)(A)(ii)(II)).
    ``(c) Rules in Applying Cost-Sharing Subsidies.--
            ``(1) In general.--In applying subsection (a)(1)(B), 
        nothing in this part shall be construed as preventing a plan or 
        provider from waiving or reducing the amount of cost-sharing 
        otherwise applicable.
            ``(2) Limitation on charges.--In the case of an individual 
        receiving cost-sharing subsidies under subsection (a)(1)(B), 
        the PDP sponsor or entity offering a MA-EFFS Rx plan may not 
        charge more than $5 per prescription.
            ``(3) Application of indexing rules.--The provisions of 
        subsection (a)(5) shall apply to the dollar amount specified in 
        paragraph (2) in the same manner as they apply to the dollar 
        amounts specified in subsections (a)(1)(B).
    ``(d) Administration of Subsidy Program.--The Administrator shall 
provide a process whereby, in the case of an individual who is 
determined to be a subsidy eligible individual and who is enrolled in 
prescription drug plan or is enrolled in a MA-EFFS Rx plan--
            ``(1) the Administrator provides for a notification of the 
        PDP sponsor or the entity offering the MA-EFFS Rx plan involved 
        that the individual is eligible for a subsidy and the amount of 
        the subsidy under subsection (a);
            ``(2) the sponsor or entity involved reduces the premiums 
        or cost-sharing otherwise imposed by the amount of the 
        applicable subsidy and submits to the Administrator information 
        on the amount of such reduction; and
            ``(3) the Administrator periodically and on a timely basis 
        reimburses the sponsor or entity for the amount of such 
        reductions.
The reimbursement under paragraph (3) 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.
    ``(e) Relation to Medicaid Program.--
            ``(1) In general.--For provisions providing for eligibility 
        determinations, and additional financing, under the medicaid 
        program, see section 1935.
            ``(2) Medicaid providing wrap around benefits.--The 
        coverage provided under this part is primary payor to benefits 
        for prescribed drugs provided under the medicaid program under 
        title XIX consistent with section 1935(d)(1).
            ``(3) Coordination.--The Administrator shall develop and 
        implement a plan for the coordination of prescription drug 
        benefits under this part with the benefits provided under the 
        medicaid program under title XIX, with particular attention to 
        insuring coordination of payments and prevention of fraud and 
        abuse. In developing and implementing such plan, the 
        Administrator shall involve the Secretary, the States, the data 
        processing industry, pharmacists, and pharmaceutical 
        manufacturers, and other experts.

``SEC. 1860D-8. SUBSIDIES FOR ALL MEDICARE BENEFICIARIES FOR QUALIFIED 
              PRESCRIPTION DRUG COVERAGE.

    ``(a) Subsidy Payment.--In order to reduce premium levels 
applicable to qualified prescription drug coverage for all medicare 
beneficiaries consistent with an overall subsidy level of 73 percent, 
to reduce adverse selection among prescription drug plans and MA-EFFS 
Rx plans, and to promote the participation of PDP sponsors under this 
part, the Administrator shall provide in accordance with this section 
for payment to a qualifying entity (as defined in subsection (b)) of 
the following subsidies:
            ``(1) Direct subsidy.--In the case of an enrollee enrolled 
        for a month in a prescription drug plan or a MA-EFFS Rx plan, a 
        direct subsidy equal to 43 percent of the national average 
        monthly bid amount (computed under subsection (g)) for that 
        month.
            ``(2) Subsidy through reinsurance.--In the case of an 
        enrollee enrolled for a month in a prescription drug plan or a 
        MA-EFFS Rx plan, the reinsurance payment amount (as defined in 
        subsection (c)), which in the aggregate is 30 percent of the 
        total payments made by qualifying entities for standard 
        coverage under the respective plan, for excess costs incurred 
        in providing qualified prescription drug coverage--
                    ``(A) for enrollees with a prescription drug plan 
                under this part; and
                    ``(B) for enrollees with a MA-EFFS Rx plan.
            ``(3) Employer and union flexibility.--In the case of an 
        individual who is a participant or beneficiary in a qualified 
        retiree prescription drug plan (as defined in subsection 
        (f)(1)) and who is not enrolled in a prescription drug plan or 
        in a MA-EFFS Rx plan, the special subsidy payments under 
        subsection (f)(3).
This section constitutes budget authority in advance of appropriations 
Acts and represents the obligation of the Administrator to provide for 
the payment of amounts provided under this section.
    ``(b) Qualifying Entity Defined.--For purposes of this section, the 
term `qualifying entity' means any of the following that has entered 
into an agreement with the Administrator to provide the Administrator 
with such information as may be required to carry out this section:
            ``(1) A PDP sponsor offering a prescription drug plan under 
        this part.
            ``(2) An entity that offers a MA-EFFS Rx plan.
            ``(3) The sponsor of a qualified retiree prescription drug 
        plan (as defined in subsection (f)).
    ``(c) Reinsurance Payment Amount.--
            ``(1) In general.--Subject to subsection (d)(1)(B) and 
        paragraph (4), the reinsurance payment amount under this 
        subsection for a qualifying covered individual (as defined in 
        paragraph (5)) for a coverage year (as defined in subsection 
        (h)(2)) is equal to the sum of the following:
                    ``(A) Reinsurance between initial reinsurance 
                threshold and the initial coverage limit.--For the 
                portion of the individual's gross covered prescription 
                drug costs (as defined in paragraph (3)) for the year 
                that exceeds the initial reinsurance threshold 
                specified in paragraph (4), but does not exceed the 
                initial coverage limit specified in section 1860D-
                2(b)(3), an amount equal to 20 percent of the allowable 
                costs (as defined in paragraph (2)) attributable to 
                such gross covered prescription drug costs.
                    ``(B) Reinsurance above annual out-of-pocket 
                threshold.--For the portion of the individual's gross 
                covered prescription drug costs for the year that 
                exceeds the annual out-of-pocket threshold specified in 
                1860D-2(b)(4)(B), an amount equal to 80 percent of the 
                allowable costs attributable to such gross covered 
                prescription drug costs.
            ``(2) Allowable costs.--For purposes of this section, the 
        term `allowable costs' means, with respect to gross covered 
        prescription drug costs under a plan described in subsection 
        (b) offered by a qualifying entity, the part of such costs that 
        are actually paid (net of discounts, chargebacks, and average 
        percentage rebates) 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 standard 
        coverage.
            ``(3) Gross covered prescription drug costs.--For purposes 
        of this section, the term `gross covered prescription drug 
        costs' means, with respect to an enrollee with a qualifying 
        entity under a plan described in subsection (b) during a 
        coverage year, the costs incurred under the plan (including 
        costs attributable to administrative costs) for covered 
        prescription drugs dispensed during the year, including costs 
        relating to the deductible, whether paid by the enrollee or 
        under the plan, regardless of whether the coverage under the 
        plan exceeds standard coverage and regardless of when the 
        payment for such drugs is made.
            ``(4) Initial reinsurance threshold.--The initial 
        reinsurance threshold specified in this paragraph--
                    ``(A) for 2006, is equal to $1,000; or
                    ``(B) for a subsequent year, is equal to the 
                payment threshold specified in this paragraph for the 
                previous year, increased by the annual percentage 
                increase described in section 1860D-2(b)(5) for the 
                year involved.
        Any amount determined under subparagraph (B) that is not a 
        multiple of $10 shall be rounded to the nearest multiple of 
        $10.
            ``(5) Qualifying covered individual defined.--For purposes 
        of this subsection, the term `qualifying covered individual' 
        means an individual who--
                    ``(A) is enrolled with a prescription drug plan 
                under this part; or
                    ``(B) is enrolled with a MA-EFFS Rx plan.
    ``(d) Adjustment of Payments.--
            ``(1) Adjustment of reinsurance payments to assure 30 
        percent level of subsidy through reinsurance.--
                    ``(A) Estimation of payments.--The Administrator 
                shall estimate--
                            ``(i) the total payments to be made 
                        (without regard to this subsection) during a 
                        year under subsections (a)(2) and (c); and
                            ``(ii) the total payments to be made by 
                        qualifying entities for standard coverage under 
                        plans described in subsection (b) during the 
                        year.
                    ``(B) Adjustment.--The Administrator shall 
                proportionally adjust the payments made under 
                subsections (a)(2) and (c) for a coverage year in such 
                manner so that the total of the payments made under 
                such subsections for the year is equal to 30 percent of 
                the total payments described in subparagraph (A)(ii).
            ``(2) Risk adjustment for direct subsidies.--To the extent 
        the Administrator determines it appropriate to avoid risk 
        selection, the payments made for direct subsidies under 
        subsection (a)(1) are subject to adjustment based upon risk 
        factors specified by the Administrator. Any such risk 
        adjustment shall be designed in a manner as to not result in a 
        change in the aggregate payments made under such subsection.
    ``(e) Payment Methods.--
            ``(1) In general.--Payments under this section shall be 
        based on such a method as the Administrator determines. The 
        Administrator may establish a payment method by which interim 
        payments of amounts under this section are made during a year 
        based on the Administrator's best estimate of amounts that will 
        be payable after obtaining all of the information.
            ``(2) Source of payments.--Payments under this section 
        shall be made from the Medicare Prescription Drug Trust Fund.
    ``(f) Rules Relating to Qualified Retiree Prescription Drug Plan.--
            ``(1) Definition.--For purposes of this section, the term 
        `qualified retiree prescription drug plan' means employment-
        based retiree health coverage (as defined in paragraph (4)(A)) 
        if, with respect to an individual who is a participant or 
        beneficiary under such coverage and is eligible to be enrolled 
        in a prescription drug plan or a MA-EFFS Rx plan under this 
        part, the following requirements are met:
                    ``(A) Actuarial equivalence to standard coverage.--
                The Administrator determines (based on an actuarial 
                analysis approved by the Administrator) that coverage 
                provides at least the same actuarial value as standard 
                coverage. Such determination may be made on an annual 
                basis.
                    ``(B) Audits.--The sponsor (or the administrator, 
                if designated by the sponsor) and the plan shall 
                maintain, and afford the Administrator access to, such 
                records as the Administrator 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.
                    ``(C) Provision of certification of prescription 
                drug coverage.--The sponsor of the plan shall provide 
                for issuance of certifications of the type described in 
                section 1860D-1(c)(2)(D).
            ``(2) Limitation on benefit eligibility.--No payment shall 
        be provided under this section with respect to a participant or 
        beneficiary in a qualified retiree prescription drug plan 
        unless the individual is--
                    ``(A) is covered under the plan; and
                    ``(B) is eligible to obtain qualified prescription 
                drug coverage under section 1860D-1 but did not elect 
                such coverage under this part (either through a 
                prescription drug plan or through a MA-EFFS Rx plan).
            ``(3) Employer and union special subsidy amounts.--
                    ``(A) In general.--For purposes of subsection (a), 
                the special subsidy payment amount under this paragraph 
                for a qualifying covered retiree(as defined in 
                paragraph (6)) for a coverage year (as defined in 
                subsection (h)) enrolled in a qualifying entity 
                described in subsection (b)(3) under a qualified 
                retiree prescription drug plan is, for the portion of 
                the individual's gross covered prescription drug costs 
                for the year that exceeds the deductible amount 
                specified in subparagraph (B), an amount equal to, 
                subject to subparagraph (D), 28 percent of the 
                allowable costs attributable to such gross covered 
                prescription drug costs, but only to the extent such 
                costs exceed the deductible under subparagraph (B) and 
                do not exceed the cost limit under such subparagraph in 
                the case of any such individual for the plan year.
                    ``(B) Deductible and cost limit applicable.--
                Subject to subparagraph (C)--
                            ``(i) the deductible 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.
                    ``(C) Indexing.--The deductible and cost limit 
                amounts specified in subparagraphs (B) for a plan year 
                that ends after 2006 shall be adjusted in the same 
                manner as the annual deductible under section 1860D-
                2(b)(1) is annually adjusted under such section.
            ``(4) Related definitions.--As used in this section:
                    ``(A) Employment-based retiree health coverage.--
                The term `employment-based retiree health coverage' 
                means health insurance or other coverage of health care 
                costs for individuals eligible to enroll in a 
                prescription drug plan or MA-EFFS Rx plan under this 
                part (or for such individuals and their spouses and 
                dependents) under a group health plan (including such a 
                plan that is established or maintained under or 
                pursuant to one or more collective bargaining 
                agreements or that is offered under chapter 89 of title 
                5, United States Code) based on their status as retired 
                participants in such plan.
                    ``(B) Qualifying covered retiree.--The term 
                `qualifying covered retiree' means an individual who is 
                eligible to obtain qualified prescription drug coverage 
                under section 1860D-1 but did not elect such coverage 
                under this part (either through a prescription drug 
                plan or through a MA-EFFS Rx plan) but is covered under 
                a qualified retiree prescription drug plan.
                    ``(C) Sponsor.--The term `sponsor' means a plan 
                sponsor, as defined in section 3(16)(B) of the Employee 
                Retirement Income Security Act of 1974.
            ``(5) Construction.--Nothing in this subsection shall be 
        construed as--
                    ``(A) precluding an individual who is covered under 
                employment-based retiree health coverage from enrolling 
                in a prescription drug plan or in a MA-EFFS 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 such a prescription drug plan or MA-EFFS 
                plan on behalf of such an individual; or
                    ``(C) preventing such employment-based retiree 
                health coverage from providing coverage for retirees--
                            ``(i) who are covered under a qualified 
                        retiree prescription plan that is better than 
                        standard coverage; or
                            ``(ii) who are not covered under a 
                        qualified retiree prescription plan but who are 
                        enrolled in a prescription drug plan or a MA-
                        EFFS Rx plan, that is supplemental to the 
                        benefits provided under such prescription drug 
                        plan or MA-EFFS Rx plan, except that any such 
                        supplemental coverage (not including payment of 
                        any premium referred to in subparagraph (B)) 
                        shall be treated as primary coverage to which 
                        section 1862(b)(2)(A)(i) is deemed to apply.
    ``(g) Computation of National Average Monthly Bid Amount.--
            ``(1) In general.--For each year (beginning with 2006) the 
        Administrator shall compute a national average monthly bid 
        amount equal to the average of the benchmark bid amounts for 
        each prescription drug plan and for each MA-EFFS Rx plan (as 
        computed under paragraph (2), but excluding plans described in 
        section 1851(a)(2)(C))) adjusted under paragraph (4) to take 
        into account reinsurance payments.
            ``(2) Benchmark bid amount defined.--For purposes of this 
        subsection, the term `benchmark bid amount' means, with respect 
        to qualified prescription drug coverage offered under--
                    ``(A) a prescription drug plan that--
                            ``(i) provides standard coverage (or 
                        alternative prescription drug coverage the 
                        actuarial value of which is equivalent to that 
                        of standard coverage), the PDP bid; or
                            ``(ii) provides alternative prescription 
                        drug coverage the actuarial value of which is 
                        greater than that of standard coverage, the PDP 
                        bid multiplied by the ratio of (I) the 
                        actuarial value of standard coverage, to (II) 
                        the actuarial value of the alternative 
                        coverage; or
                    ``(B) a MA-EFFS Rx plan, the portion of the bid 
                amount that is attributable to statutory drug benefits 
                (described in section 1853(a)(1)(A)(ii)(II)).
        For purposes of subparagraph (A), the term `PDP bid' means, 
        with respect to a prescription drug plan, the bid amount for 
        enrollment under the plan under this part (determined without 
        regard to any low-income subsidy under section 1860D-7 or any 
        late enrollment penalty under section 1860D-1(c)(2)(B)).
            ``(3) Weighted average.--
                    ``(A) In general.--The monthly national average 
                monthly bid amount computed under paragraph (1) shall 
                be a weighted average, with the weight for each plan 
                being equal to the average number of beneficiaries 
                enrolled under such plan in the previous year.
                    ``(B) Special rule for 2006.--For purposes of 
                applying this subsection for 2006, the Administrator 
                shall establish procedures for determining the weighted 
                average under subparagraph (A) for 2005.
            ``(4) Adjustment to add back in value of reinsurance 
        subsidies.--The adjustment under this paragraph, to take into 
        account reinsurance payments under subsection (c) making up 30 
        percent of total payments, is such an adjustment as will make 
        the national average monthly bid amount represent represent 100 
        percent, instead of representing 70 percent, of average 
        payments under this part.
    ``(h) Coverage Year Defined.--For purposes of this section, the 
term `coverage year' means a calendar year in which covered outpatient 
drugs are dispensed if a claim for payment is made under the plan for 
such drugs, regardless of when the claim is paid.

``SEC. 1860D-9. MEDICARE PRESCRIPTION DRUG TRUST FUND.

    ``(a) In General.--There is created on the books of the Treasury of 
the United States a trust fund to be known as the `Medicare 
Prescription Drug Trust Fund' (in this section referred to as the 
`Trust Fund'). The Trust Fund shall consist of such gifts and bequests 
as may be made as provided in section 201(i)(1), and such amounts as 
may be deposited in, or appropriated to, such fund as provided in this 
part. Except as otherwise provided in this section, the provisions of 
subsections (b) through (i) of section 1841 shall apply to the Trust 
Fund in the same manner as they apply to the Federal Supplementary 
Medical Insurance Trust Fund under such section.
    ``(b) Payments From Trust Fund.--
            ``(1) In general.--The Managing Trustee shall pay from time 
        to time from the Trust Fund such amounts as the Administrator 
        certifies are necessary to make--
                    ``(A) payments under section 1860D-7 (relating to 
                low-income subsidy payments);
                    ``(B) payments under section 1860D-8 (relating to 
                subsidy payments); and
                    ``(C) 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 Trust Fund to the Grants to States for 
        Medicaid account amounts the Administrator certifies are 
        attributable to increases in payment resulting from the 
        application of a higher Federal matching percentage under 
        section 1935(b).
    ``(c) Deposits Into Trust Fund.--
            ``(1) Low-income transfer.--There is hereby transferred to 
        the Trust Fund, from amounts appropriated for Grants to States 
        for Medicaid, amounts equivalent to the aggregate amount of the 
        reductions in payments under section 1903(a)(1) attributable to 
        the application of section 1935(c).
            ``(2) 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 Trust Fund, an amount equivalent to the amount of payments 
        made from the Trust Fund under subsection (b), reduced by the 
        amount transferred to the Trust Fund under paragraph (1).
    ``(d) Relation to Solvency Requirements.--Any provision of law that 
relates to the solvency of the Trust Fund under this part shall take 
into account the Trust Fund and amounts receivable by, or payable from, 
the Trust Fund.

``SEC. 1860D-10. DEFINITIONS; APPLICATION TO MEDICARE ADVANTAGE AND 
              EFFS PROGRAMS; TREATMENT OF REFERENCES TO PROVISIONS IN 
              PART C.

    ``(a) Definitions.--For purposes of this part:
            ``(1) Covered outpatient drugs.--The term `covered 
        outpatient drugs' is defined in section 1860D-2(f).
            ``(2) 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 
        coverage, the comparable limit (if any) established under the 
        coverage.
            ``(3) Medicare prescription drug trust fund.--The term 
        `Medicare Prescription Drug Trust Fund' means the Trust Fund 
        created under section 1860D-9(a).
            ``(4) PDP sponsor.--The term `PDP sponsor' means an entity 
        that is certified under this part as meeting the requirements 
        and standards of this part for such a sponsor.
            ``(5) Prescription drug plan.--The term `prescription drug 
        plan' means health benefits coverage that--
                    ``(A) is offered under a policy, contract, or plan 
                by a PDP sponsor pursuant to, and in accordance with, a 
                contract between the Administrator and the sponsor 
                under section 1860D-4(b);
                    ``(B) provides qualified prescription drug 
                coverage; and
                    ``(C) meets the applicable requirements of the 
                section 1860D-3 for a prescription drug plan.
            ``(6) Qualified prescription drug coverage.--The term 
        `qualified prescription drug coverage' is defined in section 
        1860D-2(a).
            ``(7) Standard coverage.--The term `standard coverage' is 
        defined in section 1860D-2(b).
            ``(8) 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.
    ``(b) Offer of Qualified Prescription Drug Coverage Under Medicare 
Advantage and EFFS Programs.--
            ``(1) As part of medicare advantage plan.--Medicare 
        Advantage organizations are required to offer Medicare 
        Advantage plans that include qualified prescription drug 
        coverage under part C pursuant to section 1851(j).
            ``(2) As part of effs plan.--EFFS organizations are 
        required to offer EFFS plans that include qualified 
        prescription drug coverage under part E pursuant to section 
        1860E-2(d).
    ``(c) 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 a Medicare Advantage or other plan 
        included a reference to a prescription drug plan;
            ``(2) any reference to 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-4(b); 
        and
            ``(4) any reference to part C included a reference to this 
        part.
    ``(d) Report on Pharmacy Services Provided to Long-Term Care 
Facility Patients.--
            ``(1) Review.--Within 6 months after the date of the 
        enactment of this section, the Secretary shall review the 
        current standards of practice for pharmacy services provided to 
        patients in nursing facilities and other long-term care 
        facilities.
            ``(2) Evaluations and recommendations.--Specifically in the 
        review under paragraph (1), the Secretary shall--
                    ``(A) assess the current standards of practice, 
                clinical services, and other service requirements 
                generally utilized for pharmacy services in the long-
                term care setting;
                    ``(B) evaluate the impact of those standards with 
                respect to patient safety, reduction of medication 
                errors and quality of care; and
                    ``(C) recommend (in the Secretary's report under 
                paragraph (3)) necessary actions and appropriate 
                reimbursement to ensure the provision of prescription 
                drugs to medicare beneficiaries residing in nursing 
                facilities and other long-term care facilities in a 
                manner consistent with existing patient safety and 
                quality of care standards under applicable State and 
                Federal laws.
            ``(3) Report.--The Secretary shall submit a report to the 
        Congress on the Secretary's findings and recommendations under 
        this subsection, including a detailed description of the 
        Secretary's plans to implement this part in a manner consistent 
        with applicable State and Federal laws designed to protect the 
        safety and quality of care of patients of nursing facilities 
        and other long-term care facilities.''.
    (b) 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 F 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 of any cost-sharing imposed 
        under part D of title XVIII.''.
            (3) Submission of legislative proposal.--Not later than 6 
        months after the date of the enactment of this Act, the 
        Secretary of Health and Human Services 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 subtitle.
    (c) Study on Transitioning Part B Prescription Drug Coverage.--Not 
later than January 1, 2005, the Medicare Benefits Administrator shall 
submit a report to Congress that makes recommendations regarding 
methods for providing benefits under 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.

SEC. 102. OFFERING OF QUALIFIED PRESCRIPTION DRUG COVERAGE UNDER 
              MEDICARE ADVANTAGE AND ENHANCED FEE-FOR-SERVICE (EFFS) 
              PROGRAM.

    (a) Medicare Advantage.--Section 1851 (42 U.S.C. 1395w-21) is 
amended by adding at the end the following new subsection:
    ``(j) Availability of Prescription Drug Benefits and Subsidies.--
            ``(1) Offering of qualified prescription drug coverage.--A 
        Medicare Advantage organization on and after January 1, 2006--
                    ``(A) may not offer a Medicare Advantage plan 
                described in section 1851(a)(2)(A) in an area unless 
                either that plan (or another Medicare Advantage plan 
                offered by the organization in that area) includes 
                qualified prescription drug coverage; and
                    ``(B) may not offer the prescription drug coverage 
                (other than that required under parts A and B) to an 
                enrollee under a Medicare Advantage plan, unless such 
                drug coverage is at least qualified prescription drug 
                coverage and unless the requirements of this subsection 
                with respect to such coverage are met.
            ``(2) Requirement for election of part d coverage to obtain 
        qualified prescription drug coverage.--For purposes of this 
        part, an individual who has not elected qualified prescription 
        drug coverage under section 1860D-1(b) shall be treated as 
        being ineligible to enroll in a Medicare Advantage plan under 
        this part that offers such coverage.
            ``(3) Compliance with certain additional beneficiary 
        protections for prescription drug coverage.--With respect to 
        the offering of qualified prescription drug coverage by a 
        Medicare Advantage organization under this part on and after 
        January 1, 2006, the organization and plan shall meet the 
        requirements of subsections (a) through (d) of section 1860D-3 
        in the same manner as they apply to a PDP sponsor and a 
        prescription drug plan under part D and shall submit to the 
        Administrator the information described in section 1860D-
        6(a)(2). The Administrator shall waive such requirements to the 
        extent the Administrator determines that such requirements 
        duplicate requirements otherwise applicable to the organization 
        or plan under this part.
            ``(4) Availability of premium and cost-sharing subsidies.--
        In the case of low-income individuals who are enrolled in a 
        Medicare Advantage plan that provides qualified prescription 
        drug coverage, premium and cost-sharing subsidies are provided 
        for such coverage under section 1860D-7.
            ``(5) Availability of direct and reinsurance subsidies to 
        reduce bids and premiums.--Medicare Advantage organizations are 
        provided direct and reinsurance subsidy payments for providing 
        qualified prescription drug coverage under this part under 
        section 1860D-8.
            ``(6) Consolidation of drug and non-drug premiums.--In the 
        case of a Medicare Advantage plan that includes qualified 
        prescription drug coverage, with respect to an enrollee in such 
        plan there shall be a single premium for both drug and non-drug 
        coverage provided under the plan.
            ``(7) Transition in initial enrollment period.--
        Notwithstanding any other provision of this part, the annual, 
        coordinated election period under subsection (e)(3)(B) for 2006 
        shall be the 6-month period beginning with November 2005.
            ``(8) Qualified prescription drug coverage; standard 
        coverage.--For purposes of this part, the terms `qualified 
        prescription drug coverage' and `standard coverage' have the 
        meanings given such terms in section 1860D-2.
            ``(9) Special rules for private fee-for-service plans.--
        With respect to a Medicare Advantage plan described in section 
        1851(a)(2)(C) that offers qualified prescription drug 
        coverage--
                    ``(A) Requirements regarding negotiated prices.--
                Subsections (a)(1) and (d)(1) of section 1860D-2 shall 
                not be construed to require the plan to negotiate 
                prices or discounts but shall apply to the extent the 
                plan does so.
                    ``(B) Modification of pharmacy participation 
                requirement.--If the plan provides access, without 
                charging additional copayments, to all pharmacies 
                without regard to whether they are participating 
                pharmacies in a network, section 1860D-3(c)(1)(A)(iii) 
                shall not apply to the plan.
                    ``(C) Drug utilization management program not 
                required.--The requirements of section 1860D-3(d)(1)(A) 
                shall not apply to the plan.
                    ``(D) Non-participating pharmacy disclosure 
                exception.--If the plan provides coverage for drugs 
                purchased from all pharmacies, without entering into 
                contracts or agreements with pharmacies to provide 
                drugs to enrollees covered by the plan, section 1860D-
                3(d)(5) shall not apply to the plan.''.
    (b) Application to EFFS Plans.--Subsection (d) of section 1860E-2, 
as added by section 201(a), is amended to read as follows:
    ``(d) Availability of Prescription Drug Benefits and Subsidies.--
            ``(1) Offering of qualified prescription drug coverage.--An 
        EFFS organization--
                    ``(A) may not offer an EFFS plan in an area unless 
                either that plan (or another EFFS plan offered by the 
                organization in that area) includes qualified 
                prescription drug coverage; and
                    ``(B) may not offer the prescription drug coverage 
                (other than that required under parts A and B) to an 
                enrollee under an EFFS plan, unless such drug coverage 
                is at least qualified prescription drug coverage and 
                unless the requirements of this subsection with respect 
                to such coverage are met.
            ``(2) Requirement for election of part d coverage to obtain 
        qualified prescription drug coverage.--For purposes of this 
        part, an individual who has not elected qualified prescription 
        drug coverage under section 1860D-1(b) shall be treated as 
        being ineligible to enroll in an EFFS plan under this part that 
        offers such coverage.
            ``(3) Compliance with certain additional beneficiary 
        protections for prescription drug coverage.--With respect to 
        the offering of qualified prescription drug coverage by an EFFS 
        organization under this part, the organization and plan shall 
        meet the requirements of subsections (a) through (d) of section 
        1860D-3 in the same manner as they apply to a PDP sponsor and a 
        prescription drug plan under part D and shall submit to the 
        Administrator the information described in section 1860D-
        6(a)(2). The Administrator shall waive such requirements to the 
        extent the Administrator determines that such requirements 
        duplicate requirements otherwise applicable to the organization 
        or plan under this part.
            ``(4) Availability of premium and cost-sharing subsidies.--
        In the case of low-income individuals who are enrolled in an 
        EFFS plan that provides qualified prescription drug coverage, 
        premium and cost-sharing subsidies are provided for such 
        coverage under section 1860D-7.
            ``(5) Availability of direct and reinsurance subsidies to 
        reduce bids and premiums.--EFFS organizations are provided 
        direct and reinsurance subsidy payments for providing qualified 
        prescription drug coverage under this part under section 1860D-
        8.
            ``(6) Consolidation of drug and non-drug premiums.--In the 
        case of an EFFS plan that includes qualified prescription drug 
        coverage, with respect to an enrollee in such plan there shall 
        be a single premium for both drug and non-drug coverage 
        provided under the plan.
            ``(7) Qualified prescription drug coverage; standard 
        coverage.--For purposes of this part, the terms `qualified 
        prescription drug coverage' and `standard coverage' have the 
        meanings given such terms in section 1860D-2.''.
    (c) Conforming Amendments.--Section 1851 (42 U.S.C. 1395w-21) is 
amended--
            (1) in subsection (a)(1)--
                    (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.''; and
            (2) in subsection (g)(1), by inserting ``and section 1860D-
        1(c)(2)(B)'' after ``in this subsection''.
    (d) Effective Date.--The amendments made by this section apply to 
coverage provided on or 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) Requirement for Making Eligibility Determinations 
for Low-Income Subsidies.--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--
            ``(1) make determinations of eligibility for premium and 
        cost-sharing subsidies under (and in accordance with) section 
        1860D-7;
            ``(2) inform the Administrator of the Medicare Benefits 
        Administration of such determinations in cases in which such 
        eligibility is established; and
            ``(3) otherwise provide such Administrator with such 
        information as may be required to carry out part D of title 
        XVIII (including section 1860D-7).
    ``(b) Payments for Additional Administrative Costs.--
            ``(1) In general.--The amounts expended by a State in 
        carrying out subsection (a) are, subject to paragraph (2), 
        expenditures reimbursable under the appropriate paragraph of 
        section 1903(a); except that, notwithstanding any other 
        provision of such section, the applicable Federal matching 
        rates with respect to such expenditures under such section 
        shall be increased as follows (but in no case shall the rate as 
        so increased exceed 100 percent):
                    ``(A) For expenditures attributable to costs 
                incurred during 2005, the otherwise applicable Federal 
                matching rate shall be increased by 6-\2/3\ percent of 
                the percentage otherwise payable (but for this 
                subsection) by the State.
                    ``(B)(i) For expenditures attributable to costs 
                incurred during 2006 and each subsequent year through 
                2018, the otherwise applicable Federal matching rate 
                shall be increased by the applicable percent (as 
                defined in clause (ii)) of the percentage otherwise 
                payable (but for this subsection) by the State.
                    ``(ii) For purposes of clause (i), the `applicable 
                percent' for--
                            ``(I) 2006 is 13-\1/3\ percent; or
                            ``(II) a subsequent year is the applicable 
                        percent under this clause for the previous year 
                        increased by 6-\2/3\ percentage points.
                    ``(C) For expenditures attributable to costs 
                incurred after 2018, the otherwise applicable Federal 
                matching rate shall be increased to 100 percent.
            ``(2) Coordination.--The State shall provide the 
        Administrator with such information as may be necessary to 
        properly allocate administrative expenditures described in 
        paragraph (1) that may otherwise be made for similar 
        eligibility determinations.''.
    (b) Phased-In Federal Assumption of Medicaid Responsibility for 
Premium and Cost-Sharing Subsidies for Dually Eligible Individuals.--
            (1) In general.--Section 1903(a)(1) (42 U.S.C. 1396b(a)(1)) 
        is amended by inserting before the semicolon the following: ``, 
        reduced by the amount computed under section 1935(c)(1) for the 
        State and the quarter''.
            (2) Amount described.--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 Beneficiaries.--
            ``(1) In general.--For purposes of section 1903(a)(1), for 
        a State that is one of the 50 States or the District of 
        Columbia for a calendar quarter in a year (beginning with 2005) 
        the amount computed under this subsection is equal to the 
        product of the following:
                    ``(A) Medicare subsidies.--The total amount of 
                payments made in the quarter under section 1860D-7 
                (relating to premium and cost-sharing prescription drug 
                subsidies for low-income medicare beneficiaries) that 
                are attributable to individuals who are residents of 
                the State and are entitled to benefits with respect to 
                prescribed drugs under the State plan under this title 
                (including such a plan operating under a waiver under 
                section 1115).
                    ``(B) State matching rate.--A proportion computed 
                by subtracting from 100 percent the Federal medical 
                assistance percentage (as defined in section 1905(b)) 
                applicable to the State and the quarter.
                    ``(C) Phase-out proportion.--The phase-out 
                proportion (as defined in paragraph (2)) for the 
                quarter.
            ``(2) Phase-out proportion.--For purposes of paragraph 
        (1)(C), the `phase-out proportion' for a calendar quarter in--
                    ``(A) 2006 is 93-\1/3\ percent;
                    ``(B) a subsequent year before 2021, is the phase-
                out proportion for calendar quarters in the previous 
                year decreased by 6-\2/3\ percentage points; or
                    ``(C) a year after 2020 is 0 percent.''.
    (c) Medicaid Providing Wrap-Around Benefits.--Section 1935, as so 
inserted and amended, is further amended by adding at the end the 
following new subsection:
    ``(d) Additional Provisions.--
            ``(1) Medicaid as secondary payor.--In the case of an 
        individual who is entitled to qualified prescription drug 
        coverage under a prescription drug plan under part D of title 
        XVIII (or under a MA-EFFS Rx plan under part C or E of such 
        title) and medical assistance for prescribed drugs under this 
        title, medical assistance shall continue to be provided under 
        this title (other than for copayment amounts specified in 
        section 1860D-7(a)(1)(B), notwithstanding section 1916) for 
        prescribed drugs to the extent payment is not made under the 
        prescription drug plan or MA-EFFS Rx plan selected by the 
        individual.
            ``(2) Condition.--A State may require, as a condition for 
        the receipt of medical assistance under this title with respect 
        to prescription drug benefits for an individual eligible to 
        obtain qualified prescription drug coverage described in 
        paragraph (1), that the individual elect qualified prescription 
        drug coverage under section 1860D-1.''.
    (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 a plan described in 
                paragraph (2) (for providing medical assistance with 
                respect to the provision of prescription drugs to 
                medicare beneficiaries), the amount otherwise 
                determined under section 1108(f) (as increased under 
                section 1108(g)) for the State shall be increased by 
                the amount specified in paragraph (3).
            ``(2) Plan.--The plan described in this paragraph is a plan 
        that--
                    ``(A) provides medical assistance with respect to 
                the provision of covered outpatient drugs (as defined 
                in section 1860D-2(f)) to low-income medicare 
                beneficiaries; and
                    ``(B) assures that additional amounts received by 
                the State that are attributable to the operation of 
                this subsection are used only for such assistance.
            ``(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 amount specified in section 
                        1108(g)(1) for that State, divided by the sum 
                        of the amounts specified in such section for 
                        all such States.
                    ``(B) Aggregate amount.--The aggregate amount 
                specified in this subparagraph for--
                            ``(i) 2006, is equal to $25,000,000; or
                            ``(ii) 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)(5) for the year involved.
            ``(4) Report.--The Administrator shall submit to Congress a 
        report on the application of this subsection and may include in 
        the report such recommendations as the Administrator 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.--Section 1927(c)(1)(C)(i) (42 U.S.C. 
1396r-8(c)(1)(C)(i)) is amended--
            (1) by striking ``and'' at the end of subclause (III);
            (2) by striking the period at the end of subclause (IV) and 
        inserting ``; and''; and
            (3) by adding at the end the following new subclause:
                                    ``(V) any prices charged which are 
                                negotiated by a prescription drug plan 
                                under part D of title XVIII, by a MA-
                                EFFS Rx plan under part C or E of such 
                                title with respect to covered 
                                outpatient drugs, or by a qualified 
                                retiree prescription drug plan (as 
                                defined in section 1860D-8(f)(1)) with 
                                respect to such drugs on behalf of 
                                individuals entitled to benefits under 
                                part A or enrolled under part B of such 
                                title.''.

SEC. 104. MEDIGAP TRANSITION.

    (a) In General.--Section 1882 (42 U.S.C. 1395ss) is amended by 
adding at the end the following new subsection:
    ``(v) Coverage of Prescription Drugs.--
            ``(1) In general.--Notwithstanding any other provision of 
        law, except as provided in paragraph (3) no new medicare 
        supplemental policy that provides coverage of expenses for 
        prescription drugs may be issued under this section on or after 
        January 1, 2006, to an individual unless it replaces a medicare 
        supplemental policy that was issued to that individual and that 
        provided some coverage of expenses for prescription drugs. 
        Nothing in this subsection shall be construed as preventing the 
        policy holder of a medicare supplemental policy issued before 
        January 1, 2006, from continuing to receive benefits under such 
        policy on and after such date.
            ``(2) Issuance of substitute policies for beneficiaries 
        enrolled with a plan under part d.--
                    ``(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', `D', `E', `F', or 
                        `G' (under the standards established under 
                        subsection (p)(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 date of the termination of enrollment 
                described in such paragraph and who submits evidence of 
                the date of termination or disenrollment along with the 
                application for such medicare supplemental policy.
                    ``(B) Individual covered.--An individual described 
                in this subparagraph is an individual who--
                            ``(i) enrolls in a prescription drug plan 
                        under part D; and
                            ``(ii) at the time of such enrollment was 
                        enrolled and terminates enrollment in a 
                        medicare supplemental policy which has a 
                        benefit package classified as `H', `I', or `J' 
                        under the standards referred to in subparagraph 
                        (A)(i) or terminates enrollment in a policy to 
                        which such standards do not apply but which 
                        provides benefits for prescription drugs.
                    ``(C) Enforcement.--The provisions of paragraph (4) 
                of subsection (s) shall apply with respect to the 
                requirements of this paragraph in the same manner as 
                they apply to the requirements of such subsection.
            ``(3) New standards.--In applying subsection (p)(1)(E) 
        (including permitting the NAIC to revise its model regulations 
        in response to changes in law) with respect to the change in 
        benefits resulting from title I of the Medicare Prescription 
        Drug and Modernization Act of 2003, with respect to policies 
        issued to individuals who are enrolled in a plan under part D, 
        the changes in standards shall only provide for substituting 
        (for the benefit packages described in paragraph (2)(B)(ii) 
        that included coverage for prescription drugs) two benefit 
        packages that may provide for coverage of cost-sharing (other 
        than the prescription drug deductible) with respect to 
        qualified prescription drug coverage under such part. The two 
        benefit packages shall be consistent with the following:
                    ``(A) First new policy.--The policy described in 
                this subparagraph has the following benefits, 
                notwithstanding any other provision of this section 
                relating to a core benefit package:
                            ``(i) Coverage of 50 percent of the cost-
                        sharing otherwise applicable under parts A and 
                        B, except coverage of 100 percent of any cost-
                        sharing otherwise applicable for preventive 
                        benefits.
                            ``(ii) No coverage of the part B 
                        deductible.
                            ``(iii) Coverage for all hospital 
                        coinsurance for long stays (as in the current 
                        core benefit package).
                            ``(iv) A limitation on annual out-of-pocket 
                        expenditures under parts A and B to $4,000 in 
                        2005 (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 policy.--The policy described in 
                this subparagraph has the same benefits as the policy 
                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 (iv) of such subparagraph.
            ``(4) 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 
        through the offering of other coverage under this 
        subsection.''.
    (b) NAIC Report to Congress on Medigap Modernization.--The 
Secretary shall request the National Association of Insurance 
Commissioners to submit to Congress, not later than 18 months after the 
date of the enactment of this Act, a report that includes 
recommendations on the modernization of coverage under the medigap 
program under section 1882 of the Social Security Act (42 U.S.C. 
1395ss).

SEC. 105. MEDICARE PRESCRIPTION DRUG DISCOUNT CARD AND ASSISTANCE 
              PROGRAM.

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

 ``medicare prescription drug discount card endorsement and assistance 
                                program

    ``Sec. 1807. (a) Establishment of Program.--
            ``(1) In general.--The Secretary shall establish a 
        program--
                    ``(A) to endorse prescription drug discount card 
                programs (each such program referred to as an `endorsed 
                program') that meet the requirements of this section in 
                order to provide access to prescription drug discounts 
                through eligible entities for medicare beneficiaries 
                throughout the United States; and
                    ``(B) to provide for prescription drug accounts and 
                public contributions into such accounts.
        The Secretary shall make available to medicare beneficiaries 
        information regarding endorsed programs and accounts under this 
        section.
            ``(2) Limited period of operation.--The Secretary shall 
        begin--
                    ``(A) the card endorsement part of the program 
                under paragraph (1)(A) as soon as possible, but in no 
                case later than 90 days after the date of the enactment 
                of this section; and
                    ``(B) the prescription drug account part of the 
                program under paragraph (1)(B) as soon as possible, but 
                in no case later than September 2004.
            ``(3) Transition.--The program under this section shall 
        continue through 2005 throughout the United States. The 
        Secretary shall provide for an appropriate transition and 
        termination of such program on January 1, 2006.
            ``(4) Voluntary nature of program.--Nothing in this section 
        shall be construed as requiring an eligible beneficiary to 
        enroll in the program under this section.
    ``(b) Eligible Beneficiary; Eligible Entity; Prescription Drug 
Account.--For purposes of this section:
            ``(1) Eligible beneficiary.--The term `eligible 
        beneficiary' means an individual who is eligible for benefits 
        under part A or enrolled under part B and who is not enrolled 
        in a Medicare Advantage plan that offers qualified prescription 
        drug coverage.
            ``(2) Eligible entity.--The term `eligible entity' means 
        any entity that the Secretary determines to be appropriate to 
        provide the benefits under this section, including--
                    ``(A) pharmaceutical benefit management companies;
                    ``(B) wholesale and retail pharmacy delivery 
                systems;
                    ``(C) insurers;
                    ``(D) Medicare Advantage organizations;
                    ``(E) other entities; or
                    ``(F) any combination of the entities described in 
                subparagraphs (A) through (E).
            ``(3) Prescription drug account.--The term `prescription 
        drug account' means, with respect to an eligible beneficiary, 
        an account established for the benefit of that beneficiary 
        under section 1807A.
    ``(c) Enrollment in Endorsed Plan.--
            ``(1) Establishment of process.--
                    ``(A) In general.--The Secretary shall establish a 
                process through which an eligible beneficiary may make 
                an election to enroll under this section with an 
                endorsed program.
                    ``(B) Requirement of enrollment.--An eligible 
                beneficiary must enroll under this section for a year 
                in order to be eligible to receive the benefits under 
                this section for that year.
                    ``(C) Limitation on enrollment.--
                            ``(i) In general.--Except as provided under 
                        this subparagraph and under such exceptional 
                        circumstances as the Secretary may provide, an 
                        eligible individual shall have the opportunity 
                        to enroll under this section during an initial, 
                        general enrollment period as soon as possible 
                        after the date of the enactment of this section 
                        and annually thereafter. The Secretary shall 
                        specify the form, manner, and timing of such 
                        election but shall permit the exercise of such 
                        election at the time the individual is eligible 
                        to enroll. The annual open enrollment periods 
                        shall be coordinated with those provided under 
                        the Medicare Advantage program under part C.
                            ``(ii) Reelection after termination of 
                        enrollment in a medicare advantage plan.--In 
                        the case of an individual who is enrolled under 
                        this section and who subsequently enrolls in a 
                        Medicare Advantage plan that provides qualified 
                        prescription drug coverage under part C, the 
                        individual shall be given the opportunity to 
                        reenroll under this section at the time the 
                        individual discontinues the enrollment under 
                        such part.
                            ``(iii) Late enrollment.--The Secretary 
                        shall permit individuals to elect to enroll 
                        under this section at times other than as 
                        permitted under the previous provisions of this 
                        paragraph.
                    ``(D) Termination of enrollment.--An enrollee under 
                this section shall be disenrolled--
                            ``(i) upon enrollment in a Medicare 
                        Advantage plan under part C that provides 
                        qualified prescription drug coverage;
                            ``(ii) upon failure to pay the applicable 
                        enrollment fee under subsection (f);
                            ``(iii) upon termination of coverage under 
                        part A or part B; or
                            ``(iv) upon notice submitted to the 
                        Secretary in such form, manner, and time as the 
                        Secretary shall provide.
                Terminations of enrollment under this subparagraph 
                shall be effective as specified by the Secretary in 
                regulations.
            ``(2) Enrollment periods.--
                    ``(A) In general.--Except as provided under this 
                paragraph, an eligible beneficiary may not enroll in 
                the program under this part during any period after the 
                beneficiary's initial enrollment period under part B 
                (as determined under section 1837).
                    ``(B) Open enrollment period for current 
                beneficiaries.--The Secretary shall establish a period, 
                which shall begin on the date on which the Secretary 
                first begins to accept elections for enrollment under 
                this section and shall end not earlier than 3 months 
                later, during which any eligible beneficiary may enroll 
                under this section.
                    ``(C) Special enrollment period in case of 
                termination of coverage under a group health plan.--The 
                Secretary shall provide for a special enrollment period 
                under this section in the same manner as is provided 
                under section 1837(i) with respect to part B, except 
                that for purposes of this subparagraph any reference to 
                `by reason of the individual's (or the individual's 
                spouse's) current employment status' shall be treated 
                as being deleted.
            ``(3) Period of coverage.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B) and subject to subparagraph (C), an 
                eligible beneficiary's coverage under the program under 
                this section shall be effective for the period provided 
                under section 1838, as if that section applied to the 
                program under this section.
                    ``(B) Enrollment during open and special 
                enrollment.--Subject to subparagraph (C), an eligible 
                beneficiary who enrolls under the program under this 
                section under subparagraph (B) or (C) of paragraph (2) 
                shall be entitled to the benefits under this section 
                beginning on the first day of the month following the 
                month in which such enrollment occurs.
    ``(d) Selection of an Eligible Entity for Access to Negotiated 
Prices.--
            ``(1) Process.--
                    ``(A) In general.--The Secretary shall establish a 
                process through which an eligible beneficiary who is 
                enrolled under this section shall select any eligible 
                entity, that has been awarded a contract under this 
                section and serves the State in which the beneficiary 
                resides, to provide access to negotiated prices under 
                subsection (i).
                    ``(B) Rules.--In establishing the process under 
                subparagraph (A), the Secretary shall use rules similar 
                to the rules for enrollment and disenrollment with a 
                Medicare Advantage plan under section 1851 (including 
                the special election periods under subsection (e)(4) of 
                such section), including that--
                            ``(i) an individual may not select more 
                        than one eligible entity at any time; and
                            ``(ii) an individual shall only be 
                        permitted (except for unusual circumstances) to 
                        change the selection of the entity once a year.
                In carrying out clause (ii), the Secretary may consider 
                a change in residential setting (such as placement in a 
                nursing facility) to be an unusual circumstance.
                    ``(C) Default selection.--In establishing such 
                process, the Secretary shall provide an equitable 
                method for selecting an eligible entity for individuals 
                who enroll under this section and fail to make such a 
                selection.
            ``(2) Competition.--Eligible entities with a contract under 
        this section shall compete for beneficiaries on the basis of 
        discounts, formularies, pharmacy networks, and other services 
        provided for under the contract.
    ``(e) Providing Enrollment, Selection, and Coverage Information to 
Beneficiaries.--
            ``(1) Activities.--The Secretary shall provide for 
        activities under this section to broadly disseminate 
        information to eligible beneficiaries (and prospective eligible 
        beneficiaries) regarding enrollment under this section, the 
        selection of eligible entities, and the prescription drug 
        coverage made available by eligible entities with a contract 
        under this section.
            ``(2) Special rule for first enrollment under the 
        program.--To the extent practicable, the activities described 
        in paragraph (1) shall ensure that eligible beneficiaries are 
        provided with such information at least 60 days prior to the 
        first enrollment period described in subsection (c).
    ``(f) Enrollment Fee.--
            ``(1) Amount.--Except as provided in paragraph (3), 
        enrollment under the program under this section is conditioned 
        upon payment of an annual enrollment fee of $30. Such fee for 
        2004 shall include any portion of 2003 in which the program is 
        implemented under this section.
            ``(2) Collection of enrollment fee.--The annual enrollment 
        fee shall be collected and credited to the Federal 
        Supplementary Medical Insurance Trust Fund in the same manner 
        as the monthly premium determined under section 1839 is 
        collected and credited to such Trust Fund under section 1840, 
        except that it shall be collected only 1 time per year.
            ``(3) Payment of enrollment fee by state for certain 
        beneficiaries.--
                    ``(A) 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 
                low income 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 enrollment fee shall be paid directly by 
                the State and shall not be collected under paragraph 
                (2). In carrying out this paragraph, the Secretary may 
                apply procedures similar to that applied under state 
                agreements under section 1843.
                    ``(B) No federal matching available under medicaid 
                or schip.--Expenditures made by a State described in 
                subparagraph (A) shall not be treated as State 
                expenditures for purposes of Federal matching payments 
                under titles XIX and XXI insofar as such expenditures 
                are for an enrollment fee under this subsection.
            ``(4) Distribution of portion of enrollment fee.--Of the 
        enrollment fee collected by the Secretary under this subsection 
        with respect to a beneficiary, \2/3\ of that fee shall be made 
        available to the eligible entity selected by the eligible 
        beneficiary.
    ``(g) Issuance of Card and Coordination.--Each eligible entity 
shall--
                    ``(1) issue, in a uniform standard format specified 
                by the Secretary, to each enrolled beneficiary a card 
                and an enrollment number that establishes proof of 
                enrollment and that can be used in a coordinated 
                manner--
                    ``(A) to identify the eligible entity selected to 
                provide access to negotiated prices under subsection 
                (i); and
                    ``(B) to make deposits to and withdrawals from a 
                prescription drug account under section 1807A; and
            ``(2) provide for electronic methods to coordinate with the 
        accounts established under section 1807A.
    ``(h) Enrollee Protections.--
            ``(1) Guaranteed issue and nondiscrimination.--
                    ``(A) Guaranteed issue.--
                            ``(i) In general.--An eligible beneficiary 
                        who is eligible to select an eligible entity 
                        under subsection (b) for prescription drug 
                        coverage under this section at a time during 
                        which selections are accepted under this 
                        section with respect to the coverage shall not 
                        be denied selection based on any health status-
                        related factor (described in section 2702(a)(1) 
                        of the Public Health Service Act) or any other 
                        factor and may not be charged any selection or 
                        other fee as a condition of such acceptance.
                            ``(ii) Medicare advantage limitations 
                        permitted.--The provisions of paragraphs (2) 
                        and (3) (other than subparagraph (C)(i), 
                        relating to default enrollment) of section 
                        1851(g) (relating to priority and limitation on 
                        termination of election) shall apply to 
                        selection of eligible entities under this 
                        paragraph.
                    ``(B) Nondiscrimination.--An eligible entity 
                offering prescription drug coverage under this section 
                shall not establish a service area in a manner that 
                would discriminate based on health or economic status 
                of potential enrollees.
                    ``(C) Coverage of all portions of a state.--If an 
                eligible entity with a contract under this section 
                serves any part of a State it shall serve the entire 
                State.
            ``(2) Dissemination of information.--
                    ``(A) General information.--An eligible entity with 
                a contract under this section shall disclose, in a 
                clear, accurate, and standardized form to each eligible 
                beneficiary who has selected the entity to provide 
                access to negotiated prices under this section at the 
                time of selection and at least annually thereafter, the 
                information described in section 1852(c)(1) relating to 
                such prescription drug coverage. Such information 
                includes the following (in a manner designed to permit 
                and promote competition among eligible entities):
                            ``(i) Summary information regarding 
                        negotiated prices (including discounts) for 
                        covered outpatient drugs.
                            ``(ii) Access to such prices through 
                        pharmacy networks.
                            ``(iii) How any formulary used by the 
                        eligible entity functions.
                    ``(B) Disclosure upon request of general coverage, 
                utilization, and grievance information.--Upon request 
                of an eligible beneficiary, the eligible entity shall 
                provide the information described in section 1852(c)(2) 
                (other than subparagraph (D)) to such beneficiary.
                    ``(C) Response to beneficiary questions.--Each 
                eligible entity offering prescription drug coverage 
                under this section shall have a mechanism (including a 
                toll-free telephone number) for providing upon request 
                specific information (such as negotiated prices, 
                including discounts) to individuals who have selected 
                the entity. The entity shall make available, through an 
                Internet website and in writing upon request, 
                information on specific changes in its formulary.
                    ``(D) Coordination with prescription drug account 
                benefits.--Each such eligible entity shall provide for 
                coordination of such information as the Secretary may 
                specify to carry out section 1807A.
            ``(3) Access to covered benefits.--
                    ``(A) Ensuring pharmacy access.--The provisions of 
                subsection (c)(1) of section 1860D-3 (other than 
                payment provisions under section 1860D-8 with respect 
                to sponsors under such subsection) shall apply to an 
                eligible entity under this section in the same manner 
                as they apply to a PDP sponsor under such section.
                    ``(B) Access to negotiated prices for prescription 
                drugs.--For requirements relating to the access of an 
                eligible beneficiary to negotiated prices (including 
                applicable discounts), see subsection (i).
                    ``(C) Requirements on development and application 
                of formularies.--Insofar as an eligible entity with a 
                contract under this part uses a formulary, the entity 
                shall comply with the requirements of section 1860D-
                3(c)(3), insofar as the Secretary determines that such 
                requirements can be implemented on a timely basis.
            ``(4) Cost and utilization management; quality assurance; 
        medication therapy management program.--
                    ``(A) In general.--For purposes of providing access 
                to negotiated benefits under subsection (i), the 
                eligible entity shall have in place the programs and 
                measure described in section 1860D-3(d), including an 
                effective cost and drug utilization management program, 
                quality assurance measures and systems, and a program 
                to control fraud, abuse, and waste, insofar as the 
                Secretary determines that such provisions can be 
                implemented on a timely basis.
                    ``(B) Treatment of accreditation.--Section 
                1852(e)(4) (relating to treatment of accreditation) 
                shall apply to the requirements for an endorsed program 
                under this section with respect to the following 
                requirements, in the same manner as they apply to 
                Medicare Advantage plans under part C with respect to 
                the requirements described in a clause of section 
                1852(e)(4)(B):
                            ``(i) Paragraph (3)(A) (relating to access 
                        to covered benefits).
                            ``(ii) Paragraph (7) (relating to 
                        confidentiality and accuracy of enrollee 
                        records).
            ``(5) Grievance mechanism.--Each eligible entity shall 
        provide meaningful procedures for hearing and resolving 
        grievances between the organization consistent with the 
        requirements of section 1860D-3(e) insofar as they relate to 
        PDP sponsors of prescription drug plans.
            ``(6) Beneficiary services.--An eligible entity shall 
        provide for its enrollees pharmaceutical support services, such 
        as education and counseling, and services to prevent adverse 
        drug interactions.
            ``(7) Coverage determinations and reconsiderations.--An 
        eligible entity shall meet the requirements of paragraphs (1) 
        through (3) of section 1852(g) with respect to covered benefits 
        under the prescription drug coverage it offers under this 
        section in the same manner as such requirements apply to a 
        Medicare Advantage organization with respect to benefits it 
        offers under a Medicare Advantage plan under part C.
            ``(8) Confidentiality and accuracy of enrollee records.--An 
        eligible entity shall meet the requirements of section 1852(h) 
        with respect to enrollees under this section in the same manner 
        as such requirements apply to a Medicare Advantage organization 
        with respect to enrollees under part C. The eligible entity 
        shall implement policies and procedures to safeguard the use 
        and disclosure of enrollees' individually identifiable health 
        information in a manner consistent with 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. The 
        eligible entity shall be treated as a covered entity for 
        purposes of the provisions of subpart E of part 164 of title 
        45, Code of Federal Regulations, 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).
            ``(9) Periodic reports and oversight.--The eligible entity 
        shall submit to the Secretary periodic reports on performance, 
        utilization, finances, and such other matters as the Secretary 
        may specify. The Secretary shall provide appropriate oversight 
        to ensure compliance of eligible entities with the requirements 
        of this subsection, including verification of the discounts and 
        services provided.
            ``(10) Additional beneficiary protections.--The eligible 
        entity meets such additional requirements as the Secretary 
        identifies to protect and promote the interest of enrollees, 
        including requirements that ensure that enrollees are not 
        charged more than the lower of the negotiated retail price or 
        the usual and customary price.
    ``(i) Benefits Under the Program Through Savings to Enrollees 
Through Negotiated Prices.--
            ``(1) In general.--Subject to paragraph (2), each eligible 
        entity with a contract under this section shall provide each 
        eligible beneficiary enrolled with the entity with access to 
        negotiated prices (including applicable discounts). For 
        purposes of this paragraph, the term `prescription drugs' is 
        not limited to covered outpatient drugs, but does not include 
        any over-the-counter drug that is not a covered outpatient 
        drug. The prices negotiated by an eligible entity under this 
        paragraph 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) Formulary restrictions.--Insofar as an eligible 
        entity with a contract under this part uses a formulary, the 
        negotiated prices (including applicable discounts) for 
        prescription drugs shall only be available for drugs included 
        in such formulary.
            ``(3) Prohibition on application only to mail order.--The 
        negotiated prices under this subsection shall apply to 
        prescription drugs that are available other than solely through 
        mail order.
            ``(4) Prohibition on charges for required services.--An 
        eligible entity (and any pharmacy contracting with such entity 
        for the provision of a discount under this section) may not 
        charge a beneficiary any amount for any services required to be 
        provided by the entity under this section.
            ``(5) Disclosure.--The eligible entity offering the 
        endorsed program shall disclose to the Secretary (in a manner 
        specified by the Secretary) the extent to which discounts or 
        rebates or other remuneration or price concessions made 
        available to the entity by a manufacturer are passed through to 
        enrollees through pharmacies and other dispensers or otherwise. 
        The provisions of section 1927(b)(3)(D) shall apply to 
        information disclosed to the Secretary under this paragraph in 
        the same manner as such provisions apply to information 
        disclosed under such section.
            ``(6) Public disclosure of pharmaceutical prices for 
        equivalent drugs.--Each eligible entity shall provide that each 
        pharmacy or other dispenser that arranges for the dispensing of 
        a covered outpatient drug in connection with its endorsed 
        program shall inform the enrollee in that program at the time 
        of purchase of the drug of any differential between the price 
        of the prescribed drug to the enrollee and the price of the 
        lowest cost available generic drug covered under the program 
        that is therapeutically equivalent and bioequivalent.
    ``(j) Contribution Into Prescription Drug Account.--
            ``(1) In general.--In the case of an individual enrolled 
        under this section, the Secretary shall--
                    ``(A) establish a prescription drug account for the 
                individual under section 1807A; and
                    ``(B) subject to paragraph (5), deposit into such 
                account on a monthly or other periodic basis an amount 
                that, on an annual basis, is equivalent to the annual 
                Federal contribution amount specified in paragraph (2) 
                for the enrollee involved.
            ``(2) Annual federal contribution amount.--Subject to 
        paragraph (3), in the case of an accountholder whose income 
        is--
                    ``(A) not more than 135 percent of the poverty 
                line, the annual Federal contribution amount for a year 
                is $800;
                    ``(B) more than 135 percent, but not more than 150 
                percent, of the poverty line, the annual Federal 
                contribution amount for a year is $500; or
                    ``(C) more than 150 percent of the poverty line, 
                the annual Federal contribution amount for a year is 
                $100.
            ``(3) Income eligibility determinations.--The determination 
        of whether an individual residing in a State is a eligible for 
        a contribution under paragraph (1) shall be determined under 
        the State medicaid plan for the State under section 1935(a) or 
        by the Social Security Administration. In the case of a State 
        that does not operate such a medicaid plan (either under title 
        XIX or under a statewide waiver granted under section 1115), 
        such determination shall be made under arrangements made by the 
        Secretary. There are authorized to be appropriated to the 
        Social Security Administration such sums as may be necessary 
        for the determination of eligibility under this paragraph.
            ``(4) Partial year.--Insofar as the provisions of this 
        subsection and section 1807A are not implemented for all months 
        in 2004, the annual contribution amount under this subsection 
        for 2004 shall be prorated to reflect the portion of that year 
        in which such provisions are in effect.
            ``(5) Restriction on contributions.--There shall only be an 
        annual Federal contribution under paragraph (1) for an 
        individual if the individual is not eligible for coverage of, 
        or assistance for, outpatient prescription drugs under any of 
        the following:
                    ``(A) A medicaid plan under title XIX (including 
                under any waiver approved under section 1115).
                    ``(B) Enrollment under a group health plan or 
                health insurance coverage.
                    ``(C) Enrollment under a medicare supplemental 
                insurance policy.
                    ``(D) Chapter 55 of title 10, United States Code 
                (relating to medical and dental care for members of the 
                uniformed services).
                    ``(E) Chapter 17 of title 38, United States Code 
                (relating to Veterans' medical care).
                    ``(F) Enrollment under a plan under chapter 89 of 
                title 5, United States Code (relating to the Federal 
                employees' health benefits program).
                    ``(G) The Indian Health Care Improvement Act (25 
                U.S.C. 1601 et seq.).
            ``(6) Appropriation to cover net program expenditures.--
        There are authorized to be appropriated from time to time, out 
        of any moneys in the Treasury not otherwise appropriated, to 
        the Federal Supplementary Medical Insurance Trust Fund 
        established under section 1841, an amount equal to the amount 
        by which the benefits and administrative costs of providing the 
        benefits under this section exceed the sum of the portion of 
        the enrollment fees retained by the Secretary.
    ``(k) Definitions.--In this part and section 1807A:
            ``(1) Covered outpatient drug.--
                    ``(A) In general.--Except as provided in this 
                paragraph, for purposes of this section, the term 
                `covered outpatient drug' means--
                            ``(i) a drug that may be dispensed only 
                        upon a prescription and that is described in 
                        subparagraph (A)(i) or (A)(ii) of section 
                        1927(k)(2); or
                            ``(ii) 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 outpatient drug for a medically accepted 
                indication (as defined in section 1927(k)(6)).
                    ``(B) Exclusions.--
                            ``(i) 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) thereof 
                        (relating to smoking cessation agents), or 
                        under section 1927(d)(3).
                            ``(ii) Avoidance of duplicate coverage.--A 
                        drug prescribed for an individual that would 
                        otherwise be a covered outpatient drug under 
                        this section shall not be so considered if 
                        payment for such drug is available under part A 
                        or B for an individual entitled to benefits 
                        under part A and enrolled under part B.
                    ``(C) Application of formulary restrictions.--A 
                drug prescribed for an individual that would otherwise 
                be a covered outpatient drug under this section shall 
                not be so considered under an endorsed program if the 
                eligible entity offering the program excludes the drug 
                under a formulary and a review of such exclusion is not 
                successfully resolved under subsection (h)(5).
                    ``(D) Application of general exclusion 
                provisions.--An eligible entity offering an endorsed 
                program may exclude from qualified prescription drug 
                coverage any covered outpatient drug--
                            ``(i) for which payment would not be made 
                        if section 1862(a) applied to part D; or
                            ``(ii) which are not prescribed in 
                        accordance with the program or this section.
                Such exclusions are determinations subject to review 
                pursuant to subsection (h)(5).
            ``(2) Poverty line.--The term `poverty line' means the 
        income official poverty line (as defined by the Office of 
        Management and Budget, and revised annually in accordance with 
        section 673(2) of the Omnibus Budget Reconciliation Act of 
        1981) applicable to a family of the size involved.
    ``(l) Authorization of Appropriations.--There are authorized to be 
appropriated such sums as may be necessary to carry out this section 
and section 1807A.
    ``(m) Interim, Final Regulatory Authority.--In order to carry out 
this section and section 1807A in a timely manner, the Secretary may 
promulgate regulations that take effect on an interim basis, after 
notice and pending opportunity for public comment.

                      ``prescription drug accounts

    ``Sec. 1807A. ``(a) Establishment of Accounts.--
            ``(1) In general.--The Secretary shall establish and 
        maintain for each eligible beneficiary who is enrolled under 
        section 1807 at the time of enrollment a prescription drug 
        account (in this section and section 1807 referred to as an 
        `account').
            ``(2) Reserve accounts.--In cases described in subsections 
        (b)(3)(A), (b)(3)(B)(i), and (b)(3)(B)(ii)(I), the Secretary 
        shall establish and maintain for each surviving spouse who is 
        not enrolled under section 1807 a reserve prescription drug 
        account (in this section referred to as an `reserve account').
            ``(3) Accountholder defined.--In this section and section 
        1807A, the term `accountholder' means an individual for whom an 
        account or reserve account has been established under this 
        section.
            ``(4) Expenditures from account.--Nothing in this section 
        shall be construed as requiring the Federal Government to 
        obligate funds for amounts in any account until such time as a 
        withdrawal from such account is authorized under this section.
    ``(b) Use of Accounts.--
            ``(1) Application of account.--Except as provided in this 
        subsection, amounts credited to an account shall only be used 
        for the purchase of covered outpatient drugs for the 
        accountholder. Any amounts remaining at the end of a year 
        remain available for expenditures in succeeding years.
            ``(2) Account rules for public and private contributions.--
        The Secretary shall establish a ongoing process for the 
        determination of the amount in each account that is 
        attributable to public and private contributions (including 
        spousal rollover contributions) based on the following rules:
                    ``(A) Treatment of expenditures.--Expenditures from 
                the account shall--
                            ``(i) first be counted against any public 
                        contribution; and
                            ``(ii) next be counted against private 
                        contributions.
                    ``(B) Treatment of spousal rollover 
                contributions.--With respect to any spousal rollover 
                contribution, the portions of such contribution that 
                were attributable to public and private contributions 
                at the time of its distribution under subsection (b)(3) 
                shall be treated under this paragraph as if it were a 
                direct public or private contribution, respectively, 
                into the account of the spouse.
            ``(3) Death of accountholder.--In the case of the death of 
        an accountholder, the balance in any account (taking into 
        account liabilities accrued before the time of death) shall be 
        distributed as follows:
                    ``(A) Treatment of public contributions.--If the 
                accountholder is married at the time of death, the 
                amount in the account that is attributable to public 
                contributions shall be credited to the account (if any) 
                of the surviving spouse of the accountholder (or, if 
                the surviving spouse is not an eligible beneficiary, 
                into a reserve account to be held for when that spouse 
                becomes an eligible beneficiary).
                    ``(B) Treatment of private contributions.--The 
                amount in the account that is attributable to private 
                contributions shall be distributed as follows:
                            ``(i) Designation of distributee.--If the 
                        accountholder has made a designation, in a form 
                        and manner specified by the Secretary, for the 
                        distribution of some or all of such amount, 
                        such amount shall be distributed in accordance 
                        with the designation. Such designation may 
                        provide for the distribution into an account 
                        (including a reserve account) of a surviving 
                        spouse.
                            ``(ii) Absence of designation.--Insofar as 
                        the accountholder has not made such a 
                        designation--
                                    ``(I) Surviving spouse.--If the 
                                accountholder was married at the time 
                                of death, the remainder shall be 
                                credited to an account (including a 
                                reserve account) of the accountholder's 
                                surviving spouse.
                                    ``(II) No surviving spouse.--If the 
                                accountholder was not so married, the 
                                remainder shall be distributed to the 
                                estate of the accountholder and 
                                distributed as provided by law.
            ``(4) Use of account for premiums for enrollment in a 
        medicare advantage plan.--During any period in which an 
        accountholder is enrolled in a Medicare Advantage plan under 
        part C, the balance in the account may be used and applied only 
        to reimburse the amount of the premium (if any) established for 
        enrollment under the plan.
            ``(5) Application to medicaid expenses in certain cases.--
                    ``(A) In general.--Except as provided in this 
                paragraph, an account shall be treated as an asset for 
                purposes of establishing eligibility for medical 
                assistance under title XIX.
                    ``(B) Application towards spenddown.--In the case 
                of an accountholder who is applying for such medical 
                assistance and who would, but for the application of 
                subparagraph (A), be eligible for such assistance--
                            ``(i) subparagraph (A) shall not apply; and
                            ``(ii) the account shall be available (in 
                        accordance with a procedure established by the 
                        Secretary) to the State to reimburse the State 
                        for any expenditures made under the plan for 
                        such medical assistance.
    ``(c) Amounts Credited in Account.--The Secretary shall credit to a 
prescription drug account of an eligible beneficiary the following 
amounts:
            ``(1) Public contributions.--The following contributions 
        (each referred to in this section as a `public contribution'):
                    ``(A) Federal contributions.--Federal contributions 
                provided under subsection (d).
                    ``(B) State contributions.--Contributions made by a 
                State under subsection (f).
            ``(2) Spousal rollover contribution.--A distribution from a 
        deceased spouse under subsection (b)(3) (referred to in this 
        section as a `spousal rollover contribution').
            ``(3) Private contributions.--The following contributions 
        (each referred to in this section as a `private contribution'):
                    ``(A) Employer and individual contributions.--
                Contributions made under subsection (e).
                    ``(B) Other individual contributions.--
                Contributions made by accountholder other than under 
                subsection (e).
                    ``(C) Contributions by nonprofit organizations.--
                Contributions made by a charitable, not-for-profit 
                organization (that may be a religious organization).
Except as provided in this subsection, no amounts may be contributed 
to, or credited to, a prescription drug account.
    ``(d) Federal Contribution.--For Federal contributions in the case 
of accountholders, see section 1807(j).
    ``(e) Employer and Individual Contributions.--
            ``(1) Employment-related contribution.--
                    ``(A) In general.--In the case of any accountholder 
                who is a beneficiary or participant in a group health 
                plan (including a multi-employer plan), whether as an 
                employee, former employee or otherwise, including as a 
                dependent of an employee or former employee, the plan 
                may make a contribution into the accountholder's 
                account (but not into a reserve account of the 
                accountholder).
                    ``(B) Limitation.--The total amount that may be 
                contributed under subparagraph (A) under a plan to an 
                account during any year may not exceed $5,000.
                    ``(C) Condition.--A group health plan may condition 
                a contribution with respect to an accountholder under 
                this paragraph on the accountholder's enrollment under 
                section 1807 with an eligible entity that is recognized 
                or approved by that plan.
            ``(2) Other individuals.--
                    ``(A) In general.--Any individual may also 
                contribute to the account of that individual or the 
                account of any other individual under this subsection.
                    ``(B) Limitation.--The total amount that may be 
                contributed to an account under subparagraph (A) during 
                any year may not exceed $5,000, regardless of who makes 
                such contribution.
            ``(3) No contribution permitted to reserve account.--No 
        contribution may be made under this subsection to a reserve 
        account.
            ``(4) Form and manner of contribution.--The Secretary shall 
        specify the form and manner of contributions under this 
        subsection.
    ``(f) State Contributions.--
            ``(1) In general.--A State may enter into arrangements with 
        the Secretary for the crediting of amounts for accountholders.
            ``(2) Form and manner of contribution.--The Secretary shall 
        specify the form and manner of contributions under this 
        subsection.
            ``(3) Medicaid treatment.--Amounts credited under this 
        subsection shall not be treated as medical assistance for 
        purposes of title XIX or child health assistance for purposes 
        of title XXI for individuals who are not qualifying low income 
        enrollees.''.
    (b) 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 Voluntary Medicare Outpatient Prescription Drug 
        Discount and Security Program under sections 1807 and 1807A.''.
    (c) State Eligibility Determinations.--Section 1935, as added by 
section 103(a)(2), is amended--
            (1) in subsection (a)(1), by inserting ``and of eligibility 
        for an annual Federal contribution amount under section 
        1807A(j)(2)'' before the semicolon; and
            (2) in subsection (a)(3), by inserting ``and sections 1807 
        and 1807A'' after ``1860D-7)''.
    (d) Report on Progress in Implementation of Prescription Drug 
Benefit.--Not later than March 1, 2005, the Administrator shall submit 
a report to Congress on the progress that has been made in implementing 
the prescription drug benefit under this title. The Administrator 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.

SEC. 106. DISCLOSURE OF RETURN INFORMATION FOR PURPOSES OF CARRYING OUT 
              MEDICARE CATASTROPHIC PRESCRIPTION DRUG PROGRAM.

    (a) Disclosure.--
            (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 
        carrying out medicare catastrophic prescription drug program.--
                    ``(A) In general.--The Secretary may, upon written 
                request from the Secretary of Health and Human Services 
                under section 1860D-2(b)(4)(E)(i) of the Social 
                Security Act, disclose to officers and employees of the 
                Department of Health and Human Services with respect to 
                a specified taxpayer for the taxable year specified by 
                the Secretary of Health and Human Services in such 
                request--
                            ``(i) the taxpayer identity information 
                        with respect to such taxpayer, and
                            ``(ii) the adjusted gross income of such 
                        taxpayer for the taxable year (or, if less, the 
                        income threshold limit specified in section 
                        1860D-2(b)(4)(D)(ii) for the calendar year 
                        specified by such Secretary in such request).
                    ``(B) Specified taxpayer.--For purposes of this 
                paragraph, the term `specified taxpayer' means any 
                taxpayer who--
                            ``(i) is identified by the Secretary of 
                        Health and Human Services in the request 
                        referred to in subparagraph (A), and
                            ``(ii) either--
                                    ``(I) has an adjusted gross income 
                                for the taxable year referred to in 
                                subparagraph (A) in excess of the 
                                income threshold specified in section 
                                1860D-2(b)(4)(D)(ii) of such Act for 
                                the calendar year referred to in such 
                                subparagraph, or
                                    ``(II) is identified by such 
                                Secretary under subparagraph (A) as 
                                being an individual who elected to use 
                                more recent information under section 
                                1860D-2(b)(4)(D)(v) of such Act.
                    ``(C) Joint returns.--In the case of a joint 
                return, the Secretary shall, for purposes of applying 
                this paragraph, treat each spouse as a separate 
                taxpayer having an adjusted gross income equal to one-
                half of the adjusted gross income determined with 
                respect to such return.
                    ``(D) Restriction on use of disclosed 
                information.--Return information disclosed under 
                subparagraph (A) may be used by officers and employees 
                of the Department of Health and Human Services only for 
                the purpose of administering the prescription drug 
                benefit under title XVIII of the Social Security Act. 
                Such officers and employees may disclose the annual 
                out-of-pocket threshold which applies to an individual 
                under such part to the entity that offers the plan 
                referred to in section 1860D-2(b)(4)(E)(ii) of such Act 
                in which such individual is enrolled. Such sponsor may 
                use such information only for purposes of administering 
                such benefit.''.
            (2) Joint return permitted in case of surviving spouses.--
        Under section 6103(a)(3) of the Internal Revenue Code of 1986, 
        a surviving spouse may file a joint return for the taxable year 
        in which one spouse dies.
    (b) Confidentiality.--Paragraph (3) of section 6103(a) of such Code 
is amended by striking ``or (16)'' and inserting ``(16), or (19)''.
    (c) Procedures and Recordkeeping Related to Disclosures.--
Subsection (p)(4) of section 6103 of such Code is amended by striking 
``any other person described in subsection (l)(16) or (17)'' each place 
it appears and inserting ``any other person described in subsection 
(l)(16), (17), or (19)''.
    (d) Unauthorized Disclosure.--Paragraph (2) of section 7213(a) of 
such Code is amended by striking ``or (16)'' and inserting ``(16), or 
(19)''.
    (e) Unauthorized Inspection.--Subparagraph (B) of section 
7213A(a)(1) of such Code is amended by inserting ``or (19)'' after 
``subsection (l)(18)''.

SEC. 107. 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 medicare 
        prescription drug program under part D of title XVIII of the 
        Social Security Act.
            (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 assistance to low-income 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 part D of title XVIII 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 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 provided under 
        title II of this Act.
    (d) Report.--By not later than January 1, 2005, the Commission 
shall submit to the President and the 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. 108. ADDITIONAL REQUIREMENTS FOR ANNUAL FINANCIAL REPORT AND 
              OVERSIGHT ON MEDICARE PROGRAM, INCLUDING PRESCRIPTION 
              DRUG SPENDING.

    (a) In General.--Section 1817 (42 U.S.C. 1395i) is amended by 
adding at the end the following new subsection:
    ``(l) Combined Report on Operation and Status of the Trust Fund, 
the Federal Supplementary Medical Insurance Trust Fund, and Medicare 
Prescription Drug Trust Fund.--
            ``(1) In general.--In addition to the duty of the Board of 
        Trustees to report to Congress under subsection (b), on the 
        date the Board submits the report required under subsection 
        (b)(2), the Board shall submit to Congress a report on the 
        operation and status of the Trust Fund, the Federal 
        Supplementary Medical Insurance Trust Fund established under 
        section 1841, and the Medicare Prescription Drug Trust Fund 
        under section 1860D-9(a) (in this subsection collectively 
        referred to as the `Trust Funds'). Such report shall included 
        the following information:
                    ``(A) Overall spending from the general fund of the 
                treasury.--A statement of total amounts obligated 
                during the preceding fiscal year from the General 
                Revenues of the Treasury to the Trust Funds for payment 
                for benefits covered under this title, stated in terms 
                of the total amount and in terms of the percentage such 
                amount bears to all other amounts obligated from such 
                General Revenues during such fiscal year.
                    ``(B) Historical overview of spending.--From the 
                date of the inception of the program of insurance under 
                this title through the fiscal year involved, a 
                statement of the total amounts referred to in 
                subparagraph (A).
                    ``(C) 10-year and 75-year projections.--An estimate 
                of total amounts referred to in subparagraph (A) 
                required to be obligated for payment for benefits 
                covered under this title for each of the 10 fiscal 
                years succeeding the fiscal year involved and for the 
                75-year period beginning with the succeeding fiscal 
                year.
                    ``(D) Relation to gdp growth.--A comparison of the 
                rate of growth of the total amounts referred to in 
                subparagraph (A) to the rate of growth in the gross 
                domestic product for the same period.
            ``(2) Publication.--Each report submitted under paragraph 
        (1) shall be published jointly by the Committee on Ways and 
        Means and the Committee on Energy and Commerce as a public 
        document and shall be made available by such Committees on the 
        Internet.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply with respect to fiscal years beginning on or after the date of 
the enactment of this Act.

  TITLE II--MEDICARE ENHANCED FEE-FOR-SERVICE AND MEDICARE ADVANTAGE 
                     PROGRAMS; MEDICARE COMPETITION

SEC. 200. MEDICARE MODERNIZATION AND REVITALIZATION.

    This title provides for--
            (1) establishment of the medicare enhanced fee-for-service 
        (EFFS) program under which medicare beneficiaries are provided 
        access to a range of enhanced fee-for-service (EFFS) plans that 
        may use preferred provider networks to offer an enhanced range 
        of benefits;
            (2) establishment of a Medicare Advantage program that 
        offers improved managed care plans with coordinated care; and
            (3) competitive bidding, in the style of the Federal 
        Employees Health Benefits program (FEHBP), among enhanced fee-
        for-service plans and Medicare Advantage plans in order to 
        promote greater efficiency and responsiveness to medicare 
        beneficiaries.

         Subtitle A--Medicare Enhanced Fee-for-Service Program

SEC. 201. ESTABLISHMENT OF ENHANCED FEE-FOR-SERVICE (EFFS) PROGRAM 
              UNDER MEDICARE.

    (a) In General.--Title XVIII, as amended by section 101(a), is 
amended--
            (1) by redesignating part E as part F; and
            (2) by inserting after part D the following new part:

               ``Part E--Enhanced Fee-for-Service Program

  ``offering of enhanced fee-for-service plans throughout the united 
                                 states

    ``Sec. 1860E-1. (a) Establishment of Program.--
            ``(1) In general.--The Administrator shall establish under 
        this part beginning January 1, 2006, an enhanced fee-for-
        service program under which enhanced fee-for-service plans (as 
        defined in subsection (b)) are offered to EFFS-eligible 
        individuals (as so defined) in EFFS regions throughout the 
        United States.
            ``(2) EFFS regions.--For purposes of this part the 
        Administrator shall establish EFFS regions throughout the 
        United States by dividing the entire United States into at 
        least 10 such regions. Before establishing such regions, the 
        Administrator shall conduct a market survey and analysis, 
        including an examination of current insurance markets, to 
        determine how the regions should be established. The regions 
        shall be established in a manner to take into consideration 
        maximizing full access for all EFFS-eligible individuals, 
        especially those residing in rural areas.
    ``(b) Definitions.--For purposes of this part:
            ``(1) EFFS organization.--The `EFFS organization' means an 
        entity that the Administrator certifies as meeting the 
        requirements and standards applicable to such organization 
        under this part.
            ``(2) Enhanced fee-for-service plan; effs plan.--The terms 
        `enhanced fee-for-service plan' and `EFFS plan' mean health 
        benefits coverage offered under a policy, contract, or plan by 
        an EFFS organization pursuant to and in accordance with a 
        contract pursuant to section 1860E-4(c), but only if the plan 
        provides either fee-for-service coverage described in the 
        following subparagraph (A) or preferred provider coverage 
        described in the following subparagraph (B):
                    ``(A) Fee-for-service coverage.--The plan--
                            ``(i) reimburses hospitals, physicians, and 
                        other providers at a rate determined by the 
                        plan on a fee-for-service basis without placing 
                        the provider at financial risk;
                            ``(ii) does not vary such rates for such a 
                        provider based on utilization relating to such 
                        provider; and
                            ``(iii) does not restrict the selection of 
                        providers among those who are lawfully 
                        authorized to provide the covered services and 
                        agree to accept the terms and conditions of 
                        payment established by the plan.
                    ``(B) Preferred provider coverage.--The plan--
                            ``(i) has a network of providers that have 
                        agreed to a contractually specified 
                        reimbursement for covered benefits with the 
                        organization offering the plan; and
                            ``(ii) provides for reimbursement for all 
                        covered benefits regardless of whether such 
                        benefits are provided within such network of 
                        providers.
            ``(3) EFFS eligible individual.--The term `EFFS eligible 
        individual' means an eligible individual described in section 
        1851(a)(3).
            ``(4) EFFS region.--The term `EFFS region' means a region 
        established under subsection (a)(2).
    ``(c) Application of Certain Eligibility, Enrollment, Etc. 
Requirements.--The provisions of section 1851 (other than subsection 
(h)(4)(A)) shall apply to EFFS plans offered by an EFFS organization in 
an EFFS region, including subsection (g) (relating to guaranteed issue 
and renewal).

          ``offering of enhanced fee-for-service (effs) plans

    ``Sec. 1860E-2. (a) Plan Requirements.--No EFFS plan may be offered 
under this part in an EFFS region unless the requirements of this part 
are met with respect to the plan and EFFS organization offering the 
plan.
    ``(b) Available to All EFFS Beneficiaries in the Entire Region.--
With respect to an EFFS plan offered in an EFFS region--
            ``(1) In general.--The plan must be offered to all EFFS-
        eligible individuals residing in the region.
            ``(2) Assuring access to services.--The plan shall comply 
        with the requirements of section 1852(d)(4).
    ``(c) Benefits.--
            ``(1) In general.--Each EFFS plan shall provide to members 
        enrolled in the plan under this part benefits, through 
        providers and other persons that meet the applicable 
        requirements of this title and part A of title XI--
                    ``(A) for the items and services described in 
                section 1852(a)(1);
                    ``(B) that are uniform for the plan for all EFFS 
                eligible individuals residing in the same EFFS region;
                    ``(C) that include a single deductible applicable 
                to benefits under parts A and B and include a 
                catastrophic limit on out-of-pocket expenditures for 
                such covered benefits; and
                    ``(D) that include benefits for prescription drug 
                coverage for each enrollee who elects under part D to 
                be provided qualified prescription drug coverage 
                through the plan.
            ``(2) Disapproval authority.--The Administrator shall not 
        approve a plan of an EFFS organization if the Administrator 
        determines (pursuant to the last sentence of section 
        1852(b)(1)(A)) that the benefits are designed to substantially 
        discourage enrollment by certain EFFS eligible individuals with 
        the organization.
    ``(d) Outpatient Prescription Drug Coverage.--For rules concerning 
the offering of prescription drug coverage under EFFS plans, see the 
amendment made by section 102(b) of the Medicare Prescription Drug and 
Modernization Act of 2003.
    ``(e) Other Additional Provisions.--The provisions of section 1852 
(other than subsection (a)(1)) shall apply under this part to EFFS 
plans. For the application of chronic care improvement provisions, see 
the amendment made by section 722(b).

      ``submission of bids; beneficiary savings; payment of plans

    ``Sec. 1860E-3. (a) Submission of Bids.--
            ``(1) Requirement.--
                    ``(A) EFFS monthly bid amount.--For each year 
                (beginning with 2006), an EFFS organization shall 
                submit to the Administrator an EFFS monthly bid amount 
                for each EFFS plan offered in each region. Each such 
                bid is referred to in this section as the `EFFS monthly 
                bid amount'.
                    ``(B) Form.--Such bid amounts shall be submitted 
                for each such plan and region in a form and manner and 
                time specified by the Administrator, and shall include 
                information described in paragraph (3)(A).
            ``(2) Uniform bid amounts.--Each EFFS monthly bid amount 
        submitted under paragraph (1) by an EFFS organization under 
        this part for an EFFS plan in an EFFS region may not vary among 
        EFFS eligible individuals residing in the EFFS region involved.
            ``(3) Submission of bid amount information by effs 
        organizations.--
                    ``(A) Information to be submitted.--The information 
                described in this subparagraph is as follows:
                            ``(i) The EFFS monthly bid amount for 
                        provision of all items and services under this 
                        part, which amount shall be based on average 
                        costs for a typical beneficiary residing in the 
                        region, and the actuarial basis for determining 
                        such amount.
                            ``(ii) The proportions of such bid amount 
                        that are attributable to--
                                    ``(I) the provision of statutory 
                                non-drug benefits (such portion 
                                referred to in this part as the 
                                `unadjusted EFFS statutory non-drug 
                                monthly bid amount');
                                    ``(II) the provision of statutory 
                                prescription drug benefits; and
                                    ``(III) the provision of non-
                                statutory benefits;
                        and the actuarial basis for determining such 
                        proportions.
                            ``(iii) Such additional information as the 
                        Administrator may require to verify the 
                        actuarial bases described in clauses (i) and 
                        (ii).
                    ``(B) Statutory benefits defined.--For purposes of 
                this part:
                            ``(i) The term `statutory non-drug 
                        benefits' means benefits under section 
                        1852(a)(1).
                            ``(ii) The term `statutory prescription 
                        drug benefits' means benefits under part D.
                            ``(iii) The term `statutory benefits' means 
                        statutory prescription drug benefits and 
                        statutory non-drug benefits.
                    ``(C) Acceptance and negotiation of bid amounts.--
                The Administrator has the authority to negotiate 
                regarding monthly bid amounts submitted under 
                subparagraph (A) (and the proportion described in 
                subparagraph (A)(ii)), and for such purpose, the 
                Administrator has negotiation authority that the 
                Director of the Office of Personnel Management has with 
                respect to health benefits plans under chapter 89 of 
                title 5, United States Code. The Administrator may 
                reject such a bid amount or proportion if the 
                Administrator determines that such amount or proportion 
                is not supported by the actuarial bases provided under 
                subparagraph (A).
                    ``(D) Contract authority.--The Administrator may, 
                taking into account the unadjusted EFFS statutory non-
                drug monthly bid amounts accepted under subparagraph 
                (C), enter into contracts for the offering of EFFS 
                plans by up to 3 EFFS organizations in any region.
    ``(b) Provision of Beneficiary Savings for Certain Plans.--
            ``(1) Beneficiary rebate rule.--
                    ``(A) Requirement.--The EFFS plan shall provide to 
                the enrollee a monthly rebate equal to 75 percent of 
                the average per capita savings (if any) described in 
                paragraph (2) applicable to the plan and year involved.
                    ``(B) Form of rebate.--A rebate required under this 
                paragraph shall be provided--
                            ``(i) through the crediting of the amount 
                        of the rebate towards the EFFS monthly 
                        prescription drug beneficiary premium (as 
                        defined in section 1860E-4(a)(3)(B)) and the 
                        EFFS monthly supplemental beneficiary premium 
                        (as defined in section 1860E-4(a)(3)(C));
                            ``(ii) through a direct monthly payment 
                        (through electronic funds transfer or 
                        otherwise); or
                            ``(iii) through other means approved by the 
                        Medicare Benefits Administrator,
                or any combination thereof.
            ``(2) Computation of average per capita monthly savings.--
        For purposes of paragraph (1)(A), the average per capita 
        monthly savings referred to in such paragraph for an EFFS plan 
        and year is computed as follows:
                    ``(A) Determination of region-wide average risk 
                adjustment.--
                            ``(i) In general.--The Medicare Benefits 
                        Administrator shall determine, at the same time 
                        rates are promulgated under section 1853(b)(1) 
                        (beginning with 2006), for each EFFS region the 
                        average of the risk adjustment factors 
                        described in subsection (c)(3) to be applied to 
                        enrollees under this part in that region. In 
                        the case of an EFFS region in which an EFFS 
                        plan was offered in the previous year, the 
                        Administrator may compute such average based 
                        upon risk adjustment factors applied under 
                        subsection (c)(3) in that region in a previous 
                        year.
                            ``(ii) Treatment of new regions.--In the 
                        case of a region in which no EFFS plan was 
                        offered in the previous year, the Administrator 
                        shall estimate such average. In making such 
                        estimate, the Administrator may use average 
                        risk adjustment factors applied to comparable 
                        EFFS regions or applied on a national basis.
                    ``(B) Determination of risk adjusted benchmark and 
                risk-adjusted bid.--For each EFFS plan offered in an 
                EFFS region, the Administrator shall--
                            ``(i) adjust the EFFS region-specific non-
                        drug monthly benchmark amount (as defined in 
                        paragraph (3)) by the applicable average risk 
                        adjustment factor computed under subparagraph 
                        (A); and
                            ``(ii) adjust the unadjusted EFFS 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 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).
            ``(3) Computation of effs region-specific non-drug monthly 
        benchmark amount.--For purposes of this part, the term `EFFS 
        region-specific non-drug monthly benchmark amount' means, with 
        respect to an EFFS region for a month in a year, an amount 
        equal to \1/12\ of the average (weighted by number of EFFS 
        eligible individuals in each payment area described in section 
        1853(d)) of the annual capitation rate as calculated under 
        section 1853(c)(1) for that area.
    ``(c) Payment of Plans Based on Bid Amounts.--
            ``(1) Non-drug benefits.--Under a contract under section 
        1860E-4(c) and subject to section 1853(g) (as made applicable 
        under subsection (d)), the Administrator shall make monthly 
        payments under this subsection in advance to each EFFS 
        organization, with respect to coverage of an individual under 
        this part in an EFFS region for a month, in an amount 
        determined as follows:
                    ``(A) Plans with bids below benchmark.--In the case 
                of a plan for which there are average per capita 
                monthly savings described in subsection (b)(2)(C), the 
                payment under this subsection is equal to the 
                unadjusted EFFS statutory non-drug monthly bid amount, 
                adjusted under paragraphs (3) and (4), plus the amount 
                of the monthly rebate computed under subsection 
                (b)(1)(A) for that plan and year.
                    ``(B) 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 subsection 
                (b)(2)(C), the payment amount under this subsection is 
                equal to the EFFS region-specific non-drug monthly 
                benchmark amount, adjusted under paragraphs (3) and 
                (4).
            ``(2) For federal drug subsidies.--In the case in which an 
        enrollee who elects under part D to be provided qualified 
        prescription drug coverage through the plan, the EFFS 
        organization offering such plan also is entitled--
                    ``(A) to direct subsidy payment under section 
                1860D-8(a)(1);
                    ``(B) to reinsurance subsidy payments under section 
                1860D-8(a)(2); and
                    ``(C) to reimbursement for premium and cost-sharing 
                reductions for low-income individuals under section 
                1860D-7(c)(3).
            ``(3) Demographic risk adjustment, including adjustment for 
        health status.--The Administrator shall adjust under paragraph 
        (1)(A) the unadjusted EFFS statutory non-drug monthly bid 
        amount and under paragraph (1)(B) the EFFS region-specific non-
        drug monthly benchmark amount for such risk factors as age, 
        disability status, gender, institutional status, and such other 
        factors as the Administrator determines to be appropriate, 
        including adjustment for health status under section 1853(a)(3) 
        (as applied under subsection (d)), so as to ensure actuarial 
        equivalence. The Administrator may add to, modify, or 
        substitute for such adjustment factors if such changes will 
        improve the determination of actuarial equivalence.
            ``(4) Adjustment for intra-regional geographic 
        variations.--The Administrator shall also adjust such amounts 
        in a manner to take into account variations in payments rates 
        under part C among the different payment areas under such part 
        included in each EFFS region.
    ``(d) Application of Additional Payment Rules.--The provisions of 
section 1853 (other than subsections (a)(1)(A), (d), and (e)) shall 
apply to an EFFS plan under this part, except as otherwise provided in 
this section.

``premiums; organizational and financial requirements; establishment of 
              standards; contracts with effs organizations

    ``Sec. 1860E-4. (a) Premiums.--
            ``(1) In general.--The provisions of section 1854 (other 
        than subsections (a)(6)(C) and (h)), including subsection 
        (b)(5) relating to the consolidation of drug and non-drug 
        beneficiary premiums and subsection (c) relating to uniform 
        bids and premiums, shall apply to an EFFS plan under this part, 
        subject to paragraph (2).
            ``(2) Cross-walk.--In applying paragraph (1), any reference 
        in section 1854(b)(1)(A) or 1854(d) to--
                    ``(A) a Medicare Advantage monthly basic 
                beneficiary premium is deemed a reference to the EFFS 
                monthly basic beneficiary premium (as defined in 
                paragraph (3)(A));
                    ``(B) a Medicare Advantage monthly prescription 
                drug beneficiary premium is deemed a reference to the 
                EFFS monthly prescription drug beneficiary premium (as 
                defined in paragraph (3)(B)); and
                    ``(C) a Medicare Advantage monthly supplemental 
                beneficiary premium is deemed a reference to the EFFS 
                monthly supplemental beneficiary premium (as defined in 
                paragraph (3)(C)).
            ``(3) Definitions.--For purposes of this part:
                    ``(A) EFFS monthly basic beneficiary premium.--The 
                term `EFFS monthly basic beneficiary premium' means, 
                with respect to an EFFS plan--
                            ``(i) described in section 1860E-3(c)(1)(A) 
                        (relating to plans providing rebates), zero; or
                            ``(ii) described in section 1860E-
                        3(c)(1)(B), the amount (if any) by which the 
                        unadjusted EFFS statutory non-drug monthly bid 
                        amount exceeds the EFFS region-specific non-
                        drug monthly benchmark amount (as defined in 
                        section 1860E-3(b)(3)).
                    ``(B) EFFS monthly prescription drug beneficiary 
                premium.--The term `EFFS monthly prescription drug 
                beneficiary premium' means, with respect to an EFFS 
                plan, the portion of the aggregate monthly bid amount 
                submitted under clause (i) of section 1860E-3(a)(3)(A) 
                for the year that is attributable under such section to 
                the provision of statutory prescription drug benefits.
                    ``(C) EFFS monthly supplemental beneficiary 
                premium.--The term `EFFS monthly supplemental 
                beneficiary premium' means, with respect to an EFFS 
                plan, the portion of the aggregate monthly bid amount 
                submitted under clause (i) of section 1860E-3(a)(3)(A) 
                for the year that is attributable under such section to 
                the provision of nonstatutory benefits.
    ``(b) Organizational and Financial Requirements.--The provisions of 
section 1855 shall apply to an EFFS plan offered by an EFFS 
organization under this part.
    ``(c) Standards.--The provisions of paragraphs (1), (3), and (4) of 
section 1856(b) shall apply to an EFFS plan offered by an EFFS 
organization under this part.
    ``(d) Contracts with EFFS Organizations.--The provisions of section 
1857 shall apply to an EFFS plan offered by an EFFS organization under 
this part, except that any reference in such section to part C is 
deemed a reference to this part.''.
    (b) Application of Medigap Provisions to EFFS Plans.--Section 1882 
of the Social Security Act (42 U.S.C. 1395ss) shall be administered as 
if any reference to a Medicare+Choice organization offering a 
Medicare+Choice plan under part C of title XVIII of such Act were a 
reference both to a Medicare Advantage organization offering a Medicare 
Advantage plan under such part and an EFFS organization offering an 
EFFS plan under part E of such title.

                 Subtitle B--Medicare Advantage Program

                  CHAPTER 1--IMPLEMENTATION OF PROGRAM

SEC. 211. 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 title.
    (b) References.--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''.

SEC. 212. MEDICARE ADVANTAGE 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) Based on 100 percent of fee-for-service 
                costs.--
                            ``(i) In general.--For 2004, the adjusted 
                        average per capita cost for the year involved, 
                        determined under section 1876(a)(4) for the 
                        Medicare Advantage payment area for services 
                        covered under parts A and B for individuals 
                        entitled to benefits under part A and enrolled 
                        under part B who are not enrolled in a Medicare 
                        Advantage under this part for the year, but 
                        adjusted to exclude costs attributable to 
                        payments under section 1886(h).
                            ``(ii) 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 
                        Veterans Affairs or the Department of 
                        Defense.''.
            (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 
                                Medicare Advantage capitation rate 
                                under this paragraph for the area for 
                                the previous year; or
                                    ``(II) the annual Medicare 
                                Advantage capitation rate under this 
                                paragraph for the area for the previous 
                                year increased by the national per 
                                capita Medicare Advantage 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 Medicare+Choice 
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 Medicare+Choice 
                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.--
            (1) In general.--Section 1853(g) (42 U.S.C. 1395w-23(g)) is 
        amended--
                    (A) by inserting ``or from a rehabilitation 
                facility (as defined in section 1886(j)(1)(A))'' after 
                ``1886(d)(1)(B))''; and
                    (B) in paragraph (2)(B), by inserting ``or section 
                1886(j), 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 
                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 Medicare Benefits 
Administrator 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) 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) Medicare Advantage 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.

            CHAPTER 2--IMPLEMENTATION OF COMPETITION PROGRAM

SEC. 221. COMPETITION PROGRAM BEGINNING IN 2006.

    (a) Submission of EFFS-Like Bidding Information Beginning in 
2006.--Section 1854 (42 U.S.C. 1395w-24) is amended--
            (1) by amending the section heading to read as follows:

                      ``premiums and bid amount'';

            (2) in subsection (a)(1)(A)--
                    (A) by striking ``(A)'' and inserting ``(A)(i) if 
                the following year is before 2006,''; and
                    (B) by inserting before the semicolon at the end 
                the following: ``or (ii) if the following year is 2006 
                or later, the information described in paragraph (3) or 
                (6)(A) for the type of plan involved''; and
            (3) by adding at the end of subsection (a) the following:
            ``(6) Submission of bid amounts by medicare advantage 
        organizations.--
                    ``(A) Information to be submitted.--The information 
                described in this subparagraph is as follows:
                            ``(i) The monthly aggregate bid amount for 
                        provision of all items and services under this 
                        part, which amount shall be based on average 
                        costs for a typical beneficiary residing in the 
                        area, and the actuarial basis for determining 
                        such amount.
                            ``(ii) The proportions of such bid amount 
                        that are attributable to--
                                    ``(I) the provision of statutory 
                                non-drug benefits (such portion 
                                referred to in this part as the 
                                `unadjusted Medicare Advantage 
                                statutory non-drug monthly bid 
                                amount');
                                    ``(II) the provision of statutory 
                                prescription drug benefits; and
                                    ``(III) the provision of non-
                                statutory benefits;
                        and the actuarial basis for determining such 
                        proportions.
                            ``(iii) Such additional information as the 
                        Administrator may require to verify the 
                        actuarial bases described in clauses (i) and 
                        (ii).
                    ``(B) Statutory benefits defined.--For purposes of 
                this part:
                            ``(i) The term `statutory non-drug 
                        benefits' means benefits under section 
                        1852(a)(1).
                            ``(ii) The term `statutory prescription 
                        drug benefits' means benefits under part D.
                            ``(iii) The term `statutory benefits' means 
                        statutory prescription drug benefits and 
                        statutory non-drug benefits.
                    ``(C) Acceptance and negotiation of bid amounts.--
                            ``(i) In general.--Subject to clause (ii)--
                                    ``(I) the Administrator has the 
                                authority to negotiate regarding 
                                monthly bid amounts submitted under 
                                subparagraph (A) (and the proportion 
                                described in subparagraph (A)(ii)), and 
                                for such purpose and subject to such 
                                clause, the Administrator has 
                                negotiation authority that the Director 
                                of the Office of Personnel Management 
                                has with respect to health benefits 
                                plans under chapter 89 of title 5, 
                                United States Code; and
                                    ``(II) the Administrator may reject 
                                such a bid amount or proportion if the 
                                Administrator determines that such 
                                amount or proportion is not supported 
                                by the actuarial bases provided under 
                                subparagraph (A).
                            ``(ii) Exception.--In the case of a plan 
                        described in section 1851(a)(2)(C), the 
                        provisions of clause (i) 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 proportion referred to in 
                        subparagraph (A).''.
    (b) Providing for Beneficiary Savings for Certain Plans.--
            (1) In general.--Section 1854(b) (42 U.S.C. 1395w-24(b)) is 
        amended--
                    (A) by adding at the end of paragraph (1) the 
                following new subparagraph:
                    ``(C) Beneficiary rebate rule.--
                            ``(i) Requirement.--The Medicare Advantage 
                        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) applicable to the plan and year involved.
                            ``(iii) Form of rebate.--A rebate required 
                        under this subparagraph shall be provided--
                                    ``(I) through the crediting of the 
                                amount of the rebate towards the 
                                Medicare Advantage monthly 
                                supplementary beneficiary premium or 
                                the premium imposed for prescription 
                                drug coverage under part D;
                                    ``(II) through a direct monthly 
                                payment (through electronic funds 
                                transfer or otherwise); or
                                    ``(III) through other means 
                                approved by the Medicare Benefits 
                                Administrator,
                        or any combination thereof.''; and
                    (B) by adding at the end the following new 
                paragraphs:
            ``(3) Computation of average per capita monthly savings.--
        For purposes of paragraph (1)(C)(i), the average per capita 
        monthly savings referred to in such paragraph for a Medicare 
        Advantage plan and year is computed as follows:
                    ``(A) Determination of state-wide average risk 
                adjustment.--
                            ``(i) In general.--The Medicare Benefits 
                        Administrator 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)(A) to payment 
                        for enrollees in that State. In the case of a 
                        State in which a Medicare Advantage plan was 
                        offered in the previous year, the Administrator 
                        may compute such average based upon risk 
                        adjustment factors applied in that State in a 
                        previous year.
                            ``(ii) Treatment of new states.--In the 
                        case of a State in which no Medicare Advantage 
                        plan was offered in the previous year, the 
                        Administrator shall estimate such average. In 
                        making such estimate, the Administrator may use 
                        average risk adjustment factors applied to 
                        comparable States or applied on a national 
                        basis.
                    ``(B) Determination of risk adjusted benchmark and 
                risk-adjusted bid.--For each Medicare Advantage plan 
                offered in a State, the Administrator shall--
                            ``(i) adjust the Medicare Advantage area-
                        specific non-drug monthly benchmark amount (as 
                        defined in subsection (j)) by the applicable 
                        average risk adjustment factor computed under 
                        subparagraph (A); and
                            ``(ii) adjust the unadjusted Medicare 
                        Advantage 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 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).
                    ``(D) Authority to determine risk adjustment for 
                areas other than states.--The Administrator may provide 
                for the determination and application of risk 
                adjustment factors under this paragraph on the basis of 
                areas other than States.
            ``(4) Beneficiary's option of payment through withholding 
        from social security payment or use of electronic funds 
        transfer mechanism.--In accordance with regulations, a Medicare 
        Advantage organization shall permit each enrollee, at the 
        enrollee's option, to make payment of premiums under this part 
        to the organization indirectly through withholding from benefit 
        payments in the manner provided under section 1840 with respect 
        to monthly premiums under section 1839 or through an electronic 
        funds transfer mechanism (such as automatic charges of an 
        account at a financial institution or a credit or debit card 
        account) or otherwise. All premium payments that are withheld 
        under this paragraph that are credited to the Federal 
        Supplementary Medical Insurance Drug Trust Fund shall be paid 
        to the Medicare Advantage organization involved.''.
            (2) Provision of single consolidated premium.--Section 
        1854(b) (42 U.S.C. 1395w-24(b)), as amended by paragraph (1), 
        is further amended by adding at the end the following new 
        paragraph:
            ``(5) Single consolidated premium.--In the case of an 
        enrollee in a Medicare Advantage plan who elects under part D 
        to be provided qualified prescription drug coverage through the 
        plan, the Administrator shall provide a mechanism for the 
        consolidation of the beneficiary premium amount for non-drug 
        benefits under this part with the premium amount for 
        prescription drug coverage under part D provided through the 
        plan.''.
            (3) Computation of medicare advantage 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 Medicare Advantage Area-Specific Non-Drug 
Monthly Benchmark Amount.--For purposes of this part, the term 
`Medicare Advantage area-specific non-drug monthly benchmark amount' 
means, with respect to a Medicare Advantage payment area for a month in 
a year, an amount equal to \1/12\ of the annual Medicare Advantage 
capitation rate under section 1853(c)(1) for the area for the year.''.
    (c) Payment of Plans Based on Bid Amounts.--
            (1) In general.--Section 1853(a)(1)(A) (42 U.S.C. 1395w-23) 
        is amended 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 Medicare Advantage 
                        capitation rate (as calculated under subsection 
                        (c)(1)) with respect to that individual for 
                        that area, reduced by the amount of any 
                        reduction elected under section 1854(f)(1)(E) 
                        and adjusted under clause (iv).
                            ``(ii) Payment for statutory non-drug 
                        benefits beginning with 2006.--For years 
                        beginning with 2006--
                                    ``(I) 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), the payment under this 
                                subsection is equal to the unadjusted 
                                Medicare Advantage statutory non-drug 
                                monthly bid amount, adjusted under 
                                clause (iv), plus the amount of the 
                                monthly rebate computed under section 
                                1854(b)(1)(C)(i) for that plan and 
                                year.
                                    ``(II) 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), the payment amount under 
                                this subsection is equal to the 
                                Medicare Advantage area-specific non-
                                drug monthly benchmark amount, adjusted 
                                under clause (iv).
                            ``(iii) For federal drug subsidies.--In the 
                        case in which an enrollee who elects under part 
                        D to be provided qualified prescription drug 
                        coverage through the plan, the Medicare 
                        Advantage organization offering such plan also 
                        is entitled--
                                    ``(I) to direct subsidy payment 
                                under section 1860D-8(a)(1);
                                    ``(II) to reinsurance subsidy 
                                payments under section 1860D-8(a)(2); 
                                and
                                    ``(III) to reimbursement for 
                                premium and cost-sharing reductions for 
                                low-income individuals under section 
                                1860D-7(c)(3).
                            ``(iv) Demographic adjustment, including 
                        adjustment for health status.--The 
                        Administrator shall adjust the payment amount 
                        under clause (i), the unadjusted Medicare 
                        Advantage statutory non-drug monthly bid amount 
                        under clause (ii)(I), and the Medicare 
                        Advantage area-specific non-drug monthly 
                        benchmark amount under clause (ii)(II) for such 
                        risk factors as age, disability status, gender, 
                        institutional status, and such other factors as 
                        the Administrator determines to be appropriate, 
                        including adjustment for health status under 
                        paragraph (3), so as to ensure actuarial 
                        equivalence. The Administrator may add to, 
                        modify, or substitute for such adjustment 
                        factors if such changes will improve the 
                        determination of actuarial equivalence.''.
    (d) 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 Administrator shall not 
        approve a plan of an organization if the Administrator 
        determines that the benefits are designed to substantially 
        discourage enrollment by certain Medicare Advantage eligible 
        individuals with the organization.''.
            (2) Conforming amendment to premium terminology.--Section 
        1854(b)(2) (42 U.S.C. 1395w-24(b)(2)) is amended by 
        redesignating subparagraph (C) as subparagraph (D) and by 
        striking subparagraphs (A) and (B) and inserting the following:
                    ``(A) Medicare advantage monthly basic beneficiary 
                premium.--The term `Medicare Advantage monthly basic 
                beneficiary premium' means, with respect to a Medicare 
                Advantage plan--
                            ``(i) described in section 
                        1853(a)(1)(A)(ii)(I) (relating to plans 
                        providing rebates), zero; or
                            ``(ii) described in section 
                        1853(a)(1)(A)(ii)(II), the amount (if any) by 
                        which the unadjusted Medicare Advantage 
                        statutory non-drug monthly bid amount exceeds 
                        the Medicare Advantage area-specific non-drug 
                        monthly benchmark amount.
                    ``(B) Medicare advantage monthly prescription drug 
                beneficiary premium.--The term `Medicare Advantage 
                monthly prescription drug beneficiary premium' means, 
                with respect to a Medicare Advantage plan, that portion 
                of the bid amount submitted under clause (i) of 
                subsection (a)(6)(A) for the year that is attributable 
                under such section to the provision of statutory 
                prescription drug benefits.
                    ``(C) Medicare advantage monthly supplemental 
                beneficiary premium.--The term `Medicare Advantage 
                monthly supplemental beneficiary premium' means, with 
                respect to a Medicare Advantage 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 such section to the provision of 
                nonstatutory benefits.''.
            (3) Requirement for uniform premium and bid amounts.--
        Section 1854(c) (42 U.S.C. 1395w-24(c)) is amended to read as 
        follows:
    ``(c) Uniform Premium and Bid Amounts.--The Medicare Advantage 
monthly bid amount submitted under subsection (a)(6), the Medicare 
Advantage monthly basic, prescription drug, and supplemental 
beneficiary premiums, and the Medicare Advantage monthly MSA premium 
charged under subsection (b) of a Medicare Advantage organization under 
this part may not vary among individuals enrolled in the plan.''.
            (4) Permitting beneficiary rebates.--
                    (A) Section 1851(h)(4)(A) (42 U.S.C. 1395w-
                21(h)(4)(A)) is amended by inserting ``except as 
                provided under section 1854(b)(1)(C)'' after ``or 
                otherwise''.
                    (B) Section 1854(d) (42 U.S.C. 1395w-24(d)) is 
                amended by inserting ``, except as provided under 
                subsection (b)(1)(C),'' after ``and may not provide''.
            (5) Other conforming amendments relating to bids.--Section 
        1854 (42 U.S.C. 1395w-24) is amended--
                    (A) in the heading of subsection (a), by inserting 
                ``and Bid Amounts'' after ``Premiums''; and
                    (B) in subsection (a)(5)(A), by inserting 
                ``paragraphs (2), (3), and (4) of'' after ``filed 
                under''.
    (e) Additional Conforming Amendments.--
            (1) Annual determination and announcement of certain 
        factors.--Section 1853(b)(1) (42 U.S.C. 1395w-23(b)(1)) is 
        amended by striking ``the respective calendar year'' and all 
        that follows and inserting the following: ``the calendar year 
        concerned with respect to each Medicare Advantage payment area, 
        the following:
                    ``(A) Pre-competition information.--For years 
                before 2006, the following:
                            ``(i) Medicare advantage capitation 
                        rates.--The annual Medicare Advantage 
                        capitation rate for each Medicare Advantage 
                        payment area for the year.
                            ``(ii) Adjustment factors.--The risk and 
                        other factors to be used in adjusting such 
                        rates under subsection (a)(1)(A) for payments 
                        for months in that year.
                    ``(B) Competition information.--For years beginning 
                with 2006, the following:
                            ``(i) Benchmark.--The Medicare Advantage 
                        area-specific non-drug benchmark under section 
                        1853(j).
                            ``(ii) Adjustment factors.--The adjustment 
                        factors applied under section 1853(a)(1)(A)(iv) 
                        (relating to demographic adjustment), section 
                        1853(a)(1)(B) (relating to adjustment for end-
                        stage renal disease), and section 1853(a)(3) 
                        (relating to health status adjustment).''.
            (2) Repeal of provisions relating to adjusted community 
        rate (acr).--
                    (A) In general.--Subsections (e) and (f) of section 
                1854 (42 U.S.C. 1395w-24) are repealed.
                    (B) Conforming amendments.--(i) Section 1839(a)(2) 
                (42 U.S.C. 1395r(a)(2)) is amended by striking ``, and 
                to reflect'' and all that follows and inserting a 
                period.
                    (ii) Section 1852(a)(1) (42 U.S.C. 1395w-22(a)(1)) 
                is amended by striking ``title XI'' and all that 
                follows and inserting the following: ``title XI those 
                items and services (other than hospice care) for which 
                benefits are available under parts A and B to 
                individuals residing in the area served by the plan.''.
                    (iii) 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''.
    (f) References under Part E.--Section 1859 (42 U.S.C. 1395w-29) is 
amended by adding at the end the following new subsection:
    ``(f) Application under Part E.--In the case of any reference under 
part E to a requirement or provision of this part in the relation to an 
EFFS plan or organization under such part, except as otherwise 
specified any such requirement or provision shall be applied to such 
organization or plan in the same manner as such requirement or 
provision applies to a Medicare Advantage private fee-for-service plan 
(and the Medicare Advantage organization that offers such plan) under 
this part.''.
    (g) Effective Date.--The amendments made by this section shall 
apply to payments and premiums for months beginning with January 2006.

                     CHAPTER 3--ADDITIONAL REFORMS

SEC. 231. MAKING PERMANENT CHANGE IN MEDICARE ADVANTAGE REPORTING 
              DEADLINES AND ANNUAL, COORDINATED ELECTION PERIOD.

    (a) Change in Reporting Deadline.--Section 1854(a)(1) (42 U.S.C. 
1395w-24(a)(1)), as amended by section 532(b)(1) of the Public Health 
Security and Bioterrorism Preparedness and Response Act of 2002, is 
amended by striking ``2002, 2003, and 2004 (or July 1 of each other 
year)'' and inserting ``2002 and each subsequent year''.
    (b) Delay in Annual, Coordinated Election Period.--Section 
1851(e)(3)(B) (42 U.S.C. 1395w-21(e)(3)(B)), as amended by section 
532(c)(1)(A) of the Public Health Security and Bioterrorism 
Preparedness and Response Act of 2002, is amended--
            (1) by striking ``and after 2005''; and
            (2) by striking ``, 2004, and 2005'' and inserting ``and 
        any subsequent year''.
    (c) Annual Announcement of Payment Rates.--Section 1853(b)(1) (42 
U.S.C. 1395w-23(b)(1)), as amended by section 532(d)(1) of the Public 
Health Security and Bioterrorism Preparedness and Response Act of 2002, 
is amended--
            (1) by striking ``and after 2005''; and
            (2) by striking ``and 2005'' and inserting ``and each 
        subsequent year''.
    (d) Requiring Provision of Available Information Comparing Plan 
Options.--The first sentence of section 1851(d)(2)(A)(ii) (42 U.S.C. 
1395w-21(d)(2)(A)(ii)) is amended by inserting before the period the 
following: ``to the extent such information is available at the time of 
preparation of materials for the mailing''.

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 subsection shall supersede any State law or 
        regulation (other than State licensing laws or State laws 
        relating to plan solvency) with respect to Medicare Advantage 
        plans which are offered by Medicare Advantage organizations 
        under this part.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
take effect on the date of the enactment of this Act.

SEC. 233. SPECIALIZED MEDICARE ADVANTAGE PLANS FOR SPECIAL NEEDS 
              BENEFICIARIES.

    (a) Treatment as Coordinated Care Plan.--Section 1851(a)(2)(A) (42 
U.S.C. 1395w-21(a)(2)(A)) is amended by adding at the end the following 
new sentence: ``Specialized Medicare Advantage plans for special needs 
beneficiaries (as defined in section 1859(b)(4)) may be any type of 
coordinated care plan.''.
    (b) Specialized Medicare Advantage Plan for Special Needs 
Beneficiaries Defined.--Section 1859(b) (42 U.S.C. 1395w-29(b)) is 
amended by adding at the end the following new paragraph:
            ``(4) Specialized medicare advantage plans for special 
        needs beneficiaries.--
                    ``(A) In general.--The term `specialized Medicare 
                Advantage plan for special needs beneficiaries' means a 
                Medicare Advantage plan that exclusively serves special 
                needs beneficiaries (as defined in subparagraph (B)).
                    ``(B) Special needs beneficiary.--The term `special 
                needs beneficiary' means a Medicare Advantage 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 Medicare 
                        Advantage plan described in subparagraph (A) 
                        for individuals with severe or disabling 
                        chronic conditions.''.
    (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 Medicare Advantage 
Plans for Special Needs Beneficiaries.--In the case of a specialized 
Medicare Advantage plan (as defined in subsection (b)(4)), 
notwithstanding any other provision of this part and in accordance with 
regulations of the Secretary and for periods before January 1, 2007, 
the plan may restrict the enrollment of individuals under the plan to 
individuals who are within one or more classes of special needs 
beneficiaries.''.
    (d) Authority To Designate Other Plans as Specialized Medicare 
Advantage Plans.--In promulgating regulations to carry out the last 
sentence of section 1851(a)(2)(A) of the Social Security Act (as added 
by subsection (a)) and section 1859(b)(4) of such Act (as added by 
subsection (b)), the Secretary may provide (notwithstanding section 
1859(b)(4)(A) of such Act) for the offering of specialized Medicare 
Advantage plans by Medicare Advantage plans that disproportionately 
serve special needs beneficiaries who are frail, elderly medicare 
beneficiaries.
    (e) Report to Congress.--Not later than December 31, 2005, the 
Medicare Benefits Administrator shall submit to Congress a report that 
assesses the impact of specialized Medicare Advantage plans for special 
needs beneficiaries 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 
        beneficiaries; transition.--No later than 6 months after the 
        date of the enactment of this Act, the Secretary shall issue 
        interim final regulations to establish requirements for special 
        needs beneficiaries under section 1859(b)(4)(B)(iii) of the 
        Social Security Act, as added by subsection (b).

SEC. 234. MEDICARE MSAS.

    (a) Exemption from Reporting Enrollee Encounter Data.--
            (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''; and
                    (B) in subparagraphs (A) and (B) of subsection 
                (e)(2), by striking ``, a non-network MSA plan,'' and 
                ``, non-network msa plans,'' each place it appears.
    (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 a 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. 235. 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), may be extended or renewed under 
this subsection 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 2 or more plans 
which were coordinated care Medicare Advantage plans under part C or 2 
or more enhanced fee-for-service plans under part E and each of which 
plan for that previous year for the area involved 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. 236. EXTENSION OF MUNICIPAL HEALTH SERVICE DEMONSTRATION PROJECTS.

    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, 2009''.

SEC. 237. STUDY OF PERFORMANCE-BASED PAYMENT SYSTEMS.

    (a) In General.--The Secretary shall request the Institute of 
Medicine of the National Academy of Sciences to--
            (1) conduct a study that reviews and evaluates public and 
        private sector experiences in establishing performance measures 
        and payment incentives under the medicare program and linking 
        performance to payment; and
            (2) submit a report to the Secretary and Congress, not 
        later than 18 months after the date of the enactment of this 
        Act, regarding such study.
    (b) Study.--The study under subsection (a)(1) shall--
            (1) include a review and evaluation of incentives that have 
        been or could be used to encourage quality performance, 
        including those aimed at health plans and their enrollees, 
        providers and their patients, and other incentives that 
        encourage quality-based health care purchasing and 
        collaborative efforts to improve performance; and
            (2) examine how these measures and incentives might be 
        applied in the Medicare Advantage program, the Enhanced Fee-
        For-Service (EFFS) program, and traditional fee-for-service 
        programs.
    (c) Report Recommendations.--The report under subsection (a)(2) 
shall--
            (1) include recommendations regarding appropriate 
        performance measures for use in assessing and paying for 
        quality; and
            (2) identify options for updating performance measures.

       Subtitle C--Application of FEHBP-Style Competitive Reforms

SEC. 241. APPLICATION OF FEHBP-STYLE COMPETITIVE REFORM BEGINNING IN 
              2010.

    (a) Identification of Competitive EFFS Regions; Computation of 
Competitive EFFS Non-Drug Benchmarks Under EFFS Program.--
            (1) In general.--Section 1860E-3, as added by section 
        201(a), is amended by adding at the end the following new 
        subsection:
    ``(e) Application of Competition.--
            ``(1) Determination of competitive effs regions.--
                    ``(A) In general.--For purposes of this part, the 
                term `competitive EFFS region' means, for a year 
                beginning with 2010, an EFFS region that the 
                Administrator finds--
                            ``(i) there will be offered in the region 
                        during the annual, coordinated election period 
                        under section 1851(e)(3)(B) (as applied under 
                        section 1860E-1(c)) before the beginning of the 
                        year at least 2 EFFS plans (in addition to the 
                        fee-for-service program under parts A and B), 
                        each offered by a different EFFS 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 March of the previous year; 
                        and
                            ``(ii) during March of the previous year at 
                        least the percentage specified in subparagraph 
                        (C) of the number of EFFS eligible individuals 
                        who reside in the region were enrolled in an 
                        EFFS plan.
                    ``(B) Percentage specified.--
                            ``(i) In general.--For purposes of 
                        subparagraph (A), subject to clause (ii), the 
                        percentage specified in this subparagraph for a 
                        year is equal the lesser of 20 percent or to 
                        the sum of--
                                    ``(I) the percentage, as estimated 
                                by the Administrator, of EFFS eligible 
                                individuals in the United States who 
                                are enrolled in EFFS plans during March 
                                of the previous year; and
                                    ``(II) the percentage, as estimated 
                                by the Administrator, of Medicare 
                                Advantage eligible individuals in the 
                                United States who are enrolled in 
                                Medicare Advantage plans during March 
                                of the previous year.
                            ``(ii) Exception.--In the case of an EFFS 
                        region that was a competitive EFFS region for 
                        the previous year, the Medicare Benefits 
                        Administrator may continue to treat the region 
                        as meeting the requirement of subparagraph 
                        (A)(ii) if the region would meet such 
                        requirement but for a de minimis reduction 
                        below the percentage specified in clause (i).
            ``(2) Competitive effs non-drug monthly benchmark amount.--
        For purposes of this part, the term `competitive EFFS non-drug 
        monthly benchmark amount' means, with respect to an EFFS region 
        for a month in a year and subject to paragraph (8), the sum of 
        the 2 components described in paragraph (3) for the region and 
        year. The Administrator shall compute such benchmark amount for 
        each competitive EFFS region before the beginning of each 
        annual, coordinated election period under section 1851(e)(3)(B) 
        for each year (beginning with 2010) in which it is designated 
        as such a region.
            ``(3) 2 components.--For purposes of paragraph (2), the 2 
        components described in this paragraph for an EFFS region and a 
        year are the following:
                    ``(A) EFFS component.--The product of the 
                following:
                            ``(i) Weighted average of plan bids in 
                        region.--The weighted average of the EFFS plan 
                        bids for the region and year (as determined 
                        under paragraph (4)(A)).
                            ``(ii) Non-ffs market share.--1 minus the 
                        fee-for-service market share percentage 
                        determined under paragraph (5) for the region 
                        and the year.
                    ``(B) Fee-for-service component.--The product of 
                the following:
                            ``(i) Fee-for-service region-specific non-
                        drug amount.--The fee-for-service region-
                        specific non-drug amount (as defined in 
                        paragraph (6)) for the region and year.
                            ``(ii) Fee-for-service market share.--The 
                        fee-for-service market share percentage 
                        (determined under paragraph (5)) for the region 
                        and the year.
            ``(4) Determination of weighted average effs plan bids for 
        a region.--
                    ``(A) In general.--For purposes of paragraph 
                (3)(A)(i), the weighted average of EFFS plan bids for 
                an EFFS region and a year is the sum of the following 
                products for EFFS plans described in subparagraph (C) 
                in the region and year:
                            ``(i) Unadjusted effs statutory non-drug 
                        monthly bid amount.--The unadjusted EFFS 
                        statutory non-drug monthly bid amount (as 
                        defined in subsection (a)(3)(A)(ii)(I)) for the 
                        region and year.
                            ``(ii) Plan's share of effs enrollment in 
                        region.--The number of individuals described in 
                        subparagraph (B), divided by the total number 
                        of such individuals for all EFFS plans 
                        described in subparagraph (C) for that region 
                        and year.
                    ``(B) Counting of individuals.--The Administrator 
                shall count, for each EFFS plan described in 
                subparagraph (C) for an EFFS region and year, the 
                number of individuals who reside in the region and who 
                were enrolled under such plan under this part during 
                March of the previous year.
                    ``(C) Exclusion of plans not offered in previous 
                year.--For an EFFS region and year, the EFFS plans 
                described in this subparagraph are plans that are 
                offered in the region and year and were offered in the 
                region in March of the previous year.
            ``(5) Computation of fee-for-service market share 
        percentage.--The Administrator shall determine, for a year and 
        an EFFS region, the proportion (in this subsection referred to 
        as the `fee-for-service market share percentage') of the EFFS 
        eligible individuals who are residents of the region during 
        March of the previous year, of such individuals who were not 
        enrolled in an EFFS plan or in a Medicare Advantage plan (or, 
        if greater, such proportion determined for individuals 
        nationally).
            ``(6) Fee-for-service region-specific non-drug amount.--
                    ``(A) In general.--For purposes of paragraph 
                (3)(B)(i) and section 1839(h)(2)(A), subject to 
                subparagraph (C), the term `fee-for-service region-
                specific non-drug amount' means, for a competitive EFFS 
                region and a year, the adjusted average per capita cost 
                for the year involved, determined under section 
                1876(a)(4) for such region for services covered under 
                parts A and B for individuals entitled to benefits 
                under part A and enrolled under this part who are not 
                enrolled in an EFFS plan under part E or a Medicare 
                Advantage plan under part C 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 a 
                region and year under subparagraph (A), such costs 
                shall be adjusted to fully take into account the 
                demographic and health status risk factors established 
                under subsection (c)(3) so that such per capita costs 
                reflect the average costs for a typical beneficiary 
                residing in the region.
                    ``(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 Administrator's estimate, on a 
                per capita basis, of the amount of additional payments 
                that would have been made in the region 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.
            ``(7) Application of competition.--In the case of an EFFS 
        region that is a competitive EFFS region for a year, for 
        purposes of applying subsections (b) and (c)(1) and section 
        1860E-4(a), any reference to an EFFS region-specific non-drug 
        monthly benchmark amount shall be treated as a reference to the 
        competitive EFFS non-drug monthly benchmark amount under 
        paragraph (2) for the region and year.
            ``(8) Phase-in of benchmark for each region.--
                    ``(A) Use of blended benchmark.--In the case of a 
                region that has not been a competitive EFFS region for 
                each of the previous 4 years, the competitive EFFS non-
                drug monthly benchmark amount shall be equal to the sum 
                of the following:
                            ``(i) New competitive component.--The 
                        product of--
                                    ``(I) the weighted average phase-in 
                                proportion for that area and year, as 
                                specified in subparagraph (B); and
                                    ``(II) the competitive EFFS non-
                                drug monthly benchmark amount for the 
                                region and year, determined under 
                                paragraph (2) without regard to this 
                                paragraph.
                            ``(ii) Old competitive component.--The 
                        product of--
                                    ``(I) 1 minus the weighted average 
                                phase-in proportion for that region and 
                                year; and
                                    ``(II) the EFFS region-specific 
                                non-drug benchmark amount for the 
                                region and the year.
                    ``(B) Computation of weighted average phase-in 
                proportion.--For purposes of this paragraph, the 
                `weighted average phase-in proportion' for an EFFS 
                region for a year shall be determined as follows:
                            ``(i) First year (and region not 
                        competitive region in previous year).--If the 
                        area was not a competitive EFFS region in the 
                        previous year, the weighted average phase-in 
                        proportion for the region for the year is equal 
                        to \1/5\.
                            ``(ii) Competitive region in previous 
                        year.--If the region was a competitive EFFS 
                        region in the previous year, the weighted 
                        average phase-in proportion for the region for 
                        the year is equal to the weighted average 
                        phase-in proportion determined under this 
                        subparagraph for the region for the previous 
                        year plus \1/5\, but in no case more than 1.''.
            (2) Conforming amendments.--
                    (A) Such section 1860E-3 is further amended--
                            (i) in subsection (b), by adding at the end 
                        the following new paragraph:
                    ``(4) Application in competitive regions.--For 
                special rules applying this subsection in competitive 
                EFFS regions, see subsection (e)(7).'';
                            (ii) in subsection (c)(1), by inserting 
                        ``and subsection (e)(7)'' after ``(as made 
                        applicable under subsection (d))''; and
                            (iii) in subsection (d) , by striking ``and 
                        (e)'' and inserting ``(e), and (k)''.
                    (B) Section 1860E-4(a)(1), as inserted by section 
                201(a)(2), is amended by inserting ``, except as 
                provided in section 1860E-3(e)(7)'' after ``paragraph 
                (2)''.
    (b) Identification of Competitive Medicare Advantage Areas; 
Application of Competitive Medicare Advantage Non-Drug Benchmarks Under 
Medicare Advantage Program.--
            (1) In general.--Section 1853, as amended by section 
        221(b)(3), is amended by adding at the end the following new 
        subsection:
    ``(k) Application of Competition.--
            ``(1) Determination of competitive medicare advantage 
        areas.--
                    ``(A) In general.--For purposes of this part, the 
                terms `competitive Medicare Advantage area' and `CMA 
                area' mean, for a year beginning with 2010, an area 
                (which is a metropolitan statistical area or other area 
                with a substantial number of Medicare Advantage 
                enrollees) that the Administrator finds--
                            ``(i) there will be offered during the 
                        annual, coordinated election period under 
                        section 1851(e)(3)(B) under this part before 
                        the beginning of the year at least 2 Medicare 
                        Advantage plans (in addition to the fee-for-
                        service program under parts A and B), each 
                        offered by a different Medicare Advantage 
                        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 March of the 
                        previous year with respect to the area; and
                            ``(ii) during March of the previous year at 
                        least the percentage specified in subparagraph 
                        (B) of the number of Medicare Advantage 
                        eligible individuals who reside in the area 
                        were enrolled in a Medicare Advantage plan.
                    ``(B) Percentage specified.--
                            ``(i) In general.--For purposes of 
                        subparagraph (A), subject to clause (ii), the 
                        percentage specified in this subparagraph for a 
                        year is equal the lesser of 20 percent or to 
                        the sum of--
                                    ``(I) the percentage, as estimated 
                                by the Administrator, of EFFS eligible 
                                individuals in the United States who 
                                are enrolled in EFFS plans during March 
                                of the previous year; and
                                    ``(II) the percentage, as estimated 
                                by the Administrator, of Medicare 
                                Advantage eligible individuals in the 
                                United States who are enrolled in 
                                Medicare Advantage plans during March 
                                of the previous year.
                            ``(ii) Exception.--In the case of an area 
                        that was a competitive area for the previous 
                        year, the Medicare Benefits Administrator may 
                        continue to treat the area as meeting the 
                        requirement of subparagraph (A)(ii) if the area 
                        would meet such requirement but for a de 
                        minimis reduction below the percentage 
                        specified in clause (i).
            ``(2) Competitive medicare advantage non-drug monthly 
        benchmark amount.--For purposes of this part, the term 
        `competitive Medicare Advantage non-drug monthly benchmark 
        amount' means, with respect to a competitive Medicare Advantage 
        area for a month in a year subject to paragraph (8), the sum of 
        the 2 components described in paragraph (3) for the area and 
        year. The Administrator shall compute such benchmark amount for 
        each competitive Medicare Advantage area before the beginning 
        of each annual, coordinated election period under section 
        1851(e)(3)(B) for each year (beginning with 2010) in which it 
        is designated as such an area.
            ``(3) 2 components.--For purposes of paragraph (2), the 2 
        components described in this paragraph for a competitive 
        Medicare Advantage area and a year are the following:
                    ``(A) Medicare advantage 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 (4)(A)).
                            ``(ii) Non-ffs market share.--1 minus the 
                        fee-for-service market share percentage, 
                        determined under paragraph (5) 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 (6)) 
                        for the area and year.
                            ``(ii) Fee-for-service market share.--The 
                        fee-for-service market share percentage, 
                        determined under paragraph (5) for the area and 
                        year.
            ``(4) Determination of weighted average medicare advantage 
        bids for an area.--
                    ``(A) In general.--For purposes of paragraph 
                (3)(A)(i), the weighted average of plan bids for an 
                area and a year is the sum of the following products 
                for Medicare Advantage plans described in subparagraph 
                (C) in the area and year:
                            ``(i) Monthly medicare advantage statutory 
                        non-drug bid amount.--The unadjusted Medicare 
                        Advantage 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 
                        Medicare Advantage plans described in 
                        subparagraph (C) for that area and year.
                    ``(B) Counting of individuals.--The Administrator 
                shall count, for each Medicare Advantage 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 March 
                of the previous year.
                    ``(C) Exclusion of plans not offered in previous 
                year.--For an area and year, the Medicare Advantage 
                plans described in this subparagraph are plans 
                described in the first sentence of section 
                1851(a)(2)(A) that are offered in the area and year and 
                were offered in the area in March of the previous year.
            ``(5) Computation of fee-for-service market share 
        percentage.--The Administrator shall determine, for a year and 
        a competitive Medicare Advantage area, the proportion (in this 
        subsection referred to as the `fee-for-service market share 
        percentage') of Medicare Advantage eligible individuals 
        residing in the area who during March of the previous year were 
        not enrolled in a Medicare Advantage plan or in an EFFS plan 
        (or, if greater, such proportion determined for individuals 
        nationally).
            ``(6) Fee-for-service area-specific non-drug amount.--
                    ``(A) In general.--For purposes of paragraph 
                (3)(B)(i) and section 1839(h)(1)(A), subject to 
                subparagraph (C), the term `fee-for-service area-
                specific non-drug amount' means, for a competitive 
                Medicare Advantage area and a year, the adjusted 
                average per capita cost for the year involved, 
                determined under section 1876(a)(4) for such area for 
                services covered under parts A and B for individuals 
                entitled to benefits under part A and enrolled under 
                this part who are not enrolled in a Medicare Advantage 
                plan under part C or an EFFS plan under part E 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 
                subsection (a)(1)(A)(iv) so that such per capita costs 
                reflect the average costs for a typical beneficiary 
                residing in the 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 Administrator'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.
            ``(7) Application of competition.--In the case of an area 
        that is a competitive Medicare Advantage area for a year, for 
        purposes of applying subsection (a)(1)(A)(ii) and sections 
        1854(b)(2)(A)(ii) and 1854(b)(3)(B)(i), any reference to a 
        Medicare Advantage area-specific non-drug monthly benchmark 
        amount shall be treated as a reference to the competitive 
        Medicare Advantage non-drug monthly benchmark amount under 
        paragraph (2) for the area and year.
            ``(8) Phase-in of benchmark for each area.--
                    ``(A) Use of blended benchmark.--In the case of an 
                area that has not been a competitive Medicare Advantage 
                area for each of the previous 4 years, the competitive 
                Medicare Advantage non-drug monthly benchmark amount 
                shall be equal to the sum of the following:
                            ``(i) New competitive component.--The 
                        product of--
                                    ``(I) the weighted average phase-in 
                                proportion for that area and year, as 
                                specified in subparagraph (B); and
                                    ``(II) the competitive Medicare 
                                Advantage non-drug monthly benchmark 
                                amount for the area and year, 
                                determined under paragraph (2) without 
                                regard to this paragraph.
                            ``(ii) Old competitive component.--The 
                        product of--
                                    ``(I) 1 minus the weighted average 
                                phase-in proportion for that area and 
                                year; and
                                    ``(II) the Medicare Advantage area-
                                wide non-drug benchmark amount for the 
                                area and the year.
                    ``(B) Computation of weighted average phase-in 
                proportion.--For purposes of this paragraph, the 
                `weighted average phase-in proportion' for a Medicare 
                Advantage payment area for a year shall be determined 
                as follows:
                            ``(i) First year (and area not competitive 
                        area in previous year).--If the area was not a 
                        Medicare Advantage competitive area in the 
                        previous year, the weighted average phase-in 
                        proportion for the area for the year is equal 
                        to \1/5\.
                            ``(ii) Competitive area in previous year.--
                        If the area was a competitive Medicare 
                        Advantage area in the previous year, the 
                        weighted average phase-in proportion for the 
                        area for the year is equal to the weighted 
                        average phase-in proportion determined under 
                        this subparagraph for the area for the previous 
                        year plus \1/5\, but in no case more than 1.
                    ``(C) Medicare advantage area-wide non-drug 
                benchmark amount.--For purposes of subparagraph 
                (A)(ii)(II), the term `Medicare Advantage area-wide 
                non-drug benchmark amount' means, for an area and year, 
                the weighted average of the amounts described in 
                section 1853(j) for Medicare Advantage payment area or 
                areas included in the area (based on the number of 
                traditional fee-for-service enrollees in such payment 
                area or areas) and year.''.
            (2) Application.--Section 1854 (42 U.S.C. 1395w-24) is 
        amended--
                    (A) in subsection (b)(1)(C)(i), as added by section 
                221(b)(1)(A), by striking ``(i) Requirement.--The'' and 
                inserting ``(i) Requirement for non-competitive 
                areas.--In the case of a Medicare Advantage payment 
                area that is not a competitive Medicare Advantage area 
                designated under section 1853(k)(1), the'';
                    (B) in subsection (b)(1)(C), as so added, by 
                inserting after clause (i) the following new clause:
                            ``(ii) Requirement for competitive medicare 
                        advantage areas.--In the case of a Medicare 
                        Advantage payment area that is designated as a 
                        competitive Medicare Advantage area under 
                        section 1853(k)(1), if there are average per 
                        capita monthly savings described in paragraph 
                        (6) for a Medicare Advantage plan and year, the 
                        Medicare Advantage plan shall provide to the 
                        enrollee a monthly rebate equal to 75 percent 
                        of such savings.''; and
                    (C) by adding at the end of subsection (b), as 
                amended by sections 221(b)(1)(B) and 221(b)(2), the 
                following new paragraph:
            ``(6) Computation of average per capita monthly savings for 
        competitive medicare advantage areas.--For purposes of 
        paragraph (1)(C)(ii), the average per capita monthly savings 
        referred to in such paragraph for a Medicare Advantage plan and 
        year shall be computed in the same manner as the average per 
        capita monthly savings is computed under paragraph (3) except 
        that the reference to the Medicare Advantage area-specific non-
        drug monthly benchmark amount in paragraph (3)(B)(i) (or to the 
        benchmark amount as adjusted under paragraph (3)(C)(i)) is 
        deemed to be a reference to the competitive Medicare Advantage 
        non-drug monthly benchmark amount (or such amount as adjusted 
        in the manner described in paragraph (3)(B)(i)).''.
            (3) Additional conforming amendments.--
                    (A) Payment of plans.--Section 1853(a)(1)(A)(ii), 
                as amended by section 221(c)(1), is amended--
                            (i) in subclauses (I) and (II), by 
                        inserting ``(or, insofar as such payment area 
                        is a competitive Medicare Advantage area, 
                        described in section 1854(b)(6))'' after 
                        ``section 1854(b)(3)(C)''; and
                            (ii) in subclause (II), by inserting ``(or, 
                        insofar as such payment area is a competitive 
                        Medicare Advantage area, the competitive 
                        Medicare Advantage non-drug monthly benchmark 
                        amount)'' after ``Medicare Advantage area-
                        specific non-drug monthly benchmark amount''; 
                        and
                    (B) Disclosure of information.--Section 
                1853(b)(1)(B), as amended by section 221(e)(1), is 
                amended to read as follows:
                    ``(B) Competition information.--For years beginning 
                with 2006, the following:
                            ``(i) Benchmarks.--The Medicare Advantage 
                        area-specific non-drug benchmark under section 
                        1853(j) and, if applicable, the competitive 
                        Medicare Advantage non-drug benchmark under 
                        section 1853(k)(2), for the year and 
                        competitive Medicare Advantage area involved 
                        and the national fee-for-service market share 
                        percentage for the area and year.
                            ``(ii) Adjustment factors.--The adjustment 
                        factors applied under section 1853(a)(1)(A)(iv) 
                        (relating to demographic adjustment), section 
                        1853(a)(1)(B) (relating to adjustment for end-
                        stage renal disease), and section 1853(a)(3) 
                        (relating to health status adjustment).
                            ``(iii) Certain benchmarks and amounts.--In 
                        the case of a competitive Medicare Advantage 
                        area, the Medicare Advantage area-wide non-drug 
                        benchmark amount (as defined in subsection 
                        (k)(8)(C)) and the fee-for-service area-
                        specific non-drug amount (as defined in section 
                        1853(k)(6)) for the area.
                            ``(iv) Individuals.--The number of 
                        individuals counted under subsection (k)(4)(B) 
                        and enrolled in each Medicare Advantage plan in 
                        the area.''.
                    (C) Definition of monthly basic premium.--Section 
                1854(b)(2)(A)(ii), as amended by section 221(d)(2), is 
                amended by inserting ``(or, in the case of a 
                competitive Medicare Advantage area, the competitive 
                Medicare Advantage non-drug monthly benchmark amount 
                or, in applying this paragraph under part E in the case 
                of a competitive EFFS region, the competitive EFFS non-
                drug monthly benchmark amount)'' after ``benchmark 
                amount''.
    (c) Premium Adjustment.--
            (1) In general.--Section 1839 (42 U.S.C. 1395r) is amended 
        by adding at the end the following new subsection:
    ``(h)(1)(A) In the case of an individual who resides in a 
competitive Medicare Advantage area under section 1853(k)(1) 
(regardless of whether such area is in a competitive EFFS region under 
section 1860E-3(e)) and who is not enrolled in a Medicare Advantage 
plan under part C or in an EFFS plan under part E, the monthly premium 
otherwise applied under this part (determined without regard to 
subsections (b) and (f) or any adjustment under this subsection) shall 
be adjusted as follows: If the fee-for-service area-specific non-drug 
amount (as defined in section 1853(k)(6)) for the competitive Medicare 
Advantage area in which the individual resides for a month--
            ``(i) does not exceed the competitive Medicare Advantage 
        non-drug benchmark (as determined under paragraph (2) of 
        section 1853(k), without regard to paragraph (8) thereof) for 
        such area, the amount of the premium for the individual for the 
        month shall be reduced by an amount equal to the product of the 
        adjustment factor under subparagraph (C) and 75 percent of the 
        amount by which such competitive benchmark exceeds such fee-
        for-service area-specific non-drug amount; or
            ``(ii) exceeds such competitive Medicare Advantage non-drug 
        benchmark, the amount of the premium for the individual for the 
        month shall be adjusted to ensure, subject to subparagraph (B), 
        that--
                    ``(I) the sum of the amount of the adjusted premium 
                and the competitive Medicare Advantage non-drug 
                benchmark for the area, is equal to
                    ``(II) the sum of the unadjusted premium plus 
                amount of the fee-for-service area-specific non-drug 
                amount for the area.
    ``(B) In no case shall the actual amount of an adjustment under 
subparagraph (A)(ii) exceed the product of the adjustment factor under 
subparagraph (C) and the amount of the adjustment otherwise computed 
under subparagraph (A)(ii) without regard to this subparagraph.
    ``(C) The adjustment factor under this subparagraph for an area for 
a year is equal to--
            ``(i) the number of consecutive years (in the 5-year period 
        ending with the year involved) in which such area was a 
        competitive Medicare Advantage area; divided by
            ``(ii) 5.
    ``(2)(A) In the case of an individual who resides in an area that 
is within a competitive EFFS region under section 1860E-3(e) but is not 
within a competitive Medicare Advantage area under section 1853(k)(1) 
and who is not enrolled in a Medicare Advantage plan under part C or in 
an EFFS plan under part E, the monthly premium otherwise applied under 
this part (determined without regard to subsections (b) and (f) or any 
adjustment under this subsection) shall be adjusted as follows: If the 
fee-for-service region-specific non-drug amount (as defined in section 
1860E-3(e)(6)) for a region for a month--
            ``(i) does not exceed the competitive EFFS non-drug monthly 
        benchmark amount (as determined under paragraph (2) of section 
        1860E-3(e), without regard to paragraph (8) thereof) for such 
        region, the amount of the premium for the individual for the 
        month shall be reduced by an amount equal to the product of the 
        adjustment factor under subparagraph (C) and 75 percent of the 
        amount by which such competitive benchmark amount exceeds such 
        fee-for-service region-specific non-drug benchmark amount; or
            ``(ii) exceeds such competitive EFFS non-drug monthly 
        benchmark amount, the amount of the premium for the individual 
        for the month shall be adjusted to ensure, subject to 
        subparagraph (B), that--
                    ``(I) the sum of the amount of the adjusted premium 
                and the competitive EFFS non-drug monthly benchmark 
                amount for the region, is equal to
                    ``(II) the sum of the unadjusted premium plus the 
                amount of the EFFS region-specific non-drug monthly 
                bidfor the region.
    ``(B) In no case shall the actual amount of an adjustment under 
subparagraph (A)(ii) exceed the product of the adjustment factor under 
subparagraph (C) and the amount of the adjustment otherwise computed 
under subparagraph (A)(ii) without regard to this subparagraph.
    ``(C) The adjustment factor under this subparagraph for an EFFS 
region for a year is equal to--
            ``(i) the number of consecutive years (in the 5-year period 
        ending with the year involved) in which such region was a 
        competitive EFFS region; divided by
            ``(ii) 5.
    ``(3) Nothing in this subsection shall be construed as preventing a 
reduction under paragraph (1)(A) or paragraph (2)(A) in the premium 
otherwise applicable under this part to zero or from requiring the 
provision of a rebate to the extent such premium would otherwise be 
required to be less than zero.
    ``(4) The adjustment in the premium under this subsection shall be 
effected in such manner as the Medicare Benefits Administrator 
determines appropriate.
    ``(5) In order to carry out this subsection (insofar as it is 
effected through the manner of collection of premiums under 1840(a)), 
the Medicare Benefits Administrator 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 adjustment (if 
        any) under this subsection 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.''.
            (2) 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.
            (3) Conforming amendment.--Section 1844(c) (42 U.S.C. 
        1395w(c)) is amended by inserting ``and without regard to any 
        premium adjustment effected under section 1839(h)'' before the 
        period at the end.
    (d) Effective Date.--The amendments made by this section shall take 
effect on January 1, 2010.

             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.--
            (1) In general.--Section 1862(b)(2) (42 U.S.C. 1395y(b)(2)) 
        is amended--
                    (A) in subparagraph (A)(ii), by striking ``promptly 
                (as determined in accordance with regulations)'';
                    (B) in subparagraph (B)--
                            (i) by redesignating clauses (i) through 
                        (iii) as clauses (ii) through (iv), 
                        respectively; and
                            (ii) 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.''.
            (2) Effective date.--The amendments made by paragraph (1) 
        shall be effective as if included in the enactment of title III 
        of the Medicare and Medicaid Budget Reconciliation Amendments 
        of 1984 (Public Law 98-369).
    (b) Clarifying Amendments to Conditional Payment Provisions.--
Section 1862(b)(2) (42 U.S.C. 1395y(b)(2)) is further 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)(B)--
                    (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)(B), 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''.

SEC. 302. COMPETITIVE ACQUISITION OF CERTAIN ITEMS AND SERVICES.

    (a) 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 shall 
                be phased-in--
                            ``(i) among competitive acquisition areas 
                        over a period of not longer than 3 years in a 
                        manner so that the competition under the 
                        programs occurs in--
                                    ``(I) at least \1/3\ of such areas 
                                in 2005; and
                                    ``(II) at least \2/3\ of such areas 
                                in 2006; and
                            ``(ii) among items and services in a manner 
                        such that the programs apply to the highest 
                        cost and highest volume items and services 
                        first.
                    ``(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 is otherwise made under 
                section 1834(a), including items used in infusion and 
                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, 
                equipment, and supplies (as described in section 
                1842(s)(2)(D) other than enteral nutrients).
                    ``(C) Off-the-shelf orthotics.--Orthotics 
                (described in section 1861(s)(9)) for which payment is 
                otherwise made under section 1834(h) which require 
                minimal self-adjustment for appropriate use and does 
                not require expertise in trimming, bending, molding, 
                assembling, or customizing to fit to the patient.
            ``(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.--In the case of a covered item for which 
        payment is made on a rental basis under section 1834(a), the 
        Secretary shall establish a process by which rental agreements 
        for the covered items 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.--The Secretary may establish 
        a process under which a physician may prescribe a particular 
        brand or mode of delivery of an item or service if the item or 
        service involved is clinically more appropriate than other 
        similar items or services.
            ``(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).
    ``(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 quality and 
                        financial standards specified by the Secretary 
                        or developed by the Program Advisory and 
                        Oversight Committee established under 
                        subsection (c).
                            ``(ii) The total amounts to be paid under 
                        the contract (including costs associated with 
                        the administration of the contract) are 
                        expected to be less than the total amounts that 
                        would otherwise be paid.
                            ``(iii) Beneficiary access to a choice of 
                        multiple suppliers in the area is maintained.
                            ``(iv) Beneficiary liability is limited to 
                        20 percent of the applicable contract award 
                        price, except in such cases where a supplier 
                        has furnished an upgraded item and has executed 
                        an advanced beneficiary notice.
                    ``(B) Development of quality standards for dme 
                products.--
                            ``(i) In general.--The quality standards 
                        specified under subparagraph (A)(i) shall not 
                        be less than the quality standards that would 
                        otherwise apply if this section did not apply 
                        and shall include consumer services standards. 
                        Not later than July 1, 2004, the Secretary 
                        shall establish new quality standards for 
                        products subject to competitive acquisition 
                        under this section. Such standards shall be 
                        applied prospectively and shall be published on 
                        the website of the Department of Health and 
                        Human Services.
                            ``(ii) Consultation with program advisory 
                        and oversight committee.--The Secretary shall 
                        consult with the Program Advisory and Oversight 
                        Committee (established under subsection (c)) to 
                        review (and advise the Secretary concerning) 
                        the quality standards referred to in clause 
                        (i).
                            ``(iii) Construction.--Nothing in this 
                        subparagraph shall be construed as delaying the 
                        effective date of 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 beneficiaries 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.--Payment under this part for competitively 
        priced items and services described in subsection (a)(2) shall 
        be based on the bids submitted and accepted under this section 
        for such items and services.
            ``(6) Participating contractors.--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--
                    ``(A) the contractor has submitted a bid for such 
                items and services under this section; and
                    ``(B) the Secretary has awarded a contract to the 
                contractor for such items and services under this 
                section.
        In this section, the term `bid' means a request for a proposal 
        for an item or service that includes the cost of the item or 
        service, and where appropriate, any services that are attendant 
        to the provision of the item or service.
            ``(7) Consideration in determining categories for bids.--
        The Secretary shall consider the similarity of the clinical 
        efficiency and value of specific codes and products, including 
        products that may provide a therapeutic advantage to 
        beneficiaries, before delineating the categories and products 
        that will be subject to bidding.
            ``(8) Authority to contract for education, monitoring, 
        outreach and complaint services.--The Secretary may enter into 
        a contract with an appropriate entity to address complaints 
        from beneficiaries who receive items and services from an 
        entity with a contract under this section and to conduct 
        appropriate education of and outreach to such beneficiaries and 
        monitoring quality of services with respect to the program.
    ``(c) Program Advisory and Oversight Committee.--
            ``(1) Establishment.--There is established 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) Technical assistance.--The Committee shall 
                provide advice and technical assistance to the 
                Secretary with respect to the following functions:
                            ``(i) The implementation of the program 
                        under this section.
                            ``(ii) The establishment of requirements 
                        for collection of data.
                            ``(iii) The development of proposals for 
                        efficient interaction among manufacturers and 
                        distributors of the items and services and 
                        providers and beneficiaries.
                    ``(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.
    ``(d) Annual Reports.--The Secretary shall submit to Congress an 
annual management report on the programs under this section. Each such 
report shall include information on savings, reductions in beneficiary 
cost-sharing, access to and quality of items and services, and 
beneficiary satisfaction.
    ``(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 is otherwise made under 
                section 1833(h) or 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.--Such project shall be under 
        the same conditions as are applicable to items and services 
        described in subsection (a)(2).
            ``(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.''.
    (b) Conforming Amendments.--
            (1) Durable medical equipment; elimination 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 (E)(i), 
                the payment basis'';
                    (B) in paragraph (1)(C), by striking ``This 
                subsection'' and inserting ``Subject to subparagraph 
                (E)(ii), this subsection'';
                    (C) by adding at the end of paragraph (1) the 
                following new subparagraph:
                    ``(E) Application of competitive acquisition; 
                elimination of inherent reasonableness authority.--In 
                the case of covered items and services 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)(E)'' after ``under this 
                subsection''.
            (2) Off-the-shelf orthotics; elimination 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'';
                    (C) by adding at the end of paragraph (1) the 
                following new subparagraph:
                    ``(H) Application of competitive acquisition to 
                orthotics; elimination of inherent reasonableness 
                authority.--In the case of orthotics described in 
                paragraph (2)(B) of section 1847(a) 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.''.
    (c) Report on Activities of Suppliers.--The Secretary 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.
    (d) GAO Study on Safe and Effective Home Infusion and Inhalation 
Therapy; Standards.--
            (1) Study.--The Comptroller General of the United States 
        shall conduct a study of the standards, professional services, 
        and related functions necessary for the provision of safe and 
        effective home infusion therapy and home inhalation therapy.
            (2) Report.--Not later than May 1, 2004, the Comptroller 
        General shall submit to Congress a report on the study 
        conducted under paragraph (1).
            (3) Use of findings in developing standards.--In 
        promulgating regulations to carry out section 1847 of the 
        Social Security Act, as amended by subsection (a), the 
        Secretary shall ensure that quality standards developed under 
        subsection (b)(2)(B) of such section reflect the findings of 
        the Comptroller General set forth in the report under paragraph 
        (2).

SEC. 303. COMPETITIVE ACQUISITION OF 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) Exception to budget neutrality.--The 
                        additional expenditures attributable to clauses 
                        (ii) and (iii) of subparagraph (H) shall not be 
                        taken into account in applying clause (ii)(II) 
                        for 2005.''; and
                    (B) by adding at the end the following new 
                subparagraph:
                    ``(H) Adjustments in practice expense relative 
                value units for 2005.--
                            ``(i) In general.--As part of the annual 
                        process of establishing the physician fee 
                        schedule under subsection (b) for 2005, the 
                        Secretary shall increase the practice expense 
                        relative value units for 2005 consistent with 
                        clauses (ii) and (iii).
                            ``(ii) Use of supplemental survey data.--
                        For 2005 for any specialty that submitted 
                        survey data that included expenses for the 
                        administration of drugs and biologicals for 
                        which payment is made under section 1842(o) (or 
                        section 1847A), the Secretary shall use such 
                        supplemental survey data in carrying out this 
                        subparagraph 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 and insofar as such data 
                        are submitted to the Secretary by December 31, 
                        2004.
                            ``(iii) 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 codes for physicians' services 
                                associated with the administration of 
                                covered outpatient drugs and 
                                biologicals (as defined in section 
                                1847A(a)(2)(A)) to ensure accurate 
                                reporting and billing for such 
                                services.
                                    ``(II) Use of existing processes.--
                                In carrying out subclause (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 subclause (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 
                                subclause (II).
                            ``(iv) Subsequent, budget neutral 
                        adjustments permitted.--Nothing in 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 2005.
                            ``(v) Consultation.--Before publishing the 
                        notice of proposed rulemaking to carry out this 
                        subparagraph, the Secretary shall consult with 
                        the Comptroller General of the United States 
                        and with groups representing the physician 
                        specialties involved.
                            ``(vi) Treatment as change in law and 
                        regulation in sustainable growth rate 
                        determination.--The enactment of subparagraph 
                        (B)(iv) and this subparagraph shall be treated 
                        as a change in law for purposes of applying 
                        subsection (f)(2)(D).''.
            (2) Prohibition of administrative and judicial review.--
        Section 1848(i)(1) (42 U.S.C. 1395w-4(i)(1)) is amended--
            (A) by striking ``and'' at the end of subparagraph (D);
            (B) by striking the period at the end of subparagraph (E) 
        and inserting ``, and''; and
            (C) by adding at the end the following new subparagraph:
                    ``(F) adjustments in practice expense relative 
                value units for 2005 under subsection (c)(2)(H).''.
            (3) Treatment of other services currently in the non-
        physician work pool.--The Secretary shall make adjustments to 
        the non-physician work pool methodology (as such term is used 
        in the regulations promulgated by the Secretary in the Federal 
        Register as of December 31, 2002) for determination of practice 
        expense relative value units under the physician fee schedule 
        described in section 1848(c)(2)(C)(ii) of the Social Security 
        Act 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 other 
        services not determined under such non-physician work pool 
        methodology, as the result of amendments made by paragraph (1).
    (b) Payment Based on Competition.--Title XVIII is amended by 
inserting after section 1847 (42 U.S.C. 1395w-3), as amended by section 
302, the following new sections:

 ``competitive acquisition of covered outpatient drugs and biologicals

    ``Sec. 1847A. (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 throughout the United States for 
                        contract award purposes for acquisition of and 
                        payment for categories of covered outpatient 
                        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 or under 
                        section 1847B; 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.
                    ``(B) Implementation.--The Secretary shall 
                implement the program so that the program applies to--
                            ``(i) the oncology category beginning in 
                        2005; and
                            ``(ii) the non-oncology category beginning 
                        in 2006.
                This section shall not apply in the case of a physician 
                who elects section 1847B to apply.
                    ``(C) Waiver of certain provisions.--In order to 
                promote competition, efficient service, and product 
                quality, 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 covered outpatient drugs and biologicals 
                (including a class of such drugs and biologicals) from 
                the competitive bidding system under this section if 
                the drugs or biologicals (or class) are not appropriate 
                for competitive bidding due to low volume of 
                utilization by beneficiaries under this part or a 
                unique mode or method of delivery or similar reasons.
            ``(2) Covered outpatient drugs and biologicals, categories, 
        program defined.--For purposes of this section--
                    ``(A) Covered outpatient drugs and biologicals 
                defined.--The term `covered outpatient drugs and 
                biologicals' means drugs and biologicals to which 
                section 1842(o) applies and which are not covered under 
                section 1847 (relating to competitive acquisition for 
                items of durable medical equipment). Such term does not 
                include the following:
                            ``(i) Blood clotting factors.
                            ``(ii) Drugs and biologicals furnished to 
                        individuals in connection with the treatment of 
                        end stage renal disease.
                            ``(iii) Radiopharmaceuticals.
                            ``(iv) Vaccines.
                    ``(B) 2 categories.--Each of the following shall be 
                a separate category of covered outpatient drugs and 
                biologicals, as identified by the Secretary:
                            ``(i) Oncology category.--A category (in 
                        this section referred to as the `oncology 
                        category') consisting of those covered 
                        outpatient drugs and biologicals that, as 
                        determined by the Secretary, are typically 
                        primarily billed by oncologists or are 
                        otherwise used to treat cancer.
                            ``(ii) Non-oncology categories.--Such 
                        numbers of categories (in this section referred 
                        to as the `non-oncology categories') consisting 
                        of covered outpatient drugs and biologicals not 
                        described in clause (i), and appropriate 
                        subcategories of such drugs and biologicals as 
                        the Secretary may specify.
                    ``(C) Program.--The term `program' means the 
                competitive acquisition program under this section.
                    ``(D) Competitive acquisition area; area.--The 
                terms `competitive acquisition area' and `area' mean an 
                appropriate geographic region established by the 
                Secretary under the program.
                    ``(E) 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.--With 
        respect to covered outpatient drugs and biologicals which are 
        supplied under the program in an area and which are prescribed 
        by a physician who has not elected section 1847B to apply--
                    ``(A) the claim for such drugs and biologicals 
                shall be submitted by the contractor that supplied the 
                drugs and biologicals;
                    ``(B) 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 beneficiary 
                involved; and
                    ``(C) the payment under this section (and related 
                coinsurance amounts) for such drugs and biologicals--
                            ``(i) shall be made only to such 
                        contractor;
                            ``(ii) shall be conditioned upon the 
                        administration of such drugs and biologicals; 
                        and
                            ``(iii) shall be based on the average of 
                        the bid prices for such drugs and biologicals 
                        in the area, as computed under subsection (d).
                The Secretary shall provide a process for recoupment 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.
            ``(4) Contract required.--
                    ``(A) In general.--Payment may not be made under 
                this part for covered outpatient drugs and biologicals 
                prescribed by a physician who has not elected section 
                1847B to apply within a category and a competitive 
                acquisition area with respect to which the program 
                applies unless--
                            ``(i) 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
                            ``(ii) the physician has elected such 
                        contractor under paragraph (5) for such 
                        category and area.
                    ``(B) Physician choice.--Subparagraph (A) shall not 
                apply for a category of drugs for an area if the 
                physician prescribing the covered outpatient drug in 
                such category and area has elected to apply section 
                1847B instead of this section.
            ``(5) Contractor selection process.--
                    ``(A) 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 covered outpatient drugs and biologicals for an 
                area, by physicians prescribing such drugs and 
                biologicals in the area of the contractor under this 
                section that will supply the drugs and biologicals 
                within that category and area. Such selection shall 
                also include the election described in section 
                1847B(a).
                    ``(B) Information on contractors.--The Secretary 
                shall make available to physicians on an ongoing basis, 
                through a directory posted on the Department's Internet 
                website 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 not 
                elected section 1847B to apply and has selected to 
                apply under this section such contractor for such 
                category and area.
    ``(b) Program Requirements.--
            ``(1) Contract for covered outpatient drugs and 
        biologicals.--The Secretary shall conduct a competition among 
        entities for the acquisition of a covered outpatient drug or 
        biological within each HCPCS 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 covered 
                outpatient 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 covered outpatient 
                        drug or biological within category.--
                                    ``(I) In general.--The entity has 
                                sufficient arrangements to acquire and 
                                to deliver covered outpatient drugs and 
                                biologicals within such category in the 
                                area specified in the contract at the 
                                bid price specified in the contract for 
                                all physicians that may elect such 
                                entity.
                                    ``(II) Shipment methodology.--The 
                                entity has arrangements in effect for 
                                the shipment at least 5 days each week 
                                of covered outpatient 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 physician and beneficiary 
                                complaints and inquiries regarding the 
                                shipment of covered outpatient drugs 
                                and biologicals; and
                                    ``(II) a grievance 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 and Modernization Act of 2003.
            ``(3) Awarding multiple contracts for a category and 
        area.--In order to provide a choice of at least 2 contractors 
        in each competitive acquisition area for a category of drugs 
        and biologicals, 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 covered outpatient 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 2 years, but may be 
                terminated by the Secretary or the entity with 
                appropriate, advance notice.
                    ``(C) Integrity of drug and biological distribution 
                system.--The Secretary--
                            ``(i) shall require that for all drug and 
                        biological products distributed by a contractor 
                        under this section be acquired directly from 
                        the manufacturer or from a distributor that has 
                        acquired the products directly from the 
                        manufacturer; and
                            ``(ii) may require, in the case of such 
                        products that are particularly susceptible to 
                        counterfeit or diversion, that the contractor 
                        comply with such additional product integrity 
                        safeguards as may be determined to be 
                        necessary.
                    ``(D) Implementation of anti-counterfeiting, 
                quality, safety, and record keeping requirements.--The 
                Secretary shall require each contractor to implement 
                (through its officers, agents, representatives, and 
                employees) requirements relating to the storage and 
                handling of covered outpatient drugs and biologicals 
                and for the establishment and maintenance of 
                distribution records for such drugs and biologicals. A 
                contract under this section may include requirements 
                relating to the following:
                            ``(i) Secure facilities.
                            ``(ii) Safe and appropriate storage of 
                        drugs and biologicals.
                            ``(iii) Examination of drugs and 
                        biologicals received and dispensed.
                            ``(iv) Disposition of damaged and outdated 
                        drugs and biologicals.
                            ``(v) Record keeping and written policies 
                        and procedures.
                            ``(vi) Compliance personnel.
                    ``(E) 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.
                    ``(F) Direct delivery of drugs and biologicals to 
                physicians.--Under the contract the contractor shall 
                only supply covered outpatient drugs and biologicals 
                directly to the selecting physicians and not directly 
                to beneficiaries, except under circumstances and 
                settings where a beneficiary currently receives a drug 
                or biological in the beneficiary'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 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 prices bid to acquire and supply the 
        covered outpatient drugs and biologicals for that category and 
        area and the other factors referred to in subsection (b)(3).
            ``(2) Prices bid.--The prices bid by an entity under 
        paragraph (1) shall be the prices in effect and available for 
        the supply of contracted drugs and biologicals in the area 
        through the entity for the contract period.
            ``(3) Rejection of contract offer.--The Secretary shall 
        reject the contract offer of an entity with respect to a 
        category of drugs and biologicals for an area if the Secretary 
        estimates that the prices bid, in the aggregate on average, 
        would exceed 100 percent of the average sales price (as 
        determined under section 1847B).
            ``(4) 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.
            ``(5) Uniformity of bids within area.--The amount of the 
        bid submitted under a contract offer for any covered outpatient 
        drug or biological for an area shall be the same for that drug 
        or biological for all portions of that area.
            ``(6) Confidentiality of bids.--The provisions of 
        subparagraph (D) of section 1927(b)(3) shall apply to a bid 
        submitted in a contract offer for a covered outpatient 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'.
            ``(7) Inclusion of costs.--The bid price submitted in a 
        contract offer for a covered outpatient 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.
            ``(8) 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 Average Bid Prices for a Category and Area.--
            ``(1) In general.--For each year or other contract period 
        for each covered outpatient drug or biological and area with 
        respect to which a competition is conducted under the program, 
        the Secretary shall compute an area average of the bid prices 
        submitted, in contract offers accepted for the category and 
        area, for that year or other contract period.
            ``(2) Special rules.--The Secretary shall establish rules 
        regarding the use under this section of the alternative payment 
        amount provided under section 1847B to the use of a price for 
        specific covered outpatient drugs and biologicals in the 
        following cases:
                    ``(A) New drugs and biologicals.--A covered 
                outpatient drug or biological for which an average bid 
                price has not been previously determined.
                    ``(B) Other cases.--Such other exceptional cases as 
                the Secretary may specify in regulations, such as oral 
                drugs under section 1861(s)(2)(Q) and 
                immmunosuppressives under section 1861(s)(2)(J).
    ``(e) Coinsurance.--
            ``(1) In general.--Coinsurance under this part with respect 
        to a covered outpatient drug or biological for which payment is 
        payable under this section shall be based on 20 percent of the 
        payment basis under this section.
            ``(2) Collection.--Such coinsurance shall be collected by 
        the contractor that supplies the drug or biological involved 
        and, subject to subsection (a)(3)(B), in the same manner as 
        coinsurance is collected for durable medical equipment under 
        this part.
    ``(f) Special Payment Rules.--
            ``(1) In general.--The Secretary may not provide for an 
        adjustment to reimbursement for covered outpatient drugs and 
        biologicals unless adjustments to the practice expense payment 
        adjustment are made on the basis of supplemental surveys under 
        section 1848(c)(2)(H)(ii) of the Social Security Act, as added 
        by subsection (a)(1)(B).
            (2) 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 
        reimbursement to be made under this part for such drugs and 
        biologicals (or class) using the payment methodology under 
        section 1847B.
            ``(3) Coordination rules.--The provisions of section 
        1842(h)(3) shall apply to a contractor with respect to covered 
        outpatients drugs and biologicals supplied by that contractor 
        in the same manner as they apply to a participating supplier. 
        In order to administer this section, the Secretary may 
        condition payment under this part to a person for the 
        administration of a drug or biological supplied under this 
        section upon person's provision of information on such 
        administration.
            ``(4) Application of requirement for assignment.--For 
        provision requiring assignment of claims for covered outpatient 
        drugs and biologicals, see section 1842(o)(3).
            ``(5) Protection for beneficiary in case of medical 
        necessity denial.--For protection of beneficiaries against 
        liability in the case of medical necessity determinations, see 
        section 1842(b)(3)(B)(ii)(III).
            ``(6) Physician role in appeals process.--The Secretary 
        shall establish a procedure under which a physician who 
        prescribes a drug or biological for which payment is made under 
        this section has appeal rights that are similar to those 
        provided to a physician who prescribes durable medical 
        equipment or a laboratory test.
    ``(g) Advisory Committee.--The Secretary shall establish an 
advisory committee that includes representatives of parties affected by 
the program under this section, including physicians, specialty 
pharmacies, distributors, manufacturers, and beneficiaries. The 
committee shall advise the Secretary on issues relating to the 
effective implementation of this section.
    ``(h) Annual Reports.--The Secretary shall submit to Congress an 
annual report in each of 2005, 2006, and 2007, on the program. Each 
such report shall include information on savings, reductions in cost-
sharing, access to covered outpatient drugs and biologicals, the range 
of choices of contractors available to providers, and beneficiary and 
provider satisfaction.

       ``optional use of average sales price payment methodology

    ``Sec. 1847B. (a) In General.--
            ``(1) Election.--In connection with the annual election 
        made by a physician under section 1847A(a)(5), the physician 
        may elect to apply this section to the payment for covered 
        outpatient drugs and biologicals instead of the payment 
        methodology under section 1847A.
            ``(2) Implementation.--This section shall be implemented 
        with respect to categories of covered outpatient drugs and 
        biologicals described in section 1847A(a)(2)(B).
            ``(3) Covered outpatient drugs and biologicals defined.--
        For purposes of this section, the term `covered outpatient 
        drugs and biologicals' has the meaning given such term in 
        section 1847A(a)(2)(A).
    ``(b) Computation of Payment Amount.--
            ``(1) In general.--If this section applies with respect to 
        a covered outpatient drug or biological, the amount payable for 
        the 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)), 100 percent (or in 
                the case of covered outpatient drugs and biologicals 
                furnished during 2005 and 2006, 112 percent) of the 
                amount determined under paragraph (3); or
                    ``(B) in the case of a single source drug (as 
                defined in subsection (c)(6)(D)), 100 percent (or in 
                the case of covered outpatient drugs and biologicals 
                furnished during 2005 and 2006, 112 percent) of the 
                amount determined under paragraph (4).
            ``(2) Specification of unit.--
                    ``(A) Specification by manufacturer.--The 
                manufacturer of a covered outpatient drug shall specify 
                the unit associated with each National Drug Code 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 a covered outpatient 
                drug, the lowest identifiable quantity (such as a 
                capsule or tablet, milligram of molecules, or grams) of 
                the drug that is dispensed, exclusive of any diluent 
                without reference to volume measures pertaining to 
                liquids.
            ``(3) Multiple source drug.--For all drug products included 
        within the same multiple source drug, the amount specified in 
        this paragraph is the volume-weighted average of the average 
        sales prices reported under section 1927(b)(3)(A)(iii) computed 
        as follows:
                    ``(A) Compute 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, as reported under 
                        section 1927(b)(3)(A)(iii).
                    ``(B) Divide the sum computed 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.--The amount specified in this 
        paragraph for a single source drug is the lesser of the 
        following:
                    ``(A) Manufacturer's average sales price.--The 
                manufacturer's average sales price for a national drug 
                code, as computed using the methodology applied under 
                paragraph (3).
                    ``(B) Wholesale acquisition cost (wac).--The 
                wholesale acquisition cost (as defined in subsection 
                (c)(6)(B)) reported for the single source drug.
            ``(5) Basis for determination.--The payment amount shall be 
        determined under this subsection based on information reported 
        under subsection (e) 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 subsection, subject 
        to paragraphs (2) and (3), the manufacturer's `average sales 
        price' means, of a covered outpatient drug for a NDC code for a 
        calendar quarter for a manufacturer for a unit--
                    ``(A) the manufacturer's total sales (as defined by 
                the Secretary in regulations for purposes of section 
                1927(c)(1)) in the United States for such drug in the 
                calendar quarter; divided by
                    ``(B) the total number of such units of such drug 
                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 by regulation as sales to an 
                entity that are nominal in price or do not reflect a 
                market price paid by an entity to which payment is made 
                under this section.
            ``(3) Sale price net of discounts.--In calculating the 
        manufacturer's average sales price under this subsection, such 
        price shall be determined taking into account volume discounts, 
        prompt pay discounts, cash discounts, the free goods that are 
        contingent on any purchase requirement, chargebacks, and 
        rebates (other than rebates under section 1927), that result in 
        a reduction of the cost to the purchaser. A rebate to a payor 
        or other entity that does not take title to a covered 
        outpatient drug shall not be taken into account in determining 
        such price unless the manufacturer has an agreement with the 
        payor or other entity under which the purchaser's price for the 
        drug is reduced as a consequence of such rebate.
            ``(4) Authority to disregard average sales price during 
        first quarter of sales.--In the case of a covered outpatient 
        drug during an initial period (not to exceed a full calendar 
        quarter) in which data on the prices for sales for the drug is 
        not sufficiently available from the manufacturer to compute an 
        average sales price for the drug, the Secretary may determine 
        the amount payable under this section for the drug without 
        considering the manufacturer's average sales price of that 
        manufacturer for that drug.
            ``(5) Frequency of determinations.--
                    ``(A) In general on a quarterly basis.--The 
                manufacturer's average sales price, for a covered 
                outpatient drug of a manufacturer, shall be determined 
                by such manufacturer under this subsection on a 
                quarterly basis. In making such determination 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 established by 
                the Secretary based on a 12-month rolling average for 
                the manufacturer to estimate costs attributable to 
                rebates and chargebacks.
                    ``(B) Updates in rates.--The payment rates under 
                subsection (b)(1) and (b)(2)(A) shall be updated by the 
                Secretary on a quarterly basis and shall be applied 
                based upon the manufacturer's average sales price 
                determined for the most recent calendar quarter.
                    ``(C) Use of contractors; implementation.--The 
                Secretary may use a carrier, fiscal intermediary, or 
                other contractor to determine the payment amount under 
                subsection (b). Notwithstanding any other provision of 
                law, the Secretary may implement, by program memorandum 
                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 covered outpatient drug, the 
                manufacturer (as defined in section 1927(k)(5)) whose 
                national drug code appears on such drug.
                    ``(B) Wholesale acquisition cost.--The term 
                `wholesale acquisition cost' means, with respect to a 
                covered outpatient drug, the manufacturer's list price 
                for the drug 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 pricing data.
                    ``(C) Multiple source drug.--The term `multiple 
                source drug' means, for a calendar quarter, a covered 
                outpatient 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.
                    ``(D) Single source drug.--The term `single source 
                drug' means a covered outpatient drug which is not a 
                multiple source drug and which is produced or 
                distributed under an original 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, or which is a biological.
                    ``(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) 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 covered outpatient 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 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.
    ``(e) Reports.--
            ``(1) 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 covered outpatient drug or 
        biological, see section 1927(b)(3).
            ``(2) Annual report to congress.--The Secretary shall 
        submit to the Committees on Energy and Commerce and Ways and 
        Means of the House of Representatives and the Committee on 
        Finance of the Senate an annual report on the operation of this 
        section. Such report shall include information on the 
        following:
                    ``(A) Trends in average sales price under 
                subsection (b).
                    ``(B) Administrative costs associated with 
                compliance with this section.
                    ``(C) Total value of payments made under this 
                section.
                    ``(D) Comparison of the average manufacturer price 
                as applied under section 1927 for a covered outpatient 
                drug or biological with the manufacturer's average 
                sales price for the drug or biological under this 
                section.
    ``(f) Restriction on administrative and judicial review.--There 
shall be no administrative or judicial review under section 1869, 
section 1878, or otherwise, of determinations of manufacturer's average 
sales price under subsection (c).''.
    (c) 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.
    (d) Conforming Amendments.--
            (1) In general.--Section 1842(o) (42 U.S.C. 1395u(o)) is 
        amended--
                    (A) in paragraph (1), by inserting ``, subject to 
                section 1847A and 1847B,'' before ``the amount payable 
                for the drug or biological''; and
                    (B) by adding at the end of paragraph (2) the 
                following: ``This paragraph shall not apply in the case 
                of payment under section 1847A or 1847B.''.
            (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 1847A or 
        1847B)'' after ``included in the physicians' bills''.
            (3) Payment.--Section 1833(a)(1)(S) (42 U.S.C. 
        1395l(a)(1)(S)) is amended by inserting ``(or, if applicable, 
        under section 1847A or 1847B)'' after ``1842(o)''.
            (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;
                            (ii) in clause (ii), by striking the period 
                        and inserting ``; and''; and
                            (iii) by adding at the end the following 
                        new clause:
                            ``(iii) for calendar quarters beginning on 
                        or after April 1, 2004, in conjunction with 
                        reporting required under clause (i) and by 
                        national drug code (NDC)--
                                    ``(I) the manufacturer's average 
                                sales price (as defined in section 
                                1847B(c)) and the total number of units 
                                specified under section 1847B(b)(2)(A);
                                    ``(II) if required to make payment 
                                under section 1847B, 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 
                                1847B(c)(2)(B), which information is 
                                subject to audit by the Inspector 
                                General of the Department of Health and 
                                Human Services;
                        for a covered outpatient drug or biological for 
                        which payment is made under section 1847B.'';
                    (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), by inserting ``and 
                section 1847B'' after ``this section''.
    (e) GAO Study.--
            (1) Study.--The Comptroller General of the United States 
        shall conduct a study to assess the impact of the amendments 
        made by this section on the delivery of services, including 
        their impact on--
                    (A) beneficiary access to drugs and biologicals for 
                which payment is made under part B of title XVIII of 
                the Social Security Act; and
                    (B) the site of delivery of such services.
            (2) Report.--Not later than 2 years after the year in which 
        the amendment made by subsection (a)(1) first takes effect, the 
        Comptroller General shall submit to Congress a report on the 
        study conducted under paragraph (1).
    (f) MedPAC Recommendations on Blood Clotting Factors.--The Medicare 
Payment Advisory Commission shall submit to Congress, in its annual 
report in 2004, specific recommendations regarding a payment amount (or 
amounts) for blood clotting factors and its administration under the 
medicare program.
    (g) Establishment of Pharmaceutical Management Fee Where Drugs 
Provided Through a Contractor.--Section 1848(a) (42 U.S.C. 1395w-4(a)) 
is amended by adding at the end the following new paragraph:
            ``(5) Recognition of pharmaceutical management fee in 
        certain cases.--In establishing the fee schedule under this 
        section, the Secretary shall provide for a separate payment 
        with respect to physicians' services consisting of the unique 
        administrative and management costs associated with covered 
        drugs and biologicals which are furnished to physicians through 
        a contractor under section 1847A (compared with such costs if 
        such drugs and biologicals were acquired directly by such 
        physicians).''.
    (h) Study on Codes for Non-oncology Codes.--
            (1) Study.--The Secretary shall conduct a study to 
        determine the appropriateness of establishing and implementing 
        separate codes for non-oncology infusions that are based on the 
        level of complexity of the administration and resource 
        consumption.
            (2) Report.--Not later than 1 year after the date of the 
        enactment of this Act, the Secretary shall submit a report to 
        Congress on the study. To the extent the Secretary determines 
        it to be appropriate, the Secretary may implement appropriate 
        changes in the payment methodology for such codes.

SEC. 304. DEMONSTRATION PROJECT FOR USE OF RECOVERY AUDIT CONTRACTORS.

    (a) In General.--The Secretary of Health and Human Services 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 
part 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) a percentage of the amount recovered may 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 of Health and Human Services 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 of Health and Human Services 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.

                TITLE IV--RURAL HEALTH CARE IMPROVEMENTS

SEC. 401. ENHANCED DISPROPORTIONATE SHARE HOSPITAL (DSH) TREATMENT FOR 
              RURAL HOSPITALS AND URBAN HOSPITALS WITH FEWER THAN 100 
              BEDS.

    (a) Doubling the Cap.--
            (1) In general.--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 in a fiscal year beginning on 
or after October 1, 2003, 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 10 percent for a hospital that is not 
classified as a rural referral center under subparagraph (C).''.
            (2) Conforming amendments.--Section 1886(d)(5)(F) (42 
        U.S.C. 1395ww(d)(5)(F)) is amended--
                    (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''.
    (b) Effective Date.--The amendments made by this section shall 
apply with respect to discharges occurring on or after October 1, 2003.

SEC. 402. IMMEDIATE ESTABLISHMENT OF UNIFORM STANDARDIZED AMOUNT IN 
              RURAL AND SMALL URBAN AREAS.

    (a) In General.--Section 1886(d)(3)(A) (42 U.S.C. 1395ww(d)(3)(A)) 
is amended--
            (1) in clause (iv), by inserting ``and ending on or before 
        September 30, 2003,'' after ``October 1, 1995,''; and
            (2) by redesignating clauses (v) and (vi) as clauses (vii) 
        and (viii), respectively, and inserting after clause (iv) the 
        following new clauses:
            ``(v) For discharges occurring in the fiscal year beginning 
        on October 1, 2003, the average standardized amount for 
        hospitals located in areas other than a large urban area shall 
        be equal to the average standardized amount for hospitals 
        located in a large urban area.''.
    (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,''.

SEC. 403. ESTABLISHMENT OF ESSENTIAL RURAL HOSPITAL CLASSIFICATION.

    (a) Classification.--Section 1861(mm) (42 U.S.C. 1395x(mm)) is 
amended--
            (1) in the heading by adding ``Essential Rural Hospitals'' 
        at the end; and
            (2) by adding at the end the following new paragraphs:
    ``(4)(A) The term `essential rural hospital' means a subsection (d) 
hospital (as defined in section 1886(d)(1)(B)) that is located in a 
rural area (as defined for purposes of section 1886(d)), has more than 
25 licensed acute care inpatient beds, has applied to the Secretary for 
classification as such a hospital, and with respect to which the 
Secretary has determined that the closure of the hospital would 
significantly diminish the ability of medicare beneficiaries to obtain 
essential health care services.
    ``(B) The determination under subparagraph (A) shall be based on 
the following criteria:
            ``(i) High proportion of medicare beneficiaries receiving 
        care from hospital.--(I) A high percentage of such 
        beneficiaries residing in the area of the hospital who are 
        hospitalized (during the most recent year for which complete 
        data are available) receive basic inpatient medical care at the 
        hospital.
            ``(II) For a hospital with more than 200 licensed beds, a 
        high percentage of such beneficiaries residing in such area who 
        are hospitalized (during such recent year) receive specialized 
        surgical inpatient care at the hospital.
            ``(III) Almost all physicians described in section 
        1861(r)(1) in such area have privileges at the hospital and 
        provide their inpatient services primarily at the hospital.
            ``(IV) The hospital inpatient score for quality of care is 
        not less than the median hospital score for qualify of care for 
        hospitals in the State, as established under standards of the 
        utilization and quality control peer review organization under 
        part B of title XI or other quality standards recognized by the 
        Secretary.
            ``(ii) Significant adverse impact in absence of hospital.--
        If the hospital were to close--
                    ``(I) there would be a significant amount of time 
                needed for residents to reach emergency treatment, 
                resulting in a potential significant harm to 
                beneficiaries with critical illnesses or injuries;
                    ``(II) there would be an inability in the community 
                to stablize emergency cases for transfers to another 
                acute care setting, resulting in a potential for 
                significant harm to medicare beneficiaries; and
                    ``(III) any other nearby hospital lacks the 
                physical and clinical capacity to take over the 
                hospital's typical admissions.
    ``(C) In making such determination, the Secretary may also consider 
the following:
            ``(i) Free-standing ambulatory surgery centers, office-
        based oncology care, and imaging center services are 
        insufficient in the hospital's area to handle the outpatient 
        care of the hospital.
            ``(ii) Beneficiaries in nearby areas would be adversely 
        affected if the hospital were to close as the hospital provides 
        specialized knowledge and services to a network of smaller 
        hospitals and critical access hospitals.
            ``(iii) Medicare beneficiaries would have difficulty in 
        accessing care if the hospital were to close as the hospital 
        provides significant subsidies to support ambulatory care in 
        local clinics, including mental health clinics and to support 
        post acute care.
            ``(iv) The hospital has a committment to provide graduate 
        medical education in a rural area.
A hospital classified as an essential rural hospital may not change 
such classification and a hospital so classified shall not be treated 
as a sole community hospital, medicare dependent hospital, or rural 
referral center for purposes of section 1886.''.
    (b) Payment Based on 102 Percent of Allowed Costs.--
            (1) Inpatient hospital services.--Section 1886(d) (42 
        U.S.C. 1395ww(d)) is amended by adding at the end the 
        following:
    ``(11) In the case of a hospital classified as an essential rural 
hospital under section 1861(mm)(4) for a cost reporting period, the 
payment under this subsection for inpatient hospital services for 
discharges occurring during the period shall be based on 102 percent of 
the reasonable costs for such services. Nothing in this paragraph shall 
be construed as affecting the application or amount of deductibles or 
copayments otherwise applicable to such services under part A or as 
waiving any requirement for billing for such services.''.
            (2) Hospital outpatient services.--Section 1833(t)(13) (42 
        U.S.C. 1395l(t)(13)) is amended by adding at the end the 
        following new subparagraph:
                    ``(B) Special rule for essential rural hospitals.--
                In the case of a hospital classified as an essential 
                rural hospital under section 1861(mm)(4) for a cost 
                reporting period, the payment under this subsection for 
                covered OPD services during the period shall be based 
                on 102 percent of the reasonable costs for such 
                services. Nothing in this subparagraph shall be 
                construed as affecting the application or amount of 
                deductibles or copayments otherwise applicable to such 
                services under this part or as waiving any requirement 
                for billing for such services.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to cost reporting periods beginning on or after October 1, 2004.

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) Report.--Not later than October 1, 2004, the Secretary shall 
submit a report to Congress on the frequency established under 
subsection (a), including an explanation of the reasons for, and 
options considered, in determining such frequency.

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); 42 U.S.C. 
        1395tt(a)(3)) are each amended by inserting ``equal to 102 
        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 October 1, 2003.
    (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 amendment made by paragraph (1) 
        shall apply with respect to costs incurred for services 
        provided on or after January 1, 2004.
    (c) Modification of the Isolation Test for Cost-Based CAH Ambulance 
Services.--
            (1) In general.--Section 1834(l)(8) (42 U.S.C. 1395m(l)), 
        as added by section 205(a) of BIPA (114 Stat. 2763A-482), is 
        amended by adding at the end the following: ``The limitation 
        described in the matter following subparagraph (B) in the 
        previous sentence shall not apply if the ambulance services are 
        furnished by such a provider or supplier of ambulance services 
        who is a first responder to emergencies in accordance with 
        local protocols (as determined by the Secretary).''.
            (2) Effective date.--The amendment made by paragraph (1) 
        shall apply to ambulances services furnished on or after the 
        first cost reporting period that begins after the date of the 
        enactment of this Act.
    (d) Reinstatement 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''; and
                    (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 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 such payments that are based on 
        expenditures of the hospital.
            (3) Reinstatement of pip.--The amendments made by paragraph 
        (1) shall apply to payments made on or after January 1, 2004.
    (e) Condition for Application of Special Physician 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 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 who have not assigned such billing rights.''.
            (2) Effective date.--The amendment made by paragraph (1) 
        shall be effective as if included in the enactment of section 
        403(d) of the Medicare, Medicaid, and SCHIP Balanced Budget 
        Refinement Act of 1999 (113 Stat. 1501A-371).
    (f) Flexibility in Bed Limitation for Hospitals.--Section 1820 (42 
U.S.C. 1395i-4) is amended--
            (1) in subsection (c)(2)(B)(iii), by inserting ``subject to 
        paragraph (3)'' after ``(iii) provides'';
            (2) by adding at the end of subsection (c) the following 
        new paragraph:
            ``(3) Increase in maximum number of beds for hospitals with 
        strong seasonal census fluctuations.--
                    ``(A) In general.--Subject to subparagraph (C), in 
                the case of a hospital that demonstrates that it meets 
                the standards established under subparagraph (B) and 
                has not made the election described in subsection 
                (f)(2)(A), the bed limitations otherwise applicable 
                under paragraph (2)(B)(iii) and subsection (f) shall be 
                increased by 5 beds.
                    ``(B) Standards.--The Secretary shall specify 
                standards for determining whether a critical access 
                hospital has sufficiently strong seasonal variations in 
                patient admissions to justify the increase in bed 
                limitation provided under subparagraph (A).''; and
            (3) in subsection (f)--
                    (A) by inserting ``(1)'' after ``(f)''; and
                    (B) by adding at the end the following new 
                paragraph:
    ``(2)(A) A hospital may elect to treat the reference in paragraph 
(1) to `15 beds' as a reference to `25 beds', but only if no more than 
10 beds in the hospital are at any time used for non-acute care 
services. A hospital that makes such an election is not eligible for 
the increase provided under subsection (c)(3)(A).
    ``(B) The limitations in numbers of beds under the first sentence 
of paragraph (1) are subject to adjustment under subsection (c)(3).''.
            (4) Effective date.--The amendments made by this subsection 
        shall apply to designations made before, on, or after January 
        1, 2004.
    (g) Additional 5-Year Period of Funding for Grant Program.--
            (1) In general.--Section 1820(g) (42 U.S.C. 1395i-4(g)) is 
        amended by adding at the end the following new paragraph:
            ``(4) Funding.--
                    ``(A) In general.--Subject to subparagraph (B), 
                payment for grants made under this subsection during 
                fiscal years 2004 through 2008 shall be made from the 
                Federal Hospital Insurance Trust Fund.
                    ``(B) Annual aggregate limitation.--In no case may 
                the amount of payment provided for under subparagraph 
                (A) for a fiscal year exceed $25,000,000.''.
            (2) Conforming amendment.--Section 1820 (42 U.S.C. 1395i-4) 
        is amended by striking subsection (j).

SEC. 406. REDISTRIBUTION OF UNUSED RESIDENT POSITIONS.

    (a) In General.--Section 1886(h)(4) (42 U.S.C. 1395ww(h)(4)) is 
amended--
            (1) in subparagraph (F)(i), by inserting ``subject to 
        subparagraph (I),'' after ``October 1, 1997,'';
            (2) in subparagraph (H)(i), by inserting ``subject to 
        subparagraph (I),'' after ``subparagraphs (F) and (G),''; and
            (3) by adding at the end the following new subparagraph:
                    ``(I) Redistribution of unused resident 
                positions.--
                            ``(i) Reduction in limit based on unused 
                        positions.--
                                    ``(I) In general.--If a hospital's 
                                resident level (as defined in clause 
                                (iii)(I)) is less than the otherwise 
                                applicable resident limit (as defined 
                                in clause (iii)(II)) for each of the 
                                reference periods (as defined in 
                                subclause (II)), effective for cost 
                                reporting periods beginning on or after 
                                January 1, 2004, the otherwise 
                                applicable resident limit shall be 
                                reduced by 75 percent of the difference 
                                between such limit and the reference 
                                resident level specified in subclause 
                                (III) (or subclause (IV) if 
                                applicable).
                                    ``(II) Reference periods defined.--
                                In this clause, the term `reference 
                                periods' means, for a hospital, the 3 
                                most recent consecutive cost reporting 
                                periods of the hospital for which cost 
                                reports have been settled (or, if not, 
                                submitted) on or before September 30, 
                                2002.
                                    ``(III) Reference resident level.--
                                Subject to subclause (IV), the 
                                reference resident level specified in 
                                this subclause for a hospital is the 
                                highest resident level for the hospital 
                                during any of the reference periods.
                                    ``(IV) Adjustment process.--Upon 
                                the timely request of a hospital, the 
                                Secretary shall adjust (subject to 
                                audit) the reference resident level for 
                                a hospital to be the resident level for 
                                the hospital for the cost reporting 
                                period that includes July 1, 2003.
                                    ``(V) Affiliation.--With respect to 
                                hospitals which are members of the same 
                                affiliated group (as defined by the 
                                Secretary under subparagraph (H)(ii)), 
                                the provisions of this section shall be 
                                applied with respect to such an 
                                affiliated group by deeming the 
                                affiliated group to be a single 
                                hospital.
                            ``(ii) Redistribution.--
                                    ``(I) In general.--The Secretary is 
                                authorized to increase the otherwise 
                                applicable resident limits for 
                                hospitals by an aggregate number 
                                estimated by the Secretary that does 
                                not exceed the aggregate reduction in 
                                such limits attributable to clause (i) 
                                (without taking into account any 
                                adjustment under subclause (IV) of such 
                                clause).
                                    ``(II) Effective date.--No increase 
                                under subclause (I) shall be permitted 
                                or taken into account for a hospital 
                                for any portion of a cost reporting 
                                period that occurs before July 1, 2004, 
                                or before the date of the hospital's 
                                application for an increase under this 
                                clause. No such increase shall be 
                                permitted for a hospital unless the 
                                hospital has applied to the Secretary 
                                for such increase by December 31, 2005.
                                    ``(III) Considerations in 
                                redistribution.--In determining for 
                                which hospitals the increase in the 
                                otherwise applicable resident limit is 
                                provided under subclause (I), the 
                                Secretary shall take into account the 
                                need for such an increase by specialty 
                                and location involved, consistent with 
                                subclause (IV).
                                    ``(IV) 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 subclause (I), the Secretary 
                                shall first distribute the increase to 
                                programs of hospitals located in rural 
                                areas or in urban areas that are not 
                                large urban areas (as defined for 
                                purposes of subsection (d)) on a first-
                                come-first-served basis (as determined 
                                by the Secretary) based on a 
                                demonstration that the hospital will 
                                fill the positions made available under 
                                this clause and not to exceed an 
                                increase of 25 full-time equivalent 
                                positions 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 clause, 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 subparagraph (E) for 
                                that hospital.
                                    ``(VI) Construction.--Nothing in 
                                this clause shall be construed as 
                                permitting the redistribution of 
                                reductions in residency positions 
                                attributable to voluntary reduction 
                                programs under paragraph (6) or as 
                                affecting the ability of a hospital to 
                                establish new medical residency 
                                training programs under subparagraph 
                                (H).
                            ``(iii) Resident level and limit defined.--
                        In this subparagraph:
                                    ``(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 this paragraph), 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) on the 
                                resident level for the hospital 
                                determined without regard to this 
                                subparagraph.''.
    (b) Conforming Amendment to IME.--Section 1886(d)(5)(B)(v) (42 
U.S.C. 1395ww(d)(5)(B)(v)) is amended by adding at the end the 
following: ``The provisions of subparagraph (I) of subsection (h)(4) 
shall apply with respect to the first sentece of this clause in the 
same manner as it applies with respect to subparagraph (F) of such 
subsection.''.
    (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)).

SEC. 407. TWO-YEAR EXTENSION OF HOLD HARMLESS PROVISIONS FOR SMALL 
              RURAL HOSPITALS AND SOLE COMMUNITY HOSPITALS UNDER 
              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 subsection 
        (a)(2) shall apply with respect to payment for OPD services 
        furnished on and after January 1, 2004.
    (b) Study; Adjustment.--
            (1) Study.--The Secretary shall conduct a study to 
        determine if, under the prospective payment system for hospital 
        outpatient department services under section 1833(t) of the 
        Social Security Act (42 U.S.C. 1395l(t)), costs incurred by 
        rural providers of services by ambulatory payment 
        classification groups (APCs) exceed those costs incurred by 
        urban providers of services.
            (2) Adjustment.--Insofar as the Secretary determines under 
        paragraph (1) that costs incurred by rural providers exceed 
        those costs incurred by urban providers of services, the 
        Secretary shall provide for an appropriate adjustment under 
        such section 1833(t) to reflect those higher costs by January 
        1, 2005.

SEC. 408. 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 not furnished by an individual 
                        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, 2004.

SEC. 409. 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. 410. IMPROVEMENT IN PAYMENTS TO RETAIN EMERGENCY CAPACITY FOR 
              AMBULANCE SERVICES IN RURAL AREAS.

    Section 1834(l) (42 U.S.C. 1395m(l)) is amended--
            (1) by redesignating paragraph (8), as added by section 
        221(a) of BIPA (114 Stat. 2763A-486), as paragraph (9); and
            (2) by adding at the end the following new paragraph:
            ``(10) Assistance for rural providers furnishing services 
        in low medicare population density areas.--
                    ``(A) In general.--In the case of ground ambulance 
                services furnished on or after January 1, 2004, for 
                which the transportation originates in a qualified 
                rural area (as defined in subparagraph (B)), 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 the base rate in the lowest quartile as 
                compared to the average cost for the base rate for such 
                services that is in the highest quartile of all rural 
                county populations.
                    ``(B) Qualified rural area defined.--For purposes 
                of subparagraph (A), the term `qualified rural area' is 
                a rural area (as defined in section 1886(d)(2)(D)) with 
                a population density of medicare beneficiaries residing 
                in the area that is in the lowest quartile of all rural 
                county populations.''.

SEC. 411. TWO-YEAR INCREASE FOR HOME HEALTH SERVICES FURNISHED IN A 
              RURAL AREA.

    (a) In General.--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))) during 2004 and 2005, 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).

SEC. 412. 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(b)(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 public or 
                nonprofit private 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 or 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 of Health and Human 
                Services (in this subsection referred to as 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 a patient'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) Interim final effect.--No later than 180 days after the 
        date of enactment of this Act, the Secretary shall publish a 
        rule in the Federal Register consistent with the factors under 
        paragraph (1)(B). Such rule shall be effective and final 
        immediately on an interim basis, subject to such change and 
        revision, after public notice and opportunity (for a period of 
        not more than 60 days) for public comment, as is consistent 
        with this subsection.

SEC. 413. GAO STUDY OF GEOGRAPHIC DIFFERENCES IN PAYMENTS FOR 
              PHYSICIANS' SERVICES.

    (a) 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--
            (1) an assessment of the validity of the geographic 
        adjustment factors used for each component of the fee schedule;
            (2) an evaluation of the measures used for such adjustment, 
        including the frequency of revisions; and
            (3) 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.
    (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 subsection (a). 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. 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. 415. EXTENSION OF TELEMEDICINE DEMONSTRATION PROJECT.

    Section 4207 of 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. 416. ADJUSTMENT TO THE MEDICARE INPATIENT HOSPITAL PPS WAGE INDEX 
              TO REVISE THE LABOR-RELATED SHARE OF SUCH INDEX.

    (a) In General.--Section 1886(d)(3)(E) (42 U.S.C. 1395ww(d)(3)(E)) 
is amended--
            (1) by striking ``wage levels.--The Secretary'' and 
        inserting ``wage levels.--
                    ``(i) In general.--Except as provided in clause 
                (ii), the Secretary''; and
            (2) by adding at the end the following new clause:
                    ``(ii) Alternative proportion to be adjusted 
                beginning in fiscal year 2004.--
                            ``(I) In general.--Except as provided in 
                        subclause (II), for discharges occurring on or 
                        after October 1, 2003, the Secretary shall 
                        substitute the `62 percent' for the proportion 
                        described in the first sentence of clause (i).
                            ``(II) Hold harmless for certain 
                        hospitals.--If the application of subclause (I) 
                        would result in lower payments to a hospital 
                        than would otherwise be made, then this 
                        subparagraph shall be applied as if this clause 
                        had not been enacted.''.
    (b) 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 402(a) of the Medicare Prescription Drug and Modernization Act 
of 2003 had not been enacted.''.

SEC. 417. MEDICARE INCENTIVE PAYMENT PROGRAM IMPROVEMENTS FOR PHYSICIAN 
              SCARCITY.

    (a) Additional Bonus Payment for Certain Physician Scarcity 
Areas.--
            (1) In general.--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 in a year--
                    ``(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 periodically determine, 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.
                    ``(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 number of medicare beneficiaries 
                        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 number of medicare beneficiaries 
                        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.--The Secretary shall 
        identify--
                    ``(A) 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 
                medicare beneficiaries determined under paragraph 
                (2)(B), an aggregate total of 20 percent of the total 
                of the medicare beneficiaries determined under such 
                paragraph; and
                    ``(B) 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 medicare beneficiaries determined under paragraph 
                (2)(B), an aggregate total of 20 percent of the total 
                of the medicare beneficiaries determined under such 
                paragraph.
        There is no administrative or judicial review respecting the 
        identification of a county or area or the assignment of a 
        specialty of any physician under this paragraph.
            ``(5) Rural census tracks.--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.--In carrying out 
        this subsection for a year, the Secretary shall include, as 
        part of the proposed and final rule to implement the physician 
        fee schedule under section 1848 for the year, a list of all 
        areas which will qualify as a primary care scarcity county or 
        specialist care scarcity county under this subsection for the 
        year involved.''.
            (2) Effective date.--The amendments made by subsection (a) 
        shall apply to physicians' services furnished or after January 
        1, 2004.
    (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)''; and
                    (B) by adding at the end the following new 
                paragraphs:
    ``(2) The Secretary shall establish procedures under which the 
Secretary, and not the physician furnishing the service, is responsible 
for determining when a payment is required to be made under paragraph 
(1).
    ``(3) In carrying out paragraph (1) for a year, the Secretary shall 
include, as part of the proposed and final rule to implement the 
physician fee schedule under section 1848 for the year, a list of all 
areas which will qualify as a health professional shortage area under 
paragraph (1) for the year involved.''.
            (2) Effective date.--The amendments made by paragraph (1) 
        shall apply to physicians' services furnished or after January 
        1, 2004.

SEC. 418. 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 home 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.

                 TITLE V--PROVISIONS RELATING TO PART A

                Subtitle A--Inpatient Hospital Services

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

    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 2006, the 
        market basket percentage increase minus 0.4 percentage points 
        for hospitals in all areas; and
            ``(XX) for fiscal year 2007 and each subsequent fiscal 
        year, the market basket percentage increase for hospitals in 
        all areas.''.

SEC. 502. RECOGNITION OF NEW MEDICAL TECHNOLOGIES UNDER INPATIENT 
              HOSPITAL PPS.

    (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) Minimum period for recognition of new technologies.--
        Section 1886(d)(5)(K)(vi) (42 U.S.C. 1395ww(d)(5)(K)(vi)) is 
        amended--
                    (A) by inserting ``(I)'' after ``(vi)''; and
                    (B) by adding at the end the following new 
                subclause:
    ``(II) Under such criteria, a service or technology shall not be 
denied treatment as a new service or technology on the basis of the 
period of time in which the service or technology has been in use if 
such period ends before the end of the 2-to-3-year period that begins 
on the effective date of implementation of a code under ICD-9-CM (or a 
successor coding methodology) that enables the identification of 
specific discharges in which the service or technology has been 
used.''.
            (2) 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''.
            (3) Criterion for substantial improvement.--Section 
        1886(d)(5)(K)(vi) (42 U.S.C. 1395ww(d)(5)(K)(vi)), as amended 
        by paragraph (1), is further amended by adding at the end the 
        following subclause:
    ``(III) The Secretary shall by regulation provide for further 
clarification of the criteria applied to determine whether a new 
service or technology represents an advance in medical technology that 
substantially improves the diagnosis or treatment of beneficiaries. 
Under such criteria, in determining whether a new service or technology 
represents an advance in medical technology that substantially improves 
the diagnosis or treatment of beneficiaries, the Secretary shall deem a 
service or technology as meeting such requirement if the service or 
technology is a drug or biological that is designated under section 506 
of the Federal Food, Drug, and Cosmetic Act, approved under section 
314.510 or 601.41 of title 21, Code of Federal Regulations, or 
designated for priority review when the marketing application for such 
drug or biological was filed or is a medical device for which an 
exemption has been granted under section 520(m) of such Act, or for 
which priority review has been provided under section 515(d)(5) of such 
Act. Nothing in this subclause shall be construed as effecting the 
authority of the Secretary to determine whether items and services are 
medically necessary and appropriate under section 1862(a)(1).''.
            (4) Process for public input.--Section 1886(d)(5)(K) (42 
        U.S.C. 1395ww(d)(5)(K)), as amended by paragraph (1), 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 not described in 
the second sentence of clause (vi)(III) represents an advance in 
medical technology that substantially improves the diagnosis or 
treatment of beneficiaries 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, medicare 
        beneficiaries, 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)) is further 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) Improvement in Payment for New Technology.--Section 
1886(d)(5)(K)(ii)(III) (42 U.S.C. 1395ww(d)(5)(K)(ii)(III)) is amended 
by inserting after ``the estimated average cost of such service or 
technology'' the following: ``(based on the marginal rate applied to 
costs under subparagraph (A))''.
    (e) 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.
    (f) 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. 503. 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 October 1, 
        2003, the applicable Puerto Rico percentage is 50 percent and 
        the applicable Federal percentage is 50 percent;
            ``(iii) during fiscal year 2004, the applicable Puerto Rico 
        percentage is 41 percent and the applicable Federal percentage 
        is 59 percent;
            ``(iv) during fiscal year 2005, the applicable Puerto Rico 
        percentage is 33 percent and the applicable Federal percentage 
        is 67 percent; and
            ``(v) on or after October 1, 2005, the applicable Puerto 
        Rico percentage is 25 percent and the applicable Federal 
        percentage is 75 percent.''.

SEC. 504. WAGE INDEX ADJUSTMENT RECLASSIFICATION REFORM .

    (a) In General.--Section 1886(d) (42 U.S.C. 1395ww(d)) is amended 
by adding at the end the following:
    ``(11)(A) In order to recognize commuting patterns among 
Metropolitan Statistical Areas and between such Areas and rural areas, 
the Secretary shall establish a process, upon application of a 
subsection (d) hospital that establishes that it is a qualifying 
hospital described in subparagraph (B), for an increase of the wage 
index applied under paragraph (3)(E) for the hospital in the amount 
computed under subparagraph (D).
    ``(B) A qualifying hospital described in this subparagraph is a 
subsection (d) hospital--
            ``(i) the average wages of which exceed the average wages 
        for the area in which the hospital is located; and
            ``(ii) which has at least 10 percent of its employees who 
        reside in one or more higher wage index areas.
    ``(C) For purposes of this paragraph, the term `higher wage index 
area' means, with respect to a hospital, an area with a wage index that 
exceeds that of the area in which the hospital is located.
    ``(D) The increase in the wage index under subparagraph (A) for a 
hospital shall be equal to the percentage of the employees of the 
hospital that resides 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 
        area, and (II) the wage index of the area in which the hospital 
        is located (before the application of this paragraph); and
            ``(ii) the number of employees of the hospital that reside 
        in such higher wage index area divided by the total number of 
        such employees that reside in all high wage index areas.
    ``(E) The process under this paragraph shall be based upon the 
process used by the Medicare Geographic Classification Review Board 
under paragraph (10) with respect to data submitted by hospitals to the 
Board on the location of residence of hospital employees and wages 
under the applicable schedule established for geographic 
reclassification.
    ``(F) A reclassification 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 
terminate such reclassification before the end of such period.
    ``(G) A hospital that is reclassified under this paragraph for a 
period is not eligible for reclassification under paragraphs (8) or 
(10) during that period.
    ``(H) Any increase in a wage index under this paragraph for a 
hospital shall not be taken into account for purposes of--
            ``(i) computing the wage index for the area in which the 
        hospital is located or any other area; or
            ``(ii) applying any budget neutrality adjustment with 
        respect to such index under paragraph (8)(D).''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
first apply to the wage index for discharges occurring on or after 
October 1, 2004.

SEC. 505. MEDPAC REPORT ON SPECIALTY HOSPITALS.

    (a) MedPAC Study.--The Medicare Payment Advisory Commission shall 
conduct a study of specialty hospitals compared with other similar 
general acute care hospitals under the medicare program. Such study 
shall examine--
            (1) whether there are excessive self-referrals;
            (2) quality of care furnished;
            (3) the impact of specialty hospitals on such general acute 
        care hospitals; and
            (4) differences in the scope of services, medicaid 
        utilization, and uncompensated care furnished.
    (b) Report.--Not later than 1 year after the date of the enactment 
of this Act, the Secretary 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 
Secretary determines appropriate.

                      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 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, 2003.

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 who is either the medical director or 
        an employee of a hospice program and that consist of--
                    ``(A) an evaluation of the individual's need for 
                pain and symptom management;
                    ``(B) counseling the individual with respect to 
                end-of-life issues and care options; and
                    ``(C) advising the individual regarding advanced 
                care planning.''.
    (b) Payment.--Section 1814(i) (42 U.S.C. l395f(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 equivalent to the amount 
established for an office or other outpatient visit for evaluation and 
management associated with presenting problems of moderate severity 
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, 
2004.

SEC. 513. CORRECTION OF TRUST FUND HOLDINGS.

    (a) In General.--Within 120 days after the effective date of this 
section, the Secretary of the Treasury shall take the actions described 
in subsection (b) with respect to the Federal Hospital Insurance Trust 
Fund (in this section referred to as the ``Trust Fund'') with the goal 
being that, after the 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 
obligations that would have been held by the trust fund if the clerical 
error had not occurred.
    (b) Obligations Issued and Redeemed.--The Secretary of the Treasury 
shall--
            (1) issue to the Trust Fund obligations under chapter 31 of 
        title 31, United States Code, that bear issue dates, interest 
        rates, and maturity dates as the obligations that--
                    (A) would have been issued to the Trust Fund if the 
                clerical error had not occurred; or
                    (B) were issued to the Trust Fund and were redeemed 
                by reason of the clerical error; and
            (2) redeem from the Trust Fund obligations that would have 
        been redeemed from the Trust Fund if the clerical error had not 
        occurred.
    (c) Appropriation to Trust Fund.--Within 120 days after the 
effective date of this section, there is hereby 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 of Health and Human Services, to be 
equal to the interest income lost by the trust fund through the date of 
credit by reason of the clerical error.
    (d) Clerical Error Defined.--For purposes of this section, the term 
``clerical error'' means the failure to have transferred the correct 
amount from the general fund to the Trust Fund, which failure occurred 
on April 15, 2001.

                TITLE VI--PROVISIONS RELATING TO PART B

                    Subtitle A--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 amendment made by paragraph (1) 
        shall apply to computations of the sustainable growth rate for 
        years beginning with 2003.

SEC. 602. STUDIES ON ACCESS TO PHYSICIANS' SERVICES.

    (a) GAO Study on Beneficiary Access to Physicians' Services.--
            (1) 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--
                    (A) 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;
                    (B) an examination of changes in the use by 
                beneficiaries of physicians' services over time;
                    (C) an examination of the extent to which 
                physicians are not accepting new medicare beneficiaries 
                as patients.
            (2) 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 paragraph (1). 
        The report shall include a determination whether--
                    (A) 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
                    (B) access by medicare beneficiaries to physicians' 
                services may have improved, remained constant, or 
                deteriorated over time.
    (b) Study and Report on Supply of Physicians.--
            (1) Study.--The Secretary shall request the Institute of 
        Medicine of the National Academy of Sciences to conduct a study 
        on the adequacy of the supply of physicians (including 
        specialists) in the United States and the factors that affect 
        such supply.
            (2) Report to congress.--Not later than 2 years after the 
        date of enactment of this section, the Secretary shall submit 
        to Congress a report on the results of the study described in 
        paragraph (1), including any recommendations for legislation.
    (c) 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 May 1, 2004, the Comptroller 
        General shall submit to Congress a report on the study 
        conducted under paragraph (1).

SEC. 603. 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 Physician Services.--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).
            (2) An examination of the relative growth of volume in 
        physician 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 of 
        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 affected 
        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.

SEC. 604. INCLUSION OF PODIATRISTS AND DENTISTS 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), 
and (3) of section 1861(r)''.

SEC. 605. ESTABLISHMENT OF FLOOR ON WORK GEOGRAPHIC ADJUSTMENT.

    (a) Minimum Index.--Section 1848(e)(1) (42 U.S.C. 1395w-4(e)(1)) is 
amended by adding at the end the following new subparagraph:
                    ``(E) Floor at 1.0 on work geographic index.--
                            ``(i) In general.--Subject to clause (ii), 
                        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, 2006, 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.
                            ``(ii) Secretarial discretion.--Clause (i) 
                        shall have no force or effect in law if the 
                        Secretary determines, taking into account the 
                        report of the Comptroller General under section 
                        605(b)(2) of the Medicare Prescription Drug and 
                        Modernization Act of 2003, that there is no 
                        sound economic rationale for the implementation 
                        of that clause.''.
    (b) GAO Report.--
            (1) Evaluation.--As part of the study on geographic 
        differences in payments for physicians' services conducted 
        under section 413, the Comptroller General of the United States 
        shall evaluate the following:
                    (A) Whether there is a sound economic basis for the 
                implementation of the adjustment of the work geographic 
                index under section 1848(e)(1) of the Social Security 
                Act under subsection (a) in those areas in which the 
                adjustment applies.
                    (B) The effect of such adjustment 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.
                    (C) The appropriateness of establishing a floor of 
                1.0 for the work geographic index.
            (2) Report.--By not later than September 1, 2004, the 
        Comptroller General shall submit to Congress and to the 
        Secretary a report on the evaluation conducted under paragraph 
        (1).

                    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), 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) The term `initial preventive physical examination' means 
physicians' services consisting of a physical examination with the goal 
of health promotion and disease detection and includes items and 
services (excluding clinical laboratory tests), as determined by the 
Secretary, consistent with the recommendations of the United States 
Preventive Services Task Force.''.
    (c) Waiver of Deductible and Coinsurance.--
            (1) Deductible.--The first sentence of section 1833(b) (42 
        U.S.C. 1395l(b)) is amended--
                    (A) by striking ``and'' before ``(6)'', and
                    (B) by inserting before the period at the end the 
                following: ``, and (7) such deductible shall not apply 
                with respect to an initial preventive physical 
                examination (as defined in section 1861(ww))''.
            (2) Coinsurance.--Section 1833(a)(1) (42 U.S.C. 
        1395l(a)(1)) is amended--
                    (A) in clause (N), by inserting ``(or 100 percent 
                in the case of an initial preventive physical 
                examination, as defined in section 1861(ww))'' after 
                ``80 percent''; and
                    (B) in clause (O), by inserting ``(or 100 percent 
                in the case of an initial preventive physical 
                examination, as defined in section 1861(ww))'' after 
                ``80 percent''.
    (d) 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),''.
    (e) Other Conforming Amendments.--Section 1862(a) (42 U.S.C. 
1395y(a)) is amended--
            (1) in paragraph (1)--
                    (A) by striking ``and'' at the end of subparagraph 
                (H);
                    (B) by striking the semicolon at the end of 
                subparagraph (I) and inserting ``, and''; and
                    (C) by adding at the end the following new 
                subparagraph:
            ``(J) 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
            (2) in paragraph (7), by striking ``or (H)'' and inserting 
        ``(H), or (J)''.
    (f) Effective Date.--The amendments made by this section shall 
apply to services furnished on or after January 1, 2004, but only for 
individuals whose coverage period begins on or after such date.

SEC. 612. COVERAGE OF CHOLESTEROL AND BLOOD LIPID SCREENING.

    (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), 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) cholesterol and other blood lipid screening 
                tests (as defined in subsection (XX));''.
    (b) Services Described.--Section 1861 (42 U.S.C. 1395x), as amended 
by section 611(b), is amended by adding at the end the following new 
subsection:

           ``Cholesterol and Other Blood Lipid Screening Test

    ``(xx)(1) The term `cholesterol and other blood lipid screening 
test' means diagnostic testing of cholesterol and other lipid levels of 
the blood for the purpose of early detection of abnormal cholesterol 
and other lipid levels.
    ``(2) The Secretary shall establish standards, in consultation with 
appropriate organizations, regarding the frequency and type of 
cholesterol and other blood lipid screening 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(e), is amended--
            (1) by striking ``and'' at the end of subparagraph (I);
            (2) by striking the semicolon at the end of subparagraph 
        (J) and inserting ``; and''; and
            (3) by adding at the end the following new subparagraph:
            ``(K) in the case of a cholesterol and other blood lipid 
        screening test (as defined in section 1861(xx)(1)), which is 
        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. WAIVER OF DEDUCTIBLE FOR COLORECTAL CANCER SCREENING TESTS.

    (a) In General.--The first sentence of section 1833(b) (42 U.S.C. 
1395l(b)), as amended by section 611(c)(1), is amended--
            (1) by striking ``and'' before ``(7)''; and
            (2) by inserting before the period at the end the 
        following: ``, and (8) such deductible shall not apply with 
        respect to colorectal cancer screening tests (as described in 
        section 1861(pp)(1))''.
    (b) Conforming Amendments.--Paragraphs (2)(C)(ii) and (3)(C)(ii) of 
section 1834(d) (42 U.S.C. 1395m(d)) are each amended--
            (1) by striking ``deductible and'' in the heading; and
            (2) in subclause (I), by striking ``deductible or'' each 
        place it appears.
    (c) Effective Date.--The amendment made by this section shall apply 
to items and services furnished on or after Janaury 1, 2004.

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 unilateral and bilateral diagnostic 
mammography''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to mammography performed on or after January 1, 2004.

                       Subtitle C--Other Services

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

    (a) Payment for Drugs.--
            (1) Modification of ambulatory payment classification (apc) 
        groups.--Section 1833(t) (42 U.S.C. 1395l(t)) is amended--
                    (A) by redesignating paragraph (13) as paragraph 
                (14); and
                    (B) by inserting after paragraph (12) the following 
                new paragraph:
            ``(13) Drug apc payment rates.--
                    ``(A) In general.--With respect to payment for 
                covered OPD services that includes a specified covered 
                outpatient drug (defined in subparagraph (B)), the 
                amount provided for payment for such drug under the 
                payment system under this subsection for services 
                furnished in--
                            ``(i) 2004, 2005, or 2006, shall in no 
                        case--
                                    ``(I) exceed 95 percent of the 
                                average wholesale price for the drug; 
                                or
                                    ``(II) be less than the transition 
                                percentage (under subparagraph (C)) of 
                                the average wholesale price for the 
                                drug; or
                            ``(ii) a subsequent year, shall be equal to 
                        the average price for the drug for that area 
                        and year established under the competitive 
                        acquisition program under section 1847A as 
                        calculated and applied by the Secretary 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 1927(k)(2), 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 for which payment is 
                                first made on or after January 1, 2003, 
                                under paragraph (6); or
                                    ``(II) a drug for a which a 
                                temporary HCPCS code has not been 
                                assigned.
                    ``(C) Transition towards historical average 
                acquisition cost.--The transition percentage under this 
                subparagraph for drugs furnished in a year is 
                determined in accordance with the following table:

 
 
                                                                        The transition percentage for--
 
                        For the year--                                             Innovator
                                                                Single source   multiple source   Generic drugs
                                                                 drugs are--      drugs are--         are--
 
2004.........................................................              83%            81.5%              46%
2005.........................................................              77%              75%              46%
2006.........................................................              71%              68%              46%
 

                    ``(D) Payment for new drugs until temporary HCPCS 
                code assigned.--With respect to payment for covered OPD 
                services that includes a covered outpatient drug (as 
                defined in 1927(k)) for a which a temporary HCPCS code 
                has not been assigned, the amount provided for payment 
                for such drug under the payment system under this 
                subsection shall be equal to 95 percent of the average 
                wholesale price for the drug.
                    ``(E) Classes of drugs.--For purposes of this 
                paragraph, each of the following shall be treated as a 
                separate class of drugs:
                            ``(i) Sole source drugs.--A sole source 
                        drug which for purposes of this paragraph means 
                        a drug or biological that is not a multiple 
                        source drug (as defined in subclauses (I) and 
                        (II) of section 1927(k)(7)(A)(i)) and is not a 
                        drug approved under an abbreviated new drug 
                        application under section 355(j) of the Federal 
                        Food, Drug, and Cosmetic Act.
                            ``(ii) Innovator multiple source drugs.--
                        Innovator multiple source drugs (as defined in 
                        section 1927(k)(7)(A)(ii)).
                            ``(iii) Noninnovator multiple source 
                        drugs.--Noninnovator multiple source drugs (as 
                        defined in section 1927(k)(7)(A)(iii)).
                    ``(F) Inapplicability of expenditures in 
                determining conversion factors.--Additional 
                expenditures resulting from this paragraph and 
                paragraph (14)(C) in a year shall not be taken into 
                account in establishing the conversion factor for that 
                year.''.
            (2) Reduction in threshold for separate apcs for drugs.--
        Section 1833(t)(14), as redesignated by paragraph (1)(A), 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 to 
                $50 per administration.''.
            (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 apcs from outlier 
                payments.--No additional payment shall be made under 
                subparagraph (A) in the case of ambulatory procedure 
                codes established separately for drugs.''.
            (4) Payment for pass through drugs.--Clause (i) of section 
        1833(t)(6)(D) (42 U.S.C. 1395l(t)(6)(D)) is amended by 
        inserting after ``under section 1842(o)'' the following: ``(or 
        if the drug is covered under a competitive acquisition contract 
        under section 1847A for an area, an amount determined by the 
        Secretary equal to the average price for the drug for that area 
        and year established under such section as calculated and 
        applied by the Secretary for purposes of this paragraph)''.
            (5) Effective date.--The amendments made by this subsection 
        shall apply to services furnished on or after January 1, 2004.
    (b) Special Payment for Brachytherapy.--
            (1) In general.--Section 1833(t)(14), as so redesignated 
        and 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 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.''.
            (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, 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)(13)(B) 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.
    (c) Application of Functional Equivalence Test.--
            (1) In general.--Section 1833(t)(6) (42 U.S.C. 1395l(t)(6)) 
        is amended by adding at the end the following new subparagraph:
                    ``(F) Limitation on application of functional 
                equivalence standard.--The Secretary may not apply a 
                `functional equivalence' payment standard (including 
                such standard promulgated on November 1, 2002) or any 
                other similar standard in order to deem a particular 
                product to be functionally equivalent (or a similar 
                standard) unless the Commissioner of Food and Drugs 
                establishes a functional equivalence standard and 
                certifies, under such standards, that the two products 
                are functionally equivalent. If the Commissioner makes 
                such a certification with respect to two or more 
                products, the Secretary may, after complying with 
                applicable rulemaking requirements, implement such 
                standard with respect to such products under this 
                subsection.''.
            (2) Effective date.--The amendment made by paragraph (1) 
        shall apply to the application of a functional equivalence 
        standard to a drug or biological on or after the date of the 
        enactment of this Act, unless such application was being made 
        to such drug or biological prior to June 13, 2003.
    (d) Hospital Acquisition Cost Study.--
            (1) In general.--The Secretary shall conduct a study on the 
        costs incurred by hospitals in acquiring covered outpatient 
        drugs for which payment is made under section 1833(t) of the 
        Social Security Act (42 U.S.C. 1395l(t)).
            (2) Drugs covered.--The study in paragraph (1) shall not 
        include those drugs for which the acquisition costs is less 
        than $50 per administration.
            (3) Representative sample of hospitals.--In conducting the 
        study under paragraph (1), the Secretary shall collect data 
        from a statistically valid sample of hospitals with an urban/
        rural stratification.
            (4) 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 with respect 
        to the following:
                    (A) Whether the study should be repeated, and if 
                so, how frequently.
                    (B) Whether the study produced useful data on 
                hospital acquisition cost.
                    (C) Whether data produced in the study is 
                appropriate for use in making adjustments to payments 
                for drugs and biologicals under section 1847A of the 
                Social Security Act.
                    (D) Whether separate estimates can be made of 
                overhead costs, including handing and administering 
                costs for drugs.

SEC. 622. PAYMENT FOR 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)), as 
amended by section 410(a), is amended--
            (1) in paragraph (2)(E), by inserting ``consistent with 
        paragraph (11)'' after ``in an efficient and fair manner''; and
            (2) by adding at the end the following new paragraph:
            ``(11) 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 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, 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 9 Census divisions 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 further amended by adding at the end 
the following new paragraph:
            ``(12) Adjustment in payment for certain long trips.--In 
        the case of ground ambulance services furnished on or after 
        January 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 such miles.''.
    (c) 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 section). Not later than 
December 31, 2007, the Comptroller General shall submit to Congress a 
final report on such access and supply.
    (d) Effective Date.--The amendments made by this section shall 
apply to ambulance services furnished on or after January 1, 2004.

SEC. 623. RENAL DIALYSIS SERVICES.

    (a) Demonstration of Alternative Delivery Models.--
            (1) Use of advisory board.--In carrying out the 
        demonstration project relating to improving care for people 
        with end-stage renal disease through alternative delivery 
        models (as published in the Federal Register of June 4, 2003), 
        the Secretary shall establish an advisory board comprised of 
        representatives described in paragraph (2) to provide advice 
        and recommendations with respect to the establishment and 
        operation of such demonstration project.
            (2) Representatives.--Representatives referred to in 
        paragraph (1) include representatives of the following:
                    (A) Patient organizations.
                    (B) Clinicians.
                    (C) The medicare payment advisory commission, 
                established under section 1805 of the Social Security 
                Act (42 U.S.C. 1395b-6).
                    (D) The National Kidney Foundation.
                    (E) The National Institute of Diabetes and 
                Digestive and Kidney Diseases of National Institutes of 
                Health.
                    (F) End-stage renal disease networks.
                    (G) Medicare contractors to monitor quality of 
                care.
                    (I) providers of services and renal dialysis 
                facilities furnishing end-stage renal disease services.
                    (J) Economists.
                    (K) Researchers.
    (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)), as amended by subsection 
        (b), is further amended by striking ``Until'' and inserting 
        ``Subject to section 422(a)(2) of the Medicare, Medicaid, and 
        SCHIP Benefits Improvement and Protection Act of 2000, and 
        until''.
    (c) Increase in Renal Dialysis Composite Rate for Services 
Furnished in 2004.--Notwithstanding any other provision of law, with 
respect to payment under part B of title XVIII of the Social Security 
Act for renal dialysis services furnished in 2004, the composite 
payment rate otherwise established under section 1881(b)(7) of such Act 
(42 U.S.C. 1395rr(b)(7)) shall be increased by 1.6 percent.

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

    (a) 1-Year Moratorium on Therapy Caps.--Section 1833(g)(4) (42 
U.S.C. 1395l(g)(4)) is amended by striking ``and 2002'' and inserting 
``2002, and 2004''.
    (b) Prompt Submission of Overdue Reports on Payment and Utilization 
of Outpatient Therapy Services.--Not later than December 31, 2003, the 
Secretary shall submit to Congress the reports required under section 
4541(d)(2) of the Balanced Budget Act of 1997 (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 (relating to utilization patterns for outpatient therapy).
    (c) Identification of Conditions and Diseases Justifying Waiver of 
Therapy Cap.--
            (1) Study.--The Secretary shall request the Institute of 
        Medicine of the National Academy of Sciences to identify 
        conditions or diseases that should justify conducting an 
        assessment of the need to waive the therapy caps under section 
        1833(g)(4) of the Social Security Act (42 U.S.C. 1395l(g)(4)).
            (2) Reports to congress.--
                    (A) Preliminary report.--Not later than July 1, 
                2004, the Secretary shall submit to Congress a 
                preliminary report on the conditions and diseases 
                identified under paragraph (1).
                    (B) Final report.--Not later than September 1, 
                2004, the Secretary shall submit to Congress a final 
                report on such conditions and diseases.
                    (C) Recommendations.--Not later than October 1, 
                2004, the Secretary shall submit to Congress a 
                recommendation of criteria, with respect to such 
                conditions and disease, under which a waiver of the 
                therapy caps would apply.
    (d) GAO Study of Patient Access to Physical Therapist Services.--
            (1) Study.--The Comptroller General of the United States 
        shall conduct a study on access to physical therapist services 
        in States authorizing such services without a physician 
        referral and in States that require such a physician referral. 
        The study shall--
                    (A) examine the use of and referral patterns for 
                physical therapist services for patients age 50 and 
                older in States that authorize such services without a 
                physician referral and in States that require such a 
                physician referral;
                    (B) examine the use of and referral patterns for 
                physical therapist services for patients who are 
                medicare beneficiaries;
                    (C) examine the potential effect of prohibiting a 
                physician from referring patients to physical therapy 
                services owned by the physician and provided in the 
                physician's office;
                    (D) examine the delivery of physical therapists' 
                services within the facilities of Department of 
                Defense; and
                    (E) analyze the potential impact on medicare 
                beneficiaries and on expenditures under the medicare 
                program of eliminating the need for a physician 
                referral and physician certification for physical 
                therapist services under the medicare program.
            (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.

SEC. 625. ADJUSTMENT TO PAYMENTS FOR SERVICES FURNISHED IN AMBULATORY 
              SURGICAL CENTERS.

    Section 1833(i)(2)(C) (42 U.S.C. 1395l(i)(2)(C)) is amended in the 
last sentence by inserting ``and each of fiscal years 2004 through 
2008'' after ``In each of the fiscal years 1998 through 2002''.

SEC. 626. 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), 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 or a carrier 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, 2004.

SEC. 627. 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 is 65 years of age or older, 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 of Health and Human Services 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 65 years of age or 
        older, 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. 628. PART B DEDUCTIBLE.

    Section 1833(b) (42 U.S.C. 1395l(b)) is amended--
            (1) by striking ``1991 and'' and inserting ``1991,''; and
            (2) by striking ``and subsequent years'' and inserting 
        ``and each subsequent year through 2003, and for a subsequent 
        year after 2003 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. 629. 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 
                (W);
                    (B) by adding ``and'' at the end of subparagraph 
                (X); and
                    (C) by adding at the end the following new 
                subparagraph:
                    ``(Y) intravenous immune globulin for the treatment 
                of primary immune deficiency diseases in the home (as 
                defined in subsection (yy));''; and
            (2) by adding at the end the following new subsection:

                     ``Intravenous Immune Globulin

    ``(yy) 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(yy)))'' 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. 630. MEDICARE COVERAGE OF DIABETES LABORATORY DIAGNOSTIC TESTS.

    (a) Coverage.--Section 1861(s)(2) (42 U.S.C. 1395x(s)(2)), as 
amended by sections 611 and 612, 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 and services (as defined in 
        subsection (yy));''.
    (b) Services Described.--Section 1861 (42 U.S.C. 1395x), as amended 
by sections 611 and 612, is further amended by adding at the end the 
following new subsection:

                ``Diabetes Screening Tests and Services

    ``(yy)(1) The term `diabetes screening tests' means diagnostic 
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, a combination of, or all 
of the following risk factors for diabetes:
            ``(A) A family history of diabetes.
            ``(B) Overweight defined as a body mass index greater than 
        or equal to 25 kg/m2.
            ``(C) Habitual physical inactivity.
            ``(D) Belonging to a high-risk ethnic or racial group.
            ``(E) Previous identification of an elevated impaired 
        fasting glucose.
            ``(F) Identification of impaired glucose tolerance.
            ``(G) Hypertension.
            ``(H) Dyslipidemia.
            ``(I) History of gestational diabetes mellitus or delivery 
        of a baby weighing greater than 9 pounds.
            ``(J) Polycystic ovary syndrome.
    ``(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 sections 611 and 612, 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 a diabetes screening tests or service 
        (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 the date that is 90 days after the 
date of enactment of this Act.

SEC. 631. DEMONSTRATION PROJECT FOR COVERAGE OF CERTAIN PRESCRIPTION 
              DRUGS AND BIOLOGICS.

    (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 biologics 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.
    (b) Demonstration Project Sites.--The project established under 
this section shall be conducted in 3 States 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 10,000 patients; and
            (2) more than $100,000,000 in funding.
    (e) Report.--Not later than January 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.

            TITLE VII--PROVISIONS RELATING TO PARTS A AND B

                    Subtitle A--Home Health Services

SEC. 701. UPDATE IN HOME HEALTH SERVICES.

    (a) Change to Calender Year Update.--
            (1) In general.--Section 1895(b) (42 U.S.C. 1395fff(b)(3)) 
        is amended--
                    (A) in paragraph (3)(B)(i)--
                            (i) 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
                            (ii) by inserting ``or year'' after ``the 
                        fiscal year'';
                    (B) in paragraph (3)(B)(ii)(II), by striking ``any 
                subsequent fiscal year'' and inserting ``2004 and any 
                subsequent year'';
                    (C) in paragraph (3)(B)(iii), by inserting ``or 
                year'' after ``fiscal year'' each place it appears;
                    (D) in paragraph (3)(B)(iv)--
                            (i) by inserting ``or year'' after ``fiscal 
                        year'' each place it appears; and
                            (ii) by inserting ``or years'' after 
                        ``fiscal years''; and
                    (E) in paragraph (5), by inserting ``or year'' 
                after ``fiscal year''.
            (2) Transition rule.--The standard prospective payment 
        amount (or amounts) under section 1895(b)(3) of the Social 
        Security Act for the calendar quarter beginning on October 1, 
        2003, shall be such amount (or amounts) for the previous 
        calendar quarter.
    (b) Changes in 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)(1)(B), is amended--
            (1) by striking ``or'' at the end of subclause (I);
            (2) by redesignating subclause (II) as subclause (III);
            (3) in subclause (III), as so redesignated, by striking 
        ``2004'' and inserting ``2007''; and
            (4) by inserting after subclause (I) the following new 
        subclause:
                                    ``(II) each of 2004, 2005, and 2006 
                                the home health market basket 
                                percentage increase minus 0.4 
                                percentage points; or''.

SEC. 702. ESTABLISHMENT OF REDUCED COPAYMENT FOR A HOME HEALTH SERVICE 
              EPISODE OF CARE FOR CERTAIN BENEFICIARIES.

    (a) Part A.--
            (1) In general.--Section 1813(a) (42 U.S.C. 1395e(a)) is 
        amended by adding at the end the following new paragraph:
    ``(5)(A)(i) Subject to clause (ii), the amount payable for home 
health services furnished to the individual under this title for each 
episode of care beginning in a year (beginning with 2004) shall be 
reduced by a copayment equal to the copayment amount specified in 
subparagraph (B)(ii) for such year.
    ``(ii) The copayment under clause (i) shall not apply--
            ``(I) in the case of an individual who has been determined 
        to be entitled to medical assistance under section 
        1902(a)(10)(A) or 1902(a)(10)(C) or to be a qualified medicare 
        beneficiary (as defined in section 1905(p)(1)), a specified 
        low-income medicare beneficiary described in section 
        1902(a)(10)(E)(iii), or a qualifying individual described in 
        section 1902(a)(10)(E)(iv)(I); and
            ``(II) in the case of an episode of care which consists of 
        4 or fewer visits.
    ``(B)(i) The Secretary shall estimate, before the beginning of each 
year (beginning with 2004), the national average payment under this 
title per episode for home health services projected for the year 
involved.
    ``(ii) For each year the copayment amount under this clause is 
equal to 1.5 percent of the national average payment estimated for the 
year involved under clause (i). Any amount determined under the 
preceding sentence which is not a multiple of $5 shall be rounded to 
the nearest multiple of $5.
    ``(iii) There shall be no administrative or judicial review under 
section 1869, 1878, or otherwise of the estimation of average payment 
under clause (i).''.
            (2) Timely implementation.--Unless the Secretary of Health 
        and Human Services otherwise provides on a timely basis, the 
        copayment amount specified under section 1813(a)(5)(B)(ii) of 
        the Social Security Act (as added by paragraph (1)) for 2004 
        shall be deemed to be $40.
    (b) Conforming Provisions.--
            (1) Section 1833(a)(2)(A) (42 U.S.C. 1395l(a)(2)(A)) is 
        amended by inserting ``less the copayment amount applicable 
        under section 1813(a)(5)'' after ``1895''.
            (2) Section 1866(a)(2)(A)(i) (42 U.S.C. 1395cc(a)(2)(A)(i)) 
        is amended--
                    (A) by striking ``or coinsurance'' and inserting 
                ``, coinsurance, or copayment''; and
                    (B) by striking ``or (a)(4)'' and inserting 
                ``(a)(4), or (a)(5)''.

SEC. 703. 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. 704. 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 two-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 condition that 
        will not improve;
            (2) the beneficiary requires the individual to receive 
        assistance from another individual with at least 3 out of the 5 
        activities of daily living for the rest of the individual's 
        life;
            (3) the beneficiary requires skilled nursing services on a 
        permanent basis and the skilled nursing is more than medication 
        management;
            (4) either (A) an attendant is needed during the day to 
        monitor and treat the beneficiary's medical condition, or (B) 
        the beneficiary needs daily skilled nursing on a permanent 
        basis and the skilled nursing is more than medication 
        management; and
            (5) the beneficiary requires technological assistance or 
        the assistance of another person to leave 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) and shall include--
            (1) an examination of whether the provision of home health 
        services to medicare beneficiaries under the project--
                    (A) adversely effects the provision of home health 
                services under the medicare program; or
                    (B) directly causes an unreasonable 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 a 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; and
            (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 unreasonable 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 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.
            (4) Secretary.--The term ``Secretary'' means the Secretary 
        of Health and Human Services.

             Subtitle B--Direct 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''.

                  Subtitle C--Chronic Care Improvement

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

    Title XVIII, as amended by section 105(a), is amended by inserting 
after section 1807 the following new section:

                       ``chronic care improvement

    ``Sec. 1808. (a) In General.--
            ``(1) In general.--The Secretary shall establish a process 
        for providing chronic care improvement programs in each CCIA 
        region for medicare beneficiaries who are not enrolled under 
        part C or E and who have certain chronic conditions, such as 
        congestive heart failure, diabetes, chronic obstructive 
        pulmonary disease (COPD), stroke, prostate and colon cancer, 
        hypertension, or other disease as identified by the Secretary 
        as appropriate for chronic care improvement. Such a process 
        shall begin to be implemented no later than 1 year after the 
        date of the enactment of this section.
            ``(2) Terminology.--For purposes of this section:
                    ``(A) CCIA region.--The term `CCIA region' means a 
                chronic care improvement administrative region 
                delineated under subsection (b)(2).
                    ``(B) Chronic care improvement program.--The terms 
                `chronic care improvement program' and `program' means 
                such a program provided by a contractor under this 
                section.
                    ``(C) Contractor.--The term `contractor' means an 
                entity with a contract to provide a chronic care 
                improvement program in a CCIA region under this 
                section.
                    ``(D) Individual plan.--The term `individual plan' 
                means a chronic care improvement plan established under 
                subsection (c)(5) for an individual.
            ``(3) Construction.--Nothing in this section shall be 
        construed as expanding the amount, duration, or scope of 
        benefits under this title.
    ``(b) Competitive Bidding Process.--
            ``(1) In general.--Under this section the Secretary shall 
        award contracts to qualified entities for chronic care 
        improvement programs for each CCIA region under this section 
        through a competitive bidding process.
            ``(2) Process.--Under such process--
                    ``(A) the Secretary shall delineate the United 
                States into multiple chronic care improvement 
                administrative regions; and
                    ``(B) the Secretary shall select at least 2 winning 
                bidders in each CCIA region on the basis of the ability 
                of each bidder to carry out a chronic care improvement 
                program in accordance with this section, in order to 
                achieve improved health and financial outcomes.
            ``(3) Eligible contractor.--A contractor may be a disease 
        improvement organization, health insurer, provider 
        organization, a group of physicians, or any other legal entity 
        that the Secretary determines appropriate.
    ``(c) Chronic Care Improvement Programs.--
            ``(1) In general.--Each contract under this section shall 
        provide for the operation of a chronic care improvement program 
        by a contractor in a CCIA region consistent with this 
        subsection.
            ``(2) Identification of prospective program participants.--
        Each contractor shall have a method for identifying medicare 
        beneficiaries in the region to whom it will offer services 
        under its program. The contractor shall identify such 
        beneficiaries through claims or other data and other means 
        permitted consistent with applicable disclosure provisions.
            ``(3) Initial contact by secretary.--The Secretary shall 
        communicate with each beneficiary identified under paragraph 
        (2) as a prospective participant in one or more programs 
        concerning participation in a program. Such communication may 
        be made by the Secretary (or on behalf of 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 contractor 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 select the single program in which the 
                beneficiary wishes to participate and for declining to 
                participate and a method for obtaining additional 
                information concerning such participation.
            ``(4) Participation.--A medicare beneficiary may 
        participate in only one program under this section and may 
        terminate participation at any time in a manner specified by 
        the Secretary.
            ``(5) Individual chronic care improvement plans.--
                    ``(A) In general.--For each beneficiary 
                participating in a program of a contractor under this 
                section, the contractor shall develop with the 
                beneficiary an individualized, goal-oriented chronic 
                care improvement plan.
                    ``(B) Elements of individual plan.--Each individual 
                plan developed under subparagraph (A) shall include a 
                single point of contact to coordinate care and the 
                following, as appropriate:
                            ``(i) Self-improvement education for the 
                        beneficiary (such as education for disease 
                        management through medical nutrition therapy) 
                        and support education for health care 
                        providers, primary caregivers, and family 
                        members.
                            ``(ii) Coordination of health care 
                        services, such as application of a prescription 
                        drug regimen and home health services.
                            ``(iii) Collaboration with physicians and 
                        other providers to enhance communication of 
                        relevant clinical information.
                            ``(iv) 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.
                            ``(v) The provision of information about 
                        hospice care, pain and palliative care, and 
                        end-of-life care.
                    ``(C) Contractor responsibilities.--In establishing 
                and carrying out individual plans under a program, a 
                contractor shall, directly or through subcontractors--
                            ``(i) guide participants in managing their 
                        health, including all their co-morbidities, and 
                        in performing activities as specified under the 
                        elements of the plan;
                            ``(ii) use decision support tools such as 
                        evidence-based practice guidelines or other 
                        criteria as determined by the Secretary; and
                            ``(iii) develop a clinical information 
                        database to track and monitor each participant 
                        across settings and to evaluate outcomes.
            ``(6) Additional requirements.--The Secretary may establish 
        additional requirements for programs and contractors under this 
        section.
            ``(7) Accreditation.--The Secretary may provide that 
        programs that are accredited by qualified organizations may be 
        deemed to meet such requirements under this section as the 
        Secretary may specify.
    ``(c) Contract Terms.--
            ``(1) In general.--A contract under this section shall 
        contain such terms and conditions as the Secretary may specify 
        consistent with this section. The Secretary may not enter into 
        a contract with an entity under this section unless the entity 
        meets such clinical, quality improvement, financial, and other 
        requirements as the Secretary deems to be appropriate for the 
        population to be served.
            ``(2) Use of subcontractors permitted.--A contractor may 
        carry out a program directly or through contracts with 
        subcontractors.
            ``(3) Budget neutral payment condition.--In entering into a 
        contract with an entity under this subsection, the Secretary 
        shall establish payment rates that assure that there will be no 
        net aggregate increase in payments under this title over any 
        period of 3 years or longer, as agreed to by the Secretary. 
        Under this section, the Secretary shall assure that medicare 
        program outlays plus administrative expenses (that would not 
        have been paid under this title without implementation of this 
        section), including contractor fees, shall not exceed the 
        expenditures that would have been incurred under this title for 
        a comparable population in the absence of the program under 
        this section for the 3-year contract period.
            ``(4) At risk relationship.--For purposes of section 
        1128B(b)(3)(F), a contract under this section shall be treated 
        as a risk-sharing arrangement referred to in such section.
            ``(5) Performance standards.--Payment to contractors under 
        this section shall be subject to the contractor's meeting of 
        clinical and financial performance standards set by the 
        Secretary.
            ``(6) Contractor outcomes report.--Each contractor offering 
        a program shall monitor and report to the Secretary, in a 
        manner specified by the Secretary, the quality of care and 
        efficacy of such program in terms of--
                    ``(A) process measures, such as reductions in 
                errors of treatment and rehospitalization rates;
                    ``(B) beneficiary and provider satisfaction;
                    ``(C) health outcomes; and
                    ``(D) financial outcomes.
            ``(7) Phased in implementation.--Nothing in this section 
        shall be construed as preventing the Secretary from phasing in 
        the implementation of programs.
    ``(d) Biannual Outcomes Reports.--The Secretary shall submit to the 
Congress biannual reports on the implementation of this section. Each 
such report shall include information on--
            ``(1) the scope of implementation (in terms of both regions 
        and chronic conditions);
            ``(2) program design; and
            ``(3) improvements in health outcomes and financial 
        efficiencies that result from such implementation.
    ``(e) Clinical Trials.--The Secretary shall conduct randomized 
clinical trials, that compare program participants with medicare 
beneficiaries who are offered, but decline, to participate, in order to 
assess the potential of programs to--
            ``(1) reduce costs under this title; and
            ``(2) improve health outcomes under this title.
    ``(f) Authorization of Appropriations.--There are authorized to be 
appropriated to the Secretary, in appropriate part from the Hospital 
Insurance Trust Fund and the Supplementary Medical Insurance Trust 
Fund, such sums as may be necessary to provide for contracts with 
chronic care improvement programs under this section.
    ``(g) Limitation on Funding.--In no case shall the funding under 
this section exceed $100,000,000 over a period of 3 years.''.

SEC. 722. CHRONIC CARE IMPROVEMENT UNDER MEDICARE ADVANTAGE AND 
              ENHANCED FEE-FOR-SERVICE PROGRAMS.

    (a) Under Medicare Advantage Program.--Section 1852 (42 U.S.C. 
1395w-22) is amended--
            (1) by amending subsection (e) to read as follows:
    ``(e) Implementation of Chronic Care Improvement Programs for 
Beneficiaries with Multiple or Sufficiently Severe Chronic 
Conditions.--
            ``(1) In general.--Each Medicare Advantage organization 
        with respect to each Medicare Advantage plan it offers shall 
        have in effect, for enrollees with multiple or sufficiently 
        severe chronic conditions, a chronic care improvement program 
        that is designed to manage the needs of such enrollees and that 
        meets the requirements of this subsection.
            ``(2) Enrollee with multiple or sufficiently severe chronic 
        conditions.--For purposes of this subsection, the term 
        `enrollee with multiple or sufficiently severe chronic 
        conditions' means, with respect to an enrollee in a Medicare 
        Advantage plan of a Medicare Advantage organization, an 
        enrollee in the plan who has one or more chronic conditions, 
        such as congestive heart failure, diabetes, COPD, stroke, 
        prostate and colon cancer, hypertension, or other disease as 
        identified by the organization as appropriate for chronic care 
        improvement.
            ``(3) General requirements.--
                    ``(A) In general.--Each chronic care improvement 
                program under this subsection shall be conducted 
                consistent with this subsection.
                    ``(B) Identification of enrollees.--Each such 
                program shall have a method for monitoring and 
                identifying enrollees with multiple or sufficiently 
                severe chronic conditions that meet the organization's 
                criteria for participation under the program.
                    ``(C) Development of plans.--For an enrollee 
                identified under subparagraph (B) for participation in 
                a program, the program shall develop, with the 
                enrollee's consent, an individualized, goal-oriented 
                chronic care improvement plan for chronic care 
                improvement.
                    ``(D) Elements of plans.--Each chronic care 
                improvement plan developed under subparagraph (C) shall 
                include a single point of contact to coordinate care 
                and the following, as appropriate:
                            ``(i) Self-improvement education for the 
                        enrollee (such as education for disease 
                        management through medical nutrition therapy) 
                        and support education for health care 
                        providers, primary caregivers, and family 
                        members.
                            ``(ii) Coordination of health care 
                        services, such as application of a prescription 
                        drug regimen and home health services.
                            ``(iii) Collaboration with physicians and 
                        other providers to enhance communication of 
                        relevant clinical information.
                            ``(iv) 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.
                            ``(v) The provision of information about 
                        hospice care, pain and palliative care, and 
                        end-of-life care.
                    ``(E) Organization responsibilities.--In 
                establishing and carrying out chronic care improvement 
                plans for participants under this paragraph, a Medicare 
                Advantage organization shall, directly or through 
                subcontractors--
                            ``(i) guide participants in managing their 
                        health, including all their co-morbidities, and 
                        in performing the activities as specified under 
                        the elements of the plan;
                            ``(ii) use decision support tools such as 
                        evidence-based practice guidelines or other 
                        criteria as determined by the Secretary; and
                            ``(iii) develop a clinical information 
                        database to track and monitor each participant 
                        across settings and to evaluate outcomes.
            ``(3) Additional requirements.--The Secretary may establish 
        additional requirements for chronic care improvement programs 
        under this section.
            ``(4) Accreditation.--The Secretary may provide that 
        chronic care improvement programs that are accredited by 
        qualified organizations may be deemed to meet such requirements 
        under this subsection as the Secretary may specify.
            ``(5) Outcomes report.--Each Medicare Advantage 
        organization with respect to its chronic care improvement 
        program under this subsection shall monitor and report to the 
        Secretary information on the quality of care and efficacy of 
        such program as the Secretary may require.''; and
            (2) by amending subparagraph (I) of subsection (c)(1) to 
        read as follows:
                    ``(I) Chronic care improvement program.--A 
                description of the organization's chronic care 
                improvement program under subsection (e).''.
    (b) Application under Enhanced Fee-for-Service Program.--Section 
1860E-2(c)(3), as inserted by section 201(a), is amended by inserting 
``, including subsection (e) (relating to implementation of chronic 
care improvement programs)'' after ``The provisions of section 1852''.
    (c) Effective Date.--The amendments made by this section shall 
apply for contract years beginning on or after 1 year after the date of 
the enactment of this Act.

SEC. 723. INSTITUTE OF MEDICINE REPORT.

    (a) Study.--
            (1) In general.--The Secretary of Health and Human Services 
        shall contract with the Institute of Medicine of the National 
        Academy of Sciences to conduct a study of the barriers to 
        effective integrated care improvement for medicare 
        beneficiaries with multiple or severe chronic conditions across 
        settings and over time and to submit a report under subsection 
        (b).
            (2) Specific items.--The study shall examine the statutory 
        and regulatory barriers to coordinating care across settings 
        for medicare beneficiaries in transition from one setting to 
        another (such as between hospital, nursing facility, home 
        health, hospice, and home). The study shall specifically 
        identify the following:
                    (A) Clinical, financial, or administrative 
                requirements in the medicare program that present 
                barriers to effective, seamless transitions across care 
                settings.
                    (B) Policies that impede the establishment of 
                administrative and clinical information systems to 
                track health status, utilization, cost, and quality 
                data across settings.
                    (C) State-level requirements that may present 
                barriers to better care for medicare beneficiaries.
            (3) Consultation.--The study under this subsection shall be 
        conducted in consultation with experts in the field of chronic 
        care, consumers, and family caregivers, working to integrate 
        care delivery and create more seamless transitions across 
        settings and over time.
    (b) Report.--The report under this subsection shall be submitted to 
the Secretary and Congress not later than 18 months after the date of 
the enactment of this Act.

SEC. 724. MEDPAC REPORT.

    (a) Evaluation.--shall conduct an evaluation that includes a 
description of the status of the implementation of chronic care 
improvement programs under section 1808 of the Social Security Act, the 
quality of health care services provided to individuals in such 
program, the health status of the participants of such program, and the 
cost savings attributed to implementation of such program.
    (b) Report.--Not later than 2 years after the date of 
implementation of such chronic care improvement programs, the 
Commission shall submit a report on such evaluation.

                      Subtitle D--Other Provisions

SEC. 731. 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 
        the 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. The Commission shall 
        examine data on uncompensated care, as well as the share of 
        uncompensated care accounted for by the expenses for treating 
        illegal aliens.
            (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.

SEC. 732. DEMONSTRATION PROJECT FOR MEDICAL ADULT DAY CARE SERVICES.

    (a) Establishment.--Subject to the succeeding provisions of this 
section, the Secretary of Health and Human Services 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.--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) Budget neutrality for demonstration project.--
        Notwithstanding any other provision of law, the Secretary shall 
        provide for an appropriate reduction in the aggregate amount of 
        additional payments made under section 1895 of the Social 
        Security Act (42 U.S.C. 1395fff) to reflect any increase in 
        amounts expended from the Trust Funds as a result of the 
        demonstration project conducted under this section.
    (c) Demonstration Project Sites.--The project established under 
this section shall be conducted in not more than 5 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 30 months after the commencement 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) 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. 733. 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) is 
        amended--
                    (A) in the third sentence of subsection (a) by 
                inserting ``consistent with subsection (k)'' after 
                ``the Secretary shall ensure''; and
                    (B) by adding at the end the following new 
                subsection:
    ``(k) 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.--At 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--
                    ``(A) make a draft of proposed decision on the 
                request available to the public through the Medicare 
                Internet site of the Department of Health and Human 
                Services or other appropriate means;
                    ``(B) provide a 30-day period for public comment on 
                such draft;
                    ``(C) make a final decision on the request within 
                60 days of the conclusion of the 30-day period referred 
                to under subparagraph (B);
                    ``(D) include in such final decision summaries of 
                the public comments received and responses thereto;
                    ``(E) 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
                    ``(F) in the case of a decision to grant the 
                coverage determination, assign a temporary or permanent 
                code 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.--With respect 
        to local coverage determinations made on or after January 1, 
        2004--
                    ``(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, the terms `national coverage 
        determination' and `local coverage determination' have the 
        meaning given such terms in paragraphs (1)(B) and (2)(B), 
        respectively, of section 1869(f).''.
            (2) Effective date.--The amendments made by paragraph (1) 
        shall apply to national and local coverage determinations as of 
        January 1, 2004.
    (b) Medicare Coverage of Routine Costs Associated With Certain 
Clinical Trials.--
            (1) In general.--With respect to the coverage of routine 
        costs of care for beneficiaries participating in a qualifying 
        clinical trial, as set forth on the date of the enactment of 
        this Act in National Coverage Determination 30-1 of the 
        Medicare Coverage Issues Manual, the Secretary shall deem 
        clinical trials conducted in accordance with an investigational 
        device exemption approved under section 520(g) of the Federal 
        Food, Drug, and Cosmetic Act (42 U.S.C. 360j(g)) to be 
        automatically qualified for such coverage.
            (2) Rule of construction.--Nothing in this subsection shall 
        be construed as authorizing or requiring the Secretary to 
        modify the regulations set forth on the date of the enactment 
        of this Act at subpart B of part 405 of title 42, Code of 
        Federal Regulations, or subpart A of part 411 of such title, 
        relating to coverage of, and payment for, a medical device that 
        is the subject of an investigational device exemption by the 
        Food and Drug Administration (except as may be necessary to 
        implement paragraph (1)).
            (3) Effective date.--This subsection shall apply to 
        clinical trials begun before, on, or after the date of the 
        enactment of this Act and to items and services furnished on or 
        after such date.
    (c) Issuance of Temporary National Codes.--Not later than January 
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. 734. TREATMENT OF CERTAIN PHYSICIAN PATHOLOGY SERVICES.

    (a) In General.--Section 1848(i) (42 U.S.C. 1395w-4(i)) is amended 
by adding at the end the following new paragraph:
            ``(4) Treatment of certain inpatient physician pathology 
        services.--
                    ``(A) In general.--With respect to services 
                furnished on or after January 1, 2004, and before 
                January 1, 2009, if an independent laboratory furnishes 
                the technical component of a physician pathology 
                service to a fee-for-service medicare beneficiary who 
                is an inpatient or outpatient of a covered hospital, 
                the Secretary shall treat such component as a service 
                for which payment shall be made to the laboratory under 
                this section and not as an inpatient hospital service 
                for which payment is made to the hospital under section 
                1886(d) or as a hospital outpatient service for which 
                payment is made to the hospital under section 1833(t).
                    ``(B) Definitions.--In this paragraph:
                            ``(i) Covered hospital.--
                                    ``(I) In general.--The term 
                                `covered hospital' means, with respect 
                                to an inpatient or outpatient, a 
                                hospital that had an arrangement with 
                                an independent laboratory that was in 
                                effect as of July 22, 1999, under which 
                                a laboratory furnished the technical 
                                component of physician pathology 
                                services to fee-for-service medicare 
                                beneficiaries who were hospital 
                                inpatients or outpatients, 
                                respectively, and submitted claims for 
                                payment for such component to a carrier 
                                with a contract under section 1842 and 
                                not to the hospital.
                                    ``(II) Change in ownership does not 
                                affect determination.--A change in 
                                ownership with respect to a hospital on 
                                or after the date referred to in 
                                subclause (I) shall not affect the 
                                determination of whether such hospital 
                                is a covered hospital for purposes of 
                                such subclause.
                            ``(ii) Fee-for-service medicare 
                        beneficiary.--The term `fee-for-service 
                        medicare beneficiary' means an individual who 
                        is entitled to benefits under part A, or 
                        enrolled under this part, or both, but is not 
                        enrolled in any of the following:
                                    ``(I) A Medicare+Choice plan under 
                                part C.
                                    ``(II) A plan offered by an 
                                eligible organization under section 
                                1876.
                                    ``(III) A program of all-inclusive 
                                care for the elderly (PACE) under 
                                section 1894.
                                    ``(IV) A social health maintenance 
                                organization (SHMO) demonstration 
                                project established under section 
                                4018(b) of the Omnibus Budget 
                                Reconciliation Act of 1987 (Public Law 
                                100-203).''.
    (b) Conforming Amendment.--Section 542 of the Medicare, Medicaid, 
and SCHIP Benefits Improvement and Protection Act of 2000 (114 Stat. 
2763A-550), as enacted into law by section 1(a)(6) of Public Law 106-
554, is repealed.
    (c) Effective Dates.--The amendments made by this section shall 
take effect as if included in the enactment of the Medicare, Medicaid, 
and SCHIP Benefits Improvement and Protection Act of 2000 (Appendix F, 
114 Stat. 2763A-463), as enacted into law by section 1(a)(6) of Public 
Law 106-554.

SEC. 735. CLINICAL INVESTIGATION OF MEDICARE PANCREATIC ISLET CELL 
              TRANSPLANTS.

    The Secretary shall authorize payment under title XVIII of the 
Social Security Act for the routine costs for items and services for 
medicare beneficiaries received as part of a clinical investigation of 
pancreatic islet cell transplants conducted by the National Institutes 
of Health.

SEC. 736. 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 medicare 
        beneficiaries 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) Medicare beneficiaries with chronic conditions 
        defined.--In this section, the term ``medicare beneficiaries 
        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) In general.--In establishing the demonstration projects 
        under this section, the Secretary shall evaluate 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 that permit patients to self-
        direct the provision of personal care services.
            (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 medicare 
beneficiaries 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 no fewer 
than 3 demonstration projects established under this section. Of those 
demonstration projects, the Secretary shall conduct at least one in 
each of the following areas:
            (1) An urban area.
            (2) A rural area.
            (3) An area that the Secretary determines has a medicare 
        population with 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 medicare beneficiaries 
                participating in the projects as compared to such 
                outcomes and costs to other beneficiaries 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.

              TITLE VIII--MEDICARE BENEFITS ADMINISTRATION

SEC. 801. ESTABLISHMENT OF MEDICARE BENEFITS ADMINISTRATION.

    (a) In General.--Title XVIII (42 U.S.C. 1395 et seq.), as amended 
by sections 105 and 721, is amended by inserting after 1808 the 
following new section:

                   ``medicare benefits administration

    ``Sec. 1809. (a) Establishment.--There is established within the 
Department of Health and Human Services an agency to be known as the 
Medicare Benefits Administration.
    ``(b) Administrator; Deputy Administrator; Chief Actuary.--
            ``(1) Administrator.--
                    ``(A) In general.--The Medicare Benefits 
                Administration shall be headed by an administrator to 
                be known as the `Medicare Benefits Administrator' (in 
                this section referred to as the `Administrator') who 
                shall be appointed by the President, by and with the 
                advice and consent of the Senate. The Administrator 
                shall be in direct line of authority to the Secretary.
                    ``(B) Compensation.--The Administrator shall be 
                paid at the rate of basic pay payable for level III of 
                the Executive Schedule under section 5314 of title 5, 
                United States Code.
                    ``(C) Term of office.--The Administrator shall be 
                appointed for a term of 4 years. In any case in which a 
                successor does not take office at the end of an 
                Administrator's term of office, that Administrator may 
                continue in office until the entry upon office of such 
                a successor. An Administrator appointed to a term of 
                office after the commencement of such term may serve 
                under such appointment only for the remainder of such 
                term.
                    ``(D) General authority.--The Administrator shall 
                be responsible for the exercise of all powers and the 
                discharge of all duties of the Administration, and 
                shall have authority and control over all personnel and 
                activities thereof.
                    ``(E) Rulemaking authority.--The Administrator may 
                prescribe such rules and regulations as the 
                Administrator determines necessary or appropriate to 
                carry out the functions of the Administration. The 
                regulations prescribed by the Administrator shall be 
                subject to the rulemaking procedures established under 
                section 553 of title 5, United States Code. The 
                Administrator shall provide for the issuance of new 
                regulations to carry out parts C, D, and E.
                    ``(F) Authority to establish organizational 
                units.--The Administrator may establish, alter, 
                consolidate, or discontinue such organizational units 
                or components within the Administration as the 
                Administrator considers necessary or appropriate, 
                except as specified in this section.
                    ``(G) Authority to delegate.--The Administrator may 
                assign duties, and delegate, or authorize successive 
                redelegations of, authority to act and to render 
                decisions, to such officers and employees of the 
                Administration as the Administrator may find necessary. 
                Within the limitations of such delegations, 
                redelegations, or assignments, all official acts and 
                decisions of such officers and employees shall have the 
                same force and effect as though performed or rendered 
                by the Administrator.
            ``(2) Deputy administrator.--
                    ``(A) In general.--There shall be a Deputy 
                Administrator of the Medicare Benefits Administration 
                who shall be appointed by the President, by and with 
                the advice and consent of the Senate.
                    ``(B) Compensation.--The Deputy Administrator shall 
                be paid at the rate of basic pay payable for level IV 
                of the Executive Schedule under section 5315 of title 
                5, United States Code.
                    ``(C) Term of office.--The Deputy Administrator 
                shall be appointed for a term of 4 years. In any case 
                in which a successor does not take office at the end of 
                a Deputy Administrator's term of office, such Deputy 
                Administrator may continue in office until the entry 
                upon office of such a successor. A Deputy Administrator 
                appointed to a term of office after the commencement of 
                such term may serve under such appointment only for the 
                remainder of such term.
                    ``(D) Duties.--The Deputy Administrator shall 
                perform such duties and exercise such powers as the 
                Administrator shall from time to time assign or 
                delegate. The Deputy Administrator shall be Acting 
                Administrator of the Administration during the absence 
                or disability of the Administrator and, unless the 
                President designates another officer of the Government 
                as Acting Administrator, in the event of a vacancy in 
                the office of the Administrator.
            ``(3) Chief actuary.--
                    ``(A) In general.--There is established in the 
                Administration the position of Chief Actuary. The Chief 
                Actuary shall be appointed by, and in direct line of 
                authority to, the Administrator of such Administration. 
                The Chief Actuary shall be appointed from among 
                individuals who have demonstrated, by their education 
                and experience, superior expertise in the actuarial 
                sciences. The Chief Actuary may be removed only for 
                cause.
                    ``(B) Compensation.--The Chief Actuary shall be 
                compensated at the highest rate of basic pay for the 
                Senior Executive Service under section 5382(b) of title 
                5, United States Code.
                    ``(C) Duties.--The Chief Actuary shall exercise 
                such duties as are appropriate for the office of the 
                Chief Actuary and in accordance with professional 
                standards of actuarial independence.
            ``(4) Secretarial coordination of program administration.--
        The Secretary shall ensure appropriate coordination between the 
        Administrator and the Administrator of the Centers for Medicare 
        & Medicaid Services in carrying out the programs under this 
        title.
    ``(c) Duties; Administrative Provisions.--
            ``(1) Duties.--
                    ``(A) General duties.--The Administrator shall 
                carry out parts C, D, and E, including--
                            ``(i) negotiating, entering into, and 
                        enforcing, contracts with plans for the 
                        offering of Medicare Advantage plans under part 
                        C and EFFS plans under part E, including the 
                        offering of qualified prescription drug 
                        coverage under such plans; and
                            ``(ii) negotiating, entering into, and 
                        enforcing, contracts with PDP sponsors for the 
                        offering of prescription drug plans under part 
                        D.
                    ``(B) Other duties.--The Administrator shall carry 
                out any duty provided for under part C, part D, or part 
                E, including demonstration projects carried out in part 
                or in whole under such parts, the programs of all-
                inclusive care for the elderly (PACE program) under 
                section 1894, the social health maintenance 
                organization (SHMO) demonstration projects (referred to 
                in section 4104(c) of the Balanced Budget Act of 1997), 
                medicare cost contractors under section 1876(h), and 
                through a Medicare Advantage project that demonstrates 
                the application of capitation payment rates for frail 
                elderly medicare beneficiaries through the use of a 
                interdisciplinary team and through the provision of 
                primary care services to such beneficiaries by means of 
                such a team at the nursing facility involved).
                    ``(C) Prescription drug card.--The Administrator 
                shall carry out section 1807 (relating to the medicare 
                prescription drug discount card endorsement program).
                    ``(D) Noninterference.--In carrying out its duties 
                with respect to the provision of qualified prescription 
                drug coverage to beneficiaries under this title, the 
                Administrator may not--
                            ``(i) require a particular formulary or 
                        institute a price structure for the 
                        reimbursement of covered outpatient drugs;
                            ``(ii) interfere in any way with 
                        negotiations between PDP sponsors and Medicare 
                        Advantage organizations and EFFS organizations 
                        and drug manufacturers, wholesalers, or other 
                        suppliers of covered outpatient drugs; and
                            ``(iii) otherwise interfere with the 
                        competitive nature of providing such coverage 
                        through such sponsors and organizations.
                    ``(E) Annual reports.--Not later March 31 of each 
                year, the Administrator shall submit to Congress and 
                the President a report on the administration of parts 
                C, D, and E during the previous fiscal year.
            ``(2) Staff.--
                    ``(A) In general.--The Administrator, with the 
                approval of the Secretary, may employ, without regard 
                to chapter 31 of title 5, United States Code, other 
                than sections 3102 through 3108, 3110 through 3113, 
                3136m and 3151, such officers and employees as are 
                necessary to administer the activities to be carried 
                out through the Medicare Benefits Administration. The 
                Administrator shall employ staff with appropriate and 
                necessary expertise in negotiating contracts in the 
                private sector.
                    ``(B) Flexibility with respect to compensation.--
                            ``(i) In general.--The staff of the 
                        Medicare Benefits Administration shall, subject 
                        to clause (ii), be paid without regard to the 
                        provisions of chapter 51 (other than section 
                        5101) and chapter 53 (other than section 5301) 
                        of such title (relating to classification and 
                        schedule pay rates).
                            ``(ii) Maximum rate.--In no case may the 
                        rate of compensation determined under clause 
                        (i) exceed the rate of basic pay payable for 
                        level IV of the Executive Schedule under 
                        section 5315 of title 5, United States Code.
                    ``(C) Limitation on full-time equivalent staffing 
                for current cms functions being transferred.--The 
                Administrator may not employ under this paragraph a 
                number of full-time equivalent employees, to carry out 
                functions that were previously conducted by the Centers 
                for Medicare & Medicaid Services and that are conducted 
                by the Administrator by reason of this section, that 
                exceeds the number of such full-time equivalent 
                employees authorized to be employed by the Centers for 
                Medicare & Medicaid Services to conduct such functions 
                as of the date of the enactment of this Act.
            ``(3) Redelegation of certain functions of the centers for 
        medicare & medicaid services.--
                    ``(A) In general.--The Secretary, the 
                Administrator, and the Administrator of the Centers for 
                Medicare & Medicaid Services shall establish an 
                appropriate transition of responsibility in order to 
                redelegate the administration of part C from the 
                Secretary and the Administrator of the Centers for 
                Medicare & Medicaid Services to the Administrator as is 
                appropriate to carry out the purposes of this section.
                    ``(B) Transfer of data and information.--The 
                Secretary shall ensure that the Administrator of the 
                Centers for Medicare & Medicaid Services transfers to 
                the Administrator of the Medicare Benefits 
                Administration such information and data in the 
                possession of the Administrator of the Centers for 
                Medicare & Medicaid Services as the Administrator of 
                the Medicare Benefits Administration requires to carry 
                out the duties described in paragraph (1).
                    ``(C) Construction.--Insofar as a responsibility of 
                the Secretary or the Administrator of the Centers for 
                Medicare & Medicaid Services is redelegated to the 
                Administrator under this section, any reference to the 
                Secretary or the Administrator of the Centers for 
                Medicare & Medicaid Services in this title or title XI 
                with respect to such responsibility is deemed to be a 
                reference to the Administrator.
    ``(d) Office of Beneficiary Assistance.--
            ``(1) Establishment.--The Secretary shall establish within 
        the Medicare Benefits Administration an Office of Beneficiary 
        Assistance to coordinate functions relating to outreach and 
        education of medicare beneficiaries under this title, including 
        the functions described in paragraph (2). The Office shall be 
        separate operating division within the Administration.
            ``(2) Dissemination of information on benefits and appeals 
        rights.--
                    ``(A) Dissemination of benefits information.--The 
                Office of Beneficiary Assistance shall disseminate, 
                directly or through contract, to medicare 
                beneficiaries, by mail, by posting on the Internet site 
                of the Medicare Benefits Administration and through a 
                toll-free telephone number, information with respect to 
                the following:
                            ``(i) Benefits, and limitations on payment 
                        (including cost-sharing, stop-loss provisions, 
                        and formulary restrictions) under parts C, D, 
                        and E.
                            ``(ii) Benefits, and limitations on payment 
                        under parts A and B, including information on 
                        medicare supplemental policies under section 
                        1882.
                Such information shall be presented in a manner so that 
                medicare beneficiaries may compare benefits under parts 
                A, B, D, and medicare supplemental policies with 
                benefits under Medicare Advantage plans under part C 
                and EFFS plans under part E.
                    ``(B) Dissemination of appeals rights 
                information.--The Office of Beneficiary Assistance 
                shall disseminate to medicare beneficiaries in the 
                manner provided under subparagraph (A) a description of 
                procedural rights (including grievance and appeals 
                procedures) of beneficiaries under the original 
                medicare fee-for-service program under parts A and B, 
                the Medicare Advantage program under part C, the 
                Voluntary Prescription Drug Benefit Program under part 
                D, and the Enhanced Fee-for-Service program under part 
                E.
    ``(e) Medicare Policy Advisory Board.--
            ``(1) Establishment.--There is established within the 
        Medicare Benefits Administration the Medicare Policy Advisory 
        Board (in this section referred to the `Board'). The Board 
        shall advise, consult with, and make recommendations to the 
        Administrator of the Medicare Benefits Administration with 
        respect to the administration of parts C, D, and E, including 
        the review of payment policies under such parts.
            ``(2) Reports.--
                    ``(A) In general.--With respect to matters of the 
                administration of parts C, D, and E the Board shall 
                submit to Congress and to the Administrator of the 
                Medicare Benefits Administration such reports as the 
                Board determines appropriate. Each such report may 
                contain such recommendations as the Board determines 
                appropriate for legislative or administrative changes 
                to improve the administration of such parts, including 
                the topics described in subparagraph (B). Each such 
                report shall be published in the Federal Register.
                    ``(B) Topics described.--Reports required under 
                subparagraph (A) may include the following topics:
                            ``(i) Fostering competition.--
                        Recommendations or proposals to increase 
                        competition under parts C, D, and E for 
                        services furnished to medicare beneficiaries.
                            ``(ii) Education and enrollment.--
                        Recommendations for the improvement to efforts 
                        to provide medicare beneficiaries information 
                        and education on the program under this title, 
                        and specifically parts C, D, and E, and the 
                        program for enrollment under the title.
                            ``(iii) Implementation of risk-
                        adjustment.--Evaluation of the implementation 
                        under section 1853(a)(3)(C) of the risk 
                        adjustment methodology to payment rates under 
                        that section to Medicare Advantage 
                        organizations offering Medicare Advantage plans 
                        (and the corresponding payment provisions under 
                        part E) that accounts for variations in per 
                        capita costs based on health status, geography, 
                        and other demographic factors.
                            ``(iv) Rural access.--Recommendations to 
                        improve competition and access to plans under 
                        parts C, D, and E in rural areas.
                    ``(C) Maintaining independence of board.--The Board 
                shall directly submit to Congress reports required 
                under subparagraph (A). No officer or agency of the 
                United States may require the Board to submit to any 
                officer or agency of the United States for approval, 
                comments, or review, prior to the submission to 
                Congress of such reports.
            ``(3) Duty of administrator of medicare benefits 
        administration.--With respect to any report submitted by the 
        Board under paragraph (2)(A), not later than 90 days after the 
        report is submitted, the Administrator of the Medicare Benefits 
        Administration shall submit to Congress and the President an 
        analysis of recommendations made by the Board in such report. 
        Each such analysis shall be published in the Federal Register.
            ``(4) Membership.--
                    ``(A) Appointment.--Subject to the succeeding 
                provisions of this paragraph, the Board shall consist 
                of seven members to be appointed as follows:
                            ``(i) Three members shall be appointed by 
                        the President.
                            ``(ii) Two members shall be appointed by 
                        the Speaker of the House of Representatives, 
                        with the advice of the chairmen and the ranking 
                        minority members of the Committees on Ways and 
                        Means and on Energy and Commerce of the House 
                        of Representatives.
                            ``(iii) Two members shall be appointed by 
                        the President pro tempore of the Senate with 
                        the advice of the chairman and the ranking 
                        minority member of the Senate Committee on 
                        Finance.
                    ``(B) Qualifications.--The members shall be chosen 
                on the basis of their integrity, impartiality, and good 
                judgment, and shall be individuals who are, by reason 
                of their education and experience in health care 
                benefits management, exceptionally qualified to perform 
                the duties of members of the Board.
                    ``(C) Prohibition on inclusion of federal 
                employees.--No officer or employee of the United States 
                may serve as a member of the Board.
            ``(5) Compensation.--Members of the Board shall receive, 
        for each day (including travel time) they are engaged in the 
        performance of the functions of the board, compensation at 
        rates not to exceed the daily equivalent to the annual rate in 
        effect for level IV of the Executive Schedule under section 
        5315 of title 5, United States Code.
            ``(6) Terms of office.--
                    ``(A) In general.--The term of office of members of 
                the Board shall be 3 years.
                    ``(B) Terms of initial appointees.--As designated 
                by the President at the time of appointment, of the 
                members first appointed--
                            ``(i) one shall be appointed for a term of 
                        1 year;
                            ``(ii) three shall be appointed for terms 
                        of 2 years; and
                            ``(iii) three shall be appointed for terms 
                        of 3 years.
                    ``(C) Reappointments.--Any person appointed as a 
                member of the Board may not serve for more than 8 
                years.
                    ``(D) Vacancy.--Any member appointed to fill a 
                vacancy occurring before the expiration of the term for 
                which the member's predecessor was appointed shall be 
                appointed only for the remainder of that term. A member 
                may serve after the expiration of that member's term 
                until a successor has taken office. A vacancy in the 
                Board shall be filled in the manner in which the 
                original appointment was made.
            ``(7) Chair.--The Chair of the Board shall be elected by 
        the members. The term of office of the Chair shall be 3 years.
            ``(8) Meetings.--The Board shall meet at the call of the 
        Chair, but in no event less than three times during each fiscal 
        year.
            ``(9) Director and staff.--
                    ``(A) Appointment of director.--The Board shall 
                have a Director who shall be appointed by the Chair.
                    ``(B) In general.--With the approval of the Board, 
                the Director may appoint, without regard to chapter 31 
                of title 5, United States Code, such additional 
                personnel as the Director considers appropriate.
                    ``(C) Flexibility with respect to compensation.--
                            ``(i) In general.--The Director and staff 
                        of the Board shall, subject to clause (ii), be 
                        paid without regard to the provisions of 
                        chapter 51 and chapter 53 of such title 
                        (relating to classification and schedule pay 
                        rates).
                            ``(ii) Maximum rate.--In no case may the 
                        rate of compensation determined under clause 
                        (i) exceed the rate of basic pay payable for 
                        level IV of the Executive Schedule under 
                        section 5315 of title 5, United States Code.
                    ``(D) Assistance from the administrator of the 
                medicare benefits administration.--The Administrator of 
                the Medicare Benefits Administration shall make 
                available to the Board such information and other 
                assistance as it may require to carry out its 
                functions.
            ``(10) Contract authority.--The Board may contract with and 
        compensate government and private agencies or persons to carry 
        out its duties under this subsection, without regard to section 
        3709 of the Revised Statutes (41 U.S.C. 5).
    ``(f) Funding.--There is authorized to be appropriated, in 
appropriate part from the Federal Hospital Insurance Trust Fund and 
from the Federal Supplementary Medical Insurance Trust Fund (including 
the Medicare Prescription Drug Account), such sums as are necessary to 
carry out this section.''.
    (b) Effective Date.--
            (1) In general.--The amendment made by subsection (a) shall 
        take effect on the date of the enactment of this Act.
            (2) Duties with respect to eligibility determinations and 
        enrollment.--The Administrator of the Medicare Benefits 
        Administration shall carry out enrollment under title XVIII of 
        the Social Security Act, make eligibility determinations under 
        such title, and carry out parts C and E of such title for years 
        beginning or after January 1, 2006.
            (3) Transition.--Before the date the Administrator of the 
        Medicare Benefits Administration is appointed and assumes 
        responsibilities under this section and section 1807 of the 
        Social Security Act, the Secretary of Health and Human Services 
        shall provide for the conduct of any responsibilities of such 
        Administrator that are otherwise provided under law.
    (c) Miscellaneous Administrative Provisions.--
            (1) Administrator as member of the board of trustees of the 
        medicare trust funds.--Section 1817(b) and section 1841(b) (42 
        U.S.C. 1395i(b), 1395t(b)) are each amended by striking ``and 
        the Secretary of Health and Human Services, all ex officio,'' 
        and inserting ``the Secretary of Health and Human Services, and 
        the Administrator of the Medicare Benefits Administration, all 
        ex officio,''.
            (2) Increase in grade to executive level iii for the 
        administrator of the centers for medicare & medicaid services; 
        level for medicare benefits administrator.--
                    (A) In general.--Section 5314 of title 5, United 
                States Code, by adding at the end the following:
            ``Administrator of the Centers for Medicare & Medicaid 
        Services.
            ``Administrator of the Medicare Benefits Administration.''.
                    (B) Conforming amendment.--Section 5315 of such 
                title is amended by striking ``Administrator of the 
                Health Care Financing Administration.''.
                    (C) Effective date.--The amendments made by this 
                paragraph take effect on January 1, 2004.

         TITLE IX--REGULATORY REDUCTION AND CONTRACTING REFORM

                     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 
        (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 
sanction (including any penalty or requirement for repayment of any 
amount) 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 but 
        shall not apply to any sanction for which notice was provided 
        on or before the date of the enactment of this Act.

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 one 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 2(a), 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 2 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 and the Medicare Provider 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, 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 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 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 title, the Federal Acquisition Regulation applies to 
        contracts under this title.
    ``(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 five 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.--In developing contract performance 
                requirements, the Secretary shall develop performance 
                requirements applicable to functions described in 
                subsection (a)(4).
                    ``(B) Consultation.--In developing such 
                requirements, the Secretary may consult with providers 
                of services and suppliers, organizations representing 
                individuals entitled to benefits under part A or 
                enrolled under part B, or both, and organizations and 
                agencies performing functions necessary to carry out 
                the purposes of this section with respect to such 
                performance requirements.
                    ``(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 developed 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 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 (commonly known as the `False 
        Claims Act').
            ``(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.--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 Regulations.''.
            (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,''; and
                    (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, 2010.
                    (D) Waiver of provider nomination provisions during 
                transition.--During the period beginning on the date of 
                the enactment of this Act and before the date specified 
                under subparagraph (A), the Secretary may enter into 
                new agreements under section 1816 of the Social 
                Security Act (42 U.S.C. 1395h) without regard to any of 
                the provider nomination provisions of such section.
            (2) General transition rules.--The Secretary shall take 
        such steps, consistent with paragraph (1)(B) and (1)(C), as are 
        necessary to provide for an appropriate transition from 
        contracts under section 1816 and 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 rollover contracts.--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 notwithstanding the amendments made by this 
        section, 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) 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 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 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 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.''.
            (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) $25,000,000 for 
        each of fiscal years 2005 and 2006 and such sums as may be 
        necessary for succeeding fiscal years.
            ``(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)).
            ``(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 Sites.--
            (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 Sites; 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 site 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 
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 5(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) Avoidance of Recovery Actions for Problems Identified as 
Corrected.--The Secretary shall provide that, absent evidence of fraud 
and notwithstanding any other provision of law, any errors found in a 
compliance review for a small provider of services or supplier that 
participates in the demonstration program shall not be subject to 
recovery action if the technical assistance personnel under the program 
determine that--
            (1) the problem that is the subject of the compliance 
        review has been corrected to their satisfaction within 30 days 
        of the date of the visit by such personnel to the small 
        provider of services or supplier; and
            (2) such problem remains corrected for such period as is 
        appropriate.
The previous sentence applies only to claims filed as part of the 
demonstration program and lasts only for the duration of such program 
and only as long as the small provider of services or supplier is a 
participant in such program.
    (e) GAO Evaluation.--Not later than 2 years after the date of 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.
    (f) 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.
    (g) Authorization of Appropriations.--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) to carry out the demonstration program--
            (1) for fiscal year 2005, $1,000,000, and
            (2) for fiscal year 2006, $6,000,000.

SEC. 923. MEDICARE PROVIDER OMBUDSMAN; MEDICARE BENEFICIARY OMBUDSMAN.

    (a) Medicare Provider Ombudsman.--Section 1868 (42 U.S.C. 1395ee) 
is amended--
            (1) by adding at the end of the heading the following: ``; 
        medicare provider ombudsman'';
            (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) Medicare Provider Ombudsman.--The Secretary shall appoint 
within the Department of Health and Human Services a Medicare Provider 
Ombudsman. The Ombudsman shall--
            ``(1) provide assistance, on a confidential basis, to 
        providers of services and suppliers with respect to complaints, 
        grievances, and requests for information concerning the 
        programs under this title (including provisions of title XI 
        insofar as they relate to this title and are not administered 
        by the Office of the Inspector General of the Department of 
        Health and Human Services) and in the resolution of unclear or 
        conflicting guidance given by the Secretary and medicare 
        contractors to such providers of services and suppliers 
        regarding such programs and provisions and requirements under 
        this title and such provisions; and
            ``(2) submit recommendations to the Secretary for 
        improvement in the administration of this title and such 
        provisions, including--
                    ``(A) recommendations to respond to recurring 
                patterns of confusion in this title and such provisions 
                (including recommendations regarding suspending 
                imposition of sanctions where there is widespread 
                confusion in program administration), and
                    ``(B) recommendations to provide for an appropriate 
                and consistent response (including not providing for 
                audits) in cases of self-identified overpayments by 
                providers of services and suppliers.
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.''.
    (b) Medicare Beneficiary Ombudsman.--Title XVIII, as previously 
amended, is amended by inserting after section 1809 the following new 
section:

                    ``medicare beneficiary ombudsman

    ``Sec. 1810. (a) 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.
    ``(b) Duties.--The Medicare Beneficiary Ombudsman shall--
            ``(1) 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;
            ``(2) provide assistance with respect to complaints, 
        grievances, and requests referred to in paragraph (1), 
        including--
                    ``(A) assistance in collecting relevant information 
                for such individuals, to seek an appeal of a decision 
                or determination made by a fiscal intermediary, 
                carrier, Medicare+Choice organization, or the 
                Secretary;
                    ``(B) assistance to such individuals with any 
                problems arising from disenrollment from a 
                Medicare+Choice plan under part C; and
                    ``(C) assistance to such individuals in presenting 
                information under section 1860D-2(b)(4)(D)(v); and
            ``(3) 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.
    ``(c) 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 Medicare+Choice plans and 
changes to those plans. Nothing in this subsection shall preclude 
further collaboration between the Ombudsman and such programs.''.
    (c) Deadline for Appointment.--The Secretary shall appoint the 
Medicare Provider Ombudsman and the Medicare Beneficiary Ombudsman, 
under the amendments made by subsections (a) and (b), respectively, by 
not later than 1 year after the date of the enactment of this Act.
    (d) Funding.--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) 
to carry out the provisions of subsection (b) of section 1868 of the 
Social Security Act (relating to the Medicare Provider Ombudsman), as 
added by subsection (a)(5) and section 1807 of such Act (relating to 
the Medicare Beneficiary Ombudsman), as added by subsection (b), such 
sums as are necessary for fiscal year 2004 and each succeeding fiscal 
year.
    (e) 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 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 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 October 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) 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 other officer of the 
        Department.
            (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 Act, the Secretary shall have 
        authority to hire administrative law judges to hear such cases, 
        giving priority to those judges with prior experience 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 (as amended by section 521 
of BIPA, 114 Stat. 2763A-534), there are authorized to be appropriated 
(in appropriate part from the Federal Hospital Insurance Trust Fund and 
the Federal Supplementary Medical Insurance Trust Fund) 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)), as added by section 522(a) of BIPA (114 Stat. 
2763A-543), is amended by striking ``of the Social Security 
Administration''.

SEC. 932. PROCESS FOR EXPEDITED ACCESS TO REVIEW.

    (a) Expedited Access to Judicial Review.--Section 1869(b) (42 
U.S.C. 1395ff(b)) as amended by BIPA, is amended--
            (1) in paragraph (1)(A), by inserting ``, subject to 
        paragraph (2),'' before ``to judicial review of the Secretary's 
        final decision'';
            (2) in paragraph (1)(F)--
                    (A) by striking clause (ii);
                    (B) by striking ``proceeding'' and all that follows 
                through ``determination'' and inserting 
                ``determinations and reconsiderations''; and
                    (C) by redesignating subclauses (I) and (II) as 
                clauses (i) and (ii) and by moving the indentation of 
                such subclauses (and the matter that follows) 2 ems to 
                the left; and
            (3) 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) may obtain access to judicial review when 
                a review panel (described in subparagraph (D)), on its 
                own motion or at the request of the appellant, 
                determines that no entity in the administrative appeals 
                process has 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 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 panel that no 
                review panel has 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 panel 
                shall require for purposes of making such 
                determination, such review panel shall make a 
                determination on the request in writing within 60 days 
                after the date such review panel receives the request 
                and such accompanying documents and materials. Such a 
                determination by such review panel 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 panel--
                                    ``(I) determines that there are no 
                                material issues of fact in dispute and 
                                that the only issue is one of law or 
                                regulation that no review panel has the 
                                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 date of the determination described 
                                in such subparagraph; 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 amounts in 
                        controversy.--Where a provider of services or 
                        supplier seeks judicial review pursuant to this 
                        paragraph, the amount in controversy 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 Hospital Insurance Trust Fund and 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 Act.
                    ``(D) Review panels.--For purposes of this 
                subsection, a `review panel' is a panel consisting of 3 
                members (who shall be administrative law judges, 
                members of the Departmental Appeals Board, or qualified 
                individuals associated with a qualified independent 
                contractor (as defined in subsection (c)(2)) or with 
                another independent entity) designated by the Secretary 
                for purposes of making determinations under this 
                paragraph.''.
    (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) Effective Date.--The amendments made by this section shall 
apply to appeals filed on or after October 1, 2004.
    (d) Expedited Review of Certain Provider Agreement 
Determinations.--
            (1) Termination and certain other immediate remedies.--The 
        Secretary shall develop and implement a process to expedite 
        proceedings under sections 1866(h) of the Social Security Act 
        (42 U.S.C. 1395cc(h)) in which the remedy of termination of 
        participation, or a remedy described in clause (i) or (iii) of 
        section 1819(h)(2)(B) of such Act (42 U.S.C. 1395i-3(h)(2)(B)) 
        which is applied on an immediate basis, has been imposed. Under 
        such process priority shall be provided in cases of 
        termination.
            (2) 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 
        and the Federal Supplementary Medical Insurance Trust Fund) to 
        the Secretary such additional sums for fiscal year 2005 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.
    (e) Process for Reinstatement of Approval of Certain Snf Training 
Programs.--
            (1) In general.--In the case of a termination of approval 
        of a nurse aide training program described in paragraph (2) of 
        a skilled nursing facility, the Secretary shall develop and 
        implement a process for the reinstatement of approval of such 
        program before the end of the mandatory 2 year disapproval 
        period if the facility and program is certified by the 
        Secretary, in coordination with the applicable State survey and 
        certification agency and after public notice, as being in 
        compliance with applicable requirements and as having remedied 
        any deficiencies in the facility or program that resulted in 
        noncompliance.
            (2) Termination of approval described.--A termination of 
        approval of a training program described in this paragraph is a 
        mandatory 2-year disapproval provided for under section 
        1819(f)(2)(B)(iii) of the Social Security Act (42 U.S.C. 1395i-
        3(f)(2)(B)(iii)) if the only basis for the mandatory 
        disapproval was the assessment of a civil money penalty of not 
        less than $5,000.

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 BIPA and 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)), as amended by BIPA, 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)), as amended by BIPA, 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; and
                    ``(B) the person provided such notice may obtain, 
                upon request, the specific provision of the policy, 
                manual, or regulation used in making the determination.
            ``(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 person provided such 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)), as amended by BIPA, 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)), as 
        amended by BIPA, 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)) 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)), as 
        amended by BIPA, 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), as amended by BIPA, 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 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 ``with 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 (as defined in subsection (i)(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 defined 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--
                    ``(A) there is a sustained or high level of payment 
                error (as defined by the Secretary by regulation); or
                    ``(B) documented educational intervention has 
                failed to correct the payment error (as determined by 
                the Secretary).
            ``(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) Permitting Use of Corrected and Supplementary Data.--
            (1) In general.--Section 1886(d)(10)(D)(vi) (42 U.S.C. 
        1395ww(d)(10)(D)(vi)) is amended by adding after subclause (II) 
        at the end the following:
``Notwithstanding subclause (I), a hospital may submit, and the 
Secretary may accept upon verification, data that corrects or 
supplements the data described in such subclause without regard to 
whether the corrected or supplementary data relate to a cost report 
that has been settled.''.
            (2) Effective date.--The amendment made by paragraph (1) 
        shall apply to fiscal years beginning with fiscal year 2004.
            (3) Submittal and resubmittal of applications permitted for 
        fiscal year 2004.--
                    (A) In general.--Notwithstanding any other 
                provision of law, a hospital may submit (or resubmit) 
                an application for a change described in section 
                1886(d)(10)(C)(i)(II) of the Social Security Act for 
                fiscal year 2004 if the hospital demonstrates on a 
                timely basis to the satisfaction of the Secretary that 
                the use of corrected or supplementary data under the 
                amendment made by paragraph (1) would materially affect 
                the approval of such an application.
                    (B) Application of budget neutrality.--If one or 
                more hospital's applications are approved as a result 
                of paragraph (1) and subparagraph (A) for fiscal year 
                2004, the Secretary shall make a proportional 
                adjustment in the standardized amounts determined under 
                section 1886(d)(3) of the Social Security Act (42 
                U.S.C. 1395ww(d)(3)) for fiscal year 2004 to assure 
                that approval of such applications does not result in 
                aggregate payments under section 1886(d) of such Act 
                that are greater or less than those that would 
                otherwise be made if paragraph (1) and subparagraph (A) 
                did not apply.

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 
sections 521 and 522 of BIPA and 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 eligible items and services 
                described in subparagraph (C), 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 physician, but only with respect to 
                        eligible items and services for which the 
                        physician may be paid directly.
                            ``(ii) An individual entitled to benefits 
                        under this title, but only with respect to an 
                        item or service for which the individual 
                        receives, from the physician who may be paid 
                        directly for the item or service, an advance 
                        beneficiary notice under section 1879(a) that 
                        payment may not be made (or may no longer be 
                        made) for the item or service under this title.
                    ``(C) Eligible items and services.--For purposes of 
                this subsection and subject to paragraph (2), eligible 
                items and services are items and services which are 
                physicians' services (as defined in paragraph (4)(A) of 
                section 1848(f) for purposes of calculating the 
                sustainable growth rate under such section).
            ``(2) Secretarial flexibility.--The Secretary shall 
        establish by regulation reasonable limits on the categories of 
        eligible items and 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 item or 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 
                an eligible item or service involved as to whether the 
                item or 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 item or service, supporting 
                documentation relating to the medical necessity for the 
                item or 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 item or service is so covered;
                            ``(ii) the item or service is not so 
                        covered; or
                            ``(iii) the contractor lacks sufficient 
                        information to make a coverage determination.
                If the contractor makes the determination described in 
                clause (iii), the contractor shall include in the 
                notice a description of the additional information 
                required to make the coverage determination.
                    ``(B) 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).
                    ``(C) Informing beneficiary in case of physician 
                request.--In the case of a request in which an eligible 
                requester is not the individual described in paragraph 
                (1)(B)(ii), the process shall provide that the 
                individual to whom the item or service is proposed to 
                be furnished shall be informed of any determination 
                described in clause (ii) (relating to a determination 
                of non-coverage) and the right (referred to in 
                paragraph (6)(B)) to obtain the item or service and 
                have a claim submitted for the item or service.
            ``(5) Effect of determinations.--
                    ``(A) 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.
                    ``(B) Notice and right to redetermination in case 
                of a denial.--
                            ``(i) In general.--If the contractor makes 
                        the determination described in paragraph 
                        (4)(A)(ii)--
                                    ``(I) the eligible requester has 
                                the right to a redetermination by the 
                                contractor on the determination that 
                                the item or service is not so covered; 
                                and
                                    ``(II) the contractor shall include 
                                in notice under paragraph (4)(A) 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 the right 
                                to such a redetermination.
                            ``(ii) Deadline for redeterminations.--The 
                        contractor shall complete and provide notice of 
                        such redetermination within the same time 
                        period as the time period applicable to the 
                        contractor providing notice of redeterminations 
                        relating to a claim for benefits under 
                        subsection (a)(3)(C)(ii).
            ``(6) Limitation on further review.--
                    ``(A) In general.--Contractor determinations 
                described in paragraph (4)(A)(ii) or (4)(A)(iii) (and 
                redeterminations made under paragraph (5)(B)), 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 items or 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 items 
                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 
                items and services 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 items and 
                services, there shall be no prior determination under 
                this subsection with respect to such items or 
                services.''.
    (b) Effective Date; 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) 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.
            (3) 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 report on use of advance beneficiary 
        notices.--Not later than 18 months after the date on which 
        section 1869(g) 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 18 months after the date on which section 1869(g) 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 the types of procedures 
                for which a prior determination has been sought, 
                determinations made under the process, and changes in 
                receipt of services resulting from the application of 
                such process; and
                    (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.
            (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 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.

                  Subtitle V--Miscellaneous Provisions

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

    (a) In General.--The Secretary may not implement any new 
documentation guidelines for, or clinical examples of, 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 modifications to the 
        evaluation and management documentation guidelines;
            (4) finds 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 Evaluation and Management Documentation 
Guidelines.--
            (1) In general.--The Secretary shall conduct under this 
        subsection appropriate and representative pilot projects to 
        test new evaluation and management documentation guidelines 
        referred to in subsection (a).
            (2) Length and consultation.--Each pilot project under this 
        subsection shall--
                    (A) be voluntary;
                    (B) be of sufficient length as determined by the 
                Secretary 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--
                    (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 definitions published 
                in the Current Procedures Terminology (CPT) code book 
                of the American Medical Association;
                    (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) Banning of targeting of pilot project participants.--
        Data collected under this subsection shall not be used as the 
        basis for overpayment demands or post-payment audits. Such 
        limitation applies only to claims filed as part of the pilot 
        project and lasts only for the duration of the pilot project 
        and only as long as the provider is a participant in the pilot 
        project.
            (5) Study of impact.--Each pilot project shall examine the 
        effect of the new evaluation and management documentation 
        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.
            (6) Periodic reports.--The Secretary shall submit to 
        Congress periodic reports on the pilot projects under this 
        subsection.
    (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), as amended by section 921(a), is amended by adding at the end 
the following new subsection:
    ``(c) 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 
        site 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 site 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 site 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 time frame 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 of 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).
    (d) Process for Adoption of ICD Codes as Data Standard.--Section 
1172(f) (42 U.S.C. 1320d-1(f)) is amended by inserting after the first 
sentence the following: ``Notwithstanding the first sentence of this 
subsection, if the National Committee on Vital and Health Statistics 
has not made a recommendation to the Secretary, within 1 year after the 
date of the enactment of this sentence, with respect to the adoption of 
the International Classification of Diseases, 10th Revision, Procedure 
Coding System (`ICD-10-PCS') and the International Classification of 
Diseases, 10th Revision, Clinical Modification (`ICD-10-CM') as a 
standard under this part, then the Secretary may adopt ICD-10-PCS and 
ICD-10-CM as such a standard.''.

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.
    (d) Modification of Requirment for Medical Screening Examinations 
for Patients Not Requesting Emergency Department Services.--
            (1) In general.--Section 1867(a) (42 U.S.C. 1395dd(a)) is 
        amended--
                    (A) by designating all that follows ``(a) Medical 
                Screening Requirement.--'' as paragraph (1) with the 
                heading ``In general.--'';
                    (B) by aligning such paragraph with the paragraph 
                added by paragraph (3); and
                    (C) by adding at the end the following new 
                paragraph:
            ``(2) Exception for certain cases.--The requirement for an 
        appropriate medical screening examination under paragraph (1) 
        shall not apply in the case of an individual who comes to the 
        emergency department and neither the individual, nor another 
        person on the individual's behalf, requests examination or 
        treatment for an emergency medical condition (such as a request 
        solely for preventive services, such as blood pressure 
        screening or non-emergency laboratory and diagnostic tests).''.
            (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 ACTIVE 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)) is amended by adding at the end the following new paragraph:
    ``(4) 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) is amended--
            (1) in subsection (a)(1)--
                    (A) in subparagraph (R), by striking ``and'' at the 
                end;
                    (B) in subparagraph (S), by striking the period at 
                the end and inserting ``, and''; and
                    (C) by inserting after subparagraph (S) the 
                following new subparagraph:
            ``(T) in the case of hospitals that are not otherwise 
        subject to the Occupational Safety and Health Act of 1970, 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)(T) (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)(T) 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)), as amended by section 521 of BIPA, 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)), as added by section 522 of BIPA, 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 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 after subsection (g) the following new subsection:
    ``(h)(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 (as 
defined by the Secretary), to the entity if, under the contractual 
arrangement, the entity submits the bill for the service and the 
contractual arrangement meets such other 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'' and inserting ``except to an employer, 
entity, or other person''.
    (c) Effective Date.--The amendments made by 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.

SEC. 954. 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 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 2nd 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.

                           TITLE X--MEDICAID

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

    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--
                            ``(i) for fiscal year 2004 is equal to 120 
                        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 
                        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.''.

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.''.

             TITLE XI--ACCESS TO AFFORDABLE PHARMACEUTICALS

            Subtitle A--Access to Affordable Pharmaceuticals

SEC. 1101. 30-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.''; 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 the forty-five day period 
                                referred to in such subparagraph has 
                                expired, and unless, if the notice 
                                provided under paragraph (2)(B) relates 
                                to noninfringement, the notice was 
                                accompanied by a document described in 
                                subclause (II). Any such action shall 
                                be brought in the judicial district 
                                where the defendant has its principal 
                                place of business or a regular and 
                                established place of business.
                                    ``(II) Right of confidential access 
                                to application.--For purposes of 
                                subclause (I), the document described 
                                in this subclause is a document 
                                providing a right of confidential 
                                access to the application 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 right 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. Any person 
                                provided a right 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 a 
                                right 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 
                        subparagraph (i) or a counterclaim under 
                        subparagraph (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)(iv)'';
                    (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 the forty-five 
                                day period referred to in such 
                                subparagraph has expired, and unless, 
                                if the notice the applicant provided 
                                under subsection (b)(3) relates to 
                                noninfringement, the notice was 
                                accompanied by a document described in 
                                subclause (II). Any such action shall 
                                be brought in the judicial district 
                                where the defendant has its principal 
                                place of business or a regular and 
                                established place of business.
                                    ``(II) Right of confidential access 
                                to application.--For purposes of 
                                subclause (I), the document described 
                                in this subclause is a document 
                                providing a right of confidential 
                                access to the application 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 right 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. Any person 
                                provided a right 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 a right 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), (b), and (c) 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 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) after the 
        date of enactment of this Act in an application filed under 
        subsection (b)(2) or (j) of that section or in an amendment or 
        supplement to an application filed under subsection (b)(2) 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) made after the date of enactment 
        of this Act.

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) 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 containing 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 (E) 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.
                    ``(II) 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.''; 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 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 
                                                expires.

                                                    ``(DD) The patent 
                                                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 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 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 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 
        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 
        enactment of this Act) has occurred on or before the date of 
        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) 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.
            (3) Brand name drug company.--The term ``brand name drug 
        company'' means the party that holds the approved application 
        referred to in paragraph (2) 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.
            (4) Commission.--The term ``Commission'' means the Federal 
        Trade Commission.
            (5) 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.
            (6) 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.
            (7) 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 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 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 
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 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 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 
Commission.

SEC. 1116. RULEMAKING.

    The Commission, 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 Commission, or any failure of 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 enactment of this 
        Act; and
            (2) shall apply to agreements described in section 1112 
        that are entered into 30 days after the date of 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 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 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 all 
        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);
            ``(3) require that any prescription drug from Canada 
        imported by a domestic pharmacist or wholesaler under this 
        section be contained in packaging which the Secretary has 
        determined to be reasonably certain to be tamper-resistant and 
        not capable of counterfeiting;
            ``(4) require that all prescription drugs from Canada 
        imported by a domestic pharmacist or a wholesaler under this 
        section contain a statement designed to inform the end-user of 
        such drug that such drug has been imported from a foreign 
        seller other than a manufacturer;
            ``(5) require that only prescription drugs which have not 
        left the possession of the first Canadian recipient of such 
        prescription drugs after receipt from the manufacturer of such 
        prescription drugs be eligible for importation into the United 
        States under this section;
            ``(6) require, if determined appropriate by the Secretary, 
        that all prescription drugs imported from Canada under this 
        section by domestic pharmacists and wholesalers enter the 
        United States through ports of entry designated by the 
        Secretary for purposes of this section;
            ``(7) contain any additional provisions determined by the 
        Secretary to be appropriate to protect the public health; and
            ``(8) contain any additional provisions determined by the 
        Secretary to be appropriate to facilitate the importation of 
        prescription drugs that do not jeopardize the public health.
    ``(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 and the price charged 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) 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) 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.
                    ``(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 under this section; 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.--The 
Secretary may, for drugs being imported from a licensed Canadian 
pharmacy, 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. Such 
conditions shall include conditions that such drug or device be--
            ``(1) in the possession of an individual when the 
        individual enters the United States;
            ``(2) imported by such individual from a licensed pharmacy 
        for personal use by the individual, not for resale, in 
        quantities that do not exceed a 90-day supply, which individual 
        will use the drug or device (or for a family member of such 
        individual);
            ``(3) accompanied by a copy of a valid prescription;
            ``(4) imported from Canada, from a seller registered with 
        the Secretary;
            ``(5) a prescription drug approved by the Secretary under 
        chapter V that is not adulterated or misbranded;
            ``(6) in the form of a final finished dosage that was 
        manufactured in an establishment registered under section 510; 
        and
            ``(7) imported under such other conditions as the Secretary 
        determines to be necessary to ensure public safety.
    ``(k) Studies; Reports.--
            ``(1) By the institute of medicine of the national academy 
        of sciences.--
                    ``(A) Study.--
                            ``(i) In general.--The Secretary shall 
                        request that the Institute of Medicine of the 
                        National Academy of Sciences conduct a study 
                        of--
                                    ``(I) importations of prescription 
                                drugs made under the regulations under 
                                subsection (b); and
                                    ``(II) information and 
                                documentation submitted under 
                                subsection (d).
                            ``(ii) Requirements.--In conducting the 
                        study, the Institute of Medicine shall--
                                    ``(I) evaluate the compliance of 
                                importers with the regulations under 
                                subsection (b);
                                    ``(II) compare the number of 
                                shipments under the regulations under 
                                subsection (b) during the study period 
                                that are determined to be counterfeit, 
                                misbranded, or adulterated, and compare 
                                that number with the number of 
                                shipments made during the study period 
                                within the United States that are 
                                determined to be counterfeit, 
                                misbranded, or adulterated; and
                                    ``(III) consult with the Secretary 
                                to evaluate the effect of importations 
                                under the regulations under subsection 
                                (b) on trade and patent rights under 
                                Federal law.
                    ``(B) Report.--Not later than 2 years after the 
                effective date of the regulations under subsection (b), 
                the Institute of Medicine shall submit to Congress a 
                report describing the findings of the study under 
                subparagraph (A).
            ``(2) By the comptroller general.--
                    ``(A) Study.--The Comptroller General of the United 
                States shall conduct a study to determine the effect of 
                this section on the price of prescription drugs sold to 
                consumers at retail.
                    ``(B) Report.--Not later than 18 months after the 
                effective date of the regulations under subsection (b), 
                the Comptroller General of the United States shall 
                submit to Congress a report describing the findings of 
                the study under subparagraph (A).
    ``(l) 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.
    ``(m) Authorization of Appropriations.--There are authorized to be 
appropriated such sums as are necessary to carry out this section.
    ``(n) Conditions.--This section shall become effective only if the 
Secretary demonstrates to the Congress that the implementation of this 
section will--
            ``(1) pose no additional risk to the public's health and 
        safety; and
            ``(2) result in a significant reduction in the cost of 
        prescription drugs to the American consumer.''.
    (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)''.

        DIVISION B--HEALTH SAVINGS AND AFFORDABILITY ACT OF 2003

TITLE XII--HEALTH SAVINGS SECURITY ACCOUNTS AND HEALTH SAVINGS ACCOUNTS

SEC. 1201. SHORT TITLE.

    This division may be cited as the ``Health Savings and 
Affordability Act of 2003''.

SEC. 1202. HEALTH SAVINGS SECURITY ACCOUNTS AND 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 225 and by inserting after section 222 the following new 
sections:

``SEC. 223. HEALTH SAVINGS SECURITY 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 such 
individual to a health savings security 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) $2,000, in the case of an eligible individual 
                who--
                            ``(i) has self-only coverage under a 
                        minimum deductible plan as of the first day of 
                        such month, or
                            ``(ii) is uninsured as of the first day of 
                        such month and is not described in subparagraph 
                        (B)(ii) with respect to the taxable year which 
                        includes such month,
                    ``(B) $4,000, in the case of an eligible individual 
                who--
                            ``(i) has family coverage under a minimum 
                        deductible plan as of the first day of such 
                        month, or
                            ``(ii) is uninsured as of the first day of 
                        such month and, with respect to the taxable 
                        year which includes such month--
                                    ``(I) is entitled to a deduction 
                                for a dependent under section 151(c) 
                                (or would be so entitled but for 
                                paragraph (2) or (4) of section 
                                152(e)), or
                                    ``(II) files a joint return, and
                    ``(C) zero in any other case.
            ``(3) Additional contributions for individuals 55 or 
        older.--
                    ``(A) In general.--In the case of an individual who 
                has attained the age of 55 before the close of the 
                taxable year, paragraph (2) shall be applied by 
                increasing the $2,000 amount in paragraph (2)(A) and 
                the $4,000 amount in paragraph (2)(B) 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                                      The additional
beginning in:                                   contribution amount is:
    2004..........................................                $500 
    2005..........................................                $600 
    2006..........................................                $700 
    2007..........................................                $800 
    2008..........................................                $900 
    2009 and thereafter...........................              $1,000.

            ``(4) Limitation based on adjusted gross income.--
                    ``(A) Self-only coverage.--The dollar amount in 
                paragraph (2)(A) (as increased under paragraph (3)) 
                shall be reduced (but not below zero) by an amount 
                which bears the same ratio to such dollar amount as--
                            ``(i) the amount (if any) by which the 
                        taxpayer's adjusted gross income for such 
                        taxable year exceeds $75,000 ($150,000 in the 
                        case of a joint return), bears to
                            ``(ii) $10,000 ($20,000 in the case of a 
                        joint return).
                    ``(B) Family coverage.--The dollar amount in 
                paragraph (2)(B) (as increased under paragraph (3)) 
                shall be reduced (but not below zero) by an amount 
                which bears the same ratio to such dollar amount as--
                            ``(i) the amount (if any) by which the 
                        taxpayer's adjusted gross income for such 
                        taxable year exceeds $150,000, bears to
                            ``(ii) $20,000.
                    ``(C) No reduction below $200 until complete phase-
                out.--No dollar amount shall be reduced below $200 
                under subparagraph (A) or (B) unless (without regard to 
                this subparagraph) such limitation is reduced to zero.
                    ``(D) Rounding.--Any amount determined under this 
                paragraph which is not a multiple of $10 shall be 
                rounded to the next lowest $10.
                    ``(E) Adjusted gross income.--For purposes of this 
                paragraph, adjusted gross income shall be determined--
                            ``(i) without regard to this section or 
                        section 911, and
                            ``(ii) after application of sections 86, 
                        135, 137, 219, 221, 222, and 469.
            ``(5) Coordination with other contributions.--The 
        limitation which would (but for this paragraph) apply under 
        this subsection to the taxpayer for any taxable year shall be 
        reduced (but not below zero) by the sum of--
                    ``(A) the aggregate amount paid during such taxable 
                year to Archer MSAs of such individual,
                    ``(B) the aggregate amount paid during such taxable 
                year to health savings accounts of such individual, and
                    ``(C) the aggregate amount paid during such taxable 
                year to health savings security accounts of such 
                individual by persons other than such individual.
            ``(6) Special rules for married individuals, dependents, 
        and medicare eligible individuals.--Rules similar to the rules 
        of paragraphs (3), (6), and (7) of section 220(b) shall apply 
        for purposes of this section.
    ``(c) Definitions.--For purposes of this section--
            ``(1) Eligible individual.--
                    ``(A) In general.--The term `eligible individual' 
                means, with respect to any month, any individual unless 
                such individual is covered, as of the first day of such 
                month, under any health plan which is not a minimum 
                deductible plan.
                    ``(B) Certain coverage disregarded.--Subparagraph 
                (A) 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) Minimum deductible plan.--
                    ``(A) In general.--The term `minimum deductible 
                plan' means a health plan--
                            ``(i) in the case of self-only coverage, 
                        which has an annual deductible which is not 
                        less than $500, and
                            ``(ii) in the case of family coverage, 
                        which has an annual deductible which is not 
                        less than twice the dollar amount in clause (i) 
                        (as increased under subparagraph (B)).
                    ``(B) Cost-of-living adjustment for annual 
                deductibles.--
                            ``(i) In general.--In the case of any 
                        taxable year beginning in a calendar year after 
                        2004, the $500 amount in subparagraph (A)(i) 
                        shall be increased by an amount equal to--
                                    ``(I) such dollar amount, 
                                multiplied by
                                    ``(II) the cost-of-living 
                                adjustment determined under section 
                                1(f)(3) for the calendar year in which 
                                such taxable year begins by 
                                substituting `calendar year 2003' for 
                                `calendar year 1992' in subparagraph 
                                (B) thereof.
                            ``(ii) Rounding.--If any increase under 
                        clause (i) is not a multiple of $50, such 
                        increase shall be rounded to the nearest 
                        multiple of $50.
                    ``(C) Special rules.--
                            ``(i) 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).
                            ``(ii) Safe harbor for absence of 
                        preventive care deductible.--A plan shall not 
                        fail to be treated as a minimum deductible plan 
                        by reason of failing to have a deductible for 
                        preventive care.
            ``(3) Uninsured.--An individual shall be treated as 
        uninsured if such individual is not covered by insurance which 
        constitutes medical care. The preceding sentence shall be 
        applied without regard to the coverage described in paragraph 
        (1)(B).
            ``(4) Permitted insurance.--The term `permitted insurance' 
        has the meaning given such term in section 220(c)(3).
            ``(5) Family coverage.--The term `family coverage' has the 
        meaning given such term in section 220(c)(5).
            ``(6) Archer msa.--The term `Archer MSA' has the meaning 
        given such term in section 220(d).
            ``(7) Health Savings Account.--The term `health savings 
        account' has the meaning given such term in section 224(d).
    ``(d) Health Savings Security Account.--For purposes of this 
section--
            ``(1) In general.--The term `health savings security 
        account' means a trust created or organized in the United 
        States as a health savings security 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 
                from an Archer MSA, or a health savings security 
                account, which is not includible in gross income, no 
                contribution will be accepted--
                            ``(i) unless it is in cash and is 
                        contributed by--
                                    ``(I) the account beneficiary,
                                    ``(II) a member of the family of 
                                the account beneficiary, or
                                    ``(III) an employer of the account 
                                beneficiary, and
                            ``(ii) to the extent such contribution, 
                        when added to previous contributions to the 
                        trust for the calendar year, exceeds the 
                        highest annual limitation which could apply to 
                        an individual under subsection (b) for a 
                        taxable year beginning in such calendar year.
                    ``(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) Member of the family.--The term `member of the 
        family' has the meaning given such term in section 2032A(e)(2).
            ``(3) Qualified medical expenses.--The term `qualified 
        medical expenses' has the meaning given such term in section 
        220(d)(2), except that--
                    ``(A) subparagraph (B)(i) thereof shall not apply 
                to--
                            ``(i) insurance which constitutes a minimum 
                        deductible plan if no portion of the cost of 
                        such insurance is paid by an employer or former 
                        employer of the account beneficiary or the 
                        spouse of such beneficiary, and
                            ``(ii) any health insurance (other than 
                        health insurance substantially all of its 
                        coverage is coverage described in subsection 
                        (c)(1)(B)) if the account beneficiary has 
                        attained age 65, and
                    ``(B) subparagraph (C) thereof shall not apply for 
                purposes of this section.
            ``(4) Account beneficiary.--The term `account beneficiary' 
        means the individual on whose behalf the health savings 
        security account was established.
            ``(5) 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).
            ``(6) Contributions from flexible spending accounts treated 
        as made by the employer.--Any contribution from a flexible 
        spending account to a health savings security account which is 
        not includible in the gross income of the employee by reason of 
        section 125(h) shall be treated as a contribution made by the 
        employer for purposes of this section.
    ``(e) Tax Treatment of Accounts.--
            ``(1) In general.--A health savings security account is 
        exempt from taxation under this subtitle unless such account 
        has ceased to be a health savings security 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 security accounts, and any amount treated as 
        distributed under such similar 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 security 
        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.--
                    ``(A) In general.--Any amount paid or distributed 
                out of a health savings security 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 in the manner provided 
                under section 72.
                    ``(B) Special rules for applying section 72.--For 
                purposes of applying section 72 to any amount described 
                in subparagraph (A)--
                            ``(i) all health savings security accounts 
                        shall be treated as 1 contract,
                            ``(ii) all distributions during any taxable 
                        year shall be treated as 1 distribution,
                            ``(iii) the value of the contract, income 
                        on the contract, and investment in the contract 
                        shall be computed as of the close of the 
                        calendar year in which the taxable year begins, 
                        and
                            ``(iv) such distributions shall be treated 
                        as made from contributions from members of the 
                        family of the account beneficiary to the extent 
                        that such distribution, when added to all 
                        previous distributions from the health savings 
                        security account taken into account under this 
                        clause, do not exceed the aggregate 
                        contributions from members of such family.
            ``(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 
                security account of an individual, paragraph (2) shall 
                not apply to distributions from the health savings 
                security 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 made on or 
                        before the last day prescribed by law 
                        (including extensions of time) for filing the 
                        account beneficiary's return for such taxable 
                        year,
                            ``(ii) no deduction is allowed under this 
                        section with respect to such contribution,
                            ``(iii) such distribution is accompanied by 
                        the amount of net income attributable to such 
                        excess contribution, and
                            ``(iv) such distribution satisfies the 
                        requirements of subparagraph (B).
                    ``(B) Rules related to ordering.--
                            ``(i) Distributions limited to 
                        contributions.--Subparagraph (A) shall apply to 
                        distributions to a person only to the extent of 
                        the contributions of such person to such 
                        accounts during such taxable year.
                            ``(ii) Classes of contributors.--
                        Subparagraph (A) shall apply only to 
                        distributions of such contributions which are 
                        made in the following order:
                                    ``(I) first, to members of the 
                                family of the account beneficiary,
                                    ``(II) second, to the account 
                                beneficiary,
                                    ``(III) third, to employers of the 
                                account beneficiary with respect to 
                                contributions under section 125(h), and
                                    ``(IV) fourth, to employers of the 
                                account beneficiary with respect to 
                                contributions under section 106(d).
                            ``(iii) Last-in first-out.--If 
                        distributions could be made to more than one 
                        person under any subclause of clause (ii), 
                        subparagraph (A) shall not apply to any such 
                        distribution unless such distribution is of the 
                        most recent excess contribution which has not 
                        been distributed to the contributor.
                    ``(C) Treatment of net income.--Any net income 
                described in subparagraph (A)(iii) shall be included in 
                the gross income of the person receiving the 
                distribution for the taxable year in which received.
                    ``(D) Excess contribution.--For purposes of 
                subparagraph (A), the term `excess contribution' means 
                any contribution (other than a rollover contribution 
                from another health savings security account, or from 
                an Archer MSA, which is not includible in gross income) 
                to the extent such contribution results in the 
                aggregate contributions to health savings security 
                accounts of the account beneficiary for the taxable 
                year to be in excess of the limitation under subsection 
                (b) (determined without regard to paragraph (5)(C) 
                thereof) which applies to such beneficiary for such 
                year.
            ``(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 security account of such beneficiary which is 
                includible in gross income under paragraph (2) shall be 
                increased by 15 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.--
                    ``(A) In general.--Paragraph (2) shall not apply to 
                any amount paid or distributed from a health savings 
                security account to the account beneficiary to the 
                extent the amount received is paid into a health 
                savings security account, or 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 security 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 security account which was not includible in 
                the individual's gross income because of the 
                application of this paragraph.
            ``(6) Special rules.--Rules similar to the rules of 
        paragraphs (6), (7), and (8) of section 220(f) shall apply for 
        purposes of this section.
    ``(g) Reports.--The Secretary may require the trustee of a health 
savings security account to make such reports regarding such account to 
the Secretary and to the account beneficiary with respect to 
contributions, distributions, and such other matters 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.
    ``(h) Regulations.--The Secretary may issue regulations to carry 
out the purposes of this section, including regulations regarding the 
proper treatment of distributions described in subsection (f)(3) and 
nondeductible contributions by members of the family of the account 
beneficiary.

``SEC. 224. 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 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 the amount equal to \1/12\ of the annual deductible 
        (as of the first day of such month) of the individual's 
        coverage under the high deductible health plan.
            ``(3) Coordination with other contributions.--The 
        limitation which would (but for this paragraph) apply under 
        this subsection to the taxpayer for any taxable year shall be 
        reduced (but not below zero) by the sum of--
                    ``(A) the aggregate amount paid during such taxable 
                year to Archer MSAs of such individual,
                    ``(B) the aggregate amount paid during such taxable 
                year to health savings security accounts of such 
                individual, and
                    ``(C) the aggregate amount paid during such taxable 
                year to health savings accounts of such individual by 
                persons other than such individual.
            ``(4) Special rules for married individuals, dependents, 
        and medicare eligible individuals.--Rules similar to the rules 
        of paragraphs (3), (6), and (7) of section 220(b) shall apply 
        for purposes of this section.
    ``(c) Definitions.--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) in the case of self-only coverage, 
                        which has an annual deductible which is not 
                        less than $1,000 and not more than $2,250,
                            ``(ii) in the case of family coverage, 
                        which has an annual deductible which is not 
                        less than $2,000 and not more than $4,500, and
                            ``(iii) the annual out-of-pocket expenses 
                        required to be paid under the plan (other than 
                        for premiums) for covered benefits does not 
                        exceed--
                                    ``(I) $3,000 for self-only 
                                coverage, and
                                    ``(II) $5,500 for family coverage.
                    ``(B) Cost-of-living adjustment.--
                            ``(i) In general.--In the case of any 
                        taxable year beginning in a calendar year after 
                        1998, each dollar amount in subparagraph (A) 
                        shall be increased by an amount equal to--
                                    ``(I) such dollar amount, 
                                multiplied by
                                    ``(II) the cost-of-living 
                                adjustment determined under section 
                                1(f)(3) for the calendar year in which 
                                such taxable year begins by 
                                substituting `calendar year 1997' for 
                                `calendar year 1992' in subparagraph 
                                (B) thereof.
                            ``(ii) Special rules.--In the case of the 
                        $1,000 amount in subparagraph (A)(i) and the 
                        $2,000 amount in subparagraph (A)(ii), 
                        subclause (i)(II) shall be applied by 
                        substituting `calendar year 2002' for `calendar 
                        year 1997'.
                            ``(iii) Rounding.--If any increase under 
                        clause (i) or (ii) is not a multiple of $50, 
                        such increase shall be rounded to the nearest 
                        multiple of $50.
                    ``(C) Special rules.--
                            ``(i) 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).
                            ``(ii) 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.
                    ``(D) Treatment of network services.--
                            ``(i) In general.--In the case of a health 
                        plan which is a preferred provider organization 
                        plan and which would (without regard to 
                        services provided outside such organization's 
                        network of providers described in clause 
                        (iii)(I)) be a high deductible health plan, 
                        such plan shall not fail to be a high 
                        deductible health plan because--
                                    ``(I) the annual deductible for 
                                services provided outside such network 
                                exceeds the applicable maximum dollar 
                                amount in clause (i) or (ii) of 
                                subparagraph (A), or
                                    ``(II) the annual out-of-pocket 
                                expenses required to be paid for 
                                services provided outside such network 
                                exceeds the applicable dollar amount in 
                                subparagraph (A)(iii).
                            ``(ii) Annual deductible.--The annual 
                        deductible taken into account under subsection 
                        (b)(2) with respect to a plan which is a high 
                        deductible health plan by reason of clause (i) 
                        shall be the annual deductible for services 
                        provided within such network.
                            ``(iii) Preferred provider organization 
                        plan defined.--In this subparagraph, the term 
                        `preferred provider organization plan' means a 
                        health 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.
            ``(3) Permitted insurance.--The term `permitted insurance' 
        has the meaning given such term in section 220(c)(3).
            ``(4) Family coverage.--The term `family coverage' has the 
        meaning given such term in section 220(c)(5).
            ``(5) Archer msa.--The term `Archer MSA' has the meaning 
        given such term in section 220(d).
            ``(6) Health savings security account.--The term `health 
        savings security account' has the meaning given such term in 
        section 223(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 
                from an Archer MSA, a health savings security account, 
                or a health savings account, which is not includible in 
                gross income, no contribution will be accepted--
                            ``(i) unless it is in cash and is 
                        contributed by--
                                    ``(I) the account beneficiary, or
                                    ``(II) an employer of the account 
                                beneficiary, and
                            ``(ii) to the extent such contribution, 
                        when added to previous contributions to the 
                        trust for the calendar year, exceeds the 
                        highest annual limitation which could apply to 
                        an individual under subsection (b) for a 
                        taxable year beginning in such calendar year.
                    ``(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.--The term `qualified 
        medical expenses' has the meaning given such term in section 
        220(d)(2).
            ``(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).
            ``(6) Contributions from flexible spending accounts treated 
        as made by the employer.--Any contribution from a flexible 
        spending account to a health savings account which is not 
        includible in the gross income of the employee by reason of 
        section 125(h) shall be treated as a contribution made by the 
        employer for purposes of this section.
    ``(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 made on or 
                        before the last day prescribed by law 
                        (including extensions of time) for filing the 
                        account beneficiary's return for such taxable 
                        year,
                            ``(ii) no deduction is allowed under this 
                        section with respect to such contribution,
                            ``(iii) such distribution is accompanied by 
                        the amount of net income attributable to such 
                        excess contribution, and
                            ``(iv) such distribution satisfies the 
                        requirements of subparagraph (B).
                    ``(B) Rules related to ordering.--
                            ``(i) Distributions limited to 
                        contributions.--Subparagraph (A) shall apply to 
                        distributions to a person only to the extent of 
                        the contributions of such person to such 
                        accounts during such taxable year.
                            ``(ii) Classes of contributors.--
                        Subparagraph (A) shall apply only to 
                        distributions of such contributions which are 
                        made in the following order:
                                    ``(I) first, to the account 
                                beneficiary,
                                    ``(II) second, to employers of the 
                                account beneficiary with respect to 
                                contributions under section 125(h), and
                                    ``(III) third, to employers of the 
                                account beneficiary with respect to 
                                contributions under section 106(d).
                            ``(iii) Last-in first-out.--If 
                        distributions could be made to more than one 
                        person under any subclause of clause (ii), 
                        subparagraph (A) shall not apply to any such 
                        distribution unless such distribution is of the 
                        most recent excess contribution which has not 
                        been distributed to the contributor.
                    ``(C) Treatment of net income.--Any net income 
                described in subparagraph (A)(iii) shall be included in 
                the gross income of the person receiving the 
                distribution for the taxable year in which received.
                    ``(D) Excess contribution.--For purposes of 
                subparagraph (A), the term `excess contribution' means 
                any contribution (other than a rollover contribution 
                from another health savings account, from a health 
                savings security account, or from an Archer MSA, which 
                is not includible in gross income) to the extent such 
                contribution results in the aggregate contributions to 
                health savings accounts of the account beneficiary for 
                the taxable year to be in excess of the limitation 
                under subsection (b) (determined without regard to 
                paragraph (3)(C) thereof) which applies to such 
                beneficiary for such year.
            ``(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 15 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.--
                    ``(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) Special rules.--Rules similar to the rules of 
        paragraphs (6), (7), and (8) of section 220(f) shall apply for 
        purposes of this section.
    ``(g) Reports.--The Secretary may require 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, and such other matters 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 paragraphs:
            ``(19) Health savings security accounts.--The deduction 
        allowed by section 223.
            ``(20) Health savings accounts.--The deduction allowed by 
        section 224.''.
    (c) Coordination With Archer MSAs.--
            (1) Rollovers from archer msas permitted.--Subparagraph (A) 
        of section 220(f)(5) of such Code (relating to rollover 
        contribution) is amended by inserting ``, a health savings 
        security account (as defined in section 223(d)), or a health 
        savings account (as defined in section 224(d)),'' after ``paid 
        into an Archer MSA''.
            (2) Reduction in archer msa limitation for contributions to 
        health savings security accounts and health savings accounts.--
        Subsection (b) of section 220 of such Code (relating to 
        limitations) is amended by adding at the end the following new 
        paragraph:
            ``(8) Coordination with health savings security accounts 
        and health savings accounts.--The limitation which would (but 
        for this paragraph) apply under this subsection to the taxpayer 
        for any taxable year shall be reduced (but not below zero) by 
        the sum of--
                    ``(A) the aggregate amount paid during such taxable 
                year to health savings security accounts of such 
                individual, and
                    ``(B) the aggregate amount paid during such taxable 
                year to health savings accounts of such individual.''.
    (d) Exclusions for Employer Contributions to Health Savings 
Security Accounts and 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 
        subsections:
    ``(d) Contributions to Health Savings Security Accounts.--
            ``(1) In general.--In the case of an employee who is an 
        eligible individual, amounts contributed by such employee's 
        employer to any health savings security account 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) Definitions.--For purposes of this subsection, the 
        terms `eligible individual' and `health savings security 
        account' have the respective meanings given to such terms by 
        section 223.
            ``(4) Cross reference.--

                                ``For penalty on failure by employer to 
make comparable contributions to the health savings security accounts 
of comparable employees, see section 4980G.
    ``(e) Contributions to Health Savings Accounts.--
            ``(1) In general.--In the case of an employee who is an 
        eligible individual, amounts contributed by such employee's 
        employer to any health savings account 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 224(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) Definitions.--For purposes of this subsection, the 
        terms `eligible individual' and `health savings account' have 
        the respective meanings given to such terms by section 224.
            ``(4) 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 security account and 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 subsection (d) or (e) of section 106.''.
                    (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 subsection (d) or (e) of section 106.''.
                    (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 subsection (d) or (e) of section 106.''.
            (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 a comma, and 
        by inserting after paragraph (11) the following new paragraphs:
            ``(12) the amount contributed to any health savings 
        security account (as defined in section 223(d)) of such 
        employee or such employee's spouse, and
            ``(13) the amount contributed to any health savings account 
        (as defined in section 224(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 security account or 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 more than one of 
the following types of accounts during the calendar year:
            ``(1) An Archer MSA.
            ``(2) A health savings security account.
            ``(3) A health savings account.''.
                    (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 paragraph (3) of 
        subsection (a),
            (2) by inserting after paragraph (4) of subsection (a) the 
        following new paragraphs:
            ``(5) a health savings security account (within the meaning 
        of section 223(d)), or
            ``(6) a health savings account (within the meaning of 
        section 224(d))'', and
            (4) by adding at the end the following new subsections:
    ``(g) Excess Contributions to Health Savings Security Accounts.--
For purposes of this section, in the case of health savings security 
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 from 
        another health savings security account, or from an Archer MSA, 
        which is not includible in gross income) which is in excess of 
        the limitation under section 223(b) (determined without regard 
        to paragraph (5)(C) thereof), 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 sum of limitations described in 
                        paragraph (1), 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 security account in a distribution to which 
section 223(f)(3) applies shall be treated as an amount not 
contributed.
    ``(h) Excess Contributions to Health Savings Accounts.--For 
purposes of this section, in the case of health savings accounts 
(within the meaning of section 224(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 from 
        another health savings account, a health savings security 
        account, or from an Archer MSA, which is not includible in 
        gross income) which is in excess of the limitation under 
        section 224(b) (determined without regard to paragraph (3)(C) 
        thereof), 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 224(f)(2), 
                and
                    ``(B) the excess (if any) of--
                            ``(i) the sum of limitations described in 
                        paragraph (1), 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 
224(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 paragraphs:
            ``(6) Special rule for health savings security accounts.--
        An individual for whose benefit a health savings security 
        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 
        security account by reason of the application of section 
        223(e)(2) to such account.
            ``(7) Special rule for health savings accounts.--An 
        individual for whose benefit a health savings account (within 
        the meaning of section 224(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 224(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 (G) and (H), respectively, and by inserting after 
        subparagraph (D) the following new subparagraphs:
                    ``(E) a health savings security account described 
                in section 223(d),
                    ``(F) a health savings account described in section 
                224(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 (E) 
and (F), respectively, and by inserting after subparagraph (B) the 
following new subparagraphs:
                    ``(C) section 223(g) (relating to health savings 
                security accounts),
                    ``(D) section 224(g) (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 a 
comma, and by adding at the end the following new clauses:
                            ``(v) any contract which is a health 
                        savings security account (as defined in section 
                        223(d)), and''.
                            ``(vi) any contract which is a health 
                        savings account (as defined in section 
                        224(d)).''.
    (i) Health Savings Security Accounts and 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 security account, or a health savings account, 
                established on behalf of the employee.''.
    (j) Information Reporting by Providers of Health Insurance.--
Subpart B of part III of subchapter A of chapter 61 of such Code is 
amended by adding at the end the following new section:

``SEC. 6050U. RETURNS RELATING TO PROVIDERS OF HEALTH INSURANCE.

    ``(a) Requirement of Reporting.--Under regulations prescribed by 
the Secretary, every person who provides any individual with coverage 
under a plan which constitutes medical care shall, at such time as the 
Secretary may prescribe, make the return described in subsection (b) 
with respect to such individual.
    ``(b) Form and Manner of Returns.--A return is described in this 
subsection if such return--
            ``(1) is in such form as the Secretary may prescribe, and
            ``(2) contains such information as the Secretary 
        prescribes.
    ``(c) Statements To Be Furnished to Individuals With Respect to 
Whom Information Is Required.--Every person required to make a return 
under subsection (a) shall furnish to each individual whose name is 
required to be set forth in such return a written statement showing--
            ``(1) the name and address of the person required to make 
        such return and the phone number of the information contact for 
        such person, and
            ``(2) the information required to be shown on the return 
        with respect to such individual.
The written statement required under the preceding sentence shall be 
furnished on or before January 31 of the year following the calendar 
year for which the return under subsection (a) is required to be 
made.''.
    (k) Conforming Amendments.--
            (1) 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 security accounts.
``Sec. 224. Health savings accounts.
``Sec. 225. Cross reference.''.

            (2)(A) Sections 86(b)(2)(A), 135(c)(4)(A), 137(b)(3)(A), 
        219(g)(3)(A)(ii), and 221(b)(2)(C)(i) are each amended by 
        inserting ``223,'' after ``222,''.
            (B) Section 222(b)(2)(C)(i) is amended by inserting 
        ``223,'' before ``911''.
            (C) Section 469(i)(3)(F)(iii) is amended by striking ``and 
        222'' and inserting ``222, and 223''.
    (l) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2003.

SEC. 1203. DISPOSITION OF UNUSED HEALTH BENEFITS IN CAFETERIA PLANS AND 
              FLEXIBLE SPENDING ARRANGEMENTS.

    (a) In General.--Section 125 of the Internal Revenue Code of 1986 
(relating to cafeteria plans) is amended by redesignating subsections 
(h) and (i) as subsections (i) and (j), respectively, and by inserting 
after subsection (g) the following:
    ``(h) Contributions of Certain Unused Health Benefits.--
            ``(1) In general.--For purposes of this title, a plan or 
        other arrangement shall not fail to be treated as a cafeteria 
        plan solely because qualified benefits under such plan include 
        a health flexible spending arrangement under which not more 
        than $500 of unused health benefits may be--
                    ``(A) carried forward to the succeeding plan year 
                of such health flexible spending arrangement,
                    ``(B) to the extent permitted by sections 223 and 
                224, contributed on behalf of the employee to a health 
                savings security account (as defined in section 
                223(d)), or a health savings account (as defined in 
                section 224(d)), maintained for the benefit of such 
                employee, or
                    ``(C) contributed to a qualified retirement plan 
                (as defined in section 4974(c)), or an eligible 
                deferred compensation plan (as defined in section 
                457(b)) of an eligible employer described in section 
                457(e)(1)(A), but only to the extent such amount would 
                not be allowed as a deduction under--
                            ``(i) section 223 if made directly by the 
                        employee to a health savings security account 
                        of the employee (determined without regard to 
                        any other contributions made by the employee), 
                        and
                            ``(ii) section 224 if made directly by the 
                        employee to a health savings account of the 
                        employee (determined without regard to any 
                        other contributions made by the employee).
            ``(2) Special rules for treatment of contributions to 
        retirement plans.--For purposes of this title, contributions 
        under paragraph (1)(C)--
                    ``(A) shall be treated as elective deferrals (as 
                defined in section 402(g)(3)) in the case of 
                contributions to a qualified cash or deferred 
                arrangement (as defined in section 401(k)) or to an 
                annuity contract described in section 403(b),
                    ``(B) shall be treated as employer contributions to 
                which the employee has a nonforfeitable right in the 
                case of a plan (other than a plan described in 
                subparagraph (A)) which is described in section 401(a) 
                which includes a trust exempt from tax under section 
                501(a),
                    ``(C) shall be treated as deferred compensation in 
                the case of contributions to an eligible deferred 
                compensation plan (as defined in section 457(b)), and
                    ``(D) shall be treated in the manner designated for 
                purposes of section 408 or 408A in the case of 
                contributions to an individual retirement plan.
            ``(3) Health flexible spending arrangement.--For purposes 
        of this subsection, the term `health flexible spending 
        arrangement' means a flexible spending arrangement (as defined 
        in section 106(c)) that is a qualified benefit and only permits 
        reimbursement for expenses for medical care (as defined in 
        section 213(d)(1) (without regard to subparagraphs (C) and (D) 
        thereof).
            ``(4) Unused health benefits.--For purposes of this 
        subsection, with respect to an employee, the term `unused 
        health benefits' means the excess of--
                    ``(A) the maximum amount of reimbursement allowable 
                to the employee during a plan year under a health 
                flexible spending arrangement, taking into account any 
                election by the employee, over
                    ``(B) the actual amount of reimbursement during 
                such year under such arrangement.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to taxable years beginning after December 31, 2003.

SEC. 1204. EXCEPTION TO INFORMATION REPORTING REQUIREMENTS RELATED TO 
              CERTAIN HEALTH ARRANGEMENTS.

    (a) In General.--Section 6041 (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.

            Passed the House of Representatives June 27 (legislative 
      day, June 26), 2003.

            Attest:

                                                                 Clerk.
```