II 

108TH CONGRESS 

1ST SESSION H. R. 1

IN THE SENATE OF THE UNITED STATES 

JULY 7, 2003

Received 

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.
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1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLES. 

4 (a) DIVISION A.—Division A of this Act may be cited 

5 as the ‘‘Medicare Prescription Drug and Modernization 

6 Act of 2003’’. 

7 (b) DIVISION B.—Division B of this Act may be cited 

8 as the ‘‘Health Savings and Affordability Act of 2003’’. 

9 SEC. 2. ORGANIZATION OF ACT INTO DIVISIONS; AMEND10 MENTS TO SOCIAL SECURITY ACT; REF11 ERENCES TO BIPA AND SECRETARY; TABLE 

12 OF CONTENTS. 

13 (a) DIVISIONS.—This Act is organized into two divi14 sions as follows: 

15 (1) DIVISION A—Medicare Prescription Drug 

16 and Modernization Act of 2003. 

17 (2) DIVISION B—Health Savings and Afford18 ability Act of 2003. 

19 (b) AMENDMENTS TO SOCIAL SECURITY ACT.—Ex20 cept as otherwise specifically provided, whenever in divi21 sion A of this Act an amendment is expressed in terms 

22 of an amendment to or repeal of a section or other provi23 sion, the reference shall be considered to be made to that 

24 section or other provision of the Social Security Act. 

25 (c) BIPA; SECRETARY.—In division A of this Act: 
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1 (1) BIPA.—The term ‘‘BIPA’’ means the 

2 Medicare, Medicaid, and SCHIP Benefits Improve3 ment and Protection Act of 2000, as enacted into 

4 law by section 1(a)(6) of Public Law 106–554. 

5 (2) SECRETARY.—The term ‘‘Secretary’’ means 

6 the Secretary of Health and Human Services. 

7 (d) TABLE OF CONTENTS.—The table of contents of 

8 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
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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. 
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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 
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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. 
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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. 
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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.

1 DIVISION A—MEDICARE PRE2 SCRIPTION DRUG AND MOD3 ERNIZATION ACT OF 2003

4 TITLE I—MEDICARE 

5 PRESCRIPTION DRUG BENEFIT 

6 SEC. 101. ESTABLISHMENT OF A MEDICARE PRESCRIPTION 

7 DRUG BENEFIT. 

8 (a) IN GENERAL.—Title XVIII is amended—

9 (1) by redesignating part D as part F; and 

10 (2) by inserting after part C the following new 

11 part: 
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1 ‘‘PART D—VOLUNTARY PRESCRIPTION DRUG BENEFIT

2 PROGRAM

3 ‘‘SEC. 1860D–1. BENEFITS; ELIGIBILITY; ENROLLMENT; AND 

4 COVERAGE PERIOD. 

5 ‘‘(a) PROVISION OF QUALIFIED PRESCRIPTION DRUG

6 COVERAGE THROUGH ENROLLMENT IN PLANS.—Subject 

7 to the succeeding provisions of this part, each individual 

8 who is entitled to benefits under part A or is enrolled 

9 under part B is entitled to obtain qualified prescription 

10 drug coverage (described in section 1860D–2(a)) as fol11 lows:

12 ‘‘(1) MEDICARE-RELATED PLANS.—

13 ‘‘(A) MEDICARE ADVANTAGE.—If the indi14 vidual is eligible to enroll in a Medicare Advan15 tage plan that provides qualified prescription 

16 drug coverage under section 1851(j), the indi17 vidual may enroll in such plan and obtain cov18 erage through such plan. 

19 ‘‘(B) EFFS PLANS.—If the individual is 

20 eligible to enroll in an EFFS plan that provides 

21 qualified prescription drug coverage under part 

22 E under section 1860E–2(d), the individual 

23 may enroll in such plan and obtain coverage 

24 through such plan. 
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1 ‘‘(C) MA-EFFS PLAN; MA-EFFS RX

2 PLAN.—For purposes of this part, the term 

3 ‘MA-EFFS plan’ means a Medicare Advantage 

4 plan under part C and an EFFS plan under 

5 part E and the term ‘MA-EFFS Rx plan’ 

6 means a MA-EFFS plan insofar as such plan 

7 provides qualified prescription drug coverage. 

8 ‘‘(2) PRESCRIPTION DRUG PLAN.—If the indi9 vidual is not enrolled in a MA-EFFS plan, the indi10 vidual may enroll under this part in a prescription 

11 drug plan (as defined in section 1860D–10(a)(5)). 

12 Such individuals shall have a choice of such plans under 

13 section 1860D–5(d). 

14 ‘‘(b) GENERAL ELECTION PROCEDURES.—

15 ‘‘(1) IN GENERAL.—An individual eligible to 

16 make an election under subsection (a) may elect to 

17 enroll in a prescription drug plan under this part, or 

18 elect the option of qualified prescription drug cov19 erage under a MA-EFFS Rx plan under part C or 

20 part E, and to change such election only in such 

21 manner and form as may be prescribed by regula22 tions of the Administrator of the Medicare Benefits 

23 Administration (appointed under section 1809(b)) 

24 (in this part referred to as the ‘Medicare Benefits 
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1 Administrator’) and only during an election period 

2 prescribed in or under this subsection. 

3 ‘‘(2) ELECTION PERIODS.—

4 ‘‘(A) IN GENERAL.—Except as provided in 

5 this paragraph, the election periods under this 

6 subsection shall be the same as the coverage 

7 election periods under the Medicare Advantage 

8 and EFFS programs under section 1851(e), in9 cluding—

10 ‘‘(i) annual coordinated election peri11 ods; and 

12 ‘‘(ii) special election periods. 

13 In applying the last sentence of section 

14 1851(e)(4) (relating to discontinuance of an 

15 election during the first year of eligibility) 

16 under this subparagraph, in the case of an elec17 tion described in such section in which the indi18 vidual had elected or is provided qualified pre19 scription drug coverage at the time of such first 

20 enrollment, the individual shall be permitted to 

21 enroll in a prescription drug plan under this 

22 part at the time of the election of coverage 

23 under the original fee-for-service plan. 

24 ‘‘(B) INITIAL ELECTION PERIODS.—
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1 ‘‘(i) INDIVIDUALS CURRENTLY COV2 ERED.—In the case of an individual who is 

3 entitled to benefits under part A or en4 rolled under part B as of October 1, 2005, 

5 there shall be an initial election period of 

6 6 months beginning on that date. 

7 ‘‘(ii) INDIVIDUAL COVERED IN FU8 TURE.—In the case of an individual who is 

9 first entitled to benefits under part A or 

10 enrolled under part B after such date, 

11 there shall be an initial election period 

12 which is the same as the initial enrollment 

13 period under section 1837(d). 

14 ‘‘(C) ADDITIONAL SPECIAL ELECTION PE15 RIODS.—The Administrator shall establish spe16 cial election periods—

17 ‘‘(i) in cases of individuals who have 

18 and involuntarily lose prescription drug 

19 coverage described in subsection (c)(2)(C); 

20 ‘‘(ii) in cases described in section 

21 1837(h) (relating to errors in enrollment), 

22 in the same manner as such section applies 

23 to part B; 

24 ‘‘(iii) in the case of an individual who 

25 meets such exceptional conditions (includ-
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1 ing conditions provided under section 

2 1851(e)(4)(D)) as the Administrator may 

3 provide; and 

4 ‘‘(iv) in cases of individuals (as deter5 mined by the Administrator) who become 

6 eligible for prescription drug assistance 

7 under title XIX under section 1935(d). 

8 ‘‘(3) INFORMATION ON PLANS.—Information 

9 described in section 1860D–3(b)(1) on prescription 

10 drug plans and MA-EFFS Rx plans shall be made 

11 available during election periods. 

12 ‘‘(4) ADDITIONAL INFORMATION.—In order to 

13 promote the efficient marketing of prescription drug 

14 plans and MA-EFFS plans, the Administrator may 

15 provide information to the sponsors and organiza16 tions offering such plans about individuals eligible to 

17 enroll in such plans. 

18 ‘‘(c) GUARANTEED ISSUE; COMMUNITY RATING; AND

19 NONDISCRIMINATION.—

20 ‘‘(1) GUARANTEED ISSUE.—

21 ‘‘(A) IN GENERAL.—An eligible individual 

22 who is eligible to elect qualified prescription 

23 drug coverage under a prescription drug plan or 

24 MA-EFFS Rx plan at a time during which elec25 tions are accepted under this part with respect 
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1 to the plan shall not be denied enrollment based 

2 on any health status-related factor (described in 

3 section 2702(a)(1) of the Public Health Service 

4 Act) or any other factor. 

5 ‘‘(B) MEDICARE ADVANTAGE LIMITATIONS

6 PERMITTED.—The provisions of paragraphs (2) 

7 and (3) (other than subparagraph (C)(i), relat8 ing to default enrollment) of section 1851(g) 

9 (relating to priority and limitation on termi10 nation of election) shall apply to PDP sponsors 

11 under this subsection. 

12 ‘‘(2) COMMUNITY-RATED PREMIUM.—

13 ‘‘(A) IN GENERAL.—In the case of an indi14 vidual who enrolls under a prescription drug 

15 plan or in a MA-EFFS Rx plan during the in16 dividual’s initial enrollment period under this 

17 part or maintains (as determined under sub18 paragraph (C)) continuous prescription drug 

19 coverage since the date the individual first 

20 qualifies to elect prescription drug coverage 

21 under this part, a PDP sponsor or entity offer22 ing a prescription drug plan or MA-EFFS Rx 

23 plan and in which the individual is enrolled may 

24 not deny, limit, or condition the coverage or 

25 provision of covered prescription drug benefits 
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1 or vary or increase the premium under the plan 

2 based on any health status-related factor de3 scribed in section 2702(a)(1) of the Public 

4 Health Service Act or any other factor. 

5 ‘‘(B) LATE ENROLLMENT PENALTY.—In 

6 the case of an individual who does not maintain 

7 such continuous prescription drug coverage (as 

8 described in subparagraph (C)), a PDP sponsor 

9 or an entity offering a MA-EFFS Rx plan may 

10 (notwithstanding any provision in this title) ad11 just the premium otherwise applicable with re12 spect to qualified prescription drug coverage in 

13 a manner that reflects additional actuarial risk 

14 involved. Such a risk shall be established 

15 through an appropriate actuarial opinion of the 

16 type described in subparagraphs (A) through 

17 (C) of section 2103(c)(4). The Administrator 

18 shall provide a mechanism for assisting such 

19 sponsors and entities in identifying eligible indi20 viduals who have (or have not) maintained such 

21 continuous prescription drug coverage. 

22 ‘‘(C) CONTINUOUS PRESCRIPTION DRUG

23 COVERAGE.—An individual is considered for 

24 purposes of this part to be maintaining contin25 uous prescription drug coverage on and after 
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1 the date the individual first qualifies to elect 

2 prescription drug coverage under this part if 

3 the individual establishes that as of such date 

4 the individual is covered under any of the fol5 lowing prescription drug coverage and before 

6 the date that is the last day of the 63-day pe7 riod that begins on the date of termination of 

8 the particular prescription drug coverage in9 volved (regardless of whether the individual 

10 subsequently obtains any of the following pre11 scription drug coverage): 

12 ‘‘(i) COVERAGE UNDER PRESCRIPTION

13 DRUG PLAN OR MA-EFFS RX PLAN.—Quali14 fied prescription drug coverage under a 

15 prescription drug plan or under a MA16 EFFS Rx plan. 

17 ‘‘(ii) MEDICAID PRESCRIPTION DRUG

18 COVERAGE.—Prescription drug coverage 

19 under a medicaid plan under title XIX, in20 cluding through the Program of All-inclu21 sive Care for the Elderly (PACE) under 

22 section 1934, or through a demonstration 

23 project under part C that demonstrates the 

24 application of capitation payment rates for 

25 frail elderly medicare beneficiaries through 
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1 the use of an interdisciplinary team and 

2 through the provision of primary care serv3 ices to such beneficiaries by means of such 

4 a team at the nursing facility involved. 

5 ‘‘(iii) PRESCRIPTION DRUG COVERAGE

6 UNDER GROUP HEALTH PLAN.—Any out7 patient prescription drug coverage under a 

8 group health plan, including a health bene9 fits plan under the Federal Employees 

10 Health Benefit Plan under chapter 89 of 

11 title 5, United States Code, and a qualified 

12 retiree prescription drug plan as defined in 

13 section 1860D–8(f)(1), but only if (subject 

14 to subparagraph (E)(ii)) the coverage pro15 vides benefits at least equivalent to the 

16 benefits under a qualified prescription drug 

17 plan. 

18 ‘‘(iv) PRESCRIPTION DRUG COVERAGE

19 UNDER CERTAIN MEDIGAP POLICIES.—

20 Coverage under a medicare supplemental 

21 policy under section 1882 that provides 

22 benefits for prescription drugs (whether or 

23 not such coverage conforms to the stand24 ards for packages of benefits under section 

25 1882(p)(1)), but only if the policy was in 
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1 effect on January 1, 2006, and if (subject 

2 to subparagraph (E)(ii)) the coverage pro3 vides benefits at least equivalent to the 

4 benefits under a qualified prescription drug 

5 plan. 

6 ‘‘(v) STATE PHARMACEUTICAL ASSIST7 ANCE PROGRAM.—Coverage of prescription 

8 drugs under a State pharmaceutical assist9 ance program, but only if (subject to sub10 paragraph (E)(ii)) the coverage provides 

11 benefits at least equivalent to the benefits 

12 under a qualified prescription drug plan. 

13 ‘‘(vi) VETERANS’ COVERAGE OF PRE14 SCRIPTION DRUGS.—Coverage of prescrip15 tion drugs for veterans under chapter 17 

16 of title 38, United States Code, but only if 

17 (subject to subparagraph (E)(ii)) the cov18 erage provides benefits at least equivalent 

19 to the benefits under a qualified prescrip20 tion drug plan. 

21 ‘‘(D) CERTIFICATION.—For purposes of 

22 carrying out this paragraph, the certifications 

23 of the type described in sections 2701(e) of the 

24 Public Health Service Act and in section 

25 9801(e) of the Internal Revenue Code shall also 
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1 include a statement for the period of coverage 

2 of whether the individual involved had prescrip3 tion drug coverage described in subparagraph 

4 (C). 

5 ‘‘(E) DISCLOSURE.—

6 ‘‘(i) IN GENERAL.—Each entity that 

7 offers coverage of the type described in 

8 clause (iii), (iv), (v), or (vi) of subpara9 graph (C) shall provide for disclosure, con10 sistent with standards established by the 

11 Administrator, of whether such coverage 

12 provides benefits at least equivalent to the 

13 benefits under a qualified prescription drug 

14 plan. 

15 ‘‘(ii) WAIVER OF LIMITATIONS.—An 

16 individual may apply to the Administrator 

17 to waive the requirement that coverage of 

18 such type provide benefits at least equiva19 lent to the benefits under a qualified pre20 scription drug plan, if the individual estab21 lishes that the individual was not ade22 quately informed that such coverage did 

23 not provide such level of benefits. 

24 ‘‘(F) CONSTRUCTION.—Nothing in this 

25 section shall be construed as preventing the 
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1 disenrollment of an individual from a prescrip2 tion drug plan or a MA-EFFS Rx plan based 

3 on the termination of an election described in 

4 section 1851(g)(3), including for non-payment 

5 of premiums or for other reasons specified in 

6 subsection (d)(3), which takes into account a 

7 grace period described in section 

8 1851(g)(3)(B)(i). 

9 ‘‘(3) NONDISCRIMINATION.—A PDP sponsor 

10 that offers a prescription drug plan in an area des11 ignated under section 1860D–4(b)(5) shall make 

12 such plan available to all eligible individuals residing 

13 in the area without regard to their health or eco14 nomic status or their place of residence within the 

15 area. 

16 ‘‘(d) EFFECTIVE DATE OF ELECTIONS.—

17 ‘‘(1) IN GENERAL.—Except as provided in this 

18 section, the Administrator shall provide that elec19 tions under subsection (b) take effect at the same 

20 time as the Administrator provides that similar elec21 tions under section 1851(e) take effect under section 

22 1851(f). 

23 ‘‘(2) NO ELECTION EFFECTIVE BEFORE 2006.—

24 In no case shall any election take effect before Janu25 ary 1, 2006. 
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1 ‘‘(3) TERMINATION.—The Administrator shall 

2 provide for the termination of an election in the case 

3 of—

4 ‘‘(A) termination of coverage under both 

5 part A and part B; and 

6 ‘‘(B) termination of elections described in 

7 section 1851(g)(3) (including failure to pay re8 quired premiums). 

9 ‘‘SEC. 1860D–2. REQUIREMENTS FOR QUALIFIED PRESCRIP10 TION DRUG COVERAGE. 

11 ‘‘(a) REQUIREMENTS.—

12 ‘‘(1) IN GENERAL.—For purposes of this part 

13 and part C and part E, the term ‘qualified prescrip14 tion drug coverage’ means either of the following: 

15 ‘‘(A) STANDARD COVERAGE WITH ACCESS

16 TO NEGOTIATED PRICES.—Standard coverage 

17 (as defined in subsection (b)) and access to ne18 gotiated prices under subsection (d). 

19 ‘‘(B) ACTUARIALLY EQUIVALENT COV20 ERAGE WITH ACCESS TO NEGOTIATED

21 PRICES.—Coverage of covered outpatient drugs 

22 which meets the alternative coverage require23 ments of subsection (c) and access to negotiated 

24 prices under subsection (d), but only if it is ap-
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1 proved by the Administrator, as provided under 

2 subsection (c). 

3 ‘‘(2) PERMITTING ADDITIONAL OUTPATIENT

4 PRESCRIPTION DRUG COVERAGE.—

5 ‘‘(A) IN GENERAL.—Subject to subpara6 graph (B), nothing in this part shall be con7 strued as preventing qualified prescription drug 

8 coverage from including coverage of covered 

9 outpatient drugs that exceeds the coverage re10 quired under paragraph (1), but any such addi11 tional coverage shall be limited to coverage of 

12 covered outpatient drugs. 

13 ‘‘(B) DISAPPROVAL AUTHORITY.—The Ad14 ministrator shall review the offering of qualified 

15 prescription drug coverage under this part or 

16 part C or E. If the Administrator finds, in the 

17 case of a qualified prescription drug coverage 

18 under a prescription drug plan or a MA-EFFS 

19 Rx plan, that the organization or sponsor offer20 ing the coverage is engaged in activities in21 tended to discourage enrollment of classes of el22 igible medicare beneficiaries obtaining coverage 

23 through the plan on the basis of their higher 

24 likelihood of utilizing prescription drug cov25 erage, the Administrator may terminate the 
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1 contract with the sponsor or organization under 

2 this part or part C or E. 

3 ‘‘(3) APPLICATION OF SECONDARY PAYOR PRO4 VISIONS.—The provisions of section 1852(a)(4) shall 

5 apply under this part in the same manner as they 

6 apply under part C. 

7 ‘‘(b) STANDARD COVERAGE.—For purposes of this 

8 part, the ‘standard coverage’ is coverage of covered out9 patient drugs (as defined in subsection (f)) that meets the 

10 following requirements: 

11 ‘‘(1) DEDUCTIBLE.—The coverage has an an12 nual deductible—

13 ‘‘(A) for 2006, that is equal to $250; or 

14 ‘‘(B) for a subsequent year, that is equal 

15 to the amount specified under this paragraph 

16 for the previous year increased by the percent17 age specified in paragraph (5) for the year in18 volved. 

19 Any amount determined under subparagraph (B) 

20 that is not a multiple of $10 shall be rounded to the 

21 nearest multiple of $10. 

22 ‘‘(2) 80:20 BENEFIT STRUCTURE.—

23 ‘‘(A) 20 PERCENT COINSURANCE.—The 

24 coverage has cost-sharing (for costs above the 

25 annual deductible specified in paragraph (1) 
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1 and up to the initial coverage limit under para2 graph (3)) that is—

3 ‘‘(i) equal to 20 percent; or 

4 ‘‘(ii) is actuarially equivalent (using 

5 processes established under subsection (e)) 

6 to an average expected payment of 20 per7 cent of such costs. 

8 ‘‘(B) USE OF TIERS.—Nothing in this part 

9 shall be construed as preventing a PDP sponsor 

10 from applying tiered copayments, so long as 

11 such tiered copayments are consistent with sub12 paragraph (A).

13 ‘‘(3) INITIAL COVERAGE LIMIT.—Subject to 

14 paragraph (4), the coverage has an initial coverage 

15 limit on the maximum costs that may be recognized 

16 for payment purposes—

17 ‘‘(A) for 2006, that is equal to $2,000; or 

18 ‘‘(B) for a subsequent year, that is equal 

19 to the amount specified in this paragraph for 

20 the previous year, increased by the annual per21 centage increase described in paragraph (5) for 

22 the year involved. 

23 Any amount determined under subparagraph (B) 

24 that is not a multiple of $25 shall be rounded to the 

25 nearest multiple of $25.
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1 ‘‘(4) CATASTROPHIC PROTECTION.—

2 ‘‘(A) IN GENERAL.—Notwithstanding para3 graph (3), the coverage provides benefits with 

4 no cost-sharing after the individual has in5 curred costs (as described in subparagraph (C)) 

6 for covered outpatient drugs in a year equal to 

7 the annual out-of-pocket threshold specified in 

8 subparagraph (B). 

9 ‘‘(B) ANNUAL OUT-OF-POCKET THRESH10 OLD.—

11 ‘‘(i) IN GENERAL.—For purposes of 

12 this part, the ‘annual out-of-pocket thresh13 old’ specified in this subparagraph is equal 

14 to $3,500 (subject to adjustment under 

15 clause (ii) and subparagraph (D)). 

16 ‘‘(ii) INFLATION INCREASE.—For a 

17 year after 2006, the dollar amount speci18 fied in clause (i) shall be increased by the 

19 annual percentage increase described in 

20 paragraph (5) for the year involved. Any 

21 amount determined under the previous 

22 sentence that is not a multiple of $100 

23 shall be rounded to the nearest multiple of 

24 $100. 
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1 ‘‘(C) APPLICATION.—In applying subpara2 graph (A)—

3 ‘‘(i) incurred costs shall only include 

4 costs incurred for the annual deductible 

5 (described in paragraph (1)), cost-sharing 

6 (described in paragraph (2)), and amounts 

7 for which benefits are not provided because 

8 of the application of the initial coverage 

9 limit described in paragraph (3); and 

10 ‘‘(ii) such costs shall be treated as in11 curred only if they are paid by the indi12 vidual (or by another individual, such as a 

13 family member, on behalf of the indi14 vidual), under section 1860D–7, under title 

15 XIX, or under a State pharmaceutical as16 sistance program and the individual (or 

17 other individual) is not reimbursed through 

18 insurance or otherwise, a group health 

19 plan, or other third-party payment ar20 rangement (other than under such title or 

21 such program) for such costs. 

22 ‘‘(D) ADJUSTMENT OF ANNUAL OUT-OF23 POCKET THRESHOLDS.—

24 ‘‘(i) IN GENERAL.—Subject to clause 

25 (vii), for each enrollee in a prescription 
27

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1 drug plan or in a MA-EFFS Rx plan 

2 whose adjusted gross income exceeds the 

3 income threshold as defined in clause (ii) 

4 for a year, the annual out-of-pocket thresh5 old otherwise determined under subpara6 graph (B) for such year shall be increased 

7 by an amount equal to the percentage 

8 specified in clause (iii), multiplied by the 

9 lesser of—

10 ‘‘(I) the amount of such excess; 

11 or 

12 ‘‘(II) the amount by which the 

13 income threshold limit exceeds the in14 come threshold. 

15 Any amount determined under the previous 

16 sentence that is not a multiple of $100 

17 shall be rounded to the nearest multiple of 

18 $100. 

19 ‘‘(ii) INCOME THRESHOLD.—For pur20 poses of clause (i)—

21 ‘‘(I) IN GENERAL.—Subject to 

22 subclause (II), the term ‘income 

23 threshold’ means $60,000 and the 

24 term ‘income threshold limit’ means 

25 $200,000. 
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1 ‘‘(II) INCOME INFLATION AD2 JUSTMENT.—In the case of a year be3 ginning after 2006, each of the dollar 

4 amounts in subclause (I) shall be in5 creased by an amount equal to such 

6 dollar amount multiplied by the cost7 of-living adjustment determined under 

8 section 1(f)(3) of the Internal Rev9 enue Code of 1986 for such year, de10 termined by substituting ‘calendar 

11 year 2005’ for ‘calendar year 1992’. 

12 If any amount increased under the 

13 previous sentence is not a multiple of 

14 $100, such amount shall be rounded 

15 to the nearest multiple of $100. 

16 ‘‘(iii) PERCENTAGE.—The percentage 

17 specified in this clause for a year is a frac18 tion (expressed as a percentage) equal to—

19 ‘‘(I) the annual out-of-pocket 

20 threshold for a year under subpara21 graph (B) (determined without regard 

22 to this subparagraph), divided by 

23 ‘‘(II) the income threshold under 

24 clause (ii) for that year. 
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1 If any percentage determined under the 

2 previous sentence that is not a multiple of 

1 3 ⁄10th of 1 percentage point, such percent4 age shall be rounded to the nearest multiple of 1 5 ⁄10th of 1 percentage point. 

6 ‘‘(iv) USE OF MOST RECENT RETURN

7 INFORMATION.—For purposes of clause (i) 

8 for an enrollee for a year, except as pro9 vided in clause (v), the adjusted gross in10 come of an individual shall be based on the 

11 most recent information disclosed to the 

12 Secretary under section 6109(l)(19) of the 

13 Internal Revenue Code of 1986 before the 

14 beginning of that year. 

15 ‘‘(v) INDIVIDUAL ELECTION TO

16 PRESENT MOST RECENT INFORMATION RE17 GARDING INCOME.—The Secretary shall 

18 provide, in coordination with the Secretary 

19 of the Treasury, a procedure under which, 

20 for purposes of applying this subparagraph 

21 for a calendar year, instead of using the 

22 information described in clause (iv), an en23 rollee may elect to use more recent infor24 mation, including information with respect 
30

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1 to a taxable year ending in such calendar 

2 year. Such process shall—

3 ‘‘(I) require the enrollee to pro4 vide the Secretary with a copy of the 

5 relevant portion of the more recent re6 turn to be used under this clause; 

7 ‘‘(II) provide for the Medicare 

8 Beneficiary Ombudsman (under sec9 tion 1810) offering assistance to such 

10 enrollees in presenting such informa11 tion and the toll-free number under 

12 such section being a point of contact 

13 for beneficiaries to inquire as to how 

14 to present such information; 

15 ‘‘(III) provide for the verification 

16 of the information in such return by 

17 the Secretary of the Treasury under 

18 section 6103(l)(19) of the Internal 

19 Revenue Code of 1986; and 

20 ‘‘(IV) provide for the payment by 

21 the Secretary (in a manner specified 

22 by the Secretary) to the enrollee of an 

23 amount equal to the excess of the ben24 efit payments that would have been 

25 payable under the plan if the more re-
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1 cent return information were used, 

2 over the benefit payments that were 

3 made under the plan. 

4 In the case of a payment under subclause 

5 (III) for an enrollee under a prescription 

6 drug plan, the PDP sponsor of the plan 

7 shall pay to the Secretary the amount so 

8 paid, less the applicable reinsurance 

9 amount that would have applied under sec10 tion 1860D–8(c)(1)(B) if such payment 

11 had been treated as an allowable cost 

12 under such section. Such plan payment 

13 shall be deposited in the Treasury to the 

14 credit of the Medicare Prescription Drug 

15 Account in the Federal Supplementary 

16 Medical Insurance Trust Fund (under sec17 tion 1841). 

18 ‘‘(vi) DISSEMINATION OF INFORMA19 TION ON PROCESS.—The Secretary shall 

20 provide, through the annual medicare 

21 handbook under section 1804(a), for a 

22 general description of the adjustment of 

23 annual out-of-pocket thresholds provided 

24 under this subparagraph, including the 

25 process for adjustment based upon more 
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1 recent information and the confidentiality 

2 provisions of subparagraph (F), and shall 

3 provide for dissemination of a table for 

4 each year that sets forth the amount of the 

5 adjustment that is made under clause (i) 

6 based on the amount of an enrollee’s ad7 justed gross income. 

8 ‘‘(vii) ENROLLEE OPT-OUT.—The Sec9 retary shall provide a procedure whereby, 

10 if an enrollee elects to have the maximum 

11 annual out-of-pocket threshold applied 

12 under this subparagraph for a year, the 

13 Secretary shall not request any informa14 tion regarding the enrollee under subpara15 graph (E) for that year. 

16 ‘‘(E) REQUESTING INFORMATION ON EN17 ROLLEES.—

18 ‘‘(i) IN GENERAL.—The Secretary 

19 shall, periodically as required to carry out 

20 subparagraph (D), transmit to the Sec21 retary of the Treasury a list of the names 

22 and TINs of enrollees in prescription drug 

23 plans (or in MA-EFFS Rx plans) and re24 quest that such Secretary disclose to the 

25 Secretary information under subparagraph 
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1 (A) of section 6103(l)(19) of the Internal 

2 Revenue Code of 1986 with respect to 

3 those enrollees for a specified taxable year 

4 for application in a particular calendar 

5 year. 

6 ‘‘(ii) DISCLOSURE TO PLAN SPON7 SORS.—In the case of a specified taxpayer 

8 (as defined in section 6103(l)(19)(B) of 

9 the Internal Revenue Code of 1986) who is 

10 enrolled in a prescription drug plan or in 

11 an MA-EFFS Rx plan or an individual 

12 who makes an election under subparagraph 

13 (D)(vii), the Secretary shall disclose to the 

14 entity that offers the plan the annual out15 of-pocket threshold applicable to such indi16 vidual under subparagraph (D). 

17 ‘‘(F) MAINTAINING CONFIDENTIALITY OF

18 INFORMATION.—

19 ‘‘(i) IN GENERAL.—The amount of 

20 any increase in an annual out-of-pocket 

21 threshold under subparagraph (D) may not 

22 be disclosed by the Secretary except to a 

23 PDP sponsor or entity that offers a MA24 EFFS Rx plan to the extent necessary to 

25 carry out this part. 
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1 ‘‘(ii) CRIMINAL AND CIVIL PENALTIES

2 FOR UNAUTHORIZED DISCLOSURE.—A per3 son who makes an unauthorized disclosure 

4 of information disclosed under section 

5 6103(l)(19) of the Internal Revenue Code 

6 of 1986 (including disclosure of any in7 crease in an annual out-of-pocket threshold 

8 under subparagraph (D)) shall be subject 

9 to penalty to the extent provided under—

10 ‘‘(I) section 7213 of such Code 

11 (relating to criminal penalty for unau12 thorized disclosure of information); 

13 ‘‘(II) section 7213A of such Code 

14 (relating to criminal penalty for unau15 thorized inspection of returns or re16 turn information); 

17 ‘‘(III) section 7431 of such Code 

18 (relating to civil damages for unau19 thorized inspection or disclosure of re20 turns and return information); 

21 ‘‘(IV) any other provision of the 

22 Internal Revenue Code of 1986; or 

23 ‘‘(V) any other provision of law. 

24 ‘‘(iii) APPLICATION OF ADDITIONAL

25 CIVIL MONETARY PENALTY FOR UNAU-
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1 THORIZED DISCLOSURES.—In addition to 

2 any penalty otherwise provided under law, 

3 any person who makes an unauthorized 

4 disclosure of such information shall be sub5 ject to a civil monetary penalty of not to 

6 exceed $10,000 for each such unauthorized 

7 disclosure. The provisions of section 1128A 

8 (other than subsections (a) and (b)) shall 

9 apply to civil money penalties under this 

10 subparagraph in the same manner as they 

11 apply to a penalty or proceeding under sec12 tion 1128A(a). 

13 ‘‘(G) INFORMATION REGARDING THIRD14 PARTY REIMBURSEMENT.—In order to ensure 

15 compliance with the requirements of subpara16 graph (C)(ii), the Administrator is authorized 

17 to establish procedures, in coordination with the 

18 Secretary of Treasury and the Secretary of 

19 Labor, for determining whether costs for indi20 viduals are being reimbursed through insurance 

21 or otherwise, a group health plan, or other 

22 third-party payment arrangement, and for 

23 alerting the sponsors and organization that 

24 offer the plans in which such individuals are en25 rolled about such reimbursement arrangements. 
36

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1 A PDP sponsor or Medicare Advantage or 

2 EFFS organization may also periodically ask 

3 individuals enrolled in a prescription drug plan 

4 or MA-EFFS Rx plan offered by the sponsor or 

5 organization whether the individuals have or ex6 pect to receive such third-party reimbursement. 

7 A material misrepresentation of the information 

8 described in the preceding sentence by an indi9 vidual (as defined in standards set by the Ad10 ministrator and determined through a process 

11 established by the Administrator) shall con12 stitute grounds for termination of enrollment 

13 under section 1860D–1(d)(3).

14 ‘‘(5) ANNUAL PERCENTAGE INCREASE.—For 

15 purposes of this part, the annual percentage increase 

16 specified in this paragraph for a year is equal to the 

17 annual percentage increase in average per capita ag18 gregate expenditures for covered outpatient drugs in 

19 the United States for medicare beneficiaries, as de20 termined by the Administrator for the 12-month pe21 riod ending in July of the previous year.

22 ‘‘(c) ALTERNATIVE COVERAGE REQUIREMENTS.—A 

23 prescription drug plan or MA-EFFS Rx plan may provide 

24 a different prescription drug benefit design from the 

25 standard coverage described in subsection (b) so long as 
37

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1 the Administrator determines (based on an actuarial anal2 ysis approved by the Administrator) that the following re3 quirements are met and the plan applies for, and receives, 

4 the approval of the Administrator for such benefit design: 

5 ‘‘(1) ASSURING AT LEAST ACTUARIALLY EQUIV6 ALENT COVERAGE.—

7 ‘‘(A) ASSURING EQUIVALENT VALUE OF

8 TOTAL COVERAGE.—The actuarial value of the 

9 total coverage (as determined under subsection 

10 (e)) is at least equal to the actuarial value (as 

11 so determined) of standard coverage. 

12 ‘‘(B) ASSURING EQUIVALENT UNSUB13 SIDIZED VALUE OF COVERAGE.—The unsub14 sidized value of the coverage is at least equal to 

15 the unsubsidized value of standard coverage. 

16 For purposes of this subparagraph, the unsub17 sidized value of coverage is the amount by 

18 which the actuarial value of the coverage (as 

19 determined under subsection (e)) exceeds the 

20 actuarial value of the subsidy payments under 

21 section 1860D–8 with respect to such coverage. 

22 ‘‘(C) ASSURING STANDARD PAYMENT FOR

23 COSTS AT INITIAL COVERAGE LIMIT.—The cov24 erage is designed, based upon an actuarially 

25 representative pattern of utilization (as deter-
38

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1 mined under subsection (e)), to provide for the 

2 payment, with respect to costs incurred that are 

3 equal to the initial coverage limit under sub4 section (b)(3), of an amount equal to at least 

5 the product of—

6 ‘‘(i) the amount by which the initial 

7 coverage limit described in subsection 

8 (b)(3) exceeds the deductible described in 

9 subsection (b)(1); and 

10 ‘‘(ii) 100 percent minus the cost-shar11 ing percentage specified in subsection 

12 (b)(2)(A)(i). 

13 ‘‘(2) CATASTROPHIC PROTECTION.—The cov14 erage provides for beneficiaries the catastrophic pro15 tection described in subsection (b)(4). 

16 ‘‘(d) ACCESS TO NEGOTIATED PRICES.—

17 ‘‘(1) IN GENERAL.—Under qualified prescrip18 tion drug coverage offered by a PDP sponsor or an 

19 entity offering a MA-EFFS Rx plan, the sponsor or 

20 entity shall provide beneficiaries with access to nego21 tiated prices (including applicable discounts) used 

22 for payment for covered outpatient drugs, regardless 

23 of the fact that no benefits may be payable under 

24 the coverage with respect to such drugs because of 

25 the application of cost-sharing or an initial coverage 
39

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1 limit (described in subsection (b)(3)). Insofar as a 

2 State elects to provide medical assistance under title 

3 XIX to a beneficiary enrolled under such title and 

4 under a prescription drug plan or MA-EFFS Rx 

5 plan for a drug based on the prices negotiated by a 

6 prescription drug plan or MA-EFFS Rx plan under 

7 this part, the requirements of section 1927 shall not 

8 apply to such drugs. The prices negotiated by a pre9 scription drug plan under this part, by a MA-EFFS 

10 Rx plan with respect to covered outpatient drugs, or 

11 by a qualified retiree prescription drug plan (as de12 fined in section 1860D–8(f)(1)) with respect to such 

13 drugs on behalf of individuals entitled to benefits 

14 under part A or enrolled under part B, shall (not15 withstanding any other provision of law) not be 

16 taken into account for the purposes of establishing 

17 the best price under section 1927(c)(1)(C). 

18 ‘‘(2) DISCLOSURE.—The PDP sponsor or entity 

19 offering a MA-EFFS Rx plan shall disclose to the 

20 Administrator (in a manner specified by the Admin21 istrator) the extent to which discounts or rebates or 

22 other remuneration or price concessions made avail23 able to the sponsor or organization by a manufac24 turer are passed through to enrollees through phar25 macies and other dispensers or otherwise. The provi-
40

HR 1 RDS 

1 sions of section 1927(b)(3)(D) shall apply to infor2 mation disclosed to the Administrator under this 

3 paragraph in the same manner as such provisions 

4 apply to information disclosed under such section. 

5 ‘‘(3) AUDITS AND REPORTS.—To protect 

6 against fraud and abuse and to ensure proper disclo7 sures and accounting under this part, in addition to 

8 any protections against fraud and abuse provided 

9 under section 1860D–4(b)(3)(C), the Administrator 

10 may periodically audit the financial statements and 

11 records of PDP sponsor or entities offering a MA12 EFFS Rx plan.

13 ‘‘(e) ACTUARIAL VALUATION; DETERMINATION OF

14 ANNUAL PERCENTAGE INCREASES.—

15 ‘‘(1) PROCESSES.—For purposes of this section, 

16 the Administrator shall establish processes and 

17 methods—

18 ‘‘(A) for determining the actuarial valu19 ation of prescription drug coverage, including—

20 ‘‘(i) an actuarial valuation of standard 

21 coverage and of the reinsurance subsidy 

22 payments under section 1860D–8; 

23 ‘‘(ii) the use of generally accepted ac24 tuarial principles and methodologies; and 
41

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1 ‘‘(iii) applying the same methodology 

2 for determinations of alternative coverage 

3 under subsection (c) as is used with re4 spect to determinations of standard cov5 erage under subsection (b); and 

6 ‘‘(B) for determining annual percentage in7 creases described in subsection (b)(5). 

8 Such methods for determining actuarial valuation 

9 shall take into account effects of alternative coverage 

10 on drug utilization. 

11 ‘‘(2) USE OF OUTSIDE ACTUARIES.—Under the 

12 processes under paragraph (1)(A), PDP sponsors 

13 and entities offering MA-EFFS Rx plans may use 

14 actuarial opinions certified by independent, qualified 

15 actuaries to establish actuarial values, but the Ad16 ministrator shall determine whether such actuarial 

17 values meet the requirements under subsection 

18 (c)(1). 

19 ‘‘(f) COVERED OUTPATIENT DRUGS DEFINED.—

20 ‘‘(1) IN GENERAL.—Except as provided in this 

21 subsection, for purposes of this part, the term ‘cov22 ered outpatient drug’ means—

23 ‘‘(A) a drug that may be dispensed only 

24 upon a prescription and that is described in 
42

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1 subparagraph (A)(i) or (A)(ii) of section 

2 1927(k)(2); or 

3 ‘‘(B) a biological product described in 

4 clauses (i) through (iii) of subparagraph (B) of 

5 such section or insulin described in subpara6 graph (C) of such section and medical supplies 

7 associated with the injection of insulin (as de8 fined in regulations of the Secretary), 

9 and such term includes a vaccine licensed under sec10 tion 351 of the Public Health Service Act and any 

11 use of a covered outpatient drug for a medically ac12 cepted indication (as defined in section 1927(k)(6)). 

13 ‘‘(2) EXCLUSIONS.—

14 ‘‘(A) IN GENERAL.—Such term does not 

15 include drugs or classes of drugs, or their med16 ical uses, which may be excluded from coverage 

17 or otherwise restricted under section 

18 1927(d)(2), other than subparagraph (E) there19 of (relating to smoking cessation agents), or 

20 under section 1927(d)(3). 

21 ‘‘(B) AVOIDANCE OF DUPLICATE COV22 ERAGE.—A drug prescribed for an individual 

23 that would otherwise be a covered outpatient 

24 drug under this part shall not be so considered 

25 if payment for such drug is available under part 
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1 A or B for an individual entitled to benefits 

2 under part A and enrolled under part B. 

3 ‘‘(3) APPLICATION OF FORMULARY RESTRIC4 TIONS.—A drug prescribed for an individual that 

5 would otherwise be a covered outpatient drug under 

6 this part shall not be so considered under a plan if 

7 the plan excludes the drug under a formulary and 

8 such exclusion is not successfully appealed under 

9 section 1860D–3(f)(2). 

10 ‘‘(4) APPLICATION OF GENERAL EXCLUSION

11 PROVISIONS.—A prescription drug plan or MA12 EFFS Rx plan may exclude from qualified prescrip13 tion drug coverage any covered outpatient drug—

14 ‘‘(A) for which payment would not be 

15 made if section 1862(a) applied to part D; or 

16 ‘‘(B) which are not prescribed in accord17 ance with the plan or this part. 

18 Such exclusions are determinations subject to recon19 sideration and appeal pursuant to section 1860D–

20 3(f). 

21 ‘‘SEC. 1860D–3. BENEFICIARY PROTECTIONS FOR QUALI22 FIED PRESCRIPTION DRUG COVERAGE. 

23 ‘‘(a) GUARANTEED ISSUE, COMMUNITY-RATED PRE24 MIUMS, ACCESS TO NEGOTIATED PRICES, AND NON25 DISCRIMINATION.—For provisions requiring guaranteed 
44

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1 issue, community-rated premiums, access to negotiated 

2 prices, and nondiscrimination, see sections 1860D–

3 1(c)(1), 1860D–1(c)(2), 1860D–2(d), and 1860D–6(b), 

4 respectively. 

5 ‘‘(b) DISSEMINATION OF INFORMATION.—

6 ‘‘(1) GENERAL INFORMATION.—A PDP sponsor 

7 shall disclose, in a clear, accurate, and standardized 

8 form to each enrollee with a prescription drug plan 

9 offered by the sponsor under this part at the time 

10 of enrollment and at least annually thereafter, the 

11 information described in section 1852(c)(1) relating 

12 to such plan. Such information includes the fol13 lowing: 

14 ‘‘(A) Access to specific covered outpatient 

15 drugs, including access through pharmacy net16 works. 

17 ‘‘(B) How any formulary used by the spon18 sor functions, including the drugs included in 

19 the formulary. 

20 ‘‘(C) Co-payments and deductible require21 ments, including the identification of the tiered 

22 or other co-payment level applicable to each 

23 drug (or class of drugs). 

24 ‘‘(D) Grievance and appeals procedures. 
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1 Such information shall also be made available upon 

2 request to prospective enrollees. 

3 ‘‘(2) DISCLOSURE UPON REQUEST OF GENERAL

4 COVERAGE, UTILIZATION, AND GRIEVANCE INFORMA5 TION.—Upon request of an individual eligible to en6 roll under a prescription drug plan, the PDP spon7 sor shall provide the information described in section 

8 1852(c)(2) (other than subparagraph (D)) to such 

9 individual. 

10 ‘‘(3) RESPONSE TO BENEFICIARY QUESTIONS.—

11 Each PDP sponsor offering a prescription drug plan 

12 shall have a mechanism for providing specific infor13 mation to enrollees upon request. The sponsor shall 

14 make available on a timely basis, through an Inter15 net website and in writing upon request, information 

16 on specific changes in its formulary. 

17 ‘‘(4) CLAIMS INFORMATION.—Each PDP spon18 sor offering a prescription drug plan must furnish to 

19 each enrollee in a form easily understandable to such 

20 enrollees an explanation of benefits (in accordance 

21 with section 1806(a) or in a comparable manner) 

22 and a notice of the benefits in relation to initial cov23 erage limit and the annual out-of-pocket threshold 

24 applicable to such enrollee for the current year, 

25 whenever prescription drug benefits are provided 
46

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1 under this part (except that such notice need not be 

2 provided more often than monthly).

3 ‘‘(c) ACCESS TO COVERED BENEFITS.—

4 ‘‘(1) ASSURING PHARMACY ACCESS.—

5 ‘‘(A) PARTICIPATION OF ANY WILLING

6 PHARMACY.—A PDP sponsor and an entity of7 fering a MA-EFFS Rx plan shall permit the 

8 participation of any pharmacy that meets terms 

9 and conditions that the plan has established. 

10 ‘‘(B) DISCOUNTS ALLOWED FOR NETWORK

11 PHARMACIES.—A prescription drug plan and a 

12 MA-EFFS Rx plan may, notwithstanding sub13 paragraph (A), reduce coinsurance or copay14 ments for its enrolled beneficiaries below the 

15 level otherwise provided for covered outpatient 

16 drugs dispensed through in-network phar17 macies, but in no case shall such a reduction re18 sult in an increase in payments made by the 

19 Administrator under section 1860D–8 to a 

20 plan. 

21 ‘‘(C) CONVENIENT ACCESS FOR NETWORK

22 PHARMACIES.—The PDP sponsor of the pre23 scription drug plan and the entity offering a 

24 MA-EFFS Rx plan shall secure the participa25 tion in its network of a sufficient number of 
47

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1 pharmacies that dispense (other than by mail 

2 order) drugs directly to patients to ensure con3 venient access (consistent with rules of the Ad4 ministrator). The Administrator shall establish 

5 convenient access rules under this subpara6 graph that are no less favorable to enrollees 

7 than the rules for convenient access to phar8 macies of the Secretary of Defense established 

9 as of June 1, 2003, for purposes of the 

10 TRICARE Retail Pharmacy (TRRx) program. 

11 Such rules shall include adequate emergency ac12 cess for enrolled beneficiaries. 

13 ‘‘(D) LEVEL PLAYING FIELD.—Such a 

14 sponsor shall permit enrollees to receive benefits 

15 (which may include a 90-day supply of drugs or 

16 biologicals) through a community pharmacy, 

17 rather than through mail order, with any dif18 ferential in charge paid by such enrollees. 

19 ‘‘(E) NOT REQUIRED TO ACCEPT INSUR20 ANCE RISK.—The terms and conditions under 

21 subparagraph (A) may not require participating 

22 pharmacies to accept insurance risk as a condi23 tion of participation. 

24 ‘‘(2) USE OF STANDARDIZED TECHNOLOGY.—
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1 ‘‘(A) IN GENERAL.—The PDP sponsor of 

2 a prescription drug plan and an entity offering 

3 a MA-EFFS Rx plan shall issue (and reissue, 

4 as appropriate) such a card (or other tech5 nology) that may be used by an enrollee to as6 sure access to negotiated prices under section 

7 1860D–2(d) for the purchase of prescription 

8 drugs for which coverage is not otherwise pro9 vided under the plan. 

10 ‘‘(B) STANDARDS.—

11 ‘‘(i) DEVELOPMENT.—The Adminis12 trator shall provide for the development or 

13 utilization of uniform standards relating to 

14 a standardized format for the card or 

15 other technology referred to in subpara16 graph (A). Such standards shall be com17 patible with standards established under 

18 part C of title XI. 

19 ‘‘(ii) APPLICATION OF ADVISORY TASK

20 FORCE.—The advisory task force estab21 lished under subsection (d)(3)(B)(ii) shall 

22 provide recommendations to the Adminis23 trator under such subsection regarding the 

24 standards developed under clause (i). 
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1 ‘‘(3) REQUIREMENTS ON DEVELOPMENT AND

2 APPLICATION OF FORMULARIES.—If a PDP sponsor 

3 of a prescription drug plan or an entity offering a 

4 MA-EFFS Rx plan uses a formulary, the following 

5 requirements must be met: 

6 ‘‘(A) PHARMACY AND THERAPEUTIC (P&T)

7 COMMITTEE.—The sponsor or entity must es8 tablish a pharmacy and therapeutic committee 

9 that develops and reviews the formulary. Such 

10 committee shall include at least one practicing 

11 physician and at least one practicing phar12 macist independent and free of conflict with re13 spect to the committee both with expertise in 

14 the care of elderly or disabled persons and a 

15 majority of its members shall consist of individ16 uals who are practicing physicians or practicing 

17 pharmacists (or both). 

18 ‘‘(B) FORMULARY DEVELOPMENT.—In de19 veloping and reviewing the formulary, the com20 mittee shall—

21 ‘‘(i) base clinical decisions on the 

22 strength of scientific evidence and stand23 ards of practice, including assessing peer24 reviewed medical literature, such as ran25 domized clinical trials, pharmacoeconomic 
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1 studies, outcomes research data, and on 

2 such other information as the committee 

3 determines to be appropriate; and 

4 ‘‘(ii) shall take into account whether 

5 including in the formulary particular cov6 ered outpatient drugs has therapeutic ad7 vantages in terms of safety and efficacy. 

8 ‘‘(C) INCLUSION OF DRUGS IN ALL THERA9 PEUTIC CATEGORIES.—The formulary must in10 clude drugs within each therapeutic category 

11 and class of covered outpatient drugs (although 

12 not necessarily for all drugs within such cat13 egories and classes). In establishing such class14 es, the committee shall take into account the 

15 standards published in the United States Phar16 macopeia-Drug Information. The committee 

17 shall make available to the enrollees under the 

18 plan through the Internet or otherwise the 

19 bases for the exclusion of coverage of any drug 

20 from the formulary. 

21 ‘‘(D) PROVIDER AND PATIENT EDU22 CATION.—The committee shall establish policies 

23 and procedures to educate and inform health 

24 care providers and enrollees concerning the for25 mulary. 
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1 ‘‘(E) NOTICE BEFORE REMOVING DRUG

2 FROM FORMULARY FOR CHANGING PREFERRED

3 OR TIER STATUS OF DRUG.—Any removal of a 

4 covered outpatient drug from a formulary and 

5 any change in the preferred or tier cost-sharing 

6 status of such a drug shall take effect only 

7 after appropriate notice is made available to 

8 beneficiaries and physicians. 

9 ‘‘(F) PERIODIC EVALUATION OF PROTO10 COLS.—In connection with the formulary, a pre11 scription drug plan shall provide for the peri12 odic evaluation and analysis of treatment proto13 cols and procedures. 

14 ‘‘(G) GRIEVANCES AND APPEALS RELAT15 ING TO APPLICATION OF FORMULARIES.—For 

16 provisions relating to grievances and appeals of 

17 coverage, see subsections (e) and (f). 

18 ‘‘(d) COST AND UTILIZATION MANAGEMENT; QUAL19 ITY ASSURANCE; MEDICATION THERAPY MANAGEMENT

20 PROGRAM.—

21 ‘‘(1) IN GENERAL.—The PDP sponsor or entity 

22 offering a MA-EFFS Rx plan shall have in place, di23 rectly or through appropriate arrangements, with re24 spect to covered outpatient drugs—
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1 ‘‘(A) an effective cost and drug utilization 

2 management program, including medically ap3 propriate incentives to use generic drugs and 

4 therapeutic interchange, when appropriate; 

5 ‘‘(B) quality assurance measures and sys6 tems to reduce medical errors and adverse drug 

7 interactions, including side-effects, and improve 

8 medication use, including a medication therapy 

9 management program described in paragraph 

10 (2) and for years beginning with 2007, an elec11 tronic prescription program described in para12 graph (3); and 

13 ‘‘(C) a program to control fraud, abuse, 

14 and waste. 

15 Nothing in this section shall be construed as impair16 ing a PDP sponsor or entity from utilizing cost 

17 management tools (including differential payments) 

18 under all methods of operation. 

19 ‘‘(2) MEDICATION THERAPY MANAGEMENT PRO20 GRAM.—

21 ‘‘(A) IN GENERAL.—A medication therapy 

22 management program described in this para23 graph is a program of drug therapy manage24 ment and medication administration that may 

25 be furnished by a pharmacy provider and that 
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1 is designed to assure, with respect to bene2 ficiaries at risk for potential medication prob3 lems, such as beneficiaries with complex or 

4 chronic diseases (such as diabetes, asthma, hy5 pertension, and congestive heart failure) or 

6 multiple prescriptions, that covered outpatient 

7 drugs under the prescription drug plan are ap8 propriately used to optimize therapeutic out9 comes through improved medication use and re10 duce the risk of adverse events, including ad11 verse drug interactions. Such programs may 

12 distinguish between services in ambulatory and 

13 institutional settings. 

14 ‘‘(B) ELEMENTS.—Such program may in15 clude—

16 ‘‘(i) enhanced beneficiary under17 standing to promote the appropriate use of 

18 medications by beneficiaries and to reduce 

19 the risk of potential adverse events associ20 ated with medications, through beneficiary 

21 education, counseling, case management, 

22 disease state management programs, and 

23 other appropriate means; 

24 ‘‘(ii) increased beneficiary adherence 

25 with prescription medication regimens 
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1 through medication refill reminders, special 

2 packaging, and other compliance programs 

3 and other appropriate means; and 

4 ‘‘(iii) detection of patterns of overuse 

5 and underuse of prescription drugs. 

6 ‘‘(C) DEVELOPMENT OF PROGRAM IN CO7 OPERATION WITH LICENSED PHARMACISTS.—

8 The program shall be developed in cooperation 

9 with licensed and practicing pharmacists and 

10 physicians. 

11 ‘‘(D) CONSIDERATIONS IN PHARMACY

12 FEES.—The PDP sponsor of a prescription 

13 drug program and an entity offering a MA14 EFFS Rx plan shall take into account, in es15 tablishing fees for pharmacists and others pro16 viding services under the medication therapy 

17 management program, the resources and time 

18 used in implementing the program. Each such 

19 sponsor or entity shall disclose to the Adminis20 trator upon request the amount of any such 

21 management or dispensing fees and such fees 

22 shall be confidential in the same manner as pro23 vided under section 1927(b)(3)(D) for informa24 tion disclosed under section 1927(b)(3)(A). 

25 ‘‘(3) ELECTRONIC PRESCRIPTION PROGRAM.—
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1 ‘‘(A) IN GENERAL.—An electronic prescrip2 tion drug program described in this paragraph 

3 is a program that includes at least the following 

4 components, consistent with uniform standards 

5 established under subparagraph (B): 

6 ‘‘(i) ELECTRONIC TRANSMITTAL OF

7 PRESCRIPTIONS.—Prescriptions must be 

8 written and transmitted electronically 

9 (other than by facsimile), except in emer10 gency cases and other exceptional cir11 cumstances recognized by the Adminis12 trator. 

13 ‘‘(ii) PROVISION OF INFORMATION TO

14 PRESCRIBING HEALTH CARE PROFES15 SIONAL.—The program provides for the 

16 electronic transmittal to the prescribing 

17 health care professional of information 

18 that includes—

19 ‘‘(I) information (to the extent 

20 available and feasible) on the drug or 

21 drugs being prescribed for that pa22 tient and other information relating to 

23 the medical history or condition of the 

24 patient that may be relevant to the 
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1 appropriate prescription for that pa2 tient; 

3 ‘‘(II) cost-effective alternatives (if 

4 any) for the use of the drug pre5 scribed; and 

6 ‘‘(III) information on the drugs 

7 included in the applicable formulary. 

8 To the extent feasible, such program shall 

9 permit the prescribing health care profes10 sional to provide (and be provided) related 

11 information on an interactive, real-time 

12 basis. 

13 ‘‘(B) STANDARDS.—

14 ‘‘(i) DEVELOPMENT.—The Adminis15 trator shall provide for the development of 

16 uniform standards relating to the elec17 tronic prescription drug program described 

18 in subparagraph (A). Such standards shall 

19 be compatible with standards established 

20 under part C of title XI. 

21 ‘‘(ii) ADVISORY TASK FORCE.—In de22 veloping such standards and the standards 

23 described in subsection (c)(2)(B)(i) the Ad24 ministrator shall establish a task force that 

25 includes representatives of physicians, hos-
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1 pitals, pharmacies, beneficiaries, pharmacy 

2 benefit managers, individuals with exper3 tise in information technology, and phar4 macy benefit experts of the Departments 

5 of Veterans Affairs and Defense and other 

6 appropriate Federal agencies to provide 

7 recommendations to the Administrator on 

8 such standards, including recommenda9 tions relating to the following: 

10 ‘‘(I) The range of available com11 puterized prescribing software and 

12 hardware and their costs to develop 

13 and implement. 

14 ‘‘(II) The extent to which such 

15 standards and systems reduce medica16 tion errors and can be readily imple17 mented by physicians, pharmacies, 

18 and hospitals. 

19 ‘‘(III) Efforts to develop uniform 

20 standards and a common software 

21 platform for the secure electronic 

22 communication of medication history, 

23 eligibility, benefit, and prescription in24 formation. 
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1 ‘‘(IV) Efforts to develop and pro2 mote universal connectivity and inter3 operability for the secure electronic 

4 exchange of such information.

5 ‘‘(V) The cost of implementing 

6 such systems in the range of hospital 

7 and physician office settings and 

8 pharmacies, including hardware, soft9 ware, and training costs. 

10 ‘‘(VI) Implementation issues as 

11 they relate to part C of title XI, and 

12 current Federal and State prescribing 

13 laws and regulations and their impact 

14 on implementation of computerized 

15 prescribing. 

16 ‘‘(iii) DEADLINES.—

17 ‘‘(I) The Administrator shall con18 stitute the task force under clause (ii) 

19 by not later than April 1, 2004. 

20 ‘‘(II) Such task force shall sub21 mit recommendations to Adminis22 trator by not later than January 1, 

23 2005. 

24 ‘‘(III) The Administrator shall 

25 provide for the development and pro-
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1 mulgation, by not later than January 

2 1, 2006, of national standards relat3 ing to the electronic prescription drug 

4 program described in clause (ii). Such 

5 standards shall be issued by a stand6 ards organization accredited by the 

7 American National Standards Insti8 tute (ANSI) and shall be compatible 

9 with standards established under part 

10 C of title XI. 

11 ‘‘(4) TREATMENT OF ACCREDITATION.—Section 

12 1852(e)(4) (relating to treatment of accreditation) 

13 shall apply to prescription drug plans under this 

14 part with respect to the following requirements, in 

15 the same manner as they apply to plans under part 

16 C with respect to the requirements described in a 

17 clause of section 1852(e)(4)(B): 

18 ‘‘(A) Paragraph (1) (including quality as19 surance), including medication therapy manage20 ment program under paragraph (2). 

21 ‘‘(B) Subsection (c)(1) (relating to access 

22 to covered benefits). 

23 ‘‘(C) Subsection (g) (relating to confiden24 tiality and accuracy of enrollee records). 
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1 ‘‘(5) PUBLIC DISCLOSURE OF PHARMACEUTICAL

2 PRICES FOR EQUIVALENT DRUGS.—Each PDP spon3 sor and each entity offering a MA-EFFS Rx plan 

4 shall provide that each pharmacy or other dispenser 

5 that arranges for the dispensing of a covered out6 patient drug shall inform the beneficiary at the time 

7 of purchase of the drug of any differential between 

8 the price of the prescribed drug to the enrollee and 

9 the price of the lowest cost available generic drug 

10 covered under the plan that is therapeutically equiv11 alent and bioequivalent.

12 ‘‘(e) GRIEVANCE MECHANISM, COVERAGE DETER13 MINATIONS, AND RECONSIDERATIONS.—

14 ‘‘(1) IN GENERAL.—Each PDP sponsor shall 

15 provide meaningful procedures for hearing and re16 solving grievances between the organization (includ17 ing any entity or individual through which the spon18 sor provides covered benefits) and enrollees with pre19 scription drug plans of the sponsor under this part 

20 in accordance with section 1852(f). 

21 ‘‘(2) APPLICATION OF COVERAGE DETERMINA22 TION AND RECONSIDERATION PROVISIONS.—A PDP 

23 sponsor shall meet the requirements of paragraphs 

24 (1) through (3) of section 1852(g) with respect to 

25 covered benefits under the prescription drug plan it 
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1 offers under this part in the same manner as such 

2 requirements apply to an organization with respect 

3 to benefits it offers under a plan under part C. 

4 ‘‘(3) REQUEST FOR REVIEW OF TIERED FOR5 MULARY DETERMINATIONS.—In the case of a pre6 scription drug plan offered by a PDP sponsor or a 

7 MA-EFFS Rx plan that provides for tiered cost8 sharing for drugs included within a formulary and 

9 provides lower cost-sharing for preferred drugs in10 cluded within the formulary, an individual who is en11 rolled in the plan may request coverage of a nonpre12 ferred drug under the terms applicable for preferred 

13 drugs if the prescribing physician determines that 

14 the preferred drug for treatment of the same condi15 tion either would not be as effective for the indi16 vidual or would have adverse effects for the indi17 vidual or both.

18 ‘‘(f) APPEALS.—

19 ‘‘(1) IN GENERAL.—Subject to paragraph (2), a 

20 PDP sponsor shall meet the requirements of para21 graphs (4) and (5) of section 1852(g) with respect 

22 to drugs (including a determination related to the 

23 application of tiered cost-sharing described in sub24 section (e)(3)) in the same manner as such require-
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1 ments apply to an organization with respect to bene2 fits it offers under a plan under part C. 

3 ‘‘(2) FORMULARY DETERMINATIONS.—An indi4 vidual who is enrolled in a prescription drug plan of5 fered by a PDP sponsor or in a MA-EFFS Rx plan 

6 may appeal to obtain coverage for a covered out7 patient drug that is not on a formulary of the spon8 sor or entity offering the plan if the prescribing phy9 sician determines that the formulary drug for treat10 ment of the same condition either would not be as 

11 effective for the individual or would have adverse ef12 fects for the individual or both. 

13 ‘‘(g) CONFIDENTIALITY AND ACCURACY OF EN14 ROLLEE RECORDS.—A PDP sponsor that offers a pre15 scription drug plan shall meet the requirements of section 

16 1852(h) with respect to enrollees under the plan in the 

17 same manner as such requirements apply to an organiza18 tion with respect to enrollees under part C. A PDP spon19 sor shall be treated as a business associate for purposes 

20 of the provisions of subpart E of part 164 of title 45, Code 

21 of Federal Regulations, adopted pursuant to the authority 

22 of the Secretary under section 264(c) of the Health Insur23 ance Portability and Accountability Act of 1996 (42 U.S. 

24 C. 1320d-2 note). 
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1 ‘‘SEC. 1860D–4. REQUIREMENTS FOR AND CONTRACTS WITH 

2 PRESCRIPTION DRUG PLAN (PDP) SPONSORS. 

3 ‘‘(a) GENERAL REQUIREMENTS.—Each PDP sponsor 

4 of a prescription drug plan shall meet the following re5 quirements: 

6 ‘‘(1) LICENSURE.—Subject to subsection (c), 

7 the sponsor is organized and licensed under State 

8 law as a risk-bearing entity eligible to offer health 

9 insurance or health benefits coverage in each State 

10 in which it offers a prescription drug plan. 

11 ‘‘(2) ASSUMPTION OF FINANCIAL RISK FOR UN12 SUBSIDIZED COVERAGE.—

13 ‘‘(A) IN GENERAL.—Subject to subpara14 graph (B) and section 1860D–5(d)(2), the enti15 ty assumes full financial risk on a prospective 

16 basis for qualified prescription drug coverage 

17 that it offers under a prescription drug plan 

18 and that is not covered under section 1860D–

19 8. 

20 ‘‘(B) REINSURANCE PERMITTED.—The en21 tity may obtain insurance or make other ar22 rangements for the cost of coverage provided to 

23 any enrollee. 

24 ‘‘(3) SOLVENCY FOR UNLICENSED SPONSORS.—

25 In the case of a sponsor that is not described in 

26 paragraph (1), the sponsor shall meet solvency 
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1 standards established by the Administrator under 

2 subsection (d).

3 ‘‘(b) CONTRACT REQUIREMENTS.—

4 ‘‘(1) IN GENERAL.—The Administrator shall 

5 not permit the election under section 1860D–1 of a 

6 prescription drug plan offered by a PDP sponsor 

7 under this part, and the sponsor shall not be eligible 

8 for payments under section 1860D–7 or 1860D–8, 

9 unless the Administrator has entered into a contract 

10 under this subsection with the sponsor with respect 

11 to the offering of such plan. Such a contract with 

12 a sponsor may cover more than one prescription 

13 drug plan. Such contract shall provide that the spon14 sor agrees to comply with the applicable require15 ments and standards of this part and the terms and 

16 conditions of payment as provided for in this part. 

17 ‘‘(2) NEGOTIATION REGARDING TERMS AND

18 CONDITIONS.—The Administrator shall have the 

19 same authority to negotiate the terms and conditions 

20 of prescription drug plans under this part as the Di21 rector of the Office of Personnel Management has 

22 with respect to health benefits plans under chapter 

23 89 of title 5, United States Code. In negotiating the 

24 terms and conditions regarding premiums for which 

25 information is submitted under section 1860D–
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1 6(a)(2), the Administrator shall take into account 

2 the subsidy payments under section 1860D–8. 

3 ‘‘(3) INCORPORATION OF CERTAIN MEDICARE

4 ADVANTAGE CONTRACT REQUIREMENTS.—The fol5 lowing provisions of section 1857 shall apply, subject 

6 to subsection (c)(5), to contracts under this section 

7 in the same manner as they apply to contracts under 

8 section 1857(a): 

9 ‘‘(A) MINIMUM ENROLLMENT.—Para10 graphs (1) and (3) of section 1857(b), except 

11 that the requirement of such paragraph (1) 

12 shall be waived during the first contract year 

13 with respect to an organization in a region. 

14 ‘‘(B) CONTRACT PERIOD AND EFFECTIVE15 NESS.—Paragraphs (1) through (3) and (5) of 

16 section 1857(c). 

17 ‘‘(C) PROTECTIONS AGAINST FRAUD AND

18 BENEFICIARY PROTECTIONS.—Section 1857(d). 

19 ‘‘(D) ADDITIONAL CONTRACT TERMS.—

20 Section 1857(e); except that in applying section 

21 1857(e)(2) under this part—

22 ‘‘(i) such section shall be applied sepa23 rately to costs relating to this part (from 

24 costs under part C and part E); 
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1 ‘‘(ii) in no case shall the amount of 

2 the fee established under this subpara3 graph for a plan exceed 20 percent of the 

4 maximum amount of the fee that may be 

5 established under subparagraph (B) of 

6 such section; and 

7 ‘‘(iii) no fees shall be applied under 

8 this subparagraph with respect to MA9 EFFS Rx plans. 

10 ‘‘(E) INTERMEDIATE SANCTIONS.—Section 

11 1857(g). 

12 ‘‘(F) PROCEDURES FOR TERMINATION.—

13 Section 1857(h). 

14 ‘‘(4) RULES OF APPLICATION FOR INTER15 MEDIATE SANCTIONS.—In applying paragraph 

16 (3)(E)—

17 ‘‘(A) the reference in section 

18 1857(g)(1)(B) to section 1854 is deemed a ref19 erence to this part; and 

20 ‘‘(B) the reference in section 

21 1857(g)(1)(F) to section 1852(k)(2)(A)(ii) shall 

22 not be applied. 

23 ‘‘(5) SERVICE AREA REQUIREMENT.—For pur24 poses of this part, the Administrator shall designate 

25 at least 10 areas covering the entire United States 
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1 and to the extent practicable shall be consistent with 

2 EFFS regions established under section 1860E–

3 1(a)(2). 

4 ‘‘(c) WAIVER OF CERTAIN REQUIREMENTS TO EX5 PAND CHOICE.—

6 ‘‘(1) IN GENERAL.—In the case of an entity 

7 that seeks to offer a prescription drug plan in a 

8 State, the Administrator shall waive the requirement 

9 of subsection (a)(1) that the entity be licensed in 

10 that State if the Administrator determines, based on 

11 the application and other evidence presented to the 

12 Administrator, that any of the grounds for approval 

13 of the application described in paragraph (2) have 

14 been met. 

15 ‘‘(2) GROUNDS FOR APPROVAL.—The grounds 

16 for approval under this paragraph are the grounds 

17 for approval described in subparagraph (B), (C), 

18 and (D) of section 1855(a)(2), and also include the 

19 application by a State of any grounds other than 

20 those required under Federal law. 

21 ‘‘(3) APPLICATION OF WAIVER PROCEDURES.—

22 With respect to an application for a waiver (or a 

23 waiver granted) under this subsection, the provisions 

24 of subparagraphs (E), (F), and (G) of section 

25 1855(a)(2) shall apply. 
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1 ‘‘(4) LICENSURE DOES NOT SUBSTITUTE FOR

2 OR CONSTITUTE CERTIFICATION.—The fact that an 

3 entity is licensed in accordance with subsection 

4 (a)(1) does not deem the entity to meet other re5 quirements imposed under this part for a PDP spon6 sor. 

7 ‘‘(5) REFERENCES TO CERTAIN PROVISIONS.—

8 For purposes of this subsection, in applying provi9 sions of section 1855(a)(2) under this subsection to 

10 prescription drug plans and PDP sponsors—

11 ‘‘(A) any reference to a waiver application 

12 under section 1855 shall be treated as a ref13 erence to a waiver application under paragraph 

14 (1); and 

15 ‘‘(B) any reference to solvency standards 

16 shall be treated as a reference to solvency 

17 standards established under subsection (d). 

18 ‘‘(d) SOLVENCY STANDARDS FOR NON-LICENSED

19 SPONSORS.—

20 ‘‘(1) ESTABLISHMENT.—The Administrator 

21 shall establish, by not later than October 1, 2004, 

22 financial solvency and capital adequacy standards 

23 that an entity that does not meet the requirements 

24 of subsection (a)(1) must meet to qualify as a PDP 

25 sponsor under this part. 
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1 ‘‘(2) COMPLIANCE WITH STANDARDS.—Each 

2 PDP sponsor that is not licensed by a State under 

3 subsection (a)(1) and for which a waiver application 

4 has been approved under subsection (c) shall meet 

5 solvency and capital adequacy standards established 

6 under paragraph (1). The Administrator shall estab7 lish certification procedures for such PDP sponsors 

8 with respect to such solvency standards in the man9 ner described in section 1855(c)(2). 

10 ‘‘(e) RELATION TO STATE LAWS.—

11 ‘‘(1) IN GENERAL.—The standards established 

12 under this part shall supersede any State law or reg13 ulation (other than State licensing laws or State 

14 laws relating to plan solvency, except as provided in 

15 subsection (d)) with respect to prescription drug 

16 plans which are offered by PDP sponsors under this 

17 part. 

18 ‘‘(2) PROHIBITION OF STATE IMPOSITION OF

19 PREMIUM TAXES.—No State may impose a premium 

20 tax or similar tax with respect to premiums paid to 

21 PDP sponsors for prescription drug plans under this 

22 part, or with respect to any payments made to such 

23 a sponsor by the Administrator under this part. 
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1 ‘‘SEC. 1860D–5. PROCESS FOR BENEFICIARIES TO SELECT 

2 QUALIFIED PRESCRIPTION DRUG COVERAGE. 

3 ‘‘(a) IN GENERAL.—The Administrator shall estab4 lish a process for the selection of the prescription drug 

5 plan or MA-EFFS Rx plan through which eligible individ6 uals elect qualified prescription drug coverage under this 

7 part. 

8 ‘‘(b) ELEMENTS.—Such process shall include the fol9 lowing: 

10 ‘‘(1) Annual, coordinated election periods, in 

11 which such individuals can change the qualifying 

12 plans through which they obtain coverage, in accord13 ance with section 1860D–1(b)(2). 

14 ‘‘(2) Active dissemination of information to pro15 mote an informed selection among qualifying plans 

16 based upon price, quality, and other features, in the 

17 manner described in (and in coordination with) sec18 tion 1851(d), including the provision of annual com19 parative information, maintenance of a toll-free hot20 line, and the use of non-Federal entities. 

21 ‘‘(3) Coordination of elections through filing 

22 with the entity offering a MA-EFFS Rx plan or a 

23 PDP sponsor, in the manner described in (and in co24 ordination with) section 1851(c)(2). 

25 ‘‘(4) Informing each enrollee before the begin26 ning of each year of the annual out-of-pocket thresh-
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1 old applicable to the enrollee for that year under sec2 tion 1860D–2(b)(4) at such time. 

3 ‘‘(c) MA-EFFS RX ENROLLEE MAY ONLY OBTAIN

4 BENEFITS THROUGH THE PLAN.—An individual who is 

5 enrolled under a MA-EFFS Rx plan may only elect to re6 ceive qualified prescription drug coverage under this part 

7 through such plan. 

8 ‘‘(d) ASSURING ACCESS TO A CHOICE OF QUALIFIED

9 PRESCRIPTION DRUG COVERAGE.—

10 ‘‘(1) CHOICE OF AT LEAST TWO PLANS IN EACH

11 AREA.—

12 ‘‘(A) IN GENERAL.—The Administrator 

13 shall assure that each individual who is entitled 

14 to benefits under part A or enrolled under part 

15 B and who is residing in an area in the United 

16 States has available, consistent with subpara17 graph (B), a choice of enrollment in at least 

18 two qualifying plans (as defined in paragraph 

19 (5)) in the area in which the individual resides, 

20 at least one of which is a prescription drug 

21 plan. 

22 ‘‘(B) REQUIREMENT FOR DIFFERENT

23 PLAN SPONSORS.—The requirement in subpara24 graph (A) is not satisfied with respect to an 

25 area if only one PDP sponsor or one entity that 
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1 offers a MA-EFFS Rx plan offers all the quali2 fying plans in the area. 

3 ‘‘(2) GUARANTEEING ACCESS TO COVERAGE.—

4 In order to assure access under paragraph (1) and 

5 consistent with paragraph (3), the Administrator 

6 may provide partial underwriting of risk for a PDP 

7 sponsor to expand the service area under an existing 

8 prescription drug plan to adjoining or additional 

9 areas or to establish such a plan (including offering 

10 such a plan on a regional or nationwide basis), but 

11 only so long as (and to the extent) necessary to as12 sure the access guaranteed under paragraph (1). 

13 ‘‘(3) LIMITATION ON AUTHORITY.—In exer14 cising authority under this subsection, the Adminis15 trator—

16 ‘‘(A) shall not provide for the full under17 writing of financial risk for any PDP sponsor; 

18 and 

19 ‘‘(B) shall seek to maximize the assump20 tion of financial risk by PDP sponsors or enti21 ties offering a MA-EFFS Rx plan. 

22 ‘‘(4) REPORTS.—The Administrator shall, in 

23 each annual report to Congress under section 

24 1809(f), include information on the exercise of au25 thority under this subsection. The Administrator 
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1 also shall include such recommendations as may be 

2 appropriate to minimize the exercise of such author3 ity, including minimizing the assumption of financial 

4 risk. 

5 ‘‘(5) QUALIFYING PLAN DEFINED.—For pur6 poses of this subsection, the term ‘qualifying plan’ 

7 means a prescription drug plan or a MA-EFFS Rx 

8 plan. 

9 ‘‘SEC. 1860D–6. SUBMISSION OF BIDS AND PREMIUMS. 

10 ‘‘(a) SUBMISSION OF BIDS, PREMIUMS, AND RE11 LATED INFORMATION.—

12 ‘‘(1) IN GENERAL.—Each PDP sponsor shall 

13 submit to the Administrator the information de14 scribed in paragraph (2) in the same manner as in15 formation is submitted by an organization under sec16 tion 1854(a)(1). 

17 ‘‘(2) INFORMATION SUBMITTED.—The informa18 tion described in this paragraph is the following: 

19 ‘‘(A) COVERAGE PROVIDED.—Information 

20 on the qualified prescription drug coverage to 

21 be provided. 

22 ‘‘(B) ACTUARIAL VALUE.—Information on 

23 the actuarial value of the coverage. 
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1 ‘‘(C) BID AND PREMIUM.—Information on 

2 the bid and the premium for the coverage, in3 cluding an actuarial certification of—

4 ‘‘(i) the actuarial basis for such bid 

5 and premium; 

6 ‘‘(ii) the portion of such bid and pre7 mium attributable to benefits in excess of 

8 standard coverage; 

9 ‘‘(iii) the reduction in such bid result10 ing from the reinsurance subsidy payments 

11 provided under section 1860D–8(a)(2); 

12 and 

13 ‘‘(iv) the reduction in such premium 

14 resulting from the direct and reinsurance 

15 subsidy payments provided under section 

16 1860D–8. 

17 ‘‘(D) ADDITIONAL INFORMATION.—Such 

18 other information as the Administrator may re19 quire to carry out this part. 

20 ‘‘(3) REVIEW OF INFORMATION; NEGOTIATION

21 AND APPROVAL OF PREMIUMS.—

22 ‘‘(A) IN GENERAL.—Subject to subpara23 graph (B), the Administrator shall review the 

24 information filed under paragraph (2) for the 

25 purpose of conducting negotiations under sec-
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1 tion 1860D–4(b)(2) (relating to using OPM-like 

2 authority under the FEHBP). The Adminis3 trator, using the information provided (includ4 ing the actuarial certification under paragraph 

5 (2)(C)) shall approve the premium submitted 

6 under this subsection only if the premium accu7 rately reflects both (i) the actuarial value of the 

8 benefits provided, and (ii) the 73 percent aver9 age subsidy provided under section 1860D–8 

10 for the standard benefit. The Administrator 

11 shall apply actuarial principles to approval of a 

12 premium under this part in a manner similar to 

13 the manner in which those principles are ap14 plied in establishing the monthly part B pre15 mium under section 1839. 

16 ‘‘(B) EXCEPTION.—In the case of a plan 

17 described in section 1851(a)(2)(C), the provi18 sions of subparagraph (A) shall not apply and 

19 the provisions of paragraph (5)(B) of section 

20 1854(a), prohibiting the review, approval, or 

21 disapproval of amounts described in such para22 graph, shall apply to the negotiation and rejec23 tion of the monthly bid amounts and proportion 

24 referred to in subparagraph (A). 

25 ‘‘(b) UNIFORM BID AND PREMIUM.—
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1 ‘‘(1) IN GENERAL.—The bid and premium for 

2 a prescription drug plan under this section may not 

3 vary among enrollees in the plan in the same service 

4 area. 

5 ‘‘(2) CONSTRUCTION.—Nothing in paragraph 

6 (1) shall be construed as preventing the imposition 

7 of a late enrollment penalty under section 1860D–

8 1(c)(2)(B).

9 ‘‘(c) COLLECTION.—

10 ‘‘(1) BENEFICIARY’S OPTION OF PAYMENT

11 THROUGH WITHHOLDING FROM SOCIAL SECURITY

12 PAYMENT OR USE OF ELECTRONIC FUNDS TRANS13 FER MECHANISM.—In accordance with regulations, a 

14 PDP sponsor shall permit each enrollee, at the en15 rollee’s option, to make payment of premiums under 

16 this part to the sponsor through withholding from 

17 benefit payments in the manner provided under sec18 tion 1840 with respect to monthly premiums under 

19 section 1839 or through an electronic funds transfer 

20 mechanism (such as automatic charges of an ac21 count at a financial institution or a credit or debit 

22 card account) or otherwise. All premium payments 

23 that are withheld under this paragraph shall be 

24 credited to the Medicare Prescription Drug Trust 
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1 Fund and shall be paid to the PDP sponsor in2 volved. 

3 ‘‘(2) OFFSETTING.—Reductions in premiums 

4 for coverage under parts A and B as a result of a 

5 selection of a MA-EFFS Rx plan may be used to re6 duce the premium otherwise imposed under para7 graph (1). 

8 ‘‘(d) ACCEPTANCE OF REFERENCE PREMIUM

9 AMOUNT AS FULL PREMIUM FOR SUBSIDIZED LOW-IN10 COME INDIVIDUALS IF NO STANDARD (OR EQUIVALENT)

11 COVERAGE IN AN AREA.—

12 ‘‘(1) IN GENERAL.—If there is no standard pre13 scription drug coverage (as defined in paragraph 

14 (2)) offered in an area, in the case of an individual 

15 who is eligible for a premium subsidy under section 

16 1860D–7 and resides in the area, the PDP sponsor 

17 of any prescription drug plan offered in the area 

18 (and any entity offering a MA-EFFS Rx plan in the 

19 area) shall accept the reference premium amount 

20 (under paragraph (3)) as payment in full for the 

21 premium charge for qualified prescription drug cov22 erage. 

23 ‘‘(2) STANDARD PRESCRIPTION DRUG COV24 ERAGE DEFINED.—For purposes of this subsection, 

25 the term ‘standard prescription drug coverage’ 
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1 means qualified prescription drug coverage that is 

2 standard coverage or that has an actuarial value 

3 equivalent to the actuarial value for standard cov4 erage. 

5 ‘‘(3) REFERENCE PREMIUM AMOUNT DE6 FINED.—For purposes of this subsection, the term 

7 ‘reference premium amount’ means, with respect to 

8 qualified prescription drug coverage offered under—

9 ‘‘(A) a prescription drug plan that—

10 ‘‘(i) provides standard coverage (or al11 ternative prescription drug coverage the 

12 actuarial value is equivalent to that of 

13 standard coverage), the plan’s PDP pre14 mium; or 

15 ‘‘(ii) provides alternative prescription 

16 drug coverage the actuarial value of which 

17 is greater than that of standard coverage, 

18 the plan’s PDP premium multiplied by the 

19 ratio of (I) the actuarial value of standard 

20 coverage, to (II) the actuarial value of the 

21 alternative coverage; 

22 ‘‘(B) an EFFS plan, the EFFS monthly 

23 prescription drug beneficiary premium (as de24 fined in section 1860E–4(a)(3)(B)); or 
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1 ‘‘(C) a Medicare Advantage, the Medicare 

2 Advantage monthly prescription drug bene3 ficiary premium (as defined in section 

4 1854(b)(2)(B)). 

5 For purposes of subparagraph (A), the term ‘PDP 

6 premium’ means, with respect to a prescription drug 

7 plan, the premium amount for enrollment under the 

8 plan under this part (determined without regard to 

9 any low-income subsidy under section 1860D–7 or 

10 any late enrollment penalty under section 1860D–

11 1(c)(2)(B)).

12 ‘‘SEC. 1860D–7. PREMIUM AND COST-SHARING SUBSIDIES 

13 FOR LOW-INCOME INDIVIDUALS.

14 ‘‘(a) INCOME-RELATED SUBSIDIES FOR INDIVIDUALS

15 WITH INCOME BELOW 150 PERCENT OF FEDERAL POV16 ERTY LEVEL.—

17 ‘‘(1) FULL PREMIUM SUBSIDY AND REDUCTION

18 OF COST-SHARING FOR INDIVIDUALS WITH INCOME

19 BELOW 135 PERCENT OF FEDERAL POVERTY

20 LEVEL.—In the case of a subsidy eligible individual 

21 (as defined in paragraph (4)) who is determined to 

22 have income that does not exceed 135 percent of the 

23 Federal poverty level, the individual is entitled under 

24 this section—
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1 ‘‘(A) to an income-related premium subsidy 

2 equal to 100 percent of the amount described in 

3 subsection (b)(1); and 

4 ‘‘(B) subject to subsection (c), to the sub5 stitution for the beneficiary cost-sharing de6 scribed in paragraphs (1) and (2) of section 

7 1860D–2(b) (up to the initial coverage limit 

8 specified in paragraph (3) of such section) of 

9 amounts that do not exceed $2 for a multiple 

10 source or generic drug (as described in section 

11 1927(k)(7)(A)) and $5 for a non-preferred 

12 drug.

13 ‘‘(2) SLIDING SCALE PREMIUM SUBSIDY FOR

14 INDIVIDUALS WITH INCOME ABOVE 135, BUT BELOW

15 150 PERCENT, OF FEDERAL POVERTY LEVEL.—In 

16 the case of a subsidy eligible individual who is deter17 mined to have income that exceeds 135 percent, but 

18 does not exceed 150 percent, of the Federal poverty 

19 level, the individual is entitled under this section to 

20 an income-related premium subsidy determined on a 

21 linear sliding scale ranging from 100 percent of the 

22 amount described in subsection (b)(1) for individuals 

23 with incomes at 135 percent of such level to 0 per24 cent of such amount for individuals with incomes at 

25 150 percent of such level. 
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1 ‘‘(3) CONSTRUCTION.—Nothing in this section 

2 shall be construed as preventing a PDP sponsor or 

3 entity offering a MA-EFFS Rx plan from reducing 

4 to 0 the cost-sharing otherwise applicable to generic 

5 drugs. 

6 ‘‘(4) DETERMINATION OF ELIGIBILITY.—

7 ‘‘(A) SUBSIDY ELIGIBLE INDIVIDUAL DE8 FINED.—For purposes of this section, subject 

9 to subparagraph (D), the term ‘subsidy eligible 

10 individual’ means an individual who—

11 ‘‘(i) is eligible to elect, and has elect12 ed, to obtain qualified prescription drug 

13 coverage under this part; 

14 ‘‘(ii) has income below 150 percent of 

15 the Federal poverty line; and 

16 ‘‘(iii) meets the resources requirement 

17 described in subparagraph (D). 

18 ‘‘(B) DETERMINATIONS.—The determina19 tion of whether an individual residing in a State 

20 is a subsidy eligible individual and the amount 

21 of such individual’s income shall be determined 

22 under the State medicaid plan for the State 

23 under section 1935(a) or by the Social Security 

24 Administration. In the case of a State that does 

25 not operate such a medicaid plan (either under 
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1 title XIX or under a statewide waiver granted 

2 under section 1115), such determination shall 

3 be made under arrangements made by the Ad4 ministrator. There are authorized to be appro5 priated to the Social Security Administration 

6 such sums as may be necessary for the deter7 mination of eligibility under this subparagraph. 

8 ‘‘(C) INCOME DETERMINATIONS.—For pur9 poses of applying this section—

10 ‘‘(i) income shall be determined in the 

11 manner described in section 

12 1905(p)(1)(B); and 

13 ‘‘(ii) the term ‘Federal poverty line’ 

14 means the official poverty line (as defined 

15 by the Office of Management and Budget, 

16 and revised annually in accordance with 

17 section 673(2) of the Omnibus Budget 

18 Reconciliation Act of 1981) applicable to a 

19 family of the size involved. 

20 ‘‘(D) RESOURCE STANDARD APPLIED TO

21 BE BASED ON THREE TIMES SSI RESOURCE

22 STANDARD.—The resource requirement of this 

23 subparagraph is that an individual’s resources 

24 (as determined under section 1613 for purposes 
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1 of the supplemental security income program) 

2 do not exceed—

3 ‘‘(i) for 2006 three times the max4 imum amount of resources that an indi5 vidual may have and obtain benefits under 

6 that program; and 

7 ‘‘(ii) for a subsequent year the re8 source limitation established under this 

9 clause for the previous year increased by 

10 the annual percentage increase in the con11 sumer price index (all items; U.S. city av12 erage) as of September of such previous 

13 year. 

14 Any resource limitation established under clause 

15 (ii) that is not a multiple of $10 shall be round16 ed to the nearest multiple of $10. 

17 ‘‘(E) TREATMENT OF TERRITORIAL RESI18 DENTS.—In the case of an individual who is not 

19 a resident of the 50 States or the District of 

20 Columbia, the individual is not eligible to be a 

21 subsidy eligible individual but may be eligible 

22 for financial assistance with prescription drug 

23 expenses under section 1935(e). 

24 ‘‘(F) TREATMENT OF CONFORMING

25 MEDIGAP POLICIES.—For purposes of this sec-
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1 tion, the term ‘qualified prescription drug cov2 erage’ includes a medicare supplemental policy 

3 described in section 1860D–8(b)(4). 

4 ‘‘(5) INDEXING DOLLAR AMOUNTS.—

5 ‘‘(A) FOR 2007.—The dollar amounts ap6 plied under paragraphs (1)(B) for 2007 shall be 

7 the dollar amounts specified in such paragraph 

8 increased by the annual percentage increase de9 scribed in section 1860D–2(b)(5) for 2007. 

10 ‘‘(B) FOR SUBSEQUENT YEARS.—The dol11 lar amounts applied under paragraph (1)(B) for 

12 a year after 2007 shall be the amounts (under 

13 this paragraph) applied under paragraph (1)(B) 

14 for the preceding year increased by the annual 

15 percentage increase described in section 

16 1860D–2(b)(5) (relating to growth in medicare 

17 prescription drug costs per beneficiary) for the 

18 year involved. 

19 ‘‘(b) PREMIUM SUBSIDY AMOUNT.—

20 ‘‘(1) IN GENERAL.—The premium subsidy 

21 amount described in this subsection for an individual 

22 residing in an area is the benchmark premium 

23 amount (as defined in paragraph (2)) for qualified 

24 prescription drug coverage offered by the prescrip-
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1 tion drug plan or the MA-EFFS Rx plan in which 

2 the individual is enrolled. 

3 ‘‘(2) BENCHMARK PREMIUM AMOUNT DE4 FINED.—For purposes of this subsection, the term 

5 ‘benchmark premium amount’ means, with respect 

6 to qualified prescription drug coverage offered 

7 under—

8 ‘‘(A) a prescription drug plan that—

9 ‘‘(i) provides standard coverage (or al10 ternative prescription drug coverage the 

11 actuarial value of which is equivalent to 

12 that of standard coverage), the premium 

13 amount for enrollment under the plan 

14 under this part (determined without regard 

15 to any subsidy under this section or any 

16 late enrollment penalty under section 

17 1860D–1(c)(2)(B)); or 

18 ‘‘(ii) provides alternative prescription 

19 drug coverage the actuarial value of which 

20 is greater than that of standard coverage, 

21 the premium amount described in clause 

22 (i) multiplied by the ratio of (I) the actu23 arial value of standard coverage, to (II) 

24 the actuarial value of the alternative cov25 erage; or 
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1 ‘‘(B) a MA-EFFS Rx plan, the portion of 

2 the premium amount that is attributable to 

3 statutory drug benefits (described in section 

4 1853(a)(1)(A)(ii)(II)). 

5 ‘‘(c) RULES IN APPLYING COST-SHARING SUB6 SIDIES.—

7 ‘‘(1) IN GENERAL.—In applying subsection 

8 (a)(1)(B), nothing in this part shall be construed as 

9 preventing a plan or provider from waiving or reduc10 ing the amount of cost-sharing otherwise applicable. 

11 ‘‘(2) LIMITATION ON CHARGES.—In the case of 

12 an individual receiving cost-sharing subsidies under 

13 subsection (a)(1)(B), the PDP sponsor or entity of14 fering a MA-EFFS Rx plan may not charge more 

15 than $5 per prescription. 

16 ‘‘(3) APPLICATION OF INDEXING RULES.—The 

17 provisions of subsection (a)(5) shall apply to the dol18 lar amount specified in paragraph (2) in the same 

19 manner as they apply to the dollar amounts specified 

20 in subsections (a)(1)(B). 

21 ‘‘(d) ADMINISTRATION OF SUBSIDY PROGRAM.—The 

22 Administrator shall provide a process whereby, in the case 

23 of an individual who is determined to be a subsidy eligible 

24 individual and who is enrolled in prescription drug plan 

25 or is enrolled in a MA-EFFS Rx plan—
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1 ‘‘(1) the Administrator provides for a notifica2 tion of the PDP sponsor or the entity offering the 

3 MA-EFFS Rx plan involved that the individual is el4 igible for a subsidy and the amount of the subsidy 

5 under subsection (a); 

6 ‘‘(2) the sponsor or entity involved reduces the 

7 premiums or cost-sharing otherwise imposed by the 

8 amount of the applicable subsidy and submits to the 

9 Administrator information on the amount of such 

10 reduction; and 

11 ‘‘(3) the Administrator periodically and on a 

12 timely basis reimburses the sponsor or entity for the 

13 amount of such reductions. 

14 The reimbursement under paragraph (3) with respect to 

15 cost-sharing subsidies may be computed on a capitated 

16 basis, taking into account the actuarial value of the sub17 sidies and with appropriate adjustments to reflect dif18 ferences in the risks actually involved. 

19 ‘‘(e) RELATION TO MEDICAID PROGRAM.—

20 ‘‘(1) IN GENERAL.—For provisions providing 

21 for eligibility determinations, and additional financ22 ing, under the medicaid program, see section 1935. 

23 ‘‘(2) MEDICAID PROVIDING WRAP AROUND BEN24 EFITS.—The coverage provided under this part is 

25 primary payor to benefits for prescribed drugs pro-
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1 vided under the medicaid program under title XIX 

2 consistent with section 1935(d)(1). 

3 ‘‘(3) COORDINATION.—The Administrator shall 

4 develop and implement a plan for the coordination 

5 of prescription drug benefits under this part with 

6 the benefits provided under the medicaid program 

7 under title XIX, with particular attention to insur8 ing coordination of payments and prevention of 

9 fraud and abuse. In developing and implementing 

10 such plan, the Administrator shall involve the Sec11 retary, the States, the data processing industry, 

12 pharmacists, and pharmaceutical manufacturers, 

13 and other experts.

14 ‘‘SEC. 1860D–8. SUBSIDIES FOR ALL MEDICARE BENE15 FICIARIES FOR QUALIFIED PRESCRIPTION 

16 DRUG COVERAGE. 

17 ‘‘(a) SUBSIDY PAYMENT.—In order to reduce pre18 mium levels applicable to qualified prescription drug cov19 erage for all medicare beneficiaries consistent with an 

20 overall subsidy level of 73 percent, to reduce adverse selec21 tion among prescription drug plans and MA-EFFS Rx 

22 plans, and to promote the participation of PDP sponsors 

23 under this part, the Administrator shall provide in accord24 ance with this section for payment to a qualifying entity 

25 (as defined in subsection (b)) of the following subsidies: 
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1 ‘‘(1) DIRECT SUBSIDY.—In the case of an en2 rollee enrolled for a month in a prescription drug 

3 plan or a MA-EFFS Rx plan, a direct subsidy equal 

4 to 43 percent of the national average monthly bid 

5 amount (computed under subsection (g)) for that 

6 month.

7 ‘‘(2) SUBSIDY THROUGH REINSURANCE.—In 

8 the case of an enrollee enrolled for a month in a pre9 scription drug plan or a MA-EFFS Rx plan, the re10 insurance payment amount (as defined in subsection 

11 (c)), which in the aggregate is 30 percent of the 

12 total payments made by qualifying entities for stand13 ard coverage under the respective plan, for excess 

14 costs incurred in providing qualified prescription 

15 drug coverage—

16 ‘‘(A) for enrollees with a prescription drug 

17 plan under this part; and 

18 ‘‘(B) for enrollees with a MA-EFFS Rx 

19 plan. 

20 ‘‘(3) EMPLOYER AND UNION FLEXIBILITY.—In 

21 the case of an individual who is a participant or ben22 eficiary in a qualified retiree prescription drug plan 

23 (as defined in subsection (f)(1)) and who is not en24 rolled in a prescription drug plan or in a MA-EFFS 
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1 Rx plan, the special subsidy payments under sub2 section (f)(3). 

3 This section constitutes budget authority in advance of ap4 propriations Acts and represents the obligation of the Ad5 ministrator to provide for the payment of amounts pro6 vided under this section. 

7 ‘‘(b) QUALIFYING ENTITY DEFINED.—For purposes 

8 of this section, the term ‘qualifying entity’ means any of 

9 the following that has entered into an agreement with the 

10 Administrator to provide the Administrator with such in11 formation as may be required to carry out this section: 

12 ‘‘(1) A PDP sponsor offering a prescription 

13 drug plan under this part. 

14 ‘‘(2) An entity that offers a MA-EFFS Rx plan. 

15 ‘‘(3) The sponsor of a qualified retiree prescrip16 tion drug plan (as defined in subsection (f)). 

17 ‘‘(c) REINSURANCE PAYMENT AMOUNT.—

18 ‘‘(1) IN GENERAL.—Subject to subsection 

19 (d)(1)(B) and paragraph (4), the reinsurance pay20 ment amount under this subsection for a qualifying 

21 covered individual (as defined in paragraph (5)) for 

22 a coverage year (as defined in subsection (h)(2)) is 

23 equal to the sum of the following: 

24 ‘‘(A) REINSURANCE BETWEEN INITIAL RE25 INSURANCE THRESHOLD AND THE INITIAL COV-
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1 ERAGE LIMIT.—For the portion of the individ2 ual’s gross covered prescription drug costs (as 

3 defined in paragraph (3)) for the year that ex4 ceeds the initial reinsurance threshold specified 

5 in paragraph (4), but does not exceed the initial 

6 coverage limit specified in section 1860D–

7 2(b)(3), an amount equal to 20 percent of the 

8 allowable costs (as defined in paragraph (2)) at9 tributable to such gross covered prescription 

10 drug costs. 

11 ‘‘(B) REINSURANCE ABOVE ANNUAL OUT12 OF-POCKET THRESHOLD.—For the portion of 

13 the individual’s gross covered prescription drug 

14 costs for the year that exceeds the annual out15 of-pocket threshold specified in 1860D–

16 2(b)(4)(B), an amount equal to 80 percent of 

17 the allowable costs attributable to such gross 

18 covered prescription drug costs. 

19 ‘‘(2) ALLOWABLE COSTS.—For purposes of this 

20 section, the term ‘allowable costs’ means, with re21 spect to gross covered prescription drug costs under 

22 a plan described in subsection (b) offered by a quali23 fying entity, the part of such costs that are actually 

24 paid (net of discounts, chargebacks, and average 

25 percentage rebates) under the plan, but in no case 
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1 more than the part of such costs that would have 

2 been paid under the plan if the prescription drug 

3 coverage under the plan were standard coverage. 

4 ‘‘(3) GROSS COVERED PRESCRIPTION DRUG

5 COSTS.—For purposes of this section, the term 

6 ‘gross covered prescription drug costs’ means, with 

7 respect to an enrollee with a qualifying entity under 

8 a plan described in subsection (b) during a coverage 

9 year, the costs incurred under the plan (including 

10 costs attributable to administrative costs) for cov11 ered prescription drugs dispensed during the year, 

12 including costs relating to the deductible, whether 

13 paid by the enrollee or under the plan, regardless of 

14 whether the coverage under the plan exceeds stand15 ard coverage and regardless of when the payment 

16 for such drugs is made. 

17 ‘‘(4) INITIAL REINSURANCE THRESHOLD.—The 

18 initial reinsurance threshold specified in this para19 graph—

20 ‘‘(A) for 2006, is equal to $1,000; or 

21 ‘‘(B) for a subsequent year, is equal to the 

22 payment threshold specified in this paragraph 

23 for the previous year, increased by the annual 

24 percentage increase described in section 

25 1860D–2(b)(5) for the year involved. 
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1 Any amount determined under subparagraph (B) 

2 that is not a multiple of $10 shall be rounded to the 

3 nearest multiple of $10.

4 ‘‘(5) QUALIFYING COVERED INDIVIDUAL DE5 FINED.—For purposes of this subsection, the term 

6 ‘qualifying covered individual’ means an individual 

7 who—

8 ‘‘(A) is enrolled with a prescription drug 

9 plan under this part; or 

10 ‘‘(B) is enrolled with a MA-EFFS Rx plan. 

11 ‘‘(d) ADJUSTMENT OF PAYMENTS.—

12 ‘‘(1) ADJUSTMENT OF REINSURANCE PAY13 MENTS TO ASSURE 30 PERCENT LEVEL OF SUBSIDY

14 THROUGH REINSURANCE.—

15 ‘‘(A) ESTIMATION OF PAYMENTS.—The 

16 Administrator shall estimate—

17 ‘‘(i) the total payments to be made 

18 (without regard to this subsection) during 

19 a year under subsections (a)(2) and (c); 

20 and 

21 ‘‘(ii) the total payments to be made by 

22 qualifying entities for standard coverage 

23 under plans described in subsection (b) 

24 during the year. 
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1 ‘‘(B) ADJUSTMENT.—The Administrator 

2 shall proportionally adjust the payments made 

3 under subsections (a)(2) and (c) for a coverage 

4 year in such manner so that the total of the 

5 payments made under such subsections for the 

6 year is equal to 30 percent of the total pay7 ments described in subparagraph (A)(ii). 

8 ‘‘(2) RISK ADJUSTMENT FOR DIRECT SUB9 SIDIES.—To the extent the Administrator deter10 mines it appropriate to avoid risk selection, the pay11 ments made for direct subsidies under subsection 

12 (a)(1) are subject to adjustment based upon risk 

13 factors specified by the Administrator. Any such risk 

14 adjustment shall be designed in a manner as to not 

15 result in a change in the aggregate payments made 

16 under such subsection. 

17 ‘‘(e) PAYMENT METHODS.—

18 ‘‘(1) IN GENERAL.—Payments under this sec19 tion shall be based on such a method as the Admin20 istrator determines. The Administrator may estab21 lish a payment method by which interim payments 

22 of amounts under this section are made during a 

23 year based on the Administrator’s best estimate of 

24 amounts that will be payable after obtaining all of 

25 the information. 
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1 ‘‘(2) SOURCE OF PAYMENTS.—Payments under 

2 this section shall be made from the Medicare Pre3 scription Drug Trust Fund. 

4 ‘‘(f) RULES RELATING TO QUALIFIED RETIREE PRE5 SCRIPTION DRUG PLAN.—

6 ‘‘(1) DEFINITION.—For purposes of this sec7 tion, the term ‘qualified retiree prescription drug 

8 plan’ means employment-based retiree health cov9 erage (as defined in paragraph (4)(A)) if, with re10 spect to an individual who is a participant or bene11 ficiary under such coverage and is eligible to be en12 rolled in a prescription drug plan or a MA-EFFS Rx 

13 plan under this part, the following requirements are 

14 met: 

15 ‘‘(A) ACTUARIAL EQUIVALENCE TO STAND16 ARD COVERAGE.—The Administrator deter17 mines (based on an actuarial analysis approved 

18 by the Administrator) that coverage provides at 

19 least the same actuarial value as standard cov20 erage. Such determination may be made on an 

21 annual basis. 

22 ‘‘(B) AUDITS.—The sponsor (or the ad23 ministrator, if designated by the sponsor) and 

24 the plan shall maintain, and afford the Admin25 istrator access to, such records as the Adminis-
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1 trator may require for purposes of audits and 

2 other oversight activities necessary to ensure 

3 the adequacy of prescription drug coverage and 

4 the accuracy of payments made. 

5 ‘‘(C) PROVISION OF CERTIFICATION OF

6 PRESCRIPTION DRUG COVERAGE.—The sponsor 

7 of the plan shall provide for issuance of certifi8 cations of the type described in section 1860D–

9 1(c)(2)(D). 

10 ‘‘(2) LIMITATION ON BENEFIT ELIGIBILITY.—

11 No payment shall be provided under this section 

12 with respect to a participant or beneficiary in a 

13 qualified retiree prescription drug plan unless the in14 dividual is—

15 ‘‘(A) is covered under the plan; and 

16 ‘‘(B) is eligible to obtain qualified prescrip17 tion drug coverage under section 1860D–1 but 

18 did not elect such coverage under this part (ei19 ther through a prescription drug plan or 

20 through a MA-EFFS Rx plan). 

21 ‘‘(3) EMPLOYER AND UNION SPECIAL SUBSIDY

22 AMOUNTS.—

23 ‘‘(A) IN GENERAL.—For purposes of sub24 section (a), the special subsidy payment amount 

25 under this paragraph for a qualifying covered 
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1 retiree(as defined in paragraph (6)) for a cov2 erage year (as defined in subsection (h)) en3 rolled in a qualifying entity described in sub4 section (b)(3) under a qualified retiree prescrip5 tion drug plan is, for the portion of the individ6 ual’s gross covered prescription drug costs for 

7 the year that exceeds the deductible amount 

8 specified in subparagraph (B), an amount equal 

9 to, subject to subparagraph (D), 28 percent of 

10 the allowable costs attributable to such gross 

11 covered prescription drug costs, but only to the 

12 extent such costs exceed the deductible under 

13 subparagraph (B) and do not exceed the cost 

14 limit under such subparagraph in the case of 

15 any such individual for the plan year. 

16 ‘‘(B) DEDUCTIBLE AND COST LIMIT APPLI17 CABLE.—Subject to subparagraph (C)—

18 ‘‘(i) the deductible under this sub19 paragraph is equal to $250 for plan years 

20 that end in 2006; and 

21 ‘‘(ii) the cost limit under this subpara22 graph is equal to $5,000 for plan years 

23 that end in 2006. 

24 ‘‘(C) INDEXING.—The deductible and cost 

25 limit amounts specified in subparagraphs (B) 
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1 for a plan year that ends after 2006 shall be 

2 adjusted in the same manner as the annual de3 ductible under section 1860D–2(b)(1) is annu4 ally adjusted under such section.

5 ‘‘(4) RELATED DEFINITIONS.—As used in this 

6 section: 

7 ‘‘(A) EMPLOYMENT-BASED RETIREE

8 HEALTH COVERAGE.—The term ‘employment9 based retiree health coverage’ means health in10 surance or other coverage of health care costs 

11 for individuals eligible to enroll in a prescription 

12 drug plan or MA-EFFS Rx plan under this 

13 part (or for such individuals and their spouses 

14 and dependents) under a group health plan (in15 cluding such a plan that is established or main16 tained under or pursuant to one or more collec17 tive bargaining agreements or that is offered 

18 under chapter 89 of title 5, United States 

19 Code) based on their status as retired partici20 pants in such plan. 

21 ‘‘(B) QUALIFYING COVERED RETIREE.—

22 The term ‘qualifying covered retiree’ means an 

23 individual who is eligible to obtain qualified pre24 scription drug coverage under section 1860D–1 

25 but did not elect such coverage under this part 
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1 (either through a prescription drug plan or 

2 through a MA-EFFS Rx plan) but is covered 

3 under a qualified retiree prescription drug plan. 

4 ‘‘(C) SPONSOR.—The term ‘sponsor’ 

5 means a plan sponsor, as defined in section 

6 3(16)(B) of the Employee Retirement Income 

7 Security Act of 1974. 

8 ‘‘(5) CONSTRUCTION.—Nothing in this sub9 section shall be construed as—

10 ‘‘(A) precluding an individual who is cov11 ered under employment-based retiree health 

12 coverage from enrolling in a prescription drug 

13 plan or in a MA-EFFS plan; 

14 ‘‘(B) precluding such employment-based 

15 retiree health coverage or an employer or other 

16 person from paying all or any portion of any 

17 premium required for coverage under such a 

18 prescription drug plan or MA-EFFS plan on 

19 behalf of such an individual; or 

20 ‘‘(C) preventing such employment-based 

21 retiree health coverage from providing coverage 

22 for retirees—

23 ‘‘(i) who are covered under a qualified 

24 retiree prescription plan that is better than 

25 standard coverage; or 
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1 ‘‘(ii) who are not covered under a 

2 qualified retiree prescription plan but who 

3 are enrolled in a prescription drug plan or 

4 a MA-EFFS Rx plan, that is supplemental 

5 to the benefits provided under such pre6 scription drug plan or MA-EFFS Rx plan, 

7 except that any such supplemental cov8 erage (not including payment of any pre9 mium referred to in subparagraph (B)) 

10 shall be treated as primary coverage to 

11 which section 1862(b)(2)(A)(i) is deemed 

12 to apply. 

13 ‘‘(g) COMPUTATION OF NATIONAL AVERAGE MONTH14 LY BID AMOUNT.—

15 ‘‘(1) IN GENERAL.—For each year (beginning 

16 with 2006) the Administrator shall compute a na17 tional average monthly bid amount equal to the av18 erage of the benchmark bid amounts for each pre19 scription drug plan and for each MA-EFFS Rx plan 

20 (as computed under paragraph (2), but excluding 

21 plans described in section 1851(a)(2)(C))) adjusted 

22 under paragraph (4) to take into account reinsur23 ance payments. 

24 ‘‘(2) BENCHMARK BID AMOUNT DEFINED.—For 

25 purposes of this subsection, the term ‘benchmark bid 
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1 amount’ means, with respect to qualified prescrip2 tion drug coverage offered under—

3 ‘‘(A) a prescription drug plan that—

4 ‘‘(i) provides standard coverage (or al5 ternative prescription drug coverage the 

6 actuarial value of which is equivalent to 

7 that of standard coverage), the PDP bid; 

8 or 

9 ‘‘(ii) provides alternative prescription 

10 drug coverage the actuarial value of which 

11 is greater than that of standard coverage, 

12 the PDP bid multiplied by the ratio of (I) 

13 the actuarial value of standard coverage, to 

14 (II) the actuarial value of the alternative 

15 coverage; or 

16 ‘‘(B) a MA-EFFS Rx plan, the portion of 

17 the bid amount that is attributable to statutory 

18 drug benefits (described in section 

19 1853(a)(1)(A)(ii)(II)). 

20 For purposes of subparagraph (A), the term ‘PDP 

21 bid’ means, with respect to a prescription drug plan, 

22 the bid amount for enrollment under the plan under 

23 this part (determined without regard to any low-in24 come subsidy under section 1860D–7 or any late en25 rollment penalty under section 1860D–1(c)(2)(B)). 
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1 ‘‘(3) WEIGHTED AVERAGE.—

2 ‘‘(A) IN GENERAL.—The monthly national 

3 average monthly bid amount computed under 

4 paragraph (1) shall be a weighted average, with 

5 the weight for each plan being equal to the av6 erage number of beneficiaries enrolled under 

7 such plan in the previous year. 

8 ‘‘(B) SPECIAL RULE FOR 2006.—For pur9 poses of applying this subsection for 2006, the 

10 Administrator shall establish procedures for de11 termining the weighted average under subpara12 graph (A) for 2005. 

13 ‘‘(4) ADJUSTMENT TO ADD BACK IN VALUE OF

14 REINSURANCE SUBSIDIES.—The adjustment under 

15 this paragraph, to take into account reinsurance 

16 payments under subsection (c) making up 30 per17 cent of total payments, is such an adjustment as will 

18 make the national average monthly bid amount rep19 resent represent 100 percent, instead of representing 

20 70 percent, of average payments under this part.

21 ‘‘(h) COVERAGE YEAR DEFINED.—For purposes of 

22 this section, the term ‘coverage year’ means a calendar 

23 year in which covered outpatient drugs are dispensed if 

24 a claim for payment is made under the plan for such 

25 drugs, regardless of when the claim is paid. 
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1 ‘‘SEC. 1860D–9. MEDICARE PRESCRIPTION DRUG TRUST 

2 FUND. 

3 ‘‘(a) IN GENERAL.—There is created on the books 

4 of the Treasury of the United States a trust fund to be 

5 known as the ‘Medicare Prescription Drug Trust Fund’ 

6 (in this section referred to as the ‘Trust Fund’). The 

7 Trust Fund shall consist of such gifts and bequests as 

8 may be made as provided in section 201(i)(1), and such 

9 amounts as may be deposited in, or appropriated to, such 

10 fund as provided in this part. Except as otherwise pro11 vided in this section, the provisions of subsections (b) 

12 through (i) of section 1841 shall apply to the Trust Fund 

13 in the same manner as they apply to the Federal Supple14 mentary Medical Insurance Trust Fund under such sec15 tion. 

16 ‘‘(b) PAYMENTS FROM TRUST FUND.—

17 ‘‘(1) IN GENERAL.—The Managing Trustee 

18 shall pay from time to time from the Trust Fund 

19 such amounts as the Administrator certifies are nec20 essary to make—

21 ‘‘(A) payments under section 1860D–7 (re22 lating to low-income subsidy payments); 

23 ‘‘(B) payments under section 1860D–8 (re24 lating to subsidy payments); and 
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1 ‘‘(C) payments with respect to administra2 tive expenses under this part in accordance with 

3 section 201(g). 

4 ‘‘(2) TRANSFERS TO MEDICAID ACCOUNT FOR

5 INCREASED ADMINISTRATIVE COSTS.—The Man6 aging Trustee shall transfer from time to time from 

7 the Trust Fund to the Grants to States for Medicaid 

8 account amounts the Administrator certifies are at9 tributable to increases in payment resulting from the 

10 application of a higher Federal matching percentage 

11 under section 1935(b). 

12 ‘‘(c) DEPOSITS INTO TRUST FUND.—

13 ‘‘(1) LOW-INCOME TRANSFER.—There is hereby 

14 transferred to the Trust Fund, from amounts appro15 priated for Grants to States for Medicaid, amounts 

16 equivalent to the aggregate amount of the reductions 

17 in payments under section 1903(a)(1) attributable to 

18 the application of section 1935(c). 

19 ‘‘(2) APPROPRIATIONS TO COVER GOVERNMENT

20 CONTRIBUTIONS.—There are authorized to be appro21 priated from time to time, out of any moneys in the 

22 Treasury not otherwise appropriated, to the Trust 

23 Fund, an amount equivalent to the amount of pay24 ments made from the Trust Fund under subsection 
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1 (b), reduced by the amount transferred to the Trust 

2 Fund under paragraph (1). 

3 ‘‘(d) RELATION TO SOLVENCY REQUIREMENTS.—

4 Any provision of law that relates to the solvency of the 

5 Trust Fund under this part shall take into account the 

6 Trust Fund and amounts receivable by, or payable from, 

7 the Trust Fund. 

8 ‘‘SEC. 1860D–10. DEFINITIONS; APPLICATION TO MEDICARE 

9 ADVANTAGE AND EFFS PROGRAMS; TREAT10 MENT OF REFERENCES TO PROVISIONS IN 

11 PART C. 

12 ‘‘(a) DEFINITIONS.—For purposes of this part: 

13 ‘‘(1) COVERED OUTPATIENT DRUGS.—The term 

14 ‘covered outpatient drugs’ is defined in section 

15 1860D–2(f). 

16 ‘‘(2) INITIAL COVERAGE LIMIT.—The term ‘ini17 tial coverage limit’ means such limit as established 

18 under section 1860D–2(b)(3), or, in the case of cov19 erage that is not standard coverage, the comparable 

20 limit (if any) established under the coverage. 

21 ‘‘(3) MEDICARE PRESCRIPTION DRUG TRUST

22 FUND.—The term ‘Medicare Prescription Drug 

23 Trust Fund’ means the Trust Fund created under 

24 section 1860D–9(a). 
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1 ‘‘(4) PDP SPONSOR.—The term ‘PDP sponsor’ 

2 means an entity that is certified under this part as 

3 meeting the requirements and standards of this part 

4 for such a sponsor. 

5 ‘‘(5) PRESCRIPTION DRUG PLAN.—The term 

6 ‘prescription drug plan’ means health benefits cov7 erage that—

8 ‘‘(A) is offered under a policy, contract, or 

9 plan by a PDP sponsor pursuant to, and in ac10 cordance with, a contract between the Adminis11 trator and the sponsor under section 1860D–

12 4(b); 

13 ‘‘(B) provides qualified prescription drug 

14 coverage; and 

15 ‘‘(C) meets the applicable requirements of 

16 the section 1860D–3 for a prescription drug 

17 plan. 

18 ‘‘(6) QUALIFIED PRESCRIPTION DRUG COV19 ERAGE.—The term ‘qualified prescription drug cov20 erage’ is defined in section 1860D–2(a). 

21 ‘‘(7) STANDARD COVERAGE.—The term ‘stand22 ard coverage’ is defined in section 1860D–2(b). 

23 ‘‘(8) INSURANCE RISK.—The term ‘insurance 

24 risk’ means, with respect to a participating phar25 macy, risk of the type commonly assumed only by 
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1 insurers licensed by a State and does not include 

2 payment variations designed to reflect performance3 based measures of activities within the control of the 

4 pharmacy, such as formulary compliance and generic 

5 drug substitution. 

6 ‘‘(b) OFFER OF QUALIFIED PRESCRIPTION DRUG

7 COVERAGE UNDER MEDICARE ADVANTAGE AND EFFS 

8 PROGRAMS.—

9 ‘‘(1) AS PART OF MEDICARE ADVANTAGE

10 PLAN.—Medicare Advantage organizations are re11 quired to offer Medicare Advantage plans that in12 clude qualified prescription drug coverage under part 

13 C pursuant to section 1851(j). 

14 ‘‘(2) AS PART OF EFFS PLAN.—EFFS organi15 zations are required to offer EFFS plans that in16 clude qualified prescription drug coverage under part 

17 E pursuant to section 1860E–2(d). 

18 ‘‘(c) APPLICATION OF PART C PROVISIONS UNDER

19 THIS PART.—For purposes of applying provisions of part 

20 C under this part with respect to a prescription drug plan 

21 and a PDP sponsor, unless otherwise provided in this part 

22 such provisions shall be applied as if—

23 ‘‘(1) any reference to a Medicare Advantage or 

24 other plan included a reference to a prescription 

25 drug plan; 
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1 ‘‘(2) any reference to a provider-sponsored or2 ganization included a reference to a PDP sponsor; 

3 ‘‘(3) any reference to a contract under section 

4 1857 included a reference to a contract under sec5 tion 1860D–4(b); and 

6 ‘‘(4) any reference to part C included a ref7 erence to this part. 

8 ‘‘(d) REPORT ON PHARMACY SERVICES PROVIDED TO

9 LONG-TERM CARE FACILITY PATIENTS.—

10 ‘‘(1) REVIEW.—Within 6 months after the date 

11 of the enactment of this section, the Secretary shall 

12 review the current standards of practice for phar13 macy services provided to patients in nursing facili14 ties and other long-term care facilities. 

15 ‘‘(2) EVALUATIONS AND RECOMMENDATIONS.—

16 Specifically in the review under paragraph (1), the 

17 Secretary shall—

18 ‘‘(A) assess the current standards of prac19 tice, clinical services, and other service require20 ments generally utilized for pharmacy services 

21 in the long-term care setting; 

22 ‘‘(B) evaluate the impact of those stand23 ards with respect to patient safety, reduction of 

24 medication errors and quality of care; and 
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1 ‘‘(C) recommend (in the Secretary’s report 

2 under paragraph (3)) necessary actions and ap3 propriate reimbursement to ensure the provision 

4 of prescription drugs to medicare beneficiaries 

5 residing in nursing facilities and other long6 term care facilities in a manner consistent with 

7 existing patient safety and quality of care 

8 standards under applicable State and Federal 

9 laws. 

10 ‘‘(3) REPORT.—The Secretary shall submit a 

11 report to the Congress on the Secretary’s findings 

12 and recommendations under this subsection, includ13 ing a detailed description of the Secretary’s plans to 

14 implement this part in a manner consistent with ap15 plicable State and Federal laws designed to protect 

16 the safety and quality of care of patients of nursing 

17 facilities and other long-term care facilities.’’. 

18 (b) ADDITIONAL CONFORMING CHANGES.—

19 (1) CONFORMING REFERENCES TO PREVIOUS

20 PART D.—Any reference in law (in effect before the 

21 date of the enactment of this Act) to part D of title 

22 XVIII of the Social Security Act is deemed a ref23 erence to part F of such title (as in effect after such 

24 date). 
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1 (2) CONFORMING AMENDMENT PERMITTING

2 WAIVER OF COST-SHARING.—Section 1128B(b)(3) 

3 (42 U.S.C. 1320a–7b(b)(3)) is amended—

4 (A) by striking ‘‘and’’ at the end of sub5 paragraph (E); 

6 (B) by striking the period at the end of 

7 subparagraph (F) and inserting ‘‘; and’’; and 

8 (C) by adding at the end the following new 

9 subparagraph: 

10 ‘‘(G) the waiver or reduction of any cost-shar11 ing imposed under part D of title XVIII.’’. 

12 (3) SUBMISSION OF LEGISLATIVE PROPOSAL.—

13 Not later than 6 months after the date of the enact14 ment of this Act, the Secretary of Health and 

15 Human Services shall submit to the appropriate 

16 committees of Congress a legislative proposal pro17 viding for such technical and conforming amend18 ments in the law as are required by the provisions 

19 of this subtitle. 

20 (c) STUDY ON TRANSITIONING PART B PRESCRIP21 TION DRUG COVERAGE.—Not later than January 1, 2005, 

22 the Medicare Benefits Administrator shall submit a report 

23 to Congress that makes recommendations regarding meth24 ods for providing benefits under part D of title XVIII of 
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1 the Social Security Act for outpatient prescription drugs 

2 for which benefits are provided under part B of such title. 

3 SEC. 102. OFFERING OF QUALIFIED PRESCRIPTION DRUG 

4 COVERAGE UNDER MEDICARE ADVANTAGE 

5 AND ENHANCED FEE-FOR-SERVICE (EFFS) 

6 PROGRAM. 

7 (a) MEDICARE ADVANTAGE.—Section 1851 (42 

8 U.S.C. 1395w–21) is amended by adding at the end the 

9 following new subsection: 

10 ‘‘(j) AVAILABILITY OF PRESCRIPTION DRUG BENE11 FITS AND SUBSIDIES.—

12 ‘‘(1) OFFERING OF QUALIFIED PRESCRIPTION

13 DRUG COVERAGE.—A Medicare Advantage organiza14 tion on and after January 1, 2006—

15 ‘‘(A) may not offer a Medicare Advantage 

16 plan described in section 1851(a)(2)(A) in an 

17 area unless either that plan (or another Medi18 care Advantage plan offered by the organization 

19 in that area) includes qualified prescription 

20 drug coverage; and 

21 ‘‘(B) may not offer the prescription drug 

22 coverage (other than that required under parts 

23 A and B) to an enrollee under a Medicare Ad24 vantage plan, unless such drug coverage is at 

25 least qualified prescription drug coverage and 
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1 unless the requirements of this subsection with 

2 respect to such coverage are met. 

3 ‘‘(2) REQUIREMENT FOR ELECTION OF PART D

4 COVERAGE TO OBTAIN QUALIFIED PRESCRIPTION

5 DRUG COVERAGE.—For purposes of this part, an in6 dividual who has not elected qualified prescription 

7 drug coverage under section 1860D–1(b) shall be 

8 treated as being ineligible to enroll in a Medicare 

9 Advantage plan under this part that offers such cov10 erage. 

11 ‘‘(3) COMPLIANCE WITH CERTAIN ADDITIONAL

12 BENEFICIARY PROTECTIONS FOR PRESCRIPTION

13 DRUG COVERAGE.—With respect to the offering of 

14 qualified prescription drug coverage by a Medicare 

15 Advantage organization under this part on and after 

16 January 1, 2006, the organization and plan shall 

17 meet the requirements of subsections (a) through (d) 

18 of section 1860D–3 in the same manner as they 

19 apply to a PDP sponsor and a prescription drug 

20 plan under part D and shall submit to the Adminis21 trator the information described in section 1860D–

22 6(a)(2). The Administrator shall waive such require23 ments to the extent the Administrator determines 

24 that such requirements duplicate requirements oth-
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1 erwise applicable to the organization or plan under 

2 this part. 

3 ‘‘(4) AVAILABILITY OF PREMIUM AND COST4 SHARING SUBSIDIES.—In the case of low-income in5 dividuals who are enrolled in a Medicare Advantage 

6 plan that provides qualified prescription drug cov7 erage, premium and cost-sharing subsidies are pro8 vided for such coverage under section 1860D–7. 

9 ‘‘(5) AVAILABILITY OF DIRECT AND REINSUR10 ANCE SUBSIDIES TO REDUCE BIDS AND PRE11 MIUMS.—Medicare Advantage organizations are pro12 vided direct and reinsurance subsidy payments for 

13 providing qualified prescription drug coverage under 

14 this part under section 1860D–8. 

15 ‘‘(6) CONSOLIDATION OF DRUG AND NON-DRUG

16 PREMIUMS.—In the case of a Medicare Advantage 

17 plan that includes qualified prescription drug cov18 erage, with respect to an enrollee in such plan there 

19 shall be a single premium for both drug and non20 drug coverage provided under the plan. 

21 ‘‘(7) TRANSITION IN INITIAL ENROLLMENT PE22 RIOD.—Notwithstanding any other provision of this 

23 part, the annual, coordinated election period under 

24 subsection (e)(3)(B) for 2006 shall be the 6-month 

25 period beginning with November 2005. 
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1 ‘‘(8) QUALIFIED PRESCRIPTION DRUG COV2 ERAGE; STANDARD COVERAGE.—For purposes of 

3 this part, the terms ‘qualified prescription drug cov4 erage’ and ‘standard coverage’ have the meanings 

5 given such terms in section 1860D–2. 

6 ‘‘(9) SPECIAL RULES FOR PRIVATE FEE-FOR7 SERVICE PLANS.—With respect to a Medicare Ad8 vantage plan described in section 1851(a)(2)(C) that 

9 offers qualified prescription drug coverage—

10 ‘‘(A) REQUIREMENTS REGARDING NEGO11 TIATED PRICES.—Subsections (a)(1) and (d)(1) 

12 of section 1860D–2 shall not be construed to 

13 require the plan to negotiate prices or discounts 

14 but shall apply to the extent the plan does so. 

15 ‘‘(B) MODIFICATION OF PHARMACY PAR16 TICIPATION REQUIREMENT.—If the plan pro17 vides access, without charging additional copay18 ments, to all pharmacies without regard to 

19 whether they are participating pharmacies in a 

20 network, section 1860D-3(c)(1)(A)(iii) shall not 

21 apply to the plan. 

22 ‘‘(C) DRUG UTILIZATION MANAGEMENT

23 PROGRAM NOT REQUIRED.—The requirements 

24 of section 1860D-3(d)(1)(A) shall not apply to 

25 the plan. 
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1 ‘‘(D) NON-PARTICIPATING PHARMACY DIS2 CLOSURE EXCEPTION.—If the plan provides 

3 coverage for drugs purchased from all phar4 macies, without entering into contracts or 

5 agreements with pharmacies to provide drugs to 

6 enrollees covered by the plan, section 1860D7 3(d)(5) shall not apply to the plan.’’. 

8 (b) APPLICATION TO EFFS PLANS.—Subsection (d) 

9 of section 1860E–2, as added by section 201(a), is amend10 ed to read as follows: 

11 ‘‘(d) AVAILABILITY OF PRESCRIPTION DRUG BENE12 FITS AND SUBSIDIES.—

13 ‘‘(1) OFFERING OF QUALIFIED PRESCRIPTION

14 DRUG COVERAGE.—An EFFS organization—

15 ‘‘(A) may not offer an EFFS plan in an 

16 area unless either that plan (or another EFFS 

17 plan offered by the organization in that area) 

18 includes qualified prescription drug coverage; 

19 and 

20 ‘‘(B) may not offer the prescription drug 

21 coverage (other than that required under parts 

22 A and B) to an enrollee under an EFFS plan, 

23 unless such drug coverage is at least qualified 

24 prescription drug coverage and unless the re-
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1 quirements of this subsection with respect to 

2 such coverage are met. 

3 ‘‘(2) REQUIREMENT FOR ELECTION OF PART D

4 COVERAGE TO OBTAIN QUALIFIED PRESCRIPTION

5 DRUG COVERAGE.—For purposes of this part, an in6 dividual who has not elected qualified prescription 

7 drug coverage under section 1860D–1(b) shall be 

8 treated as being ineligible to enroll in an EFFS plan 

9 under this part that offers such coverage. 

10 ‘‘(3) COMPLIANCE WITH CERTAIN ADDITIONAL

11 BENEFICIARY PROTECTIONS FOR PRESCRIPTION

12 DRUG COVERAGE.—With respect to the offering of 

13 qualified prescription drug coverage by an EFFS or14 ganization under this part, the organization and 

15 plan shall meet the requirements of subsections (a) 

16 through (d) of section 1860D–3 in the same manner 

17 as they apply to a PDP sponsor and a prescription 

18 drug plan under part D and shall submit to the Ad19 ministrator the information described in section 

20 1860D–6(a)(2). The Administrator shall waive such 

21 requirements to the extent the Administrator deter22 mines that such requirements duplicate requirements 

23 otherwise applicable to the organization or plan 

24 under this part. 
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1 ‘‘(4) AVAILABILITY OF PREMIUM AND COST2 SHARING SUBSIDIES.—In the case of low-income in3 dividuals who are enrolled in an EFFS plan that 

4 provides qualified prescription drug coverage, pre5 mium and cost-sharing subsidies are provided for 

6 such coverage under section 1860D–7. 

7 ‘‘(5) AVAILABILITY OF DIRECT AND REINSUR8 ANCE SUBSIDIES TO REDUCE BIDS AND PRE9 MIUMS.—EFFS organizations are provided direct 

10 and reinsurance subsidy payments for providing 

11 qualified prescription drug coverage under this part 

12 under section 1860D–8. 

13 ‘‘(6) CONSOLIDATION OF DRUG AND NON-DRUG

14 PREMIUMS.—In the case of an EFFS plan that in15 cludes qualified prescription drug coverage, with re16 spect to an enrollee in such plan there shall be a sin17 gle premium for both drug and non-drug coverage 

18 provided under the plan. 

19 ‘‘(7) QUALIFIED PRESCRIPTION DRUG COV20 ERAGE; STANDARD COVERAGE.—For purposes of 

21 this part, the terms ‘qualified prescription drug cov22 erage’ and ‘standard coverage’ have the meanings 

23 given such terms in section 1860D–2.’’. 

24 (c) CONFORMING AMENDMENTS.—Section 1851 (42 

25 U.S.C. 1395w–21) is amended—
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1 (1) in subsection (a)(1)—

2 (A) by inserting ‘‘(other than qualified pre3 scription drug benefits)’’ after ‘‘benefits’’; 

4 (B) by striking the period at the end of 

5 subparagraph (B) and inserting a comma; and 

6 (C) by adding after and below subpara7 graph (B) the following: 

8 ‘‘and may elect qualified prescription drug coverage 

9 in accordance with section 1860D–1.’’; and 

10 (2) in subsection (g)(1), by inserting ‘‘and sec11 tion 1860D–1(c)(2)(B)’’ after ‘‘in this subsection’’. 

12 (d) EFFECTIVE DATE.—The amendments made by 

13 this section apply to coverage provided on or after January 

14 1, 2006.

15 SEC. 103. MEDICAID AMENDMENTS. 

16 (a) DETERMINATIONS OF ELIGIBILITY FOR LOW-IN17 COME SUBSIDIES.—

18 (1) REQUIREMENT.—Section 1902(a) (42 

19 U.S.C. 1396a(a)) is amended—

20 (A) by striking ‘‘and’’ at the end of para21 graph (64); 

22 (B) by striking the period at the end of 

23 paragraph (65) and inserting ‘‘; and’’; and 

24 (C) by inserting after paragraph (65) the 

25 following new paragraph: 
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1 ‘‘(66) provide for making eligibility determina2 tions under section 1935(a).’’. 

3 (2) NEW SECTION.—Title XIX is further 

4 amended—

5 (A) by redesignating section 1935 as sec6 tion 1936; and 

7 (B) by inserting after section 1934 the fol8 lowing new section: 

9 ‘‘SPECIAL PROVISIONS RELATING TO MEDICARE

10 PRESCRIPTION DRUG BENEFIT

11 ‘‘SEC. 1935. (a) REQUIREMENT FOR MAKING ELIGI12 BILITY DETERMINATIONS FOR LOW-INCOME SUB13 SIDIES.—As a condition of its State plan under this title 

14 under section 1902(a)(66) and receipt of any Federal fi15 nancial assistance under section 1903(a), a State shall—

16 ‘‘(1) make determinations of eligibility for pre17 mium and cost-sharing subsidies under (and in ac18 cordance with) section 1860D–7; 

19 ‘‘(2) inform the Administrator of the Medicare 

20 Benefits Administration of such determinations in 

21 cases in which such eligibility is established; and 

22 ‘‘(3) otherwise provide such Administrator with 

23 such information as may be required to carry out 

24 part D of title XVIII (including section 1860D–7). 

25 ‘‘(b) PAYMENTS FOR ADDITIONAL ADMINISTRATIVE

26 COSTS.—
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1 ‘‘(1) IN GENERAL.—The amounts expended by 

2 a State in carrying out subsection (a) are, subject to 

3 paragraph (2), expenditures reimbursable under the 

4 appropriate paragraph of section 1903(a); except 

5 that, notwithstanding any other provision of such 

6 section, the applicable Federal matching rates with 

7 respect to such expenditures under such section shall 

8 be increased as follows (but in no case shall the rate 

9 as so increased exceed 100 percent): 

10 ‘‘(A) For expenditures attributable to costs 

11 incurred during 2005, the otherwise applicable 

12 Federal matching rate shall be increased by 6-

2 13 ⁄3 percent of the percentage otherwise payable 

14 (but for this subsection) by the State. 

15 ‘‘(B)(i) For expenditures attributable to 

16 costs incurred during 2006 and each subse17 quent year through 2018, the otherwise applica18 ble Federal matching rate shall be increased by 

19 the applicable percent (as defined in clause (ii)) 

20 of the percentage otherwise payable (but for 

21 this subsection) by the State. 

22 ‘‘(ii) For purposes of clause (i), the ‘appli23 cable percent’ for—

‘‘(I) 2006 is 13-1 24 ⁄3 percent; or 
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1 ‘‘(II) a subsequent year is the applica2 ble percent under this clause for the previous year increased by 6-2 3 ⁄3 percentage 

4 points. 

5 ‘‘(C) For expenditures attributable to costs 

6 incurred after 2018, the otherwise applicable 

7 Federal matching rate shall be increased to 100 

8 percent.

9 ‘‘(2) COORDINATION.—The State shall provide 

10 the Administrator with such information as may be 

11 necessary to properly allocate administrative expend12 itures described in paragraph (1) that may otherwise 

13 be made for similar eligibility determinations.’’. 

14 (b) PHASED-IN FEDERAL ASSUMPTION OF MEDICAID

15 RESPONSIBILITY FOR PREMIUM AND COST-SHARING SUB16 SIDIES FOR DUALLY ELIGIBLE INDIVIDUALS.—

17 (1) IN GENERAL.—Section 1903(a)(1) (42 

18 U.S.C. 1396b(a)(1)) is amended by inserting before 

19 the semicolon the following: ‘‘, reduced by the 

20 amount computed under section 1935(c)(1) for the 

21 State and the quarter’’. 

22 (2) AMOUNT DESCRIBED.—Section 1935, as in23 serted by subsection (a)(2), is amended by adding at 

24 the end the following new subsection: 
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1 ‘‘(c) FEDERAL ASSUMPTION OF MEDICAID PRE2 SCRIPTION DRUG COSTS FOR DUALLY-ELIGIBLE BENE3 FICIARIES.—

4 ‘‘(1) IN GENERAL.—For purposes of section 

5 1903(a)(1), for a State that is one of the 50 States 

6 or the District of Columbia for a calendar quarter 

7 in a year (beginning with 2005) the amount com8 puted under this subsection is equal to the product 

9 of the following: 

10 ‘‘(A) MEDICARE SUBSIDIES.—The total 

11 amount of payments made in the quarter under 

12 section 1860D–7 (relating to premium and 

13 cost-sharing prescription drug subsidies for low14 income medicare beneficiaries) that are attrib15 utable to individuals who are residents of the 

16 State and are entitled to benefits with respect 

17 to prescribed drugs under the State plan under 

18 this title (including such a plan operating under 

19 a waiver under section 1115). 

20 ‘‘(B) STATE MATCHING RATE.—A propor21 tion computed by subtracting from 100 percent 

22 the Federal medical assistance percentage (as 

23 defined in section 1905(b)) applicable to the 

24 State and the quarter. 
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1 ‘‘(C) PHASE-OUT PROPORTION.—The 

2 phase-out proportion (as defined in paragraph 

3 (2)) for the quarter. 

4 ‘‘(2) PHASE-OUT PROPORTION.—For purposes 

5 of paragraph (1)(C), the ‘phase-out proportion’ for 

6 a calendar quarter in—

‘‘(A) 2006 is 93-1 7 ⁄3 percent; 

8 ‘‘(B) a subsequent year before 2021, is the 

9 phase-out proportion for calendar quarters in 

the previous year decreased by 6-2 10 ⁄3 percentage 

11 points; or 

12 ‘‘(C) a year after 2020 is 0 percent.’’. 

13 (c) MEDICAID PROVIDING WRAP-AROUND BENE14 FITS.—Section 1935, as so inserted and amended, is fur15 ther amended by adding at the end the following new sub16 section: 

17 ‘‘(d) ADDITIONAL PROVISIONS.—

18 ‘‘(1) MEDICAID AS SECONDARY PAYOR.—In the 

19 case of an individual who is entitled to qualified pre20 scription drug coverage under a prescription drug 

21 plan under part D of title XVIII (or under a MA22 EFFS Rx plan under part C or E of such title) and 

23 medical assistance for prescribed drugs under this 

24 title, medical assistance shall continue to be provided 

25 under this title (other than for copayment amounts 
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1 specified in section 1860D–7(a)(1)(B), notwith2 standing section 1916) for prescribed drugs to the 

3 extent payment is not made under the prescription 

4 drug plan or MA-EFFS Rx plan selected by the in5 dividual. 

6 ‘‘(2) CONDITION.—A State may require, as a 

7 condition for the receipt of medical assistance under 

8 this title with respect to prescription drug benefits 

9 for an individual eligible to obtain qualified prescrip10 tion drug coverage described in paragraph (1), that 

11 the individual elect qualified prescription drug cov12 erage under section 1860D–1.’’. 

13 (d) TREATMENT OF TERRITORIES.—

14 (1) IN GENERAL.—Section 1935, as so inserted 

15 and amended, is further amended—

16 (A) in subsection (a) in the matter pre17 ceding paragraph (1), by inserting ‘‘subject to 

18 subsection (e)’’ after ‘‘section 1903(a)’’; 

19 (B) in subsection (c)(1), by inserting ‘‘sub20 ject to subsection (e)’’ after ‘‘1903(a)(1)’’; and 

21 (C) by adding at the end the following new 

22 subsection: 

23 ‘‘(e) TREATMENT OF TERRITORIES.—
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1 ‘‘(1) IN GENERAL.—In the case of a State, 

2 other than the 50 States and the District of Colum3 bia—

4 ‘‘(A) the previous provisions of this section 

5 shall not apply to residents of such State; and 

6 ‘‘(B) if the State establishes a plan de7 scribed in paragraph (2) (for providing medical 

8 assistance with respect to the provision of pre9 scription drugs to medicare beneficiaries), the 

10 amount otherwise determined under section 

11 1108(f) (as increased under section 1108(g)) 

12 for the State shall be increased by the amount 

13 specified in paragraph (3). 

14 ‘‘(2) PLAN.—The plan described in this para15 graph is a plan that—

16 ‘‘(A) provides medical assistance with re17 spect to the provision of covered outpatient 

18 drugs (as defined in section 1860D–2(f)) to 

19 low-income medicare beneficiaries; and 

20 ‘‘(B) assures that additional amounts re21 ceived by the State that are attributable to the 

22 operation of this subsection are used only for 

23 such assistance. 

24 ‘‘(3) INCREASED AMOUNT.—
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1 ‘‘(A) IN GENERAL.—The amount specified 

2 in this paragraph for a State for a year is equal 

3 to the product of—

4 ‘‘(i) the aggregate amount specified in 

5 subparagraph (B); and 

6 ‘‘(ii) the amount specified in section 

7 1108(g)(1) for that State, divided by the 

8 sum of the amounts specified in such sec9 tion for all such States. 

10 ‘‘(B) AGGREGATE AMOUNT.—The aggre11 gate amount specified in this subparagraph 

12 for—

13 ‘‘(i) 2006, is equal to $25,000,000; or 

14 ‘‘(ii) a subsequent year, is equal to the 

15 aggregate amount specified in this sub16 paragraph for the previous year increased 

17 by annual percentage increase specified in 

18 section 1860D–2(b)(5) for the year in19 volved. 

20 ‘‘(4) REPORT.—The Administrator shall submit 

21 to Congress a report on the application of this sub22 section and may include in the report such rec23 ommendations as the Administrator deems appro24 priate.’’. 
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1 (2) CONFORMING AMENDMENT.—Section 

2 1108(f) (42 U.S.C. 1308(f)) is amended by inserting 

3 ‘‘and section 1935(e)(1)(B)’’ after ‘‘Subject to sub4 section (g)’’. 

5 (e) AMENDMENT TO BEST PRICE.—Section 

6 1927(c)(1)(C)(i) (42 U.S.C. 1396r–8(c)(1)(C)(i)) is 

7 amended—

8 (1) by striking ‘‘and’’ at the end of subclause 

9 (III); 

10 (2) by striking the period at the end of sub11 clause (IV) and inserting ‘‘; and’’; and 

12 (3) by adding at the end the following new sub13 clause: 

14 ‘‘(V) any prices charged which 

15 are negotiated by a prescription drug 

16 plan under part D of title XVIII, by 

17 a MA-EFFS Rx plan under part C or 

18 E of such title with respect to covered 

19 outpatient drugs, or by a qualified re20 tiree prescription drug plan (as de21 fined in section 1860D–8(f)(1)) with 

22 respect to such drugs on behalf of in23 dividuals entitled to benefits under 

24 part A or enrolled under part B of 

25 such title.’’. 
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1 SEC. 104. MEDIGAP TRANSITION. 

2 (a) IN GENERAL.—Section 1882 (42 U.S.C. 1395ss) 

3 is amended by adding at the end the following new sub4 section: 

5 ‘‘(v) COVERAGE OF PRESCRIPTION DRUGS.—

6 ‘‘(1) IN GENERAL.—Notwithstanding any other 

7 provision of law, except as provided in paragraph (3) 

8 no new medicare supplemental policy that provides 

9 coverage of expenses for prescription drugs may be 

10 issued under this section on or after January 1, 

11 2006, to an individual unless it replaces a medicare 

12 supplemental policy that was issued to that indi13 vidual and that provided some coverage of expenses 

14 for prescription drugs. Nothing in this subsection 

15 shall be construed as preventing the policy holder of 

16 a medicare supplemental policy issued before Janu17 ary 1, 2006, from continuing to receive benefits 

18 under such policy on and after such date. 

19 ‘‘(2) ISSUANCE OF SUBSTITUTE POLICIES FOR

20 BENEFICIARIES ENROLLED WITH A PLAN UNDER

21 PART D.—

22 ‘‘(A) IN GENERAL.—The issuer of a medi23 care supplemental policy—

24 ‘‘(i) may not deny or condition the 

25 issuance or effectiveness of a medicare 

26 supplemental policy that has a benefit 
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1 package classified as ‘A’, ‘B’, ‘C’, ‘D’, ‘E’, 

2 ‘F’, or ‘G’ (under the standards estab3 lished under subsection (p)(2)) and that is 

4 offered and is available for issuance to new 

5 enrollees by such issuer; 

6 ‘‘(ii) may not discriminate in the pric7 ing of such policy, because of health sta8 tus, claims experience, receipt of health 

9 care, or medical condition; and 

10 ‘‘(iii) may not impose an exclusion of 

11 benefits based on a pre-existing condition 

12 under such policy, 

13 in the case of an individual described in sub14 paragraph (B) who seeks to enroll under the 

15 policy not later than 63 days after the date of 

16 the termination of enrollment described in such 

17 paragraph and who submits evidence of the 

18 date of termination or disenrollment along with 

19 the application for such medicare supplemental 

20 policy. 

21 ‘‘(B) INDIVIDUAL COVERED.—An indi22 vidual described in this subparagraph is an in23 dividual who—

24 ‘‘(i) enrolls in a prescription drug plan 

25 under part D; and 
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1 ‘‘(ii) at the time of such enrollment 

2 was enrolled and terminates enrollment in 

3 a medicare supplemental policy which has 

4 a benefit package classified as ‘H’, ‘I’, or 

5 ‘J’ under the standards referred to in sub6 paragraph (A)(i) or terminates enrollment 

7 in a policy to which such standards do not 

8 apply but which provides benefits for pre9 scription drugs. 

10 ‘‘(C) ENFORCEMENT.—The provisions of 

11 paragraph (4) of subsection (s) shall apply with 

12 respect to the requirements of this paragraph in 

13 the same manner as they apply to the require14 ments of such subsection. 

15 ‘‘(3) NEW STANDARDS.—In applying subsection 

16 (p)(1)(E) (including permitting the NAIC to revise 

17 its model regulations in response to changes in law) 

18 with respect to the change in benefits resulting from 

19 title I of the Medicare Prescription Drug and Mod20 ernization Act of 2003, with respect to policies 

21 issued to individuals who are enrolled in a plan 

22 under part D, the changes in standards shall only 

23 provide for substituting (for the benefit packages de24 scribed in paragraph (2)(B)(ii) that included cov25 erage for prescription drugs) two benefit packages 
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1 that may provide for coverage of cost-sharing (other 

2 than the prescription drug deductible) with respect 

3 to qualified prescription drug coverage under such 

4 part. The two benefit packages shall be consistent 

5 with the following: 

6 ‘‘(A) FIRST NEW POLICY.—The policy de7 scribed in this subparagraph has the following 

8 benefits, notwithstanding any other provision of 

9 this section relating to a core benefit package: 

10 ‘‘(i) Coverage of 50 percent of the 

11 cost-sharing otherwise applicable under 

12 parts A and B, except coverage of 100 per13 cent of any cost-sharing otherwise applica14 ble for preventive benefits. 

15 ‘‘(ii) No coverage of the part B de16 ductible. 

17 ‘‘(iii) Coverage for all hospital coin18 surance for long stays (as in the current 

19 core benefit package). 

20 ‘‘(iv) A limitation on annual out-of21 pocket expenditures under parts A and B 

22 to $4,000 in 2005 (or, in a subsequent 

23 year, to such limitation for the previous 

24 year increased by an appropriate inflation 

25 adjustment specified by the Secretary). 
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1 ‘‘(B) SECOND NEW POLICY.—The policy 

2 described in this subparagraph has the same 

3 benefits as the policy described in subparagraph 

4 (A), except as follows: 

5 ‘‘(i) Substitute ‘75 percent’ for ‘50 

6 percent’ in clause (i) of such subpara7 graph. 

8 ‘‘(ii) Substitute ‘$2,000’ for ‘$4,000’ 

9 in clause (iv) of such subparagraph. 

10 ‘‘(4) CONSTRUCTION.—Any provision in this 

11 section or in a medicare supplemental policy relating 

12 to guaranteed renewability of coverage shall be 

13 deemed to have been met through the offering of 

14 other coverage under this subsection.’’. 

15 (b) NAIC REPORT TO CONGRESS ON MEDIGAP MOD16 ERNIZATION.—The Secretary shall request the National 

17 Association of Insurance Commissioners to submit to Con18 gress, not later than 18 months after the date of the en19 actment of this Act, a report that includes recommenda20 tions on the modernization of coverage under the medigap 

21 program under section 1882 of the Social Security Act (42 

22 U.S.C. 1395ss).
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1 SEC. 105. MEDICARE PRESCRIPTION DRUG DISCOUNT 

2 CARD AND ASSISTANCE PROGRAM. 

3 (a) IN GENERAL.—Title XVIII is amended by insert4 ing after section 1806 the following new sections: 

5 ‘‘MEDICARE PRESCRIPTION DRUG DISCOUNT CARD

6 ENDORSEMENT AND ASSISTANCE PROGRAM

7 ‘‘SEC. 1807. (a) ESTABLISHMENT OF PROGRAM.—

8 ‘‘(1) IN GENERAL.—The Secretary shall estab9 lish a program—

10 ‘‘(A) to endorse prescription drug discount 

11 card programs (each such program referred to 

12 as an ‘endorsed program’) that meet the re13 quirements of this section in order to provide 

14 access to prescription drug discounts through 

15 eligible entities for medicare beneficiaries 

16 throughout the United States; and 

17 ‘‘(B) to provide for prescription drug ac18 counts and public contributions into such ac19 counts. 

20 The Secretary shall make available to medicare 

21 beneficiaries information regarding endorsed pro22 grams and accounts under this section. 

23 ‘‘(2) LIMITED PERIOD OF OPERATION.—The 

24 Secretary shall begin—

25 ‘‘(A) the card endorsement part of the pro26 gram under paragraph (1)(A) as soon as pos-
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1 sible, but in no case later than 90 days after 

2 the date of the enactment of this section; and 

3 ‘‘(B) the prescription drug account part of 

4 the program under paragraph (1)(B) as soon as 

5 possible, but in no case later than September 

6 2004. 

7 ‘‘(3) TRANSITION.—The program under this 

8 section shall continue through 2005 throughout the 

9 United States. The Secretary shall provide for an 

10 appropriate transition and termination of such pro11 gram on January 1, 2006. 

12 ‘‘(4) VOLUNTARY NATURE OF PROGRAM.—

13 Nothing in this section shall be construed as requir14 ing an eligible beneficiary to enroll in the program 

15 under this section. 

16 ‘‘(b) ELIGIBLE BENEFICIARY; ELIGIBLE ENTITY; 

17 PRESCRIPTION DRUG ACCOUNT.—For purposes of this 

18 section: 

19 ‘‘(1) ELIGIBLE BENEFICIARY.—The term ‘eligi20 ble beneficiary’ means an individual who is eligible 

21 for benefits under part A or enrolled under part B 

22 and who is not enrolled in a Medicare Advantage 

23 plan that offers qualified prescription drug coverage. 

24 ‘‘(2) ELIGIBLE ENTITY.—The term ‘eligible en25 tity’ means any entity that the Secretary determines 
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1 to be appropriate to provide the benefits under this 

2 section, including—

3 ‘‘(A) pharmaceutical benefit management 

4 companies; 

5 ‘‘(B) wholesale and retail pharmacy deliv6 ery systems; 

7 ‘‘(C) insurers; 

8 ‘‘(D) Medicare Advantage organizations; 

9 ‘‘(E) other entities; or 

10 ‘‘(F) any combination of the entities de11 scribed in subparagraphs (A) through (E). 

12 ‘‘(3) PRESCRIPTION DRUG ACCOUNT.—The 

13 term ‘prescription drug account’ means, with respect 

14 to an eligible beneficiary, an account established for 

15 the benefit of that beneficiary under section 1807A. 

16 ‘‘(c) ENROLLMENT IN ENDORSED PLAN.—

17 ‘‘(1) ESTABLISHMENT OF PROCESS.—

18 ‘‘(A) IN GENERAL.—The Secretary shall 

19 establish a process through which an eligible 

20 beneficiary may make an election to enroll 

21 under this section with an endorsed program. 

22 ‘‘(B) REQUIREMENT OF ENROLLMENT.—

23 An eligible beneficiary must enroll under this 

24 section for a year in order to be eligible to re-
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1 ceive the benefits under this section for that 

2 year. 

3 ‘‘(C) LIMITATION ON ENROLLMENT.—

4 ‘‘(i) IN GENERAL.—Except as pro5 vided under this subparagraph and under 

6 such exceptional circumstances as the Sec7 retary may provide, an eligible individual 

8 shall have the opportunity to enroll under 

9 this section during an initial, general en10 rollment period as soon as possible after 

11 the date of the enactment of this section 

12 and annually thereafter. The Secretary 

13 shall specify the form, manner, and timing 

14 of such election but shall permit the exer15 cise of such election at the time the indi16 vidual is eligible to enroll. The annual open 

17 enrollment periods shall be coordinated 

18 with those provided under the Medicare 

19 Advantage program under part C. 

20 ‘‘(ii) REELECTION AFTER TERMI21 NATION OF ENROLLMENT IN A MEDICARE

22 ADVANTAGE PLAN.—In the case of an indi23 vidual who is enrolled under this section 

24 and who subsequently enrolls in a Medi25 care Advantage plan that provides quali-
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1 fied prescription drug coverage under part 

2 C, the individual shall be given the oppor3 tunity to reenroll under this section at the 

4 time the individual discontinues the enroll5 ment under such part. 

6 ‘‘(iii) LATE ENROLLMENT.—The Sec7 retary shall permit individuals to elect to 

8 enroll under this section at times other 

9 than as permitted under the previous pro10 visions of this paragraph. 

11 ‘‘(D) TERMINATION OF ENROLLMENT.—

12 An enrollee under this section shall be 

13 disenrolled—

14 ‘‘(i) upon enrollment in a Medicare 

15 Advantage plan under part C that provides 

16 qualified prescription drug coverage; 

17 ‘‘(ii) upon failure to pay the applicable 

18 enrollment fee under subsection (f); 

19 ‘‘(iii) upon termination of coverage 

20 under part A or part B; or 

21 ‘‘(iv) upon notice submitted to the 

22 Secretary in such form, manner, and time 

23 as the Secretary shall provide. 
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1 Terminations of enrollment under this subpara2 graph shall be effective as specified by the Sec3 retary in regulations. 

4 ‘‘(2) ENROLLMENT PERIODS.—

5 ‘‘(A) IN GENERAL.—Except as provided 

6 under this paragraph, an eligible beneficiary 

7 may not enroll in the program under this part 

8 during any period after the beneficiary’s initial 

9 enrollment period under part B (as determined 

10 under section 1837). 

11 ‘‘(B) OPEN ENROLLMENT PERIOD FOR

12 CURRENT BENEFICIARIES.—The Secretary shall 

13 establish a period, which shall begin on the date 

14 on which the Secretary first begins to accept 

15 elections for enrollment under this section and 

16 shall end not earlier than 3 months later, dur17 ing which any eligible beneficiary may enroll 

18 under this section. 

19 ‘‘(C) SPECIAL ENROLLMENT PERIOD IN

20 CASE OF TERMINATION OF COVERAGE UNDER A

21 GROUP HEALTH PLAN.—The Secretary shall 

22 provide for a special enrollment period under 

23 this section in the same manner as is provided 

24 under section 1837(i) with respect to part B, 

25 except that for purposes of this subparagraph 
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1 any reference to ‘by reason of the individual’s 

2 (or the individual’s spouse’s) current employ3 ment status’ shall be treated as being deleted. 

4 ‘‘(3) PERIOD OF COVERAGE.—

5 ‘‘(A) IN GENERAL.—Except as provided in 

6 subparagraph (B) and subject to subparagraph 

7 (C), an eligible beneficiary’s coverage under the 

8 program under this section shall be effective for 

9 the period provided under section 1838, as if 

10 that section applied to the program under this 

11 section. 

12 ‘‘(B) ENROLLMENT DURING OPEN AND

13 SPECIAL ENROLLMENT.—Subject to subpara14 graph (C), an eligible beneficiary who enrolls 

15 under the program under this section under 

16 subparagraph (B) or (C) of paragraph (2) shall 

17 be entitled to the benefits under this section be18 ginning on the first day of the month following 

19 the month in which such enrollment occurs. 

20 ‘‘(d) SELECTION OF AN ELIGIBLE ENTITY FOR AC21 CESS TO NEGOTIATED PRICES.—

22 ‘‘(1) PROCESS.—

23 ‘‘(A) IN GENERAL.—The Secretary shall 

24 establish a process through which an eligible 

25 beneficiary who is enrolled under this section 
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1 shall select any eligible entity, that has been 

2 awarded a contract under this section and 

3 serves the State in which the beneficiary re4 sides, to provide access to negotiated prices 

5 under subsection (i). 

6 ‘‘(B) RULES.—In establishing the process 

7 under subparagraph (A), the Secretary shall 

8 use rules similar to the rules for enrollment and 

9 disenrollment with a Medicare Advantage plan 

10 under section 1851 (including the special elec11 tion periods under subsection (e)(4) of such sec12 tion), including that—

13 ‘‘(i) an individual may not select more 

14 than one eligible entity at any time; and 

15 ‘‘(ii) an individual shall only be per16 mitted (except for unusual circumstances) 

17 to change the selection of the entity once 

18 a year. 

19 In carrying out clause (ii), the Secretary may 

20 consider a change in residential setting (such as 

21 placement in a nursing facility) to be an un22 usual circumstance. 

23 ‘‘(C) DEFAULT SELECTION.—In estab24 lishing such process, the Secretary shall provide 

25 an equitable method for selecting an eligible en-
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1 tity for individuals who enroll under this section 

2 and fail to make such a selection. 

3 ‘‘(2) COMPETITION.—Eligible entities with a 

4 contract under this section shall compete for bene5 ficiaries on the basis of discounts, formularies, phar6 macy networks, and other services provided for 

7 under the contract. 

8 ‘‘(e) PROVIDING ENROLLMENT, SELECTION, AND

9 COVERAGE INFORMATION TO BENEFICIARIES.—

10 ‘‘(1) ACTIVITIES.—The Secretary shall provide 

11 for activities under this section to broadly dissemi12 nate information to eligible beneficiaries (and pro13 spective eligible beneficiaries) regarding enrollment 

14 under this section, the selection of eligible entities, 

15 and the prescription drug coverage made available 

16 by eligible entities with a contract under this section. 

17 ‘‘(2) SPECIAL RULE FOR FIRST ENROLLMENT

18 UNDER THE PROGRAM.—To the extent practicable, 

19 the activities described in paragraph (1) shall ensure 

20 that eligible beneficiaries are provided with such in21 formation at least 60 days prior to the first enroll22 ment period described in subsection (c). 

23 ‘‘(f) ENROLLMENT FEE.—

24 ‘‘(1) AMOUNT.—Except as provided in para25 graph (3), enrollment under the program under this 
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1 section is conditioned upon payment of an annual 

2 enrollment fee of $30. Such fee for 2004 shall in3 clude any portion of 2003 in which the program is 

4 implemented under this section. 

5 ‘‘(2) COLLECTION OF ENROLLMENT FEE.—The 

6 annual enrollment fee shall be collected and credited 

7 to the Federal Supplementary Medical Insurance 

8 Trust Fund in the same manner as the monthly pre9 mium determined under section 1839 is collected 

10 and credited to such Trust Fund under section 

11 1840, except that it shall be collected only 1 time 

12 per year. 

13 ‘‘(3) PAYMENT OF ENROLLMENT FEE BY STATE

14 FOR CERTAIN BENEFICIARIES.—

15 ‘‘(A) IN GENERAL.—The Secretary shall 

16 establish an arrangement under which a State 

17 may provide for payment of some or all of the 

18 enrollment fee for some or all low income en19 rollees in the State, as specified by the State 

20 under the arrangement. Insofar as such a pay21 ment arrangement is made with respect to an 

22 enrollee, the amount of the enrollment fee shall 

23 be paid directly by the State and shall not be 

24 collected under paragraph (2). In carrying out 

25 this paragraph, the Secretary may apply proce-
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1 dures similar to that applied under state agree2 ments under section 1843. 

3 ‘‘(B) NO FEDERAL MATCHING AVAILABLE

4 UNDER MEDICAID OR SCHIP.—Expenditures 

5 made by a State described in subparagraph (A) 

6 shall not be treated as State expenditures for 

7 purposes of Federal matching payments under 

8 titles XIX and XXI insofar as such expendi9 tures are for an enrollment fee under this sub10 section. 

11 ‘‘(4) DISTRIBUTION OF PORTION OF ENROLL12 MENT FEE.—Of the enrollment fee collected by the 

13 Secretary under this subsection with respect to a 

beneficiary, 2 14 ⁄3 of that fee shall be made available to 

15 the eligible entity selected by the eligible beneficiary. 

16 ‘‘(g) ISSUANCE OF CARD AND COORDINATION.—

17 Each eligible entity shall—

18 ‘‘(1) issue, in a uniform standard format 

19 specified by the Secretary, to each enrolled ben20 eficiary a card and an enrollment number that 

21 establishes proof of enrollment and that can be 

22 used in a coordinated manner—

23 ‘‘(A) to identify the eligible entity selected 

24 to provide access to negotiated prices under 

25 subsection (i); and 
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1 ‘‘(B) to make deposits to and withdrawals 

2 from a prescription drug account under section 

3 1807A; and 

4 ‘‘(2) provide for electronic methods to coordi5 nate with the accounts established under section 

6 1807A. 

7 ‘‘(h) ENROLLEE PROTECTIONS.—

8 ‘‘(1) GUARANTEED ISSUE AND NONDISCRIMINA9 TION.—

10 ‘‘(A) GUARANTEED ISSUE.—

11 ‘‘(i) IN GENERAL.—An eligible bene12 ficiary who is eligible to select an eligible 

13 entity under subsection (b) for prescription 

14 drug coverage under this section at a time 

15 during which selections are accepted under 

16 this section with respect to the coverage 

17 shall not be denied selection based on any 

18 health status-related factor (described in 

19 section 2702(a)(1) of the Public Health 

20 Service Act) or any other factor and may 

21 not be charged any selection or other fee 

22 as a condition of such acceptance. 

23 ‘‘(ii) MEDICARE ADVANTAGE LIMITA24 TIONS PERMITTED.—The provisions of 

25 paragraphs (2) and (3) (other than sub-
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1 paragraph (C)(i), relating to default enroll2 ment) of section 1851(g) (relating to pri3 ority and limitation on termination of elec4 tion) shall apply to selection of eligible en5 tities under this paragraph. 

6 ‘‘(B) NONDISCRIMINATION.—An eligible 

7 entity offering prescription drug coverage under 

8 this section shall not establish a service area in 

9 a manner that would discriminate based on 

10 health or economic status of potential enrollees. 

11 ‘‘(C) COVERAGE OF ALL PORTIONS OF A

12 STATE.—If an eligible entity with a contract 

13 under this section serves any part of a State it 

14 shall serve the entire State. 

15 ‘‘(2) DISSEMINATION OF INFORMATION.—

16 ‘‘(A) GENERAL INFORMATION.—An eligible 

17 entity with a contract under this section shall 

18 disclose, in a clear, accurate, and standardized 

19 form to each eligible beneficiary who has se20 lected the entity to provide access to negotiated 

21 prices under this section at the time of selection 

22 and at least annually thereafter, the informa23 tion described in section 1852(c)(1) relating to 

24 such prescription drug coverage. Such informa25 tion includes the following (in a manner de-
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1 signed to permit and promote competition 

2 among eligible entities): 

3 ‘‘(i) Summary information regarding 

4 negotiated prices (including discounts) for 

5 covered outpatient drugs. 

6 ‘‘(ii) Access to such prices through 

7 pharmacy networks. 

8 ‘‘(iii) How any formulary used by the 

9 eligible entity functions. 

10 ‘‘(B) DISCLOSURE UPON REQUEST OF

11 GENERAL COVERAGE, UTILIZATION, AND GRIEV12 ANCE INFORMATION.—Upon request of an eligi13 ble beneficiary, the eligible entity shall provide 

14 the information described in section 1852(c)(2) 

15 (other than subparagraph (D)) to such bene16 ficiary. 

17 ‘‘(C) RESPONSE TO BENEFICIARY QUES18 TIONS.—Each eligible entity offering prescrip19 tion drug coverage under this section shall have 

20 a mechanism (including a toll-free telephone 

21 number) for providing upon request specific in22 formation (such as negotiated prices, including 

23 discounts) to individuals who have selected the 

24 entity. The entity shall make available, through 

25 an Internet website and in writing upon re-
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1 quest, information on specific changes in its 

2 formulary. 

3 ‘‘(D) COORDINATION WITH PRESCRIPTION

4 DRUG ACCOUNT BENEFITS.—Each such eligible 

5 entity shall provide for coordination of such in6 formation as the Secretary may specify to carry 

7 out section 1807A. 

8 ‘‘(3) ACCESS TO COVERED BENEFITS.—

9 ‘‘(A) ENSURING PHARMACY ACCESS.—The 

10 provisions of subsection (c)(1) of section 

11 1860D–3 (other than payment provisions under 

12 section 1860D–8 with respect to sponsors under 

13 such subsection) shall apply to an eligible entity 

14 under this section in the same manner as they 

15 apply to a PDP sponsor under such section. 

16 ‘‘(B) ACCESS TO NEGOTIATED PRICES FOR

17 PRESCRIPTION DRUGS.—For requirements re18 lating to the access of an eligible beneficiary to 

19 negotiated prices (including applicable dis20 counts), see subsection (i). 

21 ‘‘(C) REQUIREMENTS ON DEVELOPMENT

22 AND APPLICATION OF FORMULARIES.—Insofar 

23 as an eligible entity with a contract under this 

24 part uses a formulary, the entity shall comply 

25 with the requirements of section 1860D–
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1 3(c)(3), insofar as the Secretary determines 

2 that such requirements can be implemented on 

3 a timely basis. 

4 ‘‘(4) COST AND UTILIZATION MANAGEMENT; 

5 QUALITY ASSURANCE; MEDICATION THERAPY MAN6 AGEMENT PROGRAM.—

7 ‘‘(A) IN GENERAL.—For purposes of pro8 viding access to negotiated benefits under sub9 section (i), the eligible entity shall have in place 

10 the programs and measure described in section 

11 1860D–3(d), including an effective cost and 

12 drug utilization management program, quality 

13 assurance measures and systems, and a pro14 gram to control fraud, abuse, and waste, inso15 far as the Secretary determines that such provi16 sions can be implemented on a timely basis. 

17 ‘‘(B) TREATMENT OF ACCREDITATION.—

18 Section 1852(e)(4) (relating to treatment of ac19 creditation) shall apply to the requirements for 

20 an endorsed program under this section with 

21 respect to the following requirements, in the 

22 same manner as they apply to Medicare Advan23 tage plans under part C with respect to the re24 quirements described in a clause of section 

25 1852(e)(4)(B): 
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1 ‘‘(i) Paragraph (3)(A) (relating to ac2 cess to covered benefits). 

3 ‘‘(ii) Paragraph (7) (relating to con4 fidentiality and accuracy of enrollee 

5 records). 

6 ‘‘(5) GRIEVANCE MECHANISM.—Each eligible 

7 entity shall provide meaningful procedures for hear8 ing and resolving grievances between the organiza9 tion consistent with the requirements of section 

10 1860D–3(e) insofar as they relate to PDP sponsors 

11 of prescription drug plans. 

12 ‘‘(6) BENEFICIARY SERVICES.—An eligible enti13 ty shall provide for its enrollees pharmaceutical sup14 port services, such as education and counseling, and 

15 services to prevent adverse drug interactions. 

16 ‘‘(7) COVERAGE DETERMINATIONS AND RECON17 SIDERATIONS.—An eligible entity shall meet the re18 quirements of paragraphs (1) through (3) of section 

19 1852(g) with respect to covered benefits under the 

20 prescription drug coverage it offers under this sec21 tion in the same manner as such requirements apply 

22 to a Medicare Advantage organization with respect 

23 to benefits it offers under a Medicare Advantage 

24 plan under part C. 
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1 ‘‘(8) CONFIDENTIALITY AND ACCURACY OF EN2 ROLLEE RECORDS.—An eligible entity shall meet the 

3 requirements of section 1852(h) with respect to en4 rollees under this section in the same manner as 

5 such requirements apply to a Medicare Advantage 

6 organization with respect to enrollees under part C. 

7 The eligible entity shall implement policies and pro8 cedures to safeguard the use and disclosure of en9 rollees’ individually identifiable health information in 

10 a manner consistent with the Federal regulations 

11 (concerning the privacy of individually identifiable 

12 health information) promulgated under section 

13 264(c) of the Health Insurance Portability and Ac14 countability Act of 1996. The eligible entity shall be 

15 treated as a covered entity for purposes of the provi16 sions of subpart E of part 164 of title 45, Code of 

17 Federal Regulations, adopted pursuant to the au18 thority of the Secretary under section 264(c) of the 

19 Health Insurance Portability and Accountability Act 

20 of 1996 (42 U.S. C. 1320d-2 note). 

21 ‘‘(9) PERIODIC REPORTS AND OVERSIGHT.—

22 The eligible entity shall submit to the Secretary peri23 odic reports on performance, utilization, finances, 

24 and such other matters as the Secretary may speci25 fy. The Secretary shall provide appropriate oversight 
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1 to ensure compliance of eligible entities with the re2 quirements of this subsection, including verification 

3 of the discounts and services provided. 

4 ‘‘(10) ADDITIONAL BENEFICIARY PROTEC5 TIONS.—The eligible entity meets such additional re6 quirements as the Secretary identifies to protect and 

7 promote the interest of enrollees, including require8 ments that ensure that enrollees are not charged 

9 more than the lower of the negotiated retail price or 

10 the usual and customary price. 

11 ‘‘(i) BENEFITS UNDER THE PROGRAM THROUGH

12 SAVINGS TO ENROLLEES THROUGH NEGOTIATED

13 PRICES.—

14 ‘‘(1) IN GENERAL.—Subject to paragraph (2), 

15 each eligible entity with a contract under this section 

16 shall provide each eligible beneficiary enrolled with 

17 the entity with access to negotiated prices (including 

18 applicable discounts). For purposes of this para19 graph, the term ‘prescription drugs’ is not limited to 

20 covered outpatient drugs, but does not include any 

21 over-the-counter drug that is not a covered out22 patient drug. The prices negotiated by an eligible en23 tity under this paragraph shall (notwithstanding any 

24 other provision of law) not be taken into account for 
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1 the purposes of establishing the best price under sec2 tion 1927(c)(1)(C). 

3 ‘‘(2) FORMULARY RESTRICTIONS.—Insofar as 

4 an eligible entity with a contract under this part 

5 uses a formulary, the negotiated prices (including 

6 applicable discounts) for prescription drugs shall 

7 only be available for drugs included in such for8 mulary. 

9 ‘‘(3) PROHIBITION ON APPLICATION ONLY TO

10 MAIL ORDER.—The negotiated prices under this sub11 section shall apply to prescription drugs that are 

12 available other than solely through mail order. 

13 ‘‘(4) PROHIBITION ON CHARGES FOR REQUIRED

14 SERVICES.—An eligible entity (and any pharmacy 

15 contracting with such entity for the provision of a 

16 discount under this section) may not charge a bene17 ficiary any amount for any services required to be 

18 provided by the entity under this section. 

19 ‘‘(5) DISCLOSURE.—The eligible entity offering 

20 the endorsed program shall disclose to the Secretary 

21 (in a manner specified by the Secretary) the extent 

22 to which discounts or rebates or other remuneration 

23 or price concessions made available to the entity by 

24 a manufacturer are passed through to enrollees 

25 through pharmacies and other dispensers or other-
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1 wise. The provisions of section 1927(b)(3)(D) shall 

2 apply to information disclosed to the Secretary 

3 under this paragraph in the same manner as such 

4 provisions apply to information disclosed under such 

5 section. 

6 ‘‘(6) PUBLIC DISCLOSURE OF PHARMACEUTICAL

7 PRICES FOR EQUIVALENT DRUGS.—Each eligible en8 tity shall provide that each pharmacy or other dis9 penser that arranges for the dispensing of a covered 

10 outpatient drug in connection with its endorsed pro11 gram shall inform the enrollee in that program at 

12 the time of purchase of the drug of any differential 

13 between the price of the prescribed drug to the en14 rollee and the price of the lowest cost available ge15 neric drug covered under the program that is thera16 peutically equivalent and bioequivalent. 

17 ‘‘(j) CONTRIBUTION INTO PRESCRIPTION DRUG AC18 COUNT.—

19 ‘‘(1) IN GENERAL.—In the case of an individual 

20 enrolled under this section, the Secretary shall—

21 ‘‘(A) establish a prescription drug account 

22 for the individual under section 1807A; and 

23 ‘‘(B) subject to paragraph (5), deposit into 

24 such account on a monthly or other periodic 

25 basis an amount that, on an annual basis, is 
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1 equivalent to the annual Federal contribution 

2 amount specified in paragraph (2) for the en3 rollee involved. 

4 ‘‘(2) ANNUAL FEDERAL CONTRIBUTION

5 AMOUNT.—Subject to paragraph (3), in the case of 

6 an accountholder whose income is—

7 ‘‘(A) not more than 135 percent of the 

8 poverty line, the annual Federal contribution 

9 amount for a year is $800; 

10 ‘‘(B) more than 135 percent, but not more 

11 than 150 percent, of the poverty line, the an12 nual Federal contribution amount for a year is 

13 $500; or 

14 ‘‘(C) more than 150 percent of the poverty 

15 line, the annual Federal contribution amount 

16 for a year is $100. 

17 ‘‘(3) INCOME ELIGIBILITY DETERMINATIONS.—

18 The determination of whether an individual residing 

19 in a State is a eligible for a contribution under para20 graph (1) shall be determined under the State med21 icaid plan for the State under section 1935(a) or by 

22 the Social Security Administration. In the case of a 

23 State that does not operate such a medicaid plan 

24 (either under title XIX or under a statewide waiver 

25 granted under section 1115), such determination 
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1 shall be made under arrangements made by the Sec2 retary. There are authorized to be appropriated to 

3 the Social Security Administration such sums as 

4 may be necessary for the determination of eligibility 

5 under this paragraph. 

6 ‘‘(4) PARTIAL YEAR.—Insofar as the provisions 

7 of this subsection and section 1807A are not imple8 mented for all months in 2004, the annual contribu9 tion amount under this subsection for 2004 shall be 

10 prorated to reflect the portion of that year in which 

11 such provisions are in effect. 

12 ‘‘(5) RESTRICTION ON CONTRIBUTIONS.—There 

13 shall only be an annual Federal contribution under 

14 paragraph (1) for an individual if the individual is 

15 not eligible for coverage of, or assistance for, out16 patient prescription drugs under any of the fol17 lowing: 

18 ‘‘(A) A medicaid plan under title XIX (in19 cluding under any waiver approved under sec20 tion 1115). 

21 ‘‘(B) Enrollment under a group health 

22 plan or health insurance coverage. 

23 ‘‘(C) Enrollment under a medicare supple24 mental insurance policy. 
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1 ‘‘(D) Chapter 55 of title 10, United States 

2 Code (relating to medical and dental care for 

3 members of the uniformed services). 

4 ‘‘(E) Chapter 17 of title 38, United States 

5 Code (relating to Veterans’ medical care). 

6 ‘‘(F) Enrollment under a plan under chap7 ter 89 of title 5, United States Code (relating 

8 to the Federal employees’ health benefits pro9 gram). 

10 ‘‘(G) The Indian Health Care Improve11 ment Act (25 U.S.C. 1601 et seq.). 

12 ‘‘(6) APPROPRIATION TO COVER NET PROGRAM

13 EXPENDITURES.—There are authorized to be appro14 priated from time to time, out of any moneys in the 

15 Treasury not otherwise appropriated, to the Federal 

16 Supplementary Medical Insurance Trust Fund es17 tablished under section 1841, an amount equal to 

18 the amount by which the benefits and administrative 

19 costs of providing the benefits under this section ex20 ceed the sum of the portion of the enrollment fees 

21 retained by the Secretary. 

22 ‘‘(k) DEFINITIONS.—In this part and section 1807A: 

23 ‘‘(1) COVERED OUTPATIENT DRUG.—
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1 ‘‘(A) IN GENERAL.—Except as provided in 

2 this paragraph, for purposes of this section, the 

3 term ‘covered outpatient drug’ means—

4 ‘‘(i) a drug that may be dispensed 

5 only upon a prescription and that is de6 scribed in subparagraph (A)(i) or (A)(ii) of 

7 section 1927(k)(2); or 

8 ‘‘(ii) a biological product described in 

9 clauses (i) through (iii) of subparagraph 

10 (B) of such section or insulin described in 

11 subparagraph (C) of such section and med12 ical supplies associated with the injection 

13 of insulin (as defined in regulations of the 

14 Secretary), 

15 and such term includes a vaccine licensed under 

16 section 351 of the Public Health Service Act 

17 and any use of a covered outpatient drug for a 

18 medically accepted indication (as defined in sec19 tion 1927(k)(6)). 

20 ‘‘(B) EXCLUSIONS.—

21 ‘‘(i) IN GENERAL.—Such term does 

22 not include drugs or classes of drugs, or 

23 their medical uses, which may be excluded 

24 from coverage or otherwise restricted 

25 under section 1927(d)(2), other than sub-
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1 paragraph (E) thereof (relating to smoking 

2 cessation agents), or under section 

3 1927(d)(3). 

4 ‘‘(ii) AVOIDANCE OF DUPLICATE COV5 ERAGE.—A drug prescribed for an indi6 vidual that would otherwise be a covered 

7 outpatient drug under this section shall 

8 not be so considered if payment for such 

9 drug is available under part A or B for an 

10 individual entitled to benefits under part A 

11 and enrolled under part B. 

12 ‘‘(C) APPLICATION OF FORMULARY RE13 STRICTIONS.—A drug prescribed for an indi14 vidual that would otherwise be a covered out15 patient drug under this section shall not be so 

16 considered under an endorsed program if the el17 igible entity offering the program excludes the 

18 drug under a formulary and a review of such 

19 exclusion is not successfully resolved under sub20 section (h)(5). 

21 ‘‘(D) APPLICATION OF GENERAL EXCLU22 SION PROVISIONS.—An eligible entity offering 

23 an endorsed program may exclude from quali24 fied prescription drug coverage any covered out25 patient drug—
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1 ‘‘(i) for which payment would not be 

2 made if section 1862(a) applied to part D; 

3 or 

4 ‘‘(ii) which are not prescribed in ac5 cordance with the program or this section. 

6 Such exclusions are determinations subject to 

7 review pursuant to subsection (h)(5). 

8 ‘‘(2) POVERTY LINE.—The term ‘poverty line’ 

9 means the income official poverty line (as defined by 

10 the Office of Management and Budget, and revised 

11 annually in accordance with section 673(2) of the 

12 Omnibus Budget Reconciliation Act of 1981) appli13 cable to a family of the size involved. 

14 ‘‘(l) AUTHORIZATION OF APPROPRIATIONS.—There 

15 are authorized to be appropriated such sums as may be 

16 necessary to carry out this section and section 1807A. 

17 ‘‘(m) INTERIM, FINAL REGULATORY AUTHORITY.—

18 In order to carry out this section and section 1807A in 

19 a timely manner, the Secretary may promulgate regula20 tions that take effect on an interim basis, after notice and 

21 pending opportunity for public comment. 

22 ‘‘PRESCRIPTION DRUG ACCOUNTS

23 ‘‘SEC. 1807A. ‘‘(a) ESTABLISHMENT OF AC24 COUNTS.—

25 ‘‘(1) IN GENERAL.—The Secretary shall estab26 lish and maintain for each eligible beneficiary who is 
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1 enrolled under section 1807 at the time of enroll2 ment a prescription drug account (in this section 

3 and section 1807 referred to as an ‘account’). 

4 ‘‘(2) RESERVE ACCOUNTS.—In cases described 

5 in subsections (b)(3)(A), (b)(3)(B)(i), and 

6 (b)(3)(B)(ii)(I), the Secretary shall establish and 

7 maintain for each surviving spouse who is not en8 rolled under section 1807 a reserve prescription drug 

9 account (in this section referred to as an ‘reserve ac10 count’). 

11 ‘‘(3) ACCOUNTHOLDER DEFINED.—In this sec12 tion and section 1807A, the term ‘accountholder’ 

13 means an individual for whom an account or reserve 

14 account has been established under this section. 

15 ‘‘(4) EXPENDITURES FROM ACCOUNT.—Noth16 ing in this section shall be construed as requiring 

17 the Federal Government to obligate funds for 

18 amounts in any account until such time as a with19 drawal from such account is authorized under this 

20 section. 

21 ‘‘(b) USE OF ACCOUNTS.—

22 ‘‘(1) APPLICATION OF ACCOUNT.—Except as 

23 provided in this subsection, amounts credited to an 

24 account shall only be used for the purchase of cov25 ered outpatient drugs for the accountholder. Any 
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1 amounts remaining at the end of a year remain 

2 available for expenditures in succeeding years. 

3 ‘‘(2) ACCOUNT RULES FOR PUBLIC AND PRI4 VATE CONTRIBUTIONS.—The Secretary shall estab5 lish a ongoing process for the determination of the 

6 amount in each account that is attributable to public 

7 and private contributions (including spousal rollover 

8 contributions) based on the following rules: 

9 ‘‘(A) TREATMENT OF EXPENDITURES.—

10 Expenditures from the account shall—

11 ‘‘(i) first be counted against any pub12 lic contribution; and 

13 ‘‘(ii) next be counted against private 

14 contributions. 

15 ‘‘(B) TREATMENT OF SPOUSAL ROLLOVER

16 CONTRIBUTIONS.—With respect to any spousal 

17 rollover contribution, the portions of such con18 tribution that were attributable to public and 

19 private contributions at the time of its distribu20 tion under subsection (b)(3) shall be treated 

21 under this paragraph as if it were a direct pub22 lic or private contribution, respectively, into the 

23 account of the spouse. 

24 ‘‘(3) DEATH OF ACCOUNTHOLDER.—In the case 

25 of the death of an accountholder, the balance in any 
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1 account (taking into account liabilities accrued be2 fore the time of death) shall be distributed as fol3 lows: 

4 ‘‘(A) TREATMENT OF PUBLIC CONTRIBU5 TIONS.—If the accountholder is married at the 

6 time of death, the amount in the account that 

7 is attributable to public contributions shall be 

8 credited to the account (if any) of the surviving 

9 spouse of the accountholder (or, if the surviving 

10 spouse is not an eligible beneficiary, into a re11 serve account to be held for when that spouse 

12 becomes an eligible beneficiary). 

13 ‘‘(B) TREATMENT OF PRIVATE CONTRIBU14 TIONS.—The amount in the account that is at15 tributable to private contributions shall be dis16 tributed as follows: 

17 ‘‘(i) DESIGNATION OF DIS18 TRIBUTEE.—If the accountholder has 

19 made a designation, in a form and manner 

20 specified by the Secretary, for the distribu21 tion of some or all of such amount, such 

22 amount shall be distributed in accordance 

23 with the designation. Such designation 

24 may provide for the distribution into an 
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1 account (including a reserve account) of a 

2 surviving spouse. 

3 ‘‘(ii) ABSENCE OF DESIGNATION.—In4 sofar as the accountholder has not made 

5 such a designation—

6 ‘‘(I) SURVIVING SPOUSE.—If the 

7 accountholder was married at the time 

8 of death, the remainder shall be cred9 ited to an account (including a reserve 

10 account) of the accountholder’s sur11 viving spouse. 

12 ‘‘(II) NO SURVIVING SPOUSE.—If 

13 the accountholder was not so married, 

14 the remainder shall be distributed to 

15 the estate of the accountholder and 

16 distributed as provided by law. 

17 ‘‘(4) USE OF ACCOUNT FOR PREMIUMS FOR EN18 ROLLMENT IN A MEDICARE ADVANTAGE PLAN.—

19 During any period in which an accountholder is en20 rolled in a Medicare Advantage plan under part C, 

21 the balance in the account may be used and applied 

22 only to reimburse the amount of the premium (if 

23 any) established for enrollment under the plan. 

24 ‘‘(5) APPLICATION TO MEDICAID EXPENSES IN

25 CERTAIN CASES.—
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1 ‘‘(A) IN GENERAL.—Except as provided in 

2 this paragraph, an account shall be treated as 

3 an asset for purposes of establishing eligibility 

4 for medical assistance under title XIX. 

5 ‘‘(B) APPLICATION TOWARDS

6 SPENDDOWN.—In the case of an accountholder 

7 who is applying for such medical assistance and 

8 who would, but for the application of subpara9 graph (A), be eligible for such assistance—

10 ‘‘(i) subparagraph (A) shall not apply; 

11 and 

12 ‘‘(ii) the account shall be available (in 

13 accordance with a procedure established by 

14 the Secretary) to the State to reimburse 

15 the State for any expenditures made under 

16 the plan for such medical assistance. 

17 ‘‘(c) AMOUNTS CREDITED IN ACCOUNT.—The Sec18 retary shall credit to a prescription drug account of an 

19 eligible beneficiary the following amounts: 

20 ‘‘(1) PUBLIC CONTRIBUTIONS.—The following 

21 contributions (each referred to in this section as a 

22 ‘public contribution’): 

23 ‘‘(A) FEDERAL CONTRIBUTIONS.—Federal 

24 contributions provided under subsection (d). 
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1 ‘‘(B) STATE CONTRIBUTIONS.—Contribu2 tions made by a State under subsection (f). 

3 ‘‘(2) SPOUSAL ROLLOVER CONTRIBUTION.—A 

4 distribution from a deceased spouse under sub5 section (b)(3) (referred to in this section as a ‘spous6 al rollover contribution’). 

7 ‘‘(3) PRIVATE CONTRIBUTIONS.—The following 

8 contributions (each referred to in this section as a 

9 ‘private contribution’): 

10 ‘‘(A) EMPLOYER AND INDIVIDUAL CON11 TRIBUTIONS.—Contributions made under sub12 section (e). 

13 ‘‘(B) OTHER INDIVIDUAL CONTRIBU14 TIONS.—Contributions made by accountholder 

15 other than under subsection (e). 

16 ‘‘(C) CONTRIBUTIONS BY NONPROFIT OR17 GANIZATIONS.—Contributions made by a chari18 table, not-for-profit organization (that may be a 

19 religious organization). 

20 Except as provided in this subsection, no amounts may 

21 be contributed to, or credited to, a prescription drug ac22 count. 

23 ‘‘(d) FEDERAL CONTRIBUTION.—For Federal con24 tributions in the case of accountholders, see section 

25 1807(j). 
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1 ‘‘(e) EMPLOYER AND INDIVIDUAL CONTRIBU2 TIONS.—

3 ‘‘(1) EMPLOYMENT-RELATED CONTRIBUTION.—

4 ‘‘(A) IN GENERAL.—In the case of any 

5 accountholder who is a beneficiary or partici6 pant in a group health plan (including a multi7 employer plan), whether as an employee, former 

8 employee or otherwise, including as a dependent 

9 of an employee or former employee, the plan 

10 may make a contribution into the 

11 accountholder’s account (but not into a reserve 

12 account of the accountholder). 

13 ‘‘(B) LIMITATION.—The total amount that 

14 may be contributed under subparagraph (A) 

15 under a plan to an account during any year 

16 may not exceed $5,000. 

17 ‘‘(C) CONDITION.—A group health plan 

18 may condition a contribution with respect to an 

19 accountholder under this paragraph on the 

20 accountholder’s enrollment under section 1807 

21 with an eligible entity that is recognized or ap22 proved by that plan. 

23 ‘‘(2) OTHER INDIVIDUALS.—

24 ‘‘(A) IN GENERAL.—Any individual may 

25 also contribute to the account of that individual 
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1 or the account of any other individual under 

2 this subsection. 

3 ‘‘(B) LIMITATION.—The total amount that 

4 may be contributed to an account under sub5 paragraph (A) during any year may not exceed 

6 $5,000, regardless of who makes such contribu7 tion. 

8 ‘‘(3) NO CONTRIBUTION PERMITTED TO RE9 SERVE ACCOUNT.—No contribution may be made 

10 under this subsection to a reserve account. 

11 ‘‘(4) FORM AND MANNER OF CONTRIBUTION.—

12 The Secretary shall specify the form and manner of 

13 contributions under this subsection. 

14 ‘‘(f) STATE CONTRIBUTIONS.—

15 ‘‘(1) IN GENERAL.—A State may enter into ar16 rangements with the Secretary for the crediting of 

17 amounts for accountholders. 

18 ‘‘(2) FORM AND MANNER OF CONTRIBUTION.—

19 The Secretary shall specify the form and manner of 

20 contributions under this subsection. 

21 ‘‘(3) MEDICAID TREATMENT.—Amounts cred22 ited under this subsection shall not be treated as 

23 medical assistance for purposes of title XIX or child 

24 health assistance for purposes of title XXI for indi-
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1 viduals who are not qualifying low income enroll2 ees.’’. 

3 (b) EXCLUSION OF COSTS FROM DETERMINATION OF

4 PART B MONTHLY PREMIUM.—Section 1839(g) (42 

5 U.S.C. 1395r(g)) is amended—

6 (1) by striking ‘‘attributable to the application 

7 of section’’ and inserting ‘‘attributable to—

8 ‘‘(1) the application of section’’; 

9 (2) by striking the period and inserting ‘‘; 

10 and’’; and 

11 (3) by adding at the end the following new 

12 paragraph: 

13 ‘‘(2) the Voluntary Medicare Outpatient Pre14 scription Drug Discount and Security Program 

15 under sections 1807 and 1807A.’’. 

16 (c) STATE ELIGIBILITY DETERMINATIONS.—Section 

17 1935, as added by section 103(a)(2), is amended—

18 (1) in subsection (a)(1), by inserting ‘‘and of 

19 eligibility for an annual Federal contribution amount 

20 under section 1807A(j)(2)’’ before the semicolon; 

21 and 

22 (2) in subsection (a)(3), by inserting ‘‘and sec23 tions 1807 and 1807A’’ after ‘‘1860D–7)’’.

24 (d) REPORT ON PROGRESS IN IMPLEMENTATION OF

25 PRESCRIPTION DRUG BENEFIT.—Not later than March 1, 
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1 2005, the Administrator shall submit a report to Congress 

2 on the progress that has been made in implementing the 

3 prescription drug benefit under this title. The Adminis4 trator shall include in the report specific steps that have 

5 been taken, and that need to be taken, to ensure a timely 

6 start of the program on January 1, 2006. 

7 SEC. 106. DISCLOSURE OF RETURN INFORMATION FOR 

8 PURPOSES OF CARRYING OUT MEDICARE 

9 CATASTROPHIC PRESCRIPTION DRUG PRO10 GRAM. 

11 (a) DISCLOSURE.—

12 (1) IN GENERAL.—Subsection (l) of section 

13 6103 of the Internal Revenue Code of 1986 (relating 

14 to disclosure of returns and return information for 

15 purposes other than tax administration) is amended 

16 by adding at the end the following new paragraph: 

17 ‘‘(19) DISCLOSURE OF RETURN INFORMATION

18 FOR PURPOSES OF CARRYING OUT MEDICARE CATA19 STROPHIC PRESCRIPTION DRUG PROGRAM.—

20 ‘‘(A) IN GENERAL.—The Secretary may, 

21 upon written request from the Secretary of 

22 Health and Human Services under section 

23 1860D–2(b)(4)(E)(i) of the Social Security Act, 

24 disclose to officers and employees of the De25 partment of Health and Human Services with 
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1 respect to a specified taxpayer for the taxable 

2 year specified by the Secretary of Health and 

3 Human Services in such request—

4 ‘‘(i) the taxpayer identity information 

5 with respect to such taxpayer, and 

6 ‘‘(ii) the adjusted gross income of 

7 such taxpayer for the taxable year (or, if 

8 less, the income threshold limit specified in 

9 section 1860D–2(b)(4)(D)(ii) for the cal10 endar year specified by such Secretary in 

11 such request). 

12 ‘‘(B) SPECIFIED TAXPAYER.—For pur13 poses of this paragraph, the term ‘specified tax14 payer’ means any taxpayer who—

15 ‘‘(i) is identified by the Secretary of 

16 Health and Human Services in the request 

17 referred to in subparagraph (A), and 

18 ‘‘(ii) either—

19 ‘‘(I) has an adjusted gross in20 come for the taxable year referred to 

21 in subparagraph (A) in excess of the 

22 income threshold specified in section 

23 1860D–2(b)(4)(D)(ii) of such Act for 

24 the calendar year referred to in such 

25 subparagraph, or 
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1 ‘‘(II) is identified by such Sec2 retary under subparagraph (A) as 

3 being an individual who elected to use 

4 more recent information under section 

5 1860D–2(b)(4)(D)(v) of such Act. 

6 ‘‘(C) JOINT RETURNS.—In the case of a 

7 joint return, the Secretary shall, for purposes of 

8 applying this paragraph, treat each spouse as a 

9 separate taxpayer having an adjusted gross in10 come equal to one-half of the adjusted gross in11 come determined with respect to such return. 

12 ‘‘(D) RESTRICTION ON USE OF DISCLOSED

13 INFORMATION.—Return information disclosed 

14 under subparagraph (A) may be used by offi15 cers and employees of the Department of 

16 Health and Human Services only for the pur17 pose of administering the prescription drug ben18 efit under title XVIII of the Social Security 

19 Act. Such officers and employees may disclose 

20 the annual out-of-pocket threshold which ap21 plies to an individual under such part to the en22 tity that offers the plan referred to in section 

23 1860D–2(b)(4)(E)(ii) of such Act in which such 

24 individual is enrolled. Such sponsor may use 
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1 such information only for purposes of admin2 istering such benefit.’’. 

3 (2) JOINT RETURN PERMITTED IN CASE OF

4 SURVIVING SPOUSES.—Under section 6103(a)(3) of 

5 the Internal Revenue Code of 1986, a surviving 

6 spouse may file a joint return for the taxable year 

7 in which one spouse dies. 

8 (b) CONFIDENTIALITY.—Paragraph (3) of section 

9 6103(a) of such Code is amended by striking ‘‘or (16)’’ 

10 and inserting ‘‘(16), or (19)’’. 

11 (c) PROCEDURES AND RECORDKEEPING RELATED

12 TO DISCLOSURES.—Subsection (p)(4) of section 6103 of 

13 such Code is amended by striking ‘‘any other person de14 scribed in subsection (l)(16) or (17)’’ each place it appears 

15 and inserting ‘‘any other person described in subsection 

16 (l)(16), (17), or (19)’’. 

17 (d) UNAUTHORIZED DISCLOSURE.—Paragraph (2) of 

18 section 7213(a) of such Code is amended by striking ‘‘or 

19 (16)’’ and inserting ‘‘(16), or (19)’’. 

20 (e) UNAUTHORIZED INSPECTION.—Subparagraph 

21 (B) of section 7213A(a)(1) of such Code is amended by 

22 inserting ‘‘or (19)’’ after ‘‘subsection (l)(18)’’.

23 SEC. 107. STATE PHARMACEUTICAL ASSISTANCE TRANSI24 TION COMMISSION. 

25 (a) ESTABLISHMENT.—
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1 (1) IN GENERAL.—There is established, as of 

2 the first day of the third month beginning after the 

3 date of the enactment of this Act, a State Pharma4 ceutical Assistance Transition Commission (in this 

5 section referred to as the ‘‘Commission’’) to develop 

6 a proposal for addressing the unique transitional 

7 issues facing State pharmaceutical assistance pro8 grams, and program participants, due to the imple9 mentation of the medicare prescription drug pro10 gram under part D of title XVIII of the Social Secu11 rity Act. 

12 (2) DEFINITIONS.—For purposes of this sec13 tion: 

14 (A) STATE PHARMACEUTICAL ASSISTANCE

15 PROGRAM DEFINED.—The term ‘‘State pharma16 ceutical assistance program’’ means a program 

17 (other than the medicaid program) operated by 

18 a State (or under contract with a State) that 

19 provides as of the date of the enactment of this 

20 Act assistance to low-income medicare bene21 ficiaries for the purchase of prescription drugs. 

22 (B) PROGRAM PARTICIPANT.—The term 

23 ‘‘program participant’’ means a low-income 

24 medicare beneficiary who is a participant in a 

25 State pharmaceutical assistance program. 
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1 (b) COMPOSITION.—The Commission shall include 

2 the following: 

3 (1) A representative of each governor of each 

4 State that the Secretary identifies as operating on a 

5 statewide basis a State pharmaceutical assistance 

6 program that provides for eligibility and benefits 

7 that are comparable or more generous than the low8 income assistance eligibility and benefits offered 

9 under part D of title XVIII of the Social Security 

10 Act. 

11 (2) Representatives from other States that the 

12 Secretary identifies have in operation other State 

13 pharmaceutical assistance programs, as appointed by 

14 the Secretary. 

15 (3) Representatives of organizations that have 

16 an inherent interest in program participants or the 

17 program itself, as appointed by the Secretary but 

18 not to exceed the number of representatives under 

19 paragraphs (1) and (2). 

20 (4) Representatives of Medicare Advantage or21 ganizations and other private health insurance plans, 

22 as appointed by the Secretary. 

23 (5) The Secretary (or the Secretary’s designee) 

24 and such other members as the Secretary may speci25 fy 
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1 The Secretary shall designate a member to serve as chair 

2 of the Commission and the Commission shall meet at the 

3 call of the chair. 

4 (c) DEVELOPMENT OF PROPOSAL.—The Commission 

5 shall develop the proposal described in subsection (a) in 

6 a manner consistent with the following principles: 

7 (1) Protection of the interests of program par8 ticipants in a manner that is the least disruptive to 

9 such participants and that includes a single point of 

10 contact for enrollment and processing of benefits. 

11 (2) Protection of the financial and flexibility in12 terests of States so that States are not financially 

13 worse off as a result of the enactment of this title. 

14 (3) Principles of medicare modernization pro15 vided under title II of this Act. 

16 (d) REPORT.—By not later than January 1, 2005, 

17 the Commission shall submit to the President and the 

18 Congress a report that contains a detailed proposal (in19 cluding specific legislative or administrative recommenda20 tions, if any) and such other recommendations as the 

21 Commission deems appropriate. 

22 (e) SUPPORT.—The Secretary shall provide the Com23 mission with the administrative support services necessary 

24 for the Commission to carry out its responsibilities under 

25 this section. 
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1 (f) TERMINATION.—The Commission shall terminate 

2 30 days after the date of submission of the report under 

3 subsection (d). 

4 SEC. 108. ADDITIONAL REQUIREMENTS FOR ANNUAL FI5 NANCIAL REPORT AND OVERSIGHT ON MEDI6 CARE PROGRAM, INCLUDING PRESCRIPTION 

7 DRUG SPENDING. 

8 (a) IN GENERAL.—Section 1817 (42 U.S.C. 1395i) 

9 is amended by adding at the end the following new sub10 section: 

11 ‘‘(l) COMBINED REPORT ON OPERATION AND STATUS

12 OF THE TRUST FUND, THE FEDERAL SUPPLEMENTARY

13 MEDICAL INSURANCE TRUST FUND, AND MEDICARE

14 PRESCRIPTION DRUG TRUST FUND.—

15 ‘‘(1) IN GENERAL.—In addition to the duty of 

16 the Board of Trustees to report to Congress under 

17 subsection (b), on the date the Board submits the 

18 report required under subsection (b)(2), the Board 

19 shall submit to Congress a report on the operation 

20 and status of the Trust Fund, the Federal Supple21 mentary Medical Insurance Trust Fund established 

22 under section 1841, and the Medicare Prescription 

23 Drug Trust Fund under section 1860D–9(a) (in this 

24 subsection collectively referred to as the ‘Trust 
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1 Funds’). Such report shall included the following in2 formation: 

3 ‘‘(A) OVERALL SPENDING FROM THE GEN4 ERAL FUND OF THE TREASURY.—A statement 

5 of total amounts obligated during the preceding 

6 fiscal year from the General Revenues of the 

7 Treasury to the Trust Funds for payment for 

8 benefits covered under this title, stated in terms 

9 of the total amount and in terms of the per10 centage such amount bears to all other amounts 

11 obligated from such General Revenues during 

12 such fiscal year. 

13 ‘‘(B) HISTORICAL OVERVIEW OF SPEND14 ING.—From the date of the inception of the 

15 program of insurance under this title through 

16 the fiscal year involved, a statement of the total 

17 amounts referred to in subparagraph (A). 

18 ‘‘(C) 10-YEAR AND 75-YEAR PROJEC19 TIONS.—An estimate of total amounts referred 

20 to in subparagraph (A) required to be obligated 

21 for payment for benefits covered under this title 

22 for each of the 10 fiscal years succeeding the 

23 fiscal year involved and for the 75-year period 

24 beginning with the succeeding fiscal year. 
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1 ‘‘(D) RELATION TO GDP GROWTH.—A 

2 comparison of the rate of growth of the total 

3 amounts referred to in subparagraph (A) to the 

4 rate of growth in the gross domestic product for 

5 the same period. 

6 ‘‘(2) PUBLICATION.—Each report submitted 

7 under paragraph (1) shall be published jointly by the 

8 Committee on Ways and Means and the Committee 

9 on Energy and Commerce as a public document and 

10 shall be made available by such Committees on the 

11 Internet.’’. 

12 (b) EFFECTIVE DATE.—The amendment made by 

13 subsection (a) shall apply with respect to fiscal years be14 ginning on or after the date of the enactment of this Act.

15 TITLE II—MEDICARE ENHANCED 

16 FEE-FOR-SERVICE AND MEDI17 CARE ADVANTAGE PRO18 GRAMS; MEDICARE COMPETI19 TION 

20 SEC. 200. MEDICARE MODERNIZATION AND REVITALIZA21 TION. 

22 This title provides for—

23 (1) establishment of the medicare enhanced fee24 for-service (EFFS) program under which medicare 

25 beneficiaries are provided access to a range of en-
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1 hanced fee-for-service (EFFS) plans that may use 

2 preferred provider networks to offer an enhanced 

3 range of benefits; 

4 (2) establishment of a Medicare Advantage pro5 gram that offers improved managed care plans with 

6 coordinated care; and 

7 (3) competitive bidding, in the style of the Fed8 eral Employees Health Benefits program (FEHBP), 

9 among enhanced fee-for-service plans and Medicare 

10 Advantage plans in order to promote greater effi11 ciency and responsiveness to medicare beneficiaries.

12 Subtitle A—Medicare Enhanced 

13 Fee-for-Service Program 

14 SEC. 201. ESTABLISHMENT OF ENHANCED FEE-FOR-SERV15 ICE (EFFS) PROGRAM UNDER MEDICARE. 

16 (a) IN GENERAL.—Title XVIII, as amended by sec17 tion 101(a), is amended—

18 (1) by redesignating part E as part F; and 

19 (2) by inserting after part D the following new 

20 part:

21 ‘‘PART E—ENHANCED FEE-FOR-SERVICE PROGRAM

22 ‘‘OFFERING OF ENHANCED FEE-FOR-SERVICE PLANS

23 THROUGHOUT THE UNITED STATES

24 ‘‘SEC. 1860E–1. (a) ESTABLISHMENT OF PRO25 GRAM.—
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1 ‘‘(1) IN GENERAL.—The Administrator shall es2 tablish under this part beginning January 1, 2006, 

3 an enhanced fee-for-service program under which en4 hanced fee-for-service plans (as defined in subsection 

5 (b)) are offered to EFFS-eligible individuals (as so 

6 defined) in EFFS regions throughout the United 

7 States. 

8 ‘‘(2) EFFS REGIONS.—For purposes of this 

9 part the Administrator shall establish EFFS regions 

10 throughout the United States by dividing the entire 

11 United States into at least 10 such regions. Before 

12 establishing such regions, the Administrator shall 

13 conduct a market survey and analysis, including an 

14 examination of current insurance markets, to deter15 mine how the regions should be established. The re16 gions shall be established in a manner to take into 

17 consideration maximizing full access for all EFFS18 eligible individuals, especially those residing in rural 

19 areas. 

20 ‘‘(b) DEFINITIONS.—For purposes of this part: 

21 ‘‘(1) EFFS ORGANIZATION.—The ‘EFFS orga22 nization’ means an entity that the Administrator 

23 certifies as meeting the requirements and standards 

24 applicable to such organization under this part. 
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1 ‘‘(2) ENHANCED FEE-FOR-SERVICE PLAN; EFFS

2 PLAN.—The terms ‘enhanced fee-for-service plan’ 

3 and ‘EFFS plan’ mean health benefits coverage of4 fered under a policy, contract, or plan by an EFFS 

5 organization pursuant to and in accordance with a 

6 contract pursuant to section 1860E–4(c), but only if 

7 the plan provides either fee-for-service coverage de8 scribed in the following subparagraph (A) or pre9 ferred provider coverage described in the following 

10 subparagraph (B): 

11 ‘‘(A) FEE-FOR-SERVICE COVERAGE.—The 

12 plan—

13 ‘‘(i) reimburses hospitals, physicians, 

14 and other providers at a rate determined 

15 by the plan on a fee-for-service basis with16 out placing the provider at financial risk; 

17 ‘‘(ii) does not vary such rates for such 

18 a provider based on utilization relating to 

19 such provider; and 

20 ‘‘(iii) does not restrict the selection of 

21 providers among those who are lawfully au22 thorized to provide the covered services 

23 and agree to accept the terms and condi24 tions of payment established by the plan. 
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1 ‘‘(B) PREFERRED PROVIDER COVERAGE.—

2 The plan—

3 ‘‘(i) has a network of providers that 

4 have agreed to a contractually specified re5 imbursement for covered benefits with the 

6 organization offering the plan; and 

7 ‘‘(ii) provides for reimbursement for 

8 all covered benefits regardless of whether 

9 such benefits are provided within such net10 work of providers. 

11 ‘‘(3) EFFS ELIGIBLE INDIVIDUAL.—The term 

12 ‘EFFS eligible individual’ means an eligible indi13 vidual described in section 1851(a)(3). 

14 ‘‘(4) EFFS REGION.—The term ‘EFFS region’ 

15 means a region established under subsection (a)(2). 

16 ‘‘(c) APPLICATION OF CERTAIN ELIGIBILITY, EN17 ROLLMENT, ETC. REQUIREMENTS.—The provisions of 

18 section 1851 (other than subsection (h)(4)(A)) shall apply 

19 to EFFS plans offered by an EFFS organization in an 

20 EFFS region, including subsection (g) (relating to guar21 anteed issue and renewal). 

22 ‘‘OFFERING OF ENHANCED FEE-FOR-SERVICE (EFFS)

23 PLANS

24 ‘‘SEC. 1860E–2. (a) PLAN REQUIREMENTS.—No 

25 EFFS plan may be offered under this part in an EFFS 

26 region unless the requirements of this part are met with 
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1 respect to the plan and EFFS organization offering the 

2 plan. 

3 ‘‘(b) AVAILABLE TO ALL EFFS BENEFICIARIES IN

4 THE ENTIRE REGION.—With respect to an EFFS plan 

5 offered in an EFFS region—

6 ‘‘(1) IN GENERAL.—The plan must be offered 

7 to all EFFS-eligible individuals residing in the re8 gion. 

9 ‘‘(2) ASSURING ACCESS TO SERVICES.—The 

10 plan shall comply with the requirements of section 

11 1852(d)(4). 

12 ‘‘(c) BENEFITS.—

13 ‘‘(1) IN GENERAL.—Each EFFS plan shall pro14 vide to members enrolled in the plan under this part 

15 benefits, through providers and other persons that 

16 meet the applicable requirements of this title and 

17 part A of title XI—

18 ‘‘(A) for the items and services described 

19 in section 1852(a)(1); 

20 ‘‘(B) that are uniform for the plan for all 

21 EFFS eligible individuals residing in the same 

22 EFFS region; 

23 ‘‘(C) that include a single deductible appli24 cable to benefits under parts A and B and in-
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1 clude a catastrophic limit on out-of-pocket ex2 penditures for such covered benefits; and 

3 ‘‘(D) that include benefits for prescription 

4 drug coverage for each enrollee who elects 

5 under part D to be provided qualified prescrip6 tion drug coverage through the plan.

7 ‘‘(2) DISAPPROVAL AUTHORITY.—The Adminis8 trator shall not approve a plan of an EFFS organi9 zation if the Administrator determines (pursuant to 

10 the last sentence of section 1852(b)(1)(A)) that the 

11 benefits are designed to substantially discourage en12 rollment by certain EFFS eligible individuals with 

13 the organization. 

14 ‘‘(d) OUTPATIENT PRESCRIPTION DRUG COV15 ERAGE.—For rules concerning the offering of prescription 

16 drug coverage under EFFS plans, see the amendment 

17 made by section 102(b) of the Medicare Prescription Drug 

18 and Modernization Act of 2003. 

19 ‘‘(e) OTHER ADDITIONAL PROVISIONS.—The provi20 sions of section 1852 (other than subsection (a)(1)) shall 

21 apply under this part to EFFS plans. For the application 

22 of chronic care improvement provisions, see the amend23 ment made by section 722(b). 

24 ‘‘SUBMISSION OF BIDS; BENEFICIARY SAVINGS; PAYMENT

25 OF PLANS

26 ‘‘SEC. 1860E–3. (a) SUBMISSION OF BIDS.—
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1 ‘‘(1) REQUIREMENT.—

2 ‘‘(A) EFFS MONTHLY BID AMOUNT.—For 

3 each year (beginning with 2006), an EFFS or4 ganization shall submit to the Administrator an 

5 EFFS monthly bid amount for each EFFS 

6 plan offered in each region. Each such bid is re7 ferred to in this section as the ‘EFFS monthly 

8 bid amount’. 

9 ‘‘(B) FORM.—Such bid amounts shall be 

10 submitted for each such plan and region in a 

11 form and manner and time specified by the Ad12 ministrator, and shall include information de13 scribed in paragraph (3)(A).

14 ‘‘(2) UNIFORM BID AMOUNTS.—Each EFFS 

15 monthly bid amount submitted under paragraph (1) 

16 by an EFFS organization under this part for an 

17 EFFS plan in an EFFS region may not vary among 

18 EFFS eligible individuals residing in the EFFS re19 gion involved. 

20 ‘‘(3) SUBMISSION OF BID AMOUNT INFORMA21 TION BY EFFS ORGANIZATIONS.—

22 ‘‘(A) INFORMATION TO BE SUBMITTED.—

23 The information described in this subparagraph 

24 is as follows: 
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1 ‘‘(i) The EFFS monthly bid amount 

2 for provision of all items and services 

3 under this part, which amount shall be 

4 based on average costs for a typical bene5 ficiary residing in the region, and the actu6 arial basis for determining such amount. 

7 ‘‘(ii) The proportions of such bid 

8 amount that are attributable to—

9 ‘‘(I) the provision of statutory 

10 non-drug benefits (such portion re11 ferred to in this part as the 

12 ‘unadjusted EFFS statutory non-drug 

13 monthly bid amount’); 

14 ‘‘(II) the provision of statutory 

15 prescription drug benefits; and 

16 ‘‘(III) the provision of non-statu17 tory benefits; 

18 and the actuarial basis for determining 

19 such proportions. 

20 ‘‘(iii) Such additional information as 

21 the Administrator may require to verify 

22 the actuarial bases described in clauses (i) 

23 and (ii). 

24 ‘‘(B) STATUTORY BENEFITS DEFINED.—

25 For purposes of this part: 
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1 ‘‘(i) The term ‘statutory non-drug 

2 benefits’ means benefits under section 

3 1852(a)(1). 

4 ‘‘(ii) The term ‘statutory prescription 

5 drug benefits’ means benefits under part 

6 D. 

7 ‘‘(iii) The term ‘statutory benefits’ 

8 means statutory prescription drug benefits 

9 and statutory non-drug benefits.

10 ‘‘(C) ACCEPTANCE AND NEGOTIATION OF

11 BID AMOUNTS.—The Administrator has the au12 thority to negotiate regarding monthly bid 

13 amounts submitted under subparagraph (A) 

14 (and the proportion described in subparagraph 

15 (A)(ii)), and for such purpose, the Adminis16 trator has negotiation authority that the Direc17 tor of the Office of Personnel Management has 

18 with respect to health benefits plans under 

19 chapter 89 of title 5, United States Code. The 

20 Administrator may reject such a bid amount or 

21 proportion if the Administrator determines that 

22 such amount or proportion is not supported by 

23 the actuarial bases provided under subpara24 graph (A). 
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1 ‘‘(D) CONTRACT AUTHORITY.—The Ad2 ministrator may, taking into account the 

3 unadjusted EFFS statutory non-drug monthly 

4 bid amounts accepted under subparagraph (C), 

5 enter into contracts for the offering of EFFS 

6 plans by up to 3 EFFS organizations in any re7 gion.

8 ‘‘(b) PROVISION OF BENEFICIARY SAVINGS FOR CER9 TAIN PLANS.—

10 ‘‘(1) BENEFICIARY REBATE RULE.—

11 ‘‘(A) REQUIREMENT.—The EFFS plan 

12 shall provide to the enrollee a monthly rebate 

13 equal to 75 percent of the average per capita 

14 savings (if any) described in paragraph (2) ap15 plicable to the plan and year involved. 

16 ‘‘(B) FORM OF REBATE.—A rebate re17 quired under this paragraph shall be provided—

18 ‘‘(i) through the crediting of the 

19 amount of the rebate towards the EFFS 

20 monthly prescription drug beneficiary pre21 mium (as defined in section 1860E–

22 4(a)(3)(B)) and the EFFS monthly sup23 plemental beneficiary premium (as defined 

24 in section 1860E–4(a)(3)(C)); 
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1 ‘‘(ii) through a direct monthly pay2 ment (through electronic funds transfer or 

3 otherwise); or 

4 ‘‘(iii) through other means approved 

5 by the Medicare Benefits Administrator, 

6 or any combination thereof. 

7 ‘‘(2) COMPUTATION OF AVERAGE PER CAPITA

8 MONTHLY SAVINGS.—For purposes of paragraph 

9 (1)(A), the average per capita monthly savings re10 ferred to in such paragraph for an EFFS plan and 

11 year is computed as follows: 

12 ‘‘(A) DETERMINATION OF REGION-WIDE

13 AVERAGE RISK ADJUSTMENT.—

14 ‘‘(i) IN GENERAL.—The Medicare 

15 Benefits Administrator shall determine, at 

16 the same time rates are promulgated under 

17 section 1853(b)(1) (beginning with 2006), 

18 for each EFFS region the average of the 

19 risk adjustment factors described in sub20 section (c)(3) to be applied to enrollees 

21 under this part in that region. In the case 

22 of an EFFS region in which an EFFS 

23 plan was offered in the previous year, the 

24 Administrator may compute such average 

25 based upon risk adjustment factors applied 
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1 under subsection (c)(3) in that region in a 

2 previous year. 

3 ‘‘(ii) TREATMENT OF NEW RE4 GIONS.—In the case of a region in which 

5 no EFFS plan was offered in the previous 

6 year, the Administrator shall estimate such 

7 average. In making such estimate, the Ad8 ministrator may use average risk adjust9 ment factors applied to comparable EFFS 

10 regions or applied on a national basis. 

11 ‘‘(B) DETERMINATION OF RISK ADJUSTED

12 BENCHMARK AND RISK-ADJUSTED BID.—For 

13 each EFFS plan offered in an EFFS region, 

14 the Administrator shall—

15 ‘‘(i) adjust the EFFS region-specific 

16 non-drug monthly benchmark amount (as 

17 defined in paragraph (3)) by the applicable 

18 average risk adjustment factor computed 

19 under subparagraph (A); and 

20 ‘‘(ii) adjust the unadjusted EFFS 

21 statutory non-drug monthly bid amount by 

22 such applicable average risk adjustment 

23 factor. 

24 ‘‘(C) DETERMINATION OF AVERAGE PER

25 CAPITA MONTHLY SAVINGS.—The average per 
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1 capita monthly savings described in this sub2 paragraph is equal to the amount (if any) by 

3 which—

4 ‘‘(i) the risk-adjusted benchmark 

5 amount computed under subparagraph 

6 (B)(i), exceeds 

7 ‘‘(ii) the risk-adjusted bid computed 

8 under subparagraph (B)(ii). 

9 ‘‘(3) COMPUTATION OF EFFS REGION-SPECIFIC

10 NON-DRUG MONTHLY BENCHMARK AMOUNT.—For 

11 purposes of this part, the term ‘EFFS region-spe12 cific non-drug monthly benchmark amount’ means, 

13 with respect to an EFFS region for a month in a 

year, an amount equal to 1 14 ⁄12 of the average (weight15 ed by number of EFFS eligible individuals in each 

16 payment area described in section 1853(d)) of the 

17 annual capitation rate as calculated under section 

18 1853(c)(1) for that area. 

19 ‘‘(c) PAYMENT OF PLANS BASED ON BID

20 AMOUNTS.—

21 ‘‘(1) NON-DRUG BENEFITS.—Under a contract 

22 under section 1860E–4(c) and subject to section 

23 1853(g) (as made applicable under subsection (d)), 

24 the Administrator shall make monthly payments 

25 under this subsection in advance to each EFFS or-
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1 ganization, with respect to coverage of an individual 

2 under this part in an EFFS region for a month, in 

3 an amount determined as follows: 

4 ‘‘(A) PLANS WITH BIDS BELOW BENCH5 MARK.—In the case of a plan for which there 

6 are average per capita monthly savings de7 scribed in subsection (b)(2)(C), the payment 

8 under this subsection is equal to the unadjusted 

9 EFFS statutory non-drug monthly bid amount, 

10 adjusted under paragraphs (3) and (4), plus the 

11 amount of the monthly rebate computed under 

12 subsection (b)(1)(A) for that plan and year. 

13 ‘‘(B) PLANS WITH BIDS AT OR ABOVE

14 BENCHMARK.—In the case of a plan for which 

15 there are no average per capita monthly savings 

16 described in subsection (b)(2)(C), the payment 

17 amount under this subsection is equal to the 

18 EFFS region-specific non-drug monthly bench19 mark amount, adjusted under paragraphs (3) 

20 and (4). 

21 ‘‘(2) FOR FEDERAL DRUG SUBSIDIES.—In the 

22 case in which an enrollee who elects under part D 

23 to be provided qualified prescription drug coverage 

24 through the plan, the EFFS organization offering 

25 such plan also is entitled—
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1 ‘‘(A) to direct subsidy payment under sec2 tion 1860D–8(a)(1); 

3 ‘‘(B) to reinsurance subsidy payments 

4 under section 1860D–8(a)(2); and 

5 ‘‘(C) to reimbursement for premium and 

6 cost-sharing reductions for low-income individ7 uals under section 1860D–7(c)(3). 

8 ‘‘(3) DEMOGRAPHIC RISK ADJUSTMENT, IN9 CLUDING ADJUSTMENT FOR HEALTH STATUS.—The 

10 Administrator shall adjust under paragraph (1)(A) 

11 the unadjusted EFFS statutory non-drug monthly 

12 bid amount and under paragraph (1)(B) the EFFS 

13 region-specific non-drug monthly benchmark amount 

14 for such risk factors as age, disability status, gen15 der, institutional status, and such other factors as 

16 the Administrator determines to be appropriate, in17 cluding adjustment for health status under section 

18 1853(a)(3) (as applied under subsection (d)), so as 

19 to ensure actuarial equivalence. The Administrator 

20 may add to, modify, or substitute for such adjust21 ment factors if such changes will improve the deter22 mination of actuarial equivalence. 

23 ‘‘(4) ADJUSTMENT FOR INTRA-REGIONAL GEO24 GRAPHIC VARIATIONS.—The Administrator shall also 

25 adjust such amounts in a manner to take into ac-
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1 count variations in payments rates under part C 

2 among the different payment areas under such part 

3 included in each EFFS region. 

4 ‘‘(d) APPLICATION OF ADDITIONAL PAYMENT

5 RULES.—The provisions of section 1853 (other than sub6 sections (a)(1)(A), (d), and (e)) shall apply to an EFFS 

7 plan under this part, except as otherwise provided in this 

8 section. 

9 ‘‘PREMIUMS; ORGANIZATIONAL AND FINANCIAL REQUIRE10 MENTS; ESTABLISHMENT OF STANDARDS; CON11 TRACTS WITH EFFS ORGANIZATIONS

12 ‘‘SEC. 1860E–4. (a) PREMIUMS.—

13 ‘‘(1) IN GENERAL.—The provisions of section 

14 1854 (other than subsections (a)(6)(C) and (h)), in15 cluding subsection (b)(5) relating to the consolida16 tion of drug and non-drug beneficiary premiums and 

17 subsection (c) relating to uniform bids and pre18 miums, shall apply to an EFFS plan under this 

19 part, subject to paragraph (2). 

20 ‘‘(2) CROSS-WALK.—In applying paragraph (1), 

21 any reference in section 1854(b)(1)(A) or 1854(d) 

22 to—

23 ‘‘(A) a Medicare Advantage monthly basic 

24 beneficiary premium is deemed a reference to 

25 the EFFS monthly basic beneficiary premium 

26 (as defined in paragraph (3)(A)); 
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1 ‘‘(B) a Medicare Advantage monthly pre2 scription drug beneficiary premium is deemed a 

3 reference to the EFFS monthly prescription 

4 drug beneficiary premium (as defined in para5 graph (3)(B)); and 

6 ‘‘(C) a Medicare Advantage monthly sup7 plemental beneficiary premium is deemed a ref8 erence to the EFFS monthly supplemental ben9 eficiary premium (as defined in paragraph 

10 (3)(C)). 

11 ‘‘(3) DEFINITIONS.—For purposes of this part: 

12 ‘‘(A) EFFS MONTHLY BASIC BENEFICIARY

13 PREMIUM.—The term ‘EFFS monthly basic 

14 beneficiary premium’ means, with respect to an 

15 EFFS plan—

16 ‘‘(i) described in section 1860E–

17 3(c)(1)(A) (relating to plans providing re18 bates), zero; or 

19 ‘‘(ii) described in section 1860E–

20 3(c)(1)(B), the amount (if any) by which 

21 the unadjusted EFFS statutory non-drug 

22 monthly bid amount exceeds the EFFS re23 gion-specific non-drug monthly benchmark 

24 amount (as defined in section 1860E–

25 3(b)(3)). 
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1 ‘‘(B) EFFS MONTHLY PRESCRIPTION

2 DRUG BENEFICIARY PREMIUM.—The term 

3 ‘EFFS monthly prescription drug beneficiary 

4 premium’ means, with respect to an EFFS 

5 plan, the portion of the aggregate monthly bid 

6 amount submitted under clause (i) of section 

7 1860E–3(a)(3)(A) for the year that is attrib8 utable under such section to the provision of 

9 statutory prescription drug benefits. 

10 ‘‘(C) EFFS MONTHLY SUPPLEMENTAL

11 BENEFICIARY PREMIUM.—The term ‘EFFS 

12 monthly supplemental beneficiary premium’ 

13 means, with respect to an EFFS plan, the por14 tion of the aggregate monthly bid amount sub15 mitted under clause (i) of section 1860E–

16 3(a)(3)(A) for the year that is attributable 

17 under such section to the provision of nonstatu18 tory benefits.

19 ‘‘(b) ORGANIZATIONAL AND FINANCIAL REQUIRE20 MENTS.—The provisions of section 1855 shall apply to an 

21 EFFS plan offered by an EFFS organization under this 

22 part. 

23 ‘‘(c) STANDARDS.—The provisions of paragraphs (1), 

24 (3), and (4) of section 1856(b) shall apply to an EFFS 

25 plan offered by an EFFS organization under this part. 
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1 ‘‘(d) CONTRACTS WITH EFFS ORGANIZATIONS.—

2 The provisions of section 1857 shall apply to an EFFS 

3 plan offered by an EFFS organization under this part, 

4 except that any reference in such section to part C is 

5 deemed a reference to this part.’’. 

6 (b) APPLICATION OF MEDIGAP PROVISIONS TO

7 EFFS PLANS.—Section 1882 of the Social Security Act 

8 (42 U.S.C. 1395ss) shall be administered as if any ref9 erence to a Medicare+Choice organization offering a 

10 Medicare+Choice plan under part C of title XVIII of such 

11 Act were a reference both to a Medicare Advantage orga12 nization offering a Medicare Advantage plan under such 

13 part and an EFFS organization offering an EFFS plan 

14 under part E of such title. 

15 Subtitle B—Medicare Advantage 

16 Program 

17 CHAPTER 1—IMPLEMENTATION OF 

18 PROGRAM 

19 SEC. 211. IMPLEMENTATION OF MEDICARE ADVANTAGE 

20 PROGRAM. 

21 (a) IN GENERAL.—There is hereby established the 

22 Medicare Advantage program. The Medicare Advantage 

23 program shall consist of the program under part C of title 

24 XVIII of the Social Security Act, as amended by this title. 
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1 (b) REFERENCES.—Any reference to the program 

2 under part C of title XVIII of the Social Security Act shall 

3 be deemed a reference to the Medicare Advantage program 

4 and, with respect to such part, any reference to 

5 ‘‘Medicare+Choice’’ is deemed a reference to ‘‘Medicare 

6 Advantage’’.

7 SEC. 212. MEDICARE ADVANTAGE IMPROVEMENTS. 

8 (a) EQUALIZING PAYMENTS WITH FEE-FOR-SERV9 ICE.—

10 (1) IN GENERAL.—Section 1853(c)(1) (42 

11 U.S.C. 1395w–23(c)(1)) is amended by adding at 

12 the end the following: 

13 ‘‘(D) BASED ON 100 PERCENT OF FEE14 FOR-SERVICE COSTS.—

15 ‘‘(i) IN GENERAL.—For 2004, the ad16 justed average per capita cost for the year 

17 involved, determined under section 

18 1876(a)(4) for the Medicare Advantage 

19 payment area for services covered under 

20 parts A and B for individuals entitled to 

21 benefits under part A and enrolled under 

22 part B who are not enrolled in a Medicare 

23 Advantage under this part for the year, 

24 but adjusted to exclude costs attributable 

25 to payments under section 1886(h). 
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1 ‘‘(ii) INCLUSION OF COSTS OF VA AND

2 DOD MILITARY FACILITY SERVICES TO

3 MEDICARE-ELIGIBLE BENEFICIARIES.—In 

4 determining the adjusted average per cap5 ita cost under clause (i) for a year, such 

6 cost shall be adjusted to include the Sec7 retary’s estimate, on a per capita basis, of 

8 the amount of additional payments that 

9 would have been made in the area involved 

10 under this title if individuals entitled to 

11 benefits under this title had not received 

12 services from facilities of the Department 

13 of Veterans Affairs or the Department of 

14 Defense.’’.

15 (2) CONFORMING AMENDMENT.—Such section 

16 is further amended, in the matter before subpara17 graph (A), by striking ‘‘or (C)’’ and inserting ‘‘(C), 

18 or (D)’’. 

19 (b) CHANGE IN BUDGET NEUTRALITY FOR

20 BLEND.—Section 1853(c) (42 U.S.C. 1395w–23(c)) is 

21 amended—

22 (1) in paragraph (1)(A), by inserting ‘‘(for a 

23 year other than 2004)’’ after ‘‘multiplied’’; and 

24 (2) in paragraph (5), by inserting ‘‘(other than 

25 2004)’’ after ‘‘for each year’’.
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1 (c) INCREASING MINIMUM PERCENTAGE INCREASE

2 TO NATIONAL GROWTH RATE.—

3 (1) IN GENERAL.—Section 1853(c)(1) (42 

4 U.S.C. 1395w–23(c)(1)) is amended—

5 (A) in subparagraph (A), by striking ‘‘The 

6 sum’’ and inserting ‘‘For a year before 2005, 

7 the sum’’; 

8 (B) in subparagraph (B)(iv), by striking 

9 ‘‘and each succeeding year’’ and inserting ‘‘, 

10 2003, and 2004’’; 

11 (C) in subparagraph (C)(iv), by striking 

12 ‘‘and each succeeding year’’ and inserting ‘‘and 

13 2003’’; and 

14 (D) by adding at the end of subparagraph 

15 (C) the following new clause: 

16 ‘‘(v) For 2004 and each succeeding 

17 year, the greater of—

18 ‘‘(I) 102 percent of the annual 

19 Medicare Advantage capitation rate 

20 under this paragraph for the area for 

21 the previous year; or 

22 ‘‘(II) the annual Medicare Ad23 vantage capitation rate under this 

24 paragraph for the area for the pre25 vious year increased by the national 
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1 per capita Medicare Advantage 

2 growth percentage, described in para3 graph (6) for that succeeding year, 

4 but not taking into account any ad5 justment under paragraph (6)(C) for 

6 a year before 2004.’’. 

7 (2) CONFORMING AMENDMENT.—Section 

8 1853(c)(6)(C) (42 U.S.C. 1395w–23(c)(6)(C)) is 

9 amended by inserting before the period at the end 

10 the following: ‘‘, except that for purposes of para11 graph (1)(C)(v)(II), no such adjustment shall be 

12 made for a year before 2004’’.

13 (d) INCLUSION OF COSTS OF DOD AND VA MILI14 TARY FACILITY SERVICES TO MEDICARE-ELIGIBLE

15 BENEFICIARIES IN CALCULATION OF MEDICARE+CHOICE

16 PAYMENT RATES.—Section 1853(c)(3) (42 U.S.C. 

17 1395w–23(c)(3)) is amended—

18 (1) in subparagraph (A), by striking ‘‘subpara19 graph (B)’’ and inserting ‘‘subparagraphs (B) and 

20 (E)’’, and 

21 (2) by adding at the end the following new sub22 paragraph: 

23 ‘‘(E) INCLUSION OF COSTS OF DOD AND

24 VA MILITARY FACILITY SERVICES TO MEDICARE25 ELIGIBLE BENEFICIARIES.—In determining the 
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1 area-specific Medicare+Choice capitation rate 

2 under subparagraph (A) for a year (beginning 

3 with 2004), the annual per capita rate of pay4 ment for 1997 determined under section 

5 1876(a)(1)(C) shall be adjusted to include in 

6 the rate the Secretary’s estimate, on a per cap7 ita basis, of the amount of additional payments 

8 that would have been made in the area involved 

9 under this title if individuals entitled to benefits 

10 under this title had not received services from 

11 facilities of the Department of Defense or the 

12 Department of Veterans Affairs.’’. 

13 (e) EXTENDING SPECIAL RULE FOR CERTAIN INPA14 TIENT HOSPITAL STAYS TO REHABILITATION HOS15 PITALS.—

16 (1) IN GENERAL.—Section 1853(g) (42 U.S.C. 

17 1395w–23(g)) is amended—

18 (A) by inserting ‘‘or from a rehabilitation 

19 facility (as defined in section 1886(j)(1)(A))’’ 

20 after ‘‘1886(d)(1)(B))’’; and 

21 (B) in paragraph (2)(B), by inserting ‘‘or 

22 section 1886(j), as the case may be,’’ after 

23 ‘‘1886(d)’’. 
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1 (2) EFFECTIVE DATE.—The amendments made 

2 by paragraph (1) shall apply to contract years begin3 ning on or after January 1, 2004. 

4 (f) MEDPAC STUDY OF AAPCC.—

5 (1) STUDY.—The Medicare Payment Advisory 

6 Commission shall conduct a study that assesses the 

7 method used for determining the adjusted average 

8 per capita cost (AAPCC) under section 1876(a)(4) 

9 of the Social Security Act (42 U.S.C. 

10 1395mm(a)(4)) as applied under section 

11 1853(c)(1)(A) of such Act (as amended by sub12 section (a)). Such study shall include an examination 

13 of—

14 (A) the bases for variation in such costs 

15 between different areas, including differences in 

16 input prices, utilization, and practice patterns; 

17 (B) the appropriate geographic area for 

18 payment under the Medicare Advantage pro19 gram under part C of title XVIII of such Act; 

20 and 

21 (C) the accuracy of risk adjustment meth22 ods in reflecting differences in costs of pro23 viding care to different groups of beneficiaries 

24 served under such program. 
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1 (2) REPORT.—Not later than 18 months after 

2 the date of the enactment of this Act, the Commis3 sion shall submit to Congress a report on the study 

4 conducted under paragraph (1). 

5 (g) REPORT ON IMPACT OF INCREASED FINANCIAL

6 ASSISTANCE TO MEDICARE ADVANTAGE PLANS.—Not 

7 later than July 1, 2006, the Medicare Benefits Adminis8 trator shall submit to Congress a report that describes the 

9 impact of additional financing provided under this Act and 

10 other Acts (including the Medicare, Medicaid, and SCHIP 

11 Balanced Budget Refinement Act of 1999 and BIPA) on 

12 the availability of Medicare Advantage plans in different 

13 areas and its impact on lowering premiums and increasing 

14 benefits under such plans. 

15 (h) ANNOUNCEMENT OF REVISED MEDICARE AD16 VANTAGE PAYMENT RATES.—Within 6 weeks after the 

17 date of the enactment of this Act, the Secretary shall de18 termine, and shall announce (in a manner intended to pro19 vide notice to interested parties) Medicare Advantage capi20 tation rates under section 1853 of the Social Security Act 

21 (42 U.S.C. 1395w–23) for 2004, revised in accordance 

22 with the provisions of this section. 
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1 CHAPTER 2—IMPLEMENTATION OF 

2 COMPETITION PROGRAM

3 SEC. 221. COMPETITION PROGRAM BEGINNING IN 2006. 

4 (a) SUBMISSION OF EFFS-LIKE BIDDING INFORMA5 TION BEGINNING IN 2006.—Section 1854 (42 U.S.C. 

6 1395w–24) is amended—

7 (1) by amending the section heading to read as 

8 follows: 

9 ‘‘PREMIUMS AND BID AMOUNT’’; 

10 (2) in subsection (a)(1)(A)—

11 (A) by striking ‘‘(A)’’ and inserting ‘‘(A)(i) 

12 if the following year is before 2006,’’; and 

13 (B) by inserting before the semicolon at 

14 the end the following: ‘‘or (ii) if the following 

15 year is 2006 or later, the information described 

16 in paragraph (3) or (6)(A) for the type of plan 

17 involved’’; and 

18 (3) by adding at the end of subsection (a) the 

19 following: 

20 ‘‘(6) SUBMISSION OF BID AMOUNTS BY MEDI21 CARE ADVANTAGE ORGANIZATIONS.—

22 ‘‘(A) INFORMATION TO BE SUBMITTED.—

23 The information described in this subparagraph 

24 is as follows: 

25 ‘‘(i) The monthly aggregate bid 

26 amount for provision of all items and serv-
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1 ices under this part, which amount shall be 

2 based on average costs for a typical bene3 ficiary residing in the area, and the actu4 arial basis for determining such amount. 

5 ‘‘(ii) The proportions of such bid 

6 amount that are attributable to—

7 ‘‘(I) the provision of statutory 

8 non-drug benefits (such portion re9 ferred to in this part as the 

10 ‘unadjusted Medicare Advantage stat11 utory non-drug monthly bid amount’); 

12 ‘‘(II) the provision of statutory 

13 prescription drug benefits; and 

14 ‘‘(III) the provision of non-statu15 tory benefits; 

16 and the actuarial basis for determining 

17 such proportions. 

18 ‘‘(iii) Such additional information as 

19 the Administrator may require to verify 

20 the actuarial bases described in clauses (i) 

21 and (ii). 

22 ‘‘(B) STATUTORY BENEFITS DEFINED.—

23 For purposes of this part: 
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1 ‘‘(i) The term ‘statutory non-drug 

2 benefits’ means benefits under section 

3 1852(a)(1). 

4 ‘‘(ii) The term ‘statutory prescription 

5 drug benefits’ means benefits under part 

6 D. 

7 ‘‘(iii) The term ‘statutory benefits’ 

8 means statutory prescription drug benefits 

9 and statutory non-drug benefits.

10 ‘‘(C) ACCEPTANCE AND NEGOTIATION OF

11 BID AMOUNTS.—

12 ‘‘(i) IN GENERAL.—Subject to clause 

13 (ii)—

14 ‘‘(I) the Administrator has the 

15 authority to negotiate regarding 

16 monthly bid amounts submitted under 

17 subparagraph (A) (and the proportion 

18 described in subparagraph (A)(ii)), 

19 and for such purpose and subject to 

20 such clause, the Administrator has ne21 gotiation authority that the Director 

22 of the Office of Personnel Manage23 ment has with respect to health bene24 fits plans under chapter 89 of title 5, 

25 United States Code; and 
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1 ‘‘(II) the Administrator may re2 ject such a bid amount or proportion 

3 if the Administrator determines that 

4 such amount or proportion is not sup5 ported by the actuarial bases provided 

6 under subparagraph (A). 

7 ‘‘(ii) EXCEPTION.—In the case of a 

8 plan described in section 1851(a)(2)(C), 

9 the provisions of clause (i) shall not apply 

10 and the provisions of paragraph (5)(B), 

11 prohibiting the review, approval, or dis12 approval of amounts described in such 

13 paragraph, shall apply to the negotiation 

14 and rejection of the monthly bid amounts 

15 and proportion referred to in subparagraph 

16 (A).’’. 

17 (b) PROVIDING FOR BENEFICIARY SAVINGS FOR

18 CERTAIN PLANS.—

19 (1) IN GENERAL.—Section 1854(b) (42 U.S.C. 

20 1395w–24(b)) is amended—

21 (A) by adding at the end of paragraph (1) 

22 the following new subparagraph: 

23 ‘‘(C) BENEFICIARY REBATE RULE.—

24 ‘‘(i) REQUIREMENT.—The Medicare 

25 Advantage plan shall provide to the en-
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1 rollee a monthly rebate equal to 75 percent 

2 of the average per capita savings (if any) 

3 described in paragraph (3) applicable to 

4 the plan and year involved. 

5 ‘‘(iii) FORM OF REBATE.—A rebate 

6 required under this subparagraph shall be 

7 provided—

8 ‘‘(I) through the crediting of the 

9 amount of the rebate towards the 

10 Medicare Advantage monthly supple11 mentary beneficiary premium or the 

12 premium imposed for prescription 

13 drug coverage under part D; 

14 ‘‘(II) through a direct monthly 

15 payment (through electronic funds 

16 transfer or otherwise); or 

17 ‘‘(III) through other means ap18 proved by the Medicare Benefits Ad19 ministrator, 

20 or any combination thereof.’’; and 

21 (B) by adding at the end the following new 

22 paragraphs: 

23 ‘‘(3) COMPUTATION OF AVERAGE PER CAPITA

24 MONTHLY SAVINGS.—For purposes of paragraph 

25 (1)(C)(i), the average per capita monthly savings re-
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1 ferred to in such paragraph for a Medicare Advan2 tage plan and year is computed as follows: 

3 ‘‘(A) DETERMINATION OF STATE-WIDE AV4 ERAGE RISK ADJUSTMENT.—

5 ‘‘(i) IN GENERAL.—The Medicare 

6 Benefits Administrator shall determine, at 

7 the same time rates are promulgated under 

8 section 1853(b)(1) (beginning with 2006), 

9 for each State the average of the risk ad10 justment factors to be applied under sec11 tion 1853(a)(1)(A) to payment for enroll12 ees in that State. In the case of a State in 

13 which a Medicare Advantage plan was of14 fered in the previous year, the Adminis15 trator may compute such average based 

16 upon risk adjustment factors applied in 

17 that State in a previous year. 

18 ‘‘(ii) TREATMENT OF NEW STATES.—

19 In the case of a State in which no Medi20 care Advantage plan was offered in the 

21 previous year, the Administrator shall esti22 mate such average. In making such esti23 mate, the Administrator may use average 

24 risk adjustment factors applied to com-
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1 parable States or applied on a national 

2 basis. 

3 ‘‘(B) DETERMINATION OF RISK ADJUSTED

4 BENCHMARK AND RISK-ADJUSTED BID.—For 

5 each Medicare Advantage plan offered in a 

6 State, the Administrator shall—

7 ‘‘(i) adjust the Medicare Advantage 

8 area-specific non-drug monthly benchmark 

9 amount (as defined in subsection (j)) by 

10 the applicable average risk adjustment fac11 tor computed under subparagraph (A); and 

12 ‘‘(ii) adjust the unadjusted Medicare 

13 Advantage statutory non-drug monthly bid 

14 amount by such applicable average risk ad15 justment factor. 

16 ‘‘(C) DETERMINATION OF AVERAGE PER

17 CAPITA MONTHLY SAVINGS.—The average per 

18 capita monthly savings described in this sub19 paragraph is equal to the amount (if any) by 

20 which—

21 ‘‘(i) the risk-adjusted benchmark 

22 amount computed under subparagraph 

23 (B)(i), exceeds 

24 ‘‘(ii) the risk-adjusted bid computed 

25 under subparagraph (B)(ii). 
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1 ‘‘(D) AUTHORITY TO DETERMINE RISK AD2 JUSTMENT FOR AREAS OTHER THAN STATES.—

3 The Administrator may provide for the deter4 mination and application of risk adjustment 

5 factors under this paragraph on the basis of 

6 areas other than States. 

7 ‘‘(4) BENEFICIARY’S OPTION OF PAYMENT

8 THROUGH WITHHOLDING FROM SOCIAL SECURITY

9 PAYMENT OR USE OF ELECTRONIC FUNDS TRANS10 FER MECHANISM.—In accordance with regulations, a 

11 Medicare Advantage organization shall permit each 

12 enrollee, at the enrollee’s option, to make payment 

13 of premiums under this part to the organization in14 directly through withholding from benefit payments 

15 in the manner provided under section 1840 with re16 spect to monthly premiums under section 1839 or 

17 through an electronic funds transfer mechanism 

18 (such as automatic charges of an account at a finan19 cial institution or a credit or debit card account) or 

20 otherwise. All premium payments that are withheld 

21 under this paragraph that are credited to the Fed22 eral Supplementary Medical Insurance Drug Trust 

23 Fund shall be paid to the Medicare Advantage orga24 nization involved.’’. 
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1 (2) PROVISION OF SINGLE CONSOLIDATED PRE2 MIUM.—Section 1854(b) (42 U.S.C. 1395w–24(b)), 

3 as amended by paragraph (1), is further amended by 

4 adding at the end the following new paragraph: 

5 ‘‘(5) SINGLE CONSOLIDATED PREMIUM.—In the 

6 case of an enrollee in a Medicare Advantage plan 

7 who elects under part D to be provided qualified 

8 prescription drug coverage through the plan, the Ad9 ministrator shall provide a mechanism for the con10 solidation of the beneficiary premium amount for 

11 non-drug benefits under this part with the premium 

12 amount for prescription drug coverage under part D 

13 provided through the plan.’’. 

14 (3) COMPUTATION OF MEDICARE ADVANTAGE

15 AREA-SPECIFIC NON-DRUG BENCHMARK.—Section 

16 1853 (42 U.S.C. 1395w–23) is amended by adding 

17 at the end the following new subsection: 

18 ‘‘(j) COMPUTATION OF MEDICARE ADVANTAGE

19 AREA-SPECIFIC NON-DRUG MONTHLY BENCHMARK

20 AMOUNT.—For purposes of this part, the term ‘Medicare 

21 Advantage area-specific non-drug monthly benchmark 

22 amount’ means, with respect to a Medicare Advantage 

23 payment area for a month in a year, an amount equal 

to 1 24 ⁄12 of the annual Medicare Advantage capitation rate 

25 under section 1853(c)(1) for the area for the year.’’. 
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1 (c) PAYMENT OF PLANS BASED ON BID AMOUNTS.—

2 (1) IN GENERAL.—Section 1853(a)(1)(A) (42 

3 U.S.C. 1395w–23) is amended by striking ‘‘in an 

4 amount’’ and all that follows and inserting the fol5 lowing: ‘‘in an amount determined as follows: 

6 ‘‘(i) PAYMENT BEFORE 2006.—For 

7 years before 2006, the payment amount 

shall be equal to 1 8 ⁄12 of the annual Medi9 care Advantage capitation rate (as cal10 culated under subsection (c)(1)) with re11 spect to that individual for that area, re12 duced by the amount of any reduction 

13 elected under section 1854(f )(1)(E) and 

14 adjusted under clause (iv). 

15 ‘‘(ii) PAYMENT FOR STATUTORY NON16 DRUG BENEFITS BEGINNING WITH 2006.—

17 For years beginning with 2006—

18 ‘‘(I) PLANS WITH BIDS BELOW

19 BENCHMARK.—In the case of a plan 

20 for which there are average per capita 

21 monthly savings described in section 

22 1854(b)(3)(C), the payment under 

23 this subsection is equal to the 

24 unadjusted Medicare Advantage statu25 tory non-drug monthly bid amount, 
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1 adjusted under clause (iv), plus the 

2 amount of the monthly rebate com3 puted under section 1854(b)(1)(C)(i) 

4 for that plan and year. 

5 ‘‘(II) PLANS WITH BIDS AT OR

6 ABOVE BENCHMARK.—In the case of a 

7 plan for which there are no average 

8 per capita monthly savings described 

9 in section 1854(b)(3)(C), the payment 

10 amount under this subsection is equal 

11 to the Medicare Advantage area-spe12 cific non-drug monthly benchmark 

13 amount, adjusted under clause (iv). 

14 ‘‘(iii) FOR FEDERAL DRUG SUB15 SIDIES.—In the case in which an enrollee 

16 who elects under part D to be provided 

17 qualified prescription drug coverage 

18 through the plan, the Medicare Advantage 

19 organization offering such plan also is enti20 tled—

21 ‘‘(I) to direct subsidy payment 

22 under section 1860D–8(a)(1); 

23 ‘‘(II) to reinsurance subsidy pay24 ments under section 1860D–8(a)(2); 

25 and 
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1 ‘‘(III) to reimbursement for pre2 mium and cost-sharing reductions for 

3 low-income individuals under section 

4 1860D–7(c)(3). 

5 ‘‘(iv) DEMOGRAPHIC ADJUSTMENT, 

6 INCLUDING ADJUSTMENT FOR HEALTH

7 STATUS.—The Administrator shall adjust 

8 the payment amount under clause (i), the 

9 unadjusted Medicare Advantage statutory 

10 non-drug monthly bid amount under clause 

11 (ii)(I), and the Medicare Advantage area12 specific non-drug monthly benchmark 

13 amount under clause (ii)(II) for such risk 

14 factors as age, disability status, gender, in15 stitutional status, and such other factors 

16 as the Administrator determines to be ap17 propriate, including adjustment for health 

18 status under paragraph (3), so as to en19 sure actuarial equivalence. The Adminis20 trator may add to, modify, or substitute 

21 for such adjustment factors if such 

22 changes will improve the determination of 

23 actuarial equivalence.’’. 

24 (d) CONFORMING AMENDMENTS.—
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1 (1) PROTECTION AGAINST BENEFICIARY SELEC2 TION.—Section 1852(b)(1)(A) (42 U.S.C. 1395w–

3 22(b)(1)(A)) is amended by adding at the end the 

4 following: ‘‘The Administrator shall not approve a 

5 plan of an organization if the Administrator deter6 mines that the benefits are designed to substantially 

7 discourage enrollment by certain Medicare Advan8 tage eligible individuals with the organization.’’. 

9 (2) CONFORMING AMENDMENT TO PREMIUM

10 TERMINOLOGY.—Section 1854(b)(2) (42 U.S.C. 

11 1395w–24(b)(2)) is amended by redesignating sub12 paragraph (C) as subparagraph (D) and by striking 

13 subparagraphs (A) and (B) and inserting the fol14 lowing: 

15 ‘‘(A) MEDICARE ADVANTAGE MONTHLY

16 BASIC BENEFICIARY PREMIUM.—The term 

17 ‘Medicare Advantage monthly basic beneficiary 

18 premium’ means, with respect to a Medicare 

19 Advantage plan—

20 ‘‘(i) described in section 

21 1853(a)(1)(A)(ii)(I) (relating to plans pro22 viding rebates), zero; or 

23 ‘‘(ii) described in section 

24 1853(a)(1)(A)(ii)(II), the amount (if any) 

25 by which the unadjusted Medicare Advan-
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1 tage statutory non-drug monthly bid 

2 amount exceeds the Medicare Advantage 

3 area-specific non-drug monthly benchmark 

4 amount. 

5 ‘‘(B) MEDICARE ADVANTAGE MONTHLY

6 PRESCRIPTION DRUG BENEFICIARY PREMIUM.—

7 The term ‘Medicare Advantage monthly pre8 scription drug beneficiary premium’ means, 

9 with respect to a Medicare Advantage plan, that 

10 portion of the bid amount submitted under 

11 clause (i) of subsection (a)(6)(A) for the year 

12 that is attributable under such section to the 

13 provision of statutory prescription drug bene14 fits. 

15 ‘‘(C) MEDICARE ADVANTAGE MONTHLY

16 SUPPLEMENTAL BENEFICIARY PREMIUM.—The 

17 term ‘Medicare Advantage monthly supple18 mental beneficiary premium’ means, with re19 spect to a Medicare Advantage plan, the portion 

20 of the aggregate monthly bid amount submitted 

21 under clause (i) of subsection (a)(6)(A) for the 

22 year that is attributable under such section to 

23 the provision of nonstatutory benefits.’’. 
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1 (3) REQUIREMENT FOR UNIFORM PREMIUM

2 AND BID AMOUNTS.—Section 1854(c) (42 U.S.C. 

3 1395w–24(c)) is amended to read as follows: 

4 ‘‘(c) UNIFORM PREMIUM AND BID AMOUNTS.—The 

5 Medicare Advantage monthly bid amount submitted under 

6 subsection (a)(6), the Medicare Advantage monthly basic, 

7 prescription drug, and supplemental beneficiary pre8 miums, and the Medicare Advantage monthly MSA pre9 mium charged under subsection (b) of a Medicare Advan10 tage organization under this part may not vary among in11 dividuals enrolled in the plan.’’. 

12 (4) PERMITTING BENEFICIARY REBATES.—

13 (A) Section 1851(h)(4)(A) (42 U.S.C. 

14 1395w–21(h)(4)(A)) is amended by inserting 

15 ‘‘except as provided under section 

16 1854(b)(1)(C)’’ after ‘‘or otherwise’’. 

17 (B) Section 1854(d) (42 U.S.C. 1395w–

18 24(d)) is amended by inserting ‘‘, except as pro19 vided under subsection (b)(1)(C),’’ after ‘‘and 

20 may not provide’’. 

21 (5) OTHER CONFORMING AMENDMENTS RELAT22 ING TO BIDS.—Section 1854 (42 U.S.C. 1395w–24) 

23 is amended—
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1 (A) in the heading of subsection (a), by in2 serting ‘‘AND BID AMOUNTS’’ after ‘‘PRE3 MIUMS’’; and 

4 (B) in subsection (a)(5)(A), by inserting 

5 ‘‘paragraphs (2), (3), and (4) of’’ after ‘‘filed 

6 under’’. 

7 (e) ADDITIONAL CONFORMING AMENDMENTS.—

8 (1) ANNUAL DETERMINATION AND ANNOUNCE9 MENT OF CERTAIN FACTORS.—Section 1853(b)(1) 

10 (42 U.S.C. 1395w–23(b)(1)) is amended by striking 

11 ‘‘the respective calendar year’’ and all that follows 

12 and inserting the following: ‘‘the calendar year con13 cerned with respect to each Medicare Advantage 

14 payment area, the following: 

15 ‘‘(A) PRE-COMPETITION INFORMATION.—

16 For years before 2006, the following: 

17 ‘‘(i) MEDICARE ADVANTAGE CAPITA18 TION RATES.—The annual Medicare Ad19 vantage capitation rate for each Medicare 

20 Advantage payment area for the year. 

21 ‘‘(ii) ADJUSTMENT FACTORS.—The 

22 risk and other factors to be used in adjust23 ing such rates under subsection (a)(1)(A) 

24 for payments for months in that year. 
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1 ‘‘(B) COMPETITION INFORMATION.—For 

2 years beginning with 2006, the following: 

3 ‘‘(i) BENCHMARK.—The Medicare Ad4 vantage area-specific non-drug benchmark 

5 under section 1853(j). 

6 ‘‘(ii) ADJUSTMENT FACTORS.—The 

7 adjustment factors applied under section 

8 1853(a)(1)(A)(iv) (relating to demographic 

9 adjustment), section 1853(a)(1)(B) (relat10 ing to adjustment for end-stage renal dis11 ease), and section 1853(a)(3) (relating to 

12 health status adjustment).’’. 

13 (2) REPEAL OF PROVISIONS RELATING TO AD14 JUSTED COMMUNITY RATE (ACR).—

15 (A) IN GENERAL.—Subsections (e) and (f) 

16 of section 1854 (42 U.S.C. 1395w–24) are re17 pealed. 

18 (B) CONFORMING AMENDMENTS.—(i) Sec19 tion 1839(a)(2) (42 U.S.C. 1395r(a)(2)) is 

20 amended by striking ‘‘, and to reflect’’ and all 

21 that follows and inserting a period. 

22 (ii) Section 1852(a)(1) (42 U.S.C. 1395w–

23 22(a)(1)) is amended by striking ‘‘title XI’’ and 

24 all that follows and inserting the following: 

25 ‘‘title XI those items and services (other than 
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1 hospice care) for which benefits are available 

2 under parts A and B to individuals residing in 

3 the area served by the plan.’’. 

4 (iii) Section 1857(d)(1) (42 U.S.C. 

5 1395w–27(d)(1)) is amended by striking ‘‘, 

6 costs, and computation of the adjusted commu7 nity rate’’ and inserting ‘‘and costs’’. 

8 (f) REFERENCES UNDER PART E.—Section 1859 (42 

9 U.S.C. 1395w–29) is amended by adding at the end the 

10 following new subsection: 

11 ‘‘(f) APPLICATION UNDER PART E.—In the case of 

12 any reference under part E to a requirement or provision 

13 of this part in the relation to an EFFS plan or organiza14 tion under such part, except as otherwise specified any 

15 such requirement or provision shall be applied to such or16 ganization or plan in the same manner as such require17 ment or provision applies to a Medicare Advantage private 

18 fee-for-service plan (and the Medicare Advantage organi19 zation that offers such plan) under this part.’’. 

20 (g) EFFECTIVE DATE.—The amendments made by 

21 this section shall apply to payments and premiums for 

22 months beginning with January 2006. 
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1 CHAPTER 3—ADDITIONAL REFORMS

2 SEC. 231. MAKING PERMANENT CHANGE IN MEDICARE AD3 VANTAGE REPORTING DEADLINES AND AN4 NUAL, COORDINATED ELECTION PERIOD. 

5 (a) CHANGE IN REPORTING DEADLINE.—Section 

6 1854(a)(1) (42 U.S.C. 1395w–24(a)(1)), as amended by 

7 section 532(b)(1) of the Public Health Security and Bio8 terrorism Preparedness and Response Act of 2002, is 

9 amended by striking ‘‘2002, 2003, and 2004 (or July 1 

10 of each other year)’’ and inserting ‘‘2002 and each subse11 quent year’’. 

12 (b) DELAY IN ANNUAL, COORDINATED ELECTION

13 PERIOD.—Section 1851(e)(3)(B) (42 U.S.C. 1395w–

14 21(e)(3)(B)), as amended by section 532(c)(1)(A) of the 

15 Public Health Security and Bioterrorism Preparedness 

16 and Response Act of 2002, is amended—

17 (1) by striking ‘‘and after 2005’’; and 

18 (2) by striking ‘‘, 2004, and 2005’’ and insert19 ing ‘‘and any subsequent year’’. 

20 (c) ANNUAL ANNOUNCEMENT OF PAYMENT

21 RATES.—Section 1853(b)(1) (42 U.S.C. 1395w–

22 23(b)(1)), as amended by section 532(d)(1) of the Public 

23 Health Security and Bioterrorism Preparedness and Re24 sponse Act of 2002, is amended—

25 (1) by striking ‘‘and after 2005’’; and 
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1 (2) by striking ‘‘and 2005’’ and inserting ‘‘and 

2 each subsequent year’’. 

3 (d) REQUIRING PROVISION OF AVAILABLE INFORMA4 TION COMPARING PLAN OPTIONS.—The first sentence of 

5 section 1851(d)(2)(A)(ii) (42 U.S.C. 1395w–

6 21(d)(2)(A)(ii)) is amended by inserting before the period 

7 the following: ‘‘to the extent such information is available 

8 at the time of preparation of materials for the mailing’’. 

9 SEC. 232. AVOIDING DUPLICATIVE STATE REGULATION. 

10 (a) IN GENERAL.—Section 1856(b)(3) (42 U.S.C. 

11 1395w–26(b)(3)) is amended to read as follows: 

12 ‘‘(3) RELATION TO STATE LAWS.—The stand13 ards established under this subsection shall super14 sede any State law or regulation (other than State 

15 licensing laws or State laws relating to plan sol16 vency) with respect to Medicare Advantage plans 

17 which are offered by Medicare Advantage organiza18 tions under this part.’’. 

19 (b) EFFECTIVE DATE.—The amendment made by 

20 subsection (a) shall take effect on the date of the enact21 ment of this Act. 

22 SEC. 233. SPECIALIZED MEDICARE ADVANTAGE PLANS FOR 

23 SPECIAL NEEDS BENEFICIARIES. 

24 (a) TREATMENT AS COORDINATED CARE PLAN.—

25 Section 1851(a)(2)(A) (42 U.S.C. 1395w–21(a)(2)(A)) is 
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1 amended by adding at the end the following new sentence: 

2 ‘‘Specialized Medicare Advantage plans for special needs 

3 beneficiaries (as defined in section 1859(b)(4)) may be 

4 any type of coordinated care plan.’’. 

5 (b) SPECIALIZED MEDICARE ADVANTAGE PLAN FOR

6 SPECIAL NEEDS BENEFICIARIES DEFINED.—Section 

7 1859(b) (42 U.S.C. 1395w–29(b)) is amended by adding 

8 at the end the following new paragraph: 

9 ‘‘(4) SPECIALIZED MEDICARE ADVANTAGE

10 PLANS FOR SPECIAL NEEDS BENEFICIARIES.—

11 ‘‘(A) IN GENERAL.—The term ‘specialized 

12 Medicare Advantage plan for special needs 

13 beneficiaries’ means a Medicare Advantage plan 

14 that exclusively serves special needs bene15 ficiaries (as defined in subparagraph (B)). 

16 ‘‘(B) SPECIAL NEEDS BENEFICIARY.—The 

17 term ‘special needs beneficiary’ means a Medi18 care Advantage eligible individual who—

19 ‘‘(i) is institutionalized (as defined by 

20 the Secretary); 

21 ‘‘(ii) is entitled to medical assistance 

22 under a State plan under title XIX; or 

23 ‘‘(iii) meets such requirements as the 

24 Secretary may determine would benefit 

25 from enrollment in such a specialized 
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1 Medicare Advantage plan described in sub2 paragraph (A) for individuals with severe 

3 or disabling chronic conditions.’’. 

4 (c) RESTRICTION ON ENROLLMENT PERMITTED.—

5 Section 1859 (42 U.S.C. 1395w–29) is amended by add6 ing at the end the following new subsection: 

7 ‘‘(f) RESTRICTION ON ENROLLMENT FOR SPECIAL8 IZED MEDICARE ADVANTAGE PLANS FOR SPECIAL NEEDS

9 BENEFICIARIES.—In the case of a specialized Medicare 

10 Advantage plan (as defined in subsection (b)(4)), notwith11 standing any other provision of this part and in accord12 ance with regulations of the Secretary and for periods be13 fore January 1, 2007, the plan may restrict the enrollment 

14 of individuals under the plan to individuals who are within 

15 one or more classes of special needs beneficiaries.’’. 

16 (d) AUTHORITY TO DESIGNATE OTHER PLANS AS

17 SPECIALIZED MEDICARE ADVANTAGE PLANS.—In pro18 mulgating regulations to carry out the last sentence of sec19 tion 1851(a)(2)(A) of the Social Security Act (as added 

20 by subsection (a)) and section 1859(b)(4) of such Act (as 

21 added by subsection (b)), the Secretary may provide (not22 withstanding section 1859(b)(4)(A) of such Act) for the 

23 offering of specialized Medicare Advantage plans by Medi24 care Advantage plans that disproportionately serve special 
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1 needs beneficiaries who are frail, elderly medicare bene2 ficiaries. 

3 (e) REPORT TO CONGRESS.—Not later than Decem4 ber 31, 2005, the Medicare Benefits Administrator shall 

5 submit to Congress a report that assesses the impact of 

6 specialized Medicare Advantage plans for special needs 

7 beneficiaries on the cost and quality of services provided 

8 to enrollees. Such report shall include an assessment of 

9 the costs and savings to the medicare program as a result 

10 of amendments made by subsections (a), (b), and (c). 

11 (f) EFFECTIVE DATES.—

12 (1) IN GENERAL.—The amendments made by 

13 subsections (a), (b), and (c) shall take effect upon 

14 the date of the enactment of this Act. 

15 (2) DEADLINE FOR ISSUANCE OF REQUIRE16 MENTS FOR SPECIAL NEEDS BENEFICIARIES; TRAN17 SITION.—No later than 6 months after the date of 

18 the enactment of this Act, the Secretary shall issue 

19 interim final regulations to establish requirements 

20 for special needs beneficiaries under section 

21 1859(b)(4)(B)(iii) of the Social Security Act, as 

22 added by subsection (b). 

23 SEC. 234. MEDICARE MSAS. 

24 (a) EXEMPTION FROM REPORTING ENROLLEE EN25 COUNTER DATA.—
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1 (1) IN GENERAL.—Section 1852(e)(1) (42 

2 U.S.C. 1395w–22(e)(1)) is amended by inserting 

3 ‘‘(other than MSA plans)’’ after ‘‘plans’’. 

4 (2) CONFORMING AMENDMENTS.—Section 1852 

5 (42 U.S.C. 1395w–22) is amended—

6 (A) in subsection (c)(1)(I), by inserting be7 fore the period at the end the following: ‘‘if re8 quired under such section’’; and 

9 (B) in subparagraphs (A) and (B) of sub10 section (e)(2), by striking ‘‘, a non-network 

11 MSA plan,’’ and ‘‘, NON-NETWORK MSA

12 PLANS,’’ each place it appears. 

13 (b) MAKING PROGRAM PERMANENT AND ELIMI14 NATING CAP.—Section 1851(b)(4) (42 U.S.C. 1395w–

15 21(b)(4)) is amended—

16 (1) in the heading, by striking ‘‘ON A DEM17 ONSTRATION BASIS’’; 

18 (2) by striking the first sentence of subpara19 graph (A); and 

20 (3) by striking the second sentence of subpara21 graph (C). 

22 (c) APPLYING LIMITATIONS ON BALANCE BILL23 ING.—Section 1852(k)(1) (42 U.S.C. 1395w–22(k)(1)) is 

24 amended by inserting ‘‘or with an organization offering 

25 a MSA plan’’ after ‘‘section 1851(a)(2)(A)’’. 
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1 (d) ADDITIONAL AMENDMENT.—Section 

2 1851(e)(5)(A) (42 U.S.C. 1395w–21(e)(5)(A)) is amend3 ed—

4 (1) by adding ‘‘or’’ at the end of clause (i); 

5 (2) by striking ‘‘, or’’ at the end of clause (ii) 

6 and inserting a semicolon; and 

7 (3) by striking clause (iii). 

8 SEC. 235. EXTENSION OF REASONABLE COST CONTRACTS. 

9 Subparagraph (C) of section 1876(h)(5) (42 U.S.C. 

10 1395mm(h)(5)) is amended to read as follows: 

11 ‘‘(C)(i) Subject to clause (ii), may be extended or re12 newed under this subsection indefinitely. 

13 ‘‘(ii) For any period beginning on or after January 

14 1, 2008, a reasonable cost reimbursement contract under 

15 this subsection may not be extended or renewed for a serv16 ice area insofar as such area, during the entire previous 

17 year, was within the service area of 2 or more plans which 

18 were coordinated care Medicare Advantage plans under 

19 part C or 2 or more enhanced fee-for-service plans under 

20 part E and each of which plan for that previous year for 

21 the area involved meets the following minimum enrollment 

22 requirements: 

23 ‘‘(I) With respect to any portion of the area in24 volved that is within a Metropolitan Statistical Area 

25 with a population of more than 250,000 and coun-
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1 ties contiguous to such Metropolitan Statistical 

2 Area, 5,000 individuals. 

3 ‘‘(II) With respect to any other portion of such 

4 area, 1,500 individuals.’’. 

5 SEC. 236. EXTENSION OF MUNICIPAL HEALTH SERVICE 

6 DEMONSTRATION PROJECTS. 

7 Section 9215(a) of the Consolidated Omnibus Budget 

8 Reconciliation Act of 1985 (42 U.S.C. 1395b–1 note), as 

9 amended by section 6135 of the Omnibus Budget Rec10 onciliation Act of 1989, section 13557 of the Omnibus 

11 Budget Reconciliation Act of 1993, section 4017 of BBA, 

12 section 534 of BBRA (113 Stat. 1501A–390), and section 

13 633 of BIPA, is amended by striking ‘‘December 31, 

14 2004’’ and inserting ‘‘December 31, 2009’’. 

15 SEC. 237. STUDY OF PERFORMANCE-BASED PAYMENT SYS16 TEMS. 

17 (a) IN GENERAL.—The Secretary shall request the 

18 Institute of Medicine of the National Academy of Sciences 

19 to—

20 (1) conduct a study that reviews and evaluates 

21 public and private sector experiences in establishing 

22 performance measures and payment incentives under 

23 the medicare program and linking performance to 

24 payment; and 
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1 (2) submit a report to the Secretary and Con2 gress, not later than 18 months after the date of the 

3 enactment of this Act, regarding such study. 

4 (b) STUDY.—The study under subsection (a)(1) 

5 shall—

6 (1) include a review and evaluation of incentives 

7 that have been or could be used to encourage quality 

8 performance, including those aimed at health plans 

9 and their enrollees, providers and their patients, and 

10 other incentives that encourage quality-based health 

11 care purchasing and collaborative efforts to improve 

12 performance; and 

13 (2) examine how these measures and incentives 

14 might be applied in the Medicare Advantage pro15 gram, the Enhanced Fee-For-Service (EFFS) pro16 gram, and traditional fee-for-service programs. 

17 (c) REPORT RECOMMENDATIONS.—The report under 

18 subsection (a)(2) shall—

19 (1) include recommendations regarding appro20 priate performance measures for use in assessing 

21 and paying for quality; and 

22 (2) identify options for updating performance 

23 measures.
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1 Subtitle C—Application of FEHBP2 Style Competitive Reforms

3 SEC. 241. APPLICATION OF FEHBP-STYLE COMPETITIVE RE4 FORM BEGINNING IN 2010.

5 (a) IDENTIFICATION OF COMPETITIVE EFFS RE6 GIONS; COMPUTATION OF COMPETITIVE EFFS NON7 DRUG BENCHMARKS UNDER EFFS PROGRAM.—

8 (1) IN GENERAL.—Section 1860E–3, as added 

9 by section 201(a), is amended by adding at the end 

10 the following new subsection: 

11 ‘‘(e) APPLICATION OF COMPETITION.—

12 ‘‘(1) DETERMINATION OF COMPETITIVE EFFS

13 REGIONS.—

14 ‘‘(A) IN GENERAL.—For purposes of this 

15 part, the term ‘competitive EFFS region’ 

16 means, for a year beginning with 2010, an 

17 EFFS region that the Administrator finds—

18 ‘‘(i) there will be offered in the region 

19 during the annual, coordinated election pe20 riod under section 1851(e)(3)(B) (as ap21 plied under section 1860E–1(c)) before the 

22 beginning of the year at least 2 EFFS 

23 plans (in addition to the fee-for-service 

24 program under parts A and B), each of25 fered by a different EFFS organization 
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1 and each of which met the minimum en2 rollment requirements of paragraph (1) of 

3 section 1857(b) (as applied without regard 

4 to paragraph (3) thereof) as of March of 

5 the previous year; and 

6 ‘‘(ii) during March of the previous 

7 year at least the percentage specified in 

8 subparagraph (C) of the number of EFFS 

9 eligible individuals who reside in the region 

10 were enrolled in an EFFS plan. 

11 ‘‘(B) PERCENTAGE SPECIFIED.—

12 ‘‘(i) IN GENERAL.—For purposes of 

13 subparagraph (A), subject to clause (ii), 

14 the percentage specified in this subpara15 graph for a year is equal the lesser of 20 

16 percent or to the sum of—

17 ‘‘(I) the percentage, as estimated 

18 by the Administrator, of EFFS eligi19 ble individuals in the United States 

20 who are enrolled in EFFS plans dur21 ing March of the previous year; and 

22 ‘‘(II) the percentage, as esti23 mated by the Administrator, of Medi24 care Advantage eligible individuals in 

25 the United States who are enrolled in 
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1 Medicare Advantage plans during 

2 March of the previous year. 

3 ‘‘(ii) EXCEPTION.—In the case of an 

4 EFFS region that was a competitive 

5 EFFS region for the previous year, the 

6 Medicare Benefits Administrator may con7 tinue to treat the region as meeting the re8 quirement of subparagraph (A)(ii) if the 

9 region would meet such requirement but 

10 for a de minimis reduction below the per11 centage specified in clause (i). 

12 ‘‘(2) COMPETITIVE EFFS NON-DRUG MONTHLY

13 BENCHMARK AMOUNT.—For purposes of this part, 

14 the term ‘competitive EFFS non-drug monthly 

15 benchmark amount’ means, with respect to an 

16 EFFS region for a month in a year and subject to 

17 paragraph (8), the sum of the 2 components de18 scribed in paragraph (3) for the region and year. 

19 The Administrator shall compute such benchmark 

20 amount for each competitive EFFS region before the 

21 beginning of each annual, coordinated election pe22 riod under section 1851(e)(3)(B) for each year (be23 ginning with 2010) in which it is designated as such 

24 a region. 
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1 ‘‘(3) 2 COMPONENTS.—For purposes of para2 graph (2), the 2 components described in this para3 graph for an EFFS region and a year are the fol4 lowing: 

5 ‘‘(A) EFFS COMPONENT.—The product of 

6 the following: 

7 ‘‘(i) WEIGHTED AVERAGE OF PLAN

8 BIDS IN REGION.—The weighted average of 

9 the EFFS plan bids for the region and 

10 year (as determined under paragraph 

11 (4)(A)). 

12 ‘‘(ii) NON-FFS MARKET SHARE.—1 

13 minus the fee-for-service market share per14 centage determined under paragraph (5) 

15 for the region and the year. 

16 ‘‘(B) FEE-FOR-SERVICE COMPONENT.—

17 The product of the following: 

18 ‘‘(i) FEE-FOR-SERVICE REGION-SPE19 CIFIC NON-DRUG AMOUNT.—The fee-for20 service region-specific non-drug amount (as 

21 defined in paragraph (6)) for the region 

22 and year. 

23 ‘‘(ii) FEE-FOR-SERVICE MARKET

24 SHARE.—The fee-for-service market share 
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1 percentage (determined under paragraph 

2 (5)) for the region and the year. 

3 ‘‘(4) DETERMINATION OF WEIGHTED AVERAGE

4 EFFS PLAN BIDS FOR A REGION.—

5 ‘‘(A) IN GENERAL.—For purposes of para6 graph (3)(A)(i), the weighted average of EFFS 

7 plan bids for an EFFS region and a year is the 

8 sum of the following products for EFFS plans 

9 described in subparagraph (C) in the region 

10 and year: 

11 ‘‘(i) UNADJUSTED EFFS STATUTORY

12 NON-DRUG MONTHLY BID AMOUNT.—The 

13 unadjusted EFFS statutory non-drug 

14 monthly bid amount (as defined in sub15 section (a)(3)(A)(ii)(I)) for the region and 

16 year. 

17 ‘‘(ii) PLAN’S SHARE OF EFFS ENROLL18 MENT IN REGION.—The number of individ19 uals described in subparagraph (B), di20 vided by the total number of such individ21 uals for all EFFS plans described in sub22 paragraph (C) for that region and year. 

23 ‘‘(B) COUNTING OF INDIVIDUALS.—The 

24 Administrator shall count, for each EFFS plan 

25 described in subparagraph (C) for an EFFS re-
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1 gion and year, the number of individuals who 

2 reside in the region and who were enrolled 

3 under such plan under this part during March 

4 of the previous year. 

5 ‘‘(C) EXCLUSION OF PLANS NOT OFFERED

6 IN PREVIOUS YEAR.—For an EFFS region and 

7 year, the EFFS plans described in this sub8 paragraph are plans that are offered in the re9 gion and year and were offered in the region in 

10 March of the previous year. 

11 ‘‘(5) COMPUTATION OF FEE-FOR-SERVICE MAR12 KET SHARE PERCENTAGE.—The Administrator shall 

13 determine, for a year and an EFFS region, the pro14 portion (in this subsection referred to as the ‘fee-for15 service market share percentage’) of the EFFS eligi16 ble individuals who are residents of the region dur17 ing March of the previous year, of such individuals 

18 who were not enrolled in an EFFS plan or in a 

19 Medicare Advantage plan (or, if greater, such pro20 portion determined for individuals nationally). 

21 ‘‘(6) FEE-FOR-SERVICE REGION-SPECIFIC NON22 DRUG AMOUNT.—

23 ‘‘(A) IN GENERAL.—For purposes of para24 graph (3)(B)(i) and section 1839(h)(2)(A), sub25 ject to subparagraph (C), the term ‘fee-for-serv-
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1 ice region-specific non-drug amount’ means, for 

2 a competitive EFFS region and a year, the ad3 justed average per capita cost for the year in4 volved, determined under section 1876(a)(4) for 

5 such region for services covered under parts A 

6 and B for individuals entitled to benefits under 

7 part A and enrolled under this part who are not 

8 enrolled in an EFFS plan under part E or a 

9 Medicare Advantage plan under part C for the 

10 year, but adjusted to exclude costs attributable 

11 to payments under section 1886(h).

12 ‘‘(B) USE OF FULL RISK ADJUSTMENT TO

13 STANDARDIZE FEE-FOR-SERVICE COSTS TO TYP14 ICAL BENEFICIARY.—In determining the ad15 justed average per capita cost for a region and 

16 year under subparagraph (A), such costs shall 

17 be adjusted to fully take into account the demo18 graphic and health status risk factors estab19 lished under subsection (c)(3) so that such per 

20 capita costs reflect the average costs for a typ21 ical beneficiary residing in the region. 

22 ‘‘(C) INCLUSION OF COSTS OF VA AND DOD

23 MILITARY FACILITY SERVICES TO MEDICARE24 ELIGIBLE BENEFICIARIES.—In determining the 

25 adjusted average per capita cost under subpara-
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1 graph (A) for a year, such cost shall be ad2 justed to include the Administrator’s estimate, 

3 on a per capita basis, of the amount of addi4 tional payments that would have been made in 

5 the region involved under this title if individuals 

6 entitled to benefits under this title had not re7 ceived services from facilities of the Department 

8 of Veterans Affairs or the Department of De9 fense. 

10 ‘‘(7) APPLICATION OF COMPETITION.—In the 

11 case of an EFFS region that is a competitive EFFS 

12 region for a year, for purposes of applying sub13 sections (b) and (c)(1) and section 1860E–4(a), any 

14 reference to an EFFS region-specific non-drug 

15 monthly benchmark amount shall be treated as a 

16 reference to the competitive EFFS non-drug month17 ly benchmark amount under paragraph (2) for the 

18 region and year. 

19 ‘‘(8) PHASE-IN OF BENCHMARK FOR EACH RE20 GION.—

21 ‘‘(A) USE OF BLENDED BENCHMARK.—In 

22 the case of a region that has not been a com23 petitive EFFS region for each of the previous 

24 4 years, the competitive EFFS non-drug 
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1 monthly benchmark amount shall be equal to 

2 the sum of the following: 

3 ‘‘(i) NEW COMPETITIVE COMPO4 NENT.—The product of—

5 ‘‘(I) the weighted average phase6 in proportion for that area and year, 

7 as specified in subparagraph (B); and 

8 ‘‘(II) the competitive EFFS non9 drug monthly benchmark amount for 

10 the region and year, determined under 

11 paragraph (2) without regard to this 

12 paragraph. 

13 ‘‘(ii) OLD COMPETITIVE COMPO14 NENT.—The product of—

15 ‘‘(I) 1 minus the weighted aver16 age phase-in proportion for that re17 gion and year; and 

18 ‘‘(II) the EFFS region-specific 

19 non-drug benchmark amount for the 

20 region and the year. 

21 ‘‘(B) COMPUTATION OF WEIGHTED AVER22 AGE PHASE-IN PROPORTION.—For purposes of 

23 this paragraph, the ‘weighted average phase-in 

24 proportion’ for an EFFS region for a year shall 

25 be determined as follows: 
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1 ‘‘(i) FIRST YEAR (AND REGION NOT

2 COMPETITIVE REGION IN PREVIOUS

3 YEAR).—If the area was not a competitive 

4 EFFS region in the previous year, the 

5 weighted average phase-in proportion for 

the region for the year is equal to 1 6 ⁄5. 

7 ‘‘(ii) COMPETITIVE REGION IN PRE8 VIOUS YEAR.—If the region was a competi9 tive EFFS region in the previous year, the 

10 weighted average phase-in proportion for 

11 the region for the year is equal to the 

12 weighted average phase-in proportion de13 termined under this subparagraph for the 

region for the previous year plus 1 14 ⁄5, but in 

15 no case more than 1.’’. 

16 (2) CONFORMING AMENDMENTS.—

17 (A) Such section 1860E–3 is further 

18 amended—

19 (i) in subsection (b), by adding at the 

20 end the following new paragraph: 

21 ‘‘(4) APPLICATION IN COMPETITIVE RE22 GIONS.—For special rules applying this sub23 section in competitive EFFS regions, see sub24 section (e)(7).’’; 
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1 (ii) in subsection (c)(1), by inserting 

2 ‘‘and subsection (e)(7)’’ after ‘‘(as made 

3 applicable under subsection (d))’’; and 

4 (iii) in subsection (d) , by striking 

5 ‘‘and (e)’’ and inserting ‘‘(e), and (k)’’. 

6 (B) Section 1860E–4(a)(1), as inserted by 

7 section 201(a)(2), is amended by inserting ‘‘, 

8 except as provided in section 1860E–3(e)(7)’’ 

9 after ‘‘paragraph (2)’’.

10 (b) IDENTIFICATION OF COMPETITIVE MEDICARE

11 ADVANTAGE AREAS; APPLICATION OF COMPETITIVE

12 MEDICARE ADVANTAGE NON-DRUG BENCHMARKS

13 UNDER MEDICARE ADVANTAGE PROGRAM.—

14 (1) IN GENERAL.—Section 1853, as amended 

15 by section 221(b)(3), is amended by adding at the 

16 end the following new subsection: 

17 ‘‘(k) APPLICATION OF COMPETITION.—

18 ‘‘(1) DETERMINATION OF COMPETITIVE MEDI19 CARE ADVANTAGE AREAS.—

20 ‘‘(A) IN GENERAL.—For purposes of this 

21 part, the terms ‘competitive Medicare Advan22 tage area’ and ‘CMA area’ mean, for a year be23 ginning with 2010, an area (which is a metro24 politan statistical area or other area with a sub-
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1 stantial number of Medicare Advantage enroll2 ees) that the Administrator finds—

3 ‘‘(i) there will be offered during the 

4 annual, coordinated election period under 

5 section 1851(e)(3)(B) under this part be6 fore the beginning of the year at least 2 

7 Medicare Advantage plans (in addition to 

8 the fee-for-service program under parts A 

9 and B), each offered by a different Medi10 care Advantage organization and each of 

11 which met the minimum enrollment re12 quirements of paragraph (1) of section 

13 1857(b) (as applied without regard to 

14 paragraph (3) thereof) as of March of the 

15 previous year with respect to the area; and 

16 ‘‘(ii) during March of the previous 

17 year at least the percentage specified in 

18 subparagraph (B) of the number of Medi19 care Advantage eligible individuals who re20 side in the area were enrolled in a Medi21 care Advantage plan. 

22 ‘‘(B) PERCENTAGE SPECIFIED.—

23 ‘‘(i) IN GENERAL.—For purposes of 

24 subparagraph (A), subject to clause (ii), 

25 the percentage specified in this subpara-
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1 graph for a year is equal the lesser of 20 

2 percent or to the sum of—

3 ‘‘(I) the percentage, as estimated 

4 by the Administrator, of EFFS eligi5 ble individuals in the United States 

6 who are enrolled in EFFS plans dur7 ing March of the previous year; and 

8 ‘‘(II) the percentage, as esti9 mated by the Administrator, of Medi10 care Advantage eligible individuals in 

11 the United States who are enrolled in 

12 Medicare Advantage plans during 

13 March of the previous year. 

14 ‘‘(ii) EXCEPTION.—In the case of an 

15 area that was a competitive area for the 

16 previous year, the Medicare Benefits Ad17 ministrator may continue to treat the area 

18 as meeting the requirement of subpara19 graph (A)(ii) if the area would meet such 

20 requirement but for a de minimis reduction 

21 below the percentage specified in clause (i). 

22 ‘‘(2) COMPETITIVE MEDICARE ADVANTAGE

23 NON-DRUG MONTHLY BENCHMARK AMOUNT.—For 

24 purposes of this part, the term ‘competitive Medi25 care Advantage non-drug monthly benchmark 
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1 amount’ means, with respect to a competitive Medi2 care Advantage area for a month in a year subject 

3 to paragraph (8), the sum of the 2 components de4 scribed in paragraph (3) for the area and year. The 

5 Administrator shall compute such benchmark 

6 amount for each competitive Medicare Advantage 

7 area before the beginning of each annual, coordi8 nated election period under section 1851(e)(3)(B) 

9 for each year (beginning with 2010) in which it is 

10 designated as such an area. 

11 ‘‘(3) 2 COMPONENTS.—For purposes of para12 graph (2), the 2 components described in this para13 graph for a competitive Medicare Advantage area 

14 and a year are the following: 

15 ‘‘(A) MEDICARE ADVANTAGE COMPO16 NENT.—The product of the following: 

17 ‘‘(i) WEIGHTED AVERAGE OF MEDI18 CARE ADVANTAGE PLAN BIDS IN AREA.—

19 The weighted average of the plan bids for 

20 the area and year (as determined under 

21 paragraph (4)(A)). 

22 ‘‘(ii) NON-FFS MARKET SHARE.—1 

23 minus the fee-for-service market share per24 centage, determined under paragraph (5) 

25 for the area and year. 
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1 ‘‘(B) FEE-FOR-SERVICE COMPONENT.—

2 The product of the following: 

3 ‘‘(i) FEE-FOR-SERVICE AREA-SPECIFIC

4 NON-DRUG AMOUNT.—The fee-for-service 

5 area-specific non-drug amount (as defined 

6 in paragraph (6)) for the area and year. 

7 ‘‘(ii) FEE-FOR-SERVICE MARKET

8 SHARE.—The fee-for-service market share 

9 percentage, determined under paragraph 

10 (5) for the area and year. 

11 ‘‘(4) DETERMINATION OF WEIGHTED AVERAGE

12 MEDICARE ADVANTAGE BIDS FOR AN AREA.—

13 ‘‘(A) IN GENERAL.—For purposes of para14 graph (3)(A)(i), the weighted average of plan 

15 bids for an area and a year is the sum of the 

16 following products for Medicare Advantage 

17 plans described in subparagraph (C) in the area 

18 and year: 

19 ‘‘(i) MONTHLY MEDICARE ADVANTAGE

20 STATUTORY NON-DRUG BID AMOUNT.—The 

21 unadjusted Medicare Advantage statutory 

22 non-drug monthly bid amount. 

23 ‘‘(ii) PLAN’S SHARE OF MEDICARE AD24 VANTAGE ENROLLMENT IN AREA.—The 

25 number of individuals described in sub-
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1 paragraph (B), divided by the total num2 ber of such individuals for all Medicare Ad3 vantage plans described in subparagraph 

4 (C) for that area and year. 

5 ‘‘(B) COUNTING OF INDIVIDUALS.—The 

6 Administrator shall count, for each Medicare 

7 Advantage plan described in subparagraph (C) 

8 for an area and year, the number of individuals 

9 who reside in the area and who were enrolled 

10 under such plan under this part during March 

11 of the previous year. 

12 ‘‘(C) EXCLUSION OF PLANS NOT OFFERED

13 IN PREVIOUS YEAR.—For an area and year, the 

14 Medicare Advantage plans described in this 

15 subparagraph are plans described in the first 

16 sentence of section 1851(a)(2)(A) that are of17 fered in the area and year and were offered in 

18 the area in March of the previous year. 

19 ‘‘(5) COMPUTATION OF FEE-FOR-SERVICE MAR20 KET SHARE PERCENTAGE.—The Administrator shall 

21 determine, for a year and a competitive Medicare 

22 Advantage area, the proportion (in this subsection 

23 referred to as the ‘fee-for-service market share per24 centage’) of Medicare Advantage eligible individuals 

25 residing in the area who during March of the pre-
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1 vious year were not enrolled in a Medicare Advan2 tage plan or in an EFFS plan (or, if greater, such 

3 proportion determined for individuals nationally). 

4 ‘‘(6) FEE-FOR-SERVICE AREA-SPECIFIC NON5 DRUG AMOUNT.—

6 ‘‘(A) IN GENERAL.—For purposes of para7 graph (3)(B)(i) and section 1839(h)(1)(A), sub8 ject to subparagraph (C), the term ‘fee-for-serv9 ice area-specific non-drug amount’ means, for a 

10 competitive Medicare Advantage area and a 

11 year, the adjusted average per capita cost for 

12 the year involved, determined under section 

13 1876(a)(4) for such area for services covered 

14 under parts A and B for individuals entitled to 

15 benefits under part A and enrolled under this 

16 part who are not enrolled in a Medicare Advan17 tage plan under part C or an EFFS plan under 

18 part E for the year, but adjusted to exclude 

19 costs attributable to payments under section 

20 1886(h).

21 ‘‘(B) USE OF FULL RISK ADJUSTMENT TO

22 STANDARDIZE FEE-FOR-SERVICE COSTS TO TYP23 ICAL BENEFICIARY.—In determining the ad24 justed average per capita cost for an area and 

25 year under subparagraph (A), such costs shall 
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1 be adjusted to fully take into account the demo2 graphic and health status risk factors estab3 lished under subsection (a)(1)(A)(iv) so that 

4 such per capita costs reflect the average costs 

5 for a typical beneficiary residing in the area. 

6 ‘‘(C) INCLUSION OF COSTS OF VA AND DOD

7 MILITARY FACILITY SERVICES TO MEDICARE8 ELIGIBLE BENEFICIARIES.—In determining the 

9 adjusted average per capita cost under subpara10 graph (A) for a year, such cost shall be ad11 justed to include the Administrator’s estimate, 

12 on a per capita basis, of the amount of addi13 tional payments that would have been made in 

14 the area involved under this title if individuals 

15 entitled to benefits under this title had not re16 ceived services from facilities of the Department 

17 of Veterans Affairs or the Department of De18 fense. 

19 ‘‘(7) APPLICATION OF COMPETITION.—In the 

20 case of an area that is a competitive Medicare Ad21 vantage area for a year, for purposes of applying 

22 subsection (a)(1)(A)(ii) and sections 

23 1854(b)(2)(A)(ii) and 1854(b)(3)(B)(i), any ref24 erence to a Medicare Advantage area-specific non25 drug monthly benchmark amount shall be treated as 
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1 a reference to the competitive Medicare Advantage 

2 non-drug monthly benchmark amount under para3 graph (2) for the area and year. 

4 ‘‘(8) PHASE-IN OF BENCHMARK FOR EACH

5 AREA.—

6 ‘‘(A) USE OF BLENDED BENCHMARK.—In 

7 the case of an area that has not been a com8 petitive Medicare Advantage area for each of 

9 the previous 4 years, the competitive Medicare 

10 Advantage non-drug monthly benchmark 

11 amount shall be equal to the sum of the fol12 lowing: 

13 ‘‘(i) NEW COMPETITIVE COMPO14 NENT.—The product of—

15 ‘‘(I) the weighted average phase16 in proportion for that area and year, 

17 as specified in subparagraph (B); and 

18 ‘‘(II) the competitive Medicare 

19 Advantage non-drug monthly bench20 mark amount for the area and year, 

21 determined under paragraph (2) with22 out regard to this paragraph. 

23 ‘‘(ii) OLD COMPETITIVE COMPO24 NENT.—The product of—
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1 ‘‘(I) 1 minus the weighted aver2 age phase-in proportion for that area 

3 and year; and 

4 ‘‘(II) the Medicare Advantage 

5 area-wide non-drug benchmark 

6 amount for the area and the year. 

7 ‘‘(B) COMPUTATION OF WEIGHTED AVER8 AGE PHASE-IN PROPORTION.—For purposes of 

9 this paragraph, the ‘weighted average phase-in 

10 proportion’ for a Medicare Advantage payment 

11 area for a year shall be determined as follows: 

12 ‘‘(i) FIRST YEAR (AND AREA NOT

13 COMPETITIVE AREA IN PREVIOUS YEAR).—

14 If the area was not a Medicare Advantage 

15 competitive area in the previous year, the 

16 weighted average phase-in proportion for 

the area for the year is equal to 1 17 ⁄5. 

18 ‘‘(ii) COMPETITIVE AREA IN PREVIOUS

19 YEAR.—If the area was a competitive 

20 Medicare Advantage area in the previous 

21 year, the weighted average phase-in pro22 portion for the area for the year is equal 

23 to the weighted average phase-in propor24 tion determined under this subparagraph 
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for the area for the previous year plus 1 1 ⁄5, 

2 but in no case more than 1. 

3 ‘‘(C) MEDICARE ADVANTAGE AREA-WIDE

4 NON-DRUG BENCHMARK AMOUNT.—For pur5 poses of subparagraph (A)(ii)(II), the term 

6 ‘Medicare Advantage area-wide non-drug bench7 mark amount’ means, for an area and year, the 

8 weighted average of the amounts described in 

9 section 1853(j) for Medicare Advantage pay10 ment area or areas included in the area (based 

11 on the number of traditional fee-for-service en12 rollees in such payment area or areas) and 

13 year.’’. 

14 (2) APPLICATION.—Section 1854 (42 U.S.C. 

15 1395w–24) is amended—

16 (A) in subsection (b)(1)(C)(i), as added by 

17 section 221(b)(1)(A), by striking ‘‘(i) REQUIRE18 MENT.—The’’ and inserting ‘‘(i) REQUIREMENT

19 FOR NON-COMPETITIVE AREAS.—In the case of 

20 a Medicare Advantage payment area that is not 

21 a competitive Medicare Advantage area des22 ignated under section 1853(k)(1), the’’; 

23 (B) in subsection (b)(1)(C), as so added, 

24 by inserting after clause (i) the following new 

25 clause: 
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1 ‘‘(ii) REQUIREMENT FOR COMPETI2 TIVE MEDICARE ADVANTAGE AREAS.—In 

3 the case of a Medicare Advantage payment 

4 area that is designated as a competitive 

5 Medicare Advantage area under section 

6 1853(k)(1), if there are average per capita 

7 monthly savings described in paragraph 

8 (6) for a Medicare Advantage plan and 

9 year, the Medicare Advantage plan shall 

10 provide to the enrollee a monthly rebate 

11 equal to 75 percent of such savings.’’; and 

12 (C) by adding at the end of subsection (b), 

13 as amended by sections 221(b)(1)(B) and 

14 221(b)(2), the following new paragraph: 

15 ‘‘(6) COMPUTATION OF AVERAGE PER CAPITA

16 MONTHLY SAVINGS FOR COMPETITIVE MEDICARE

17 ADVANTAGE AREAS.—For purposes of paragraph 

18 (1)(C)(ii), the average per capita monthly savings 

19 referred to in such paragraph for a Medicare Advan20 tage plan and year shall be computed in the same 

21 manner as the average per capita monthly savings is 

22 computed under paragraph (3) except that the ref23 erence to the Medicare Advantage area-specific non24 drug monthly benchmark amount in paragraph 

25 (3)(B)(i) (or to the benchmark amount as adjusted 
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1 under paragraph (3)(C)(i)) is deemed to be a ref2 erence to the competitive Medicare Advantage non3 drug monthly benchmark amount (or such amount 

4 as adjusted in the manner described in paragraph 

5 (3)(B)(i)).’’. 

6 (3) ADDITIONAL CONFORMING AMENDMENTS.—

7 (A) PAYMENT OF PLANS.—Section 

8 1853(a)(1)(A)(ii), as amended by section 

9 221(c)(1), is amended—

10 (i) in subclauses (I) and (II), by in11 serting ‘‘(or, insofar as such payment area 

12 is a competitive Medicare Advantage area, 

13 described in section 1854(b)(6))’’ after 

14 ‘‘section 1854(b)(3)(C)’’; and 

15 (ii) in subclause (II), by inserting 

16 ‘‘(or, insofar as such payment area is a 

17 competitive Medicare Advantage area, the 

18 competitive Medicare Advantage non-drug 

19 monthly benchmark amount)’’ after ‘‘Medi20 care Advantage area-specific non-drug 

21 monthly benchmark amount’’; and 

22 (B) DISCLOSURE OF INFORMATION.—Sec23 tion 1853(b)(1)(B), as amended by section 

24 221(e)(1), is amended to read as follows: 
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1 ‘‘(B) COMPETITION INFORMATION.—For 

2 years beginning with 2006, the following: 

3 ‘‘(i) BENCHMARKS.—The Medicare 

4 Advantage area-specific non-drug bench5 mark under section 1853(j) and, if applica6 ble, the competitive Medicare Advantage 

7 non-drug benchmark under section 

8 1853(k)(2), for the year and competitive 

9 Medicare Advantage area involved and the 

10 national fee-for-service market share per11 centage for the area and year. 

12 ‘‘(ii) ADJUSTMENT FACTORS.—The 

13 adjustment factors applied under section 

14 1853(a)(1)(A)(iv) (relating to demographic 

15 adjustment), section 1853(a)(1)(B) (relat16 ing to adjustment for end-stage renal dis17 ease), and section 1853(a)(3) (relating to 

18 health status adjustment). 

19 ‘‘(iii) CERTAIN BENCHMARKS AND

20 AMOUNTS.—In the case of a competitive 

21 Medicare Advantage area, the Medicare 

22 Advantage area-wide non-drug benchmark 

23 amount (as defined in subsection 

24 (k)(8)(C)) and the fee-for-service area-spe-
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1 cific non-drug amount (as defined in sec2 tion 1853(k)(6)) for the area. 

3 ‘‘(iv) INDIVIDUALS.—The number of 

4 individuals counted under subsection 

5 (k)(4)(B) and enrolled in each Medicare 

6 Advantage plan in the area.’’. 

7 (C) DEFINITION OF MONTHLY BASIC PRE8 MIUM.—Section 1854(b)(2)(A)(ii), as amended 

9 by section 221(d)(2), is amended by inserting 

10 ‘‘(or, in the case of a competitive Medicare Ad11 vantage area, the competitive Medicare Advan12 tage non-drug monthly benchmark amount or, 

13 in applying this paragraph under part E in the 

14 case of a competitive EFFS region, the com15 petitive EFFS non-drug monthly benchmark 

16 amount)’’ after ‘‘benchmark amount’’. 

17 (c) PREMIUM ADJUSTMENT.—

18 (1) IN GENERAL.—Section 1839 (42 U.S.C. 

19 1395r) is amended by adding at the end the fol20 lowing new subsection: 

21 ‘‘(h)(1)(A) In the case of an individual who resides 

22 in a competitive Medicare Advantage area under section 

23 1853(k)(1) (regardless of whether such area is in a com24 petitive EFFS region under section 1860E–3(e)) and who 

25 is not enrolled in a Medicare Advantage plan under part 
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1 C or in an EFFS plan under part E, the monthly premium 

2 otherwise applied under this part (determined without re3 gard to subsections (b) and (f) or any adjustment under 

4 this subsection) shall be adjusted as follows: If the fee5 for-service area-specific non-drug amount (as defined in 

6 section 1853(k)(6)) for the competitive Medicare Advan7 tage area in which the individual resides for a month—

8 ‘‘(i) does not exceed the competitive Medicare 

9 Advantage non-drug benchmark (as determined 

10 under paragraph (2) of section 1853(k), without re11 gard to paragraph (8) thereof) for such area, the 

12 amount of the premium for the individual for the 

13 month shall be reduced by an amount equal to the 

14 product of the adjustment factor under subpara15 graph (C) and 75 percent of the amount by which 

16 such competitive benchmark exceeds such fee-for17 service area-specific non-drug amount; or 

18 ‘‘(ii) exceeds such competitive Medicare Advan19 tage non-drug benchmark, the amount of the pre20 mium for the individual for the month shall be ad21 justed to ensure, subject to subparagraph (B), 

22 that—

23 ‘‘(I) the sum of the amount of the adjusted 

24 premium and the competitive Medicare Advan-
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1 tage non-drug benchmark for the area, is equal 

2 to 

3 ‘‘(II) the sum of the unadjusted premium 

4 plus amount of the fee-for-service area-specific 

5 non-drug amount for the area. 

6 ‘‘(B) In no case shall the actual amount of an adjust7 ment under subparagraph (A)(ii) exceed the product of 

8 the adjustment factor under subparagraph (C) and the 

9 amount of the adjustment otherwise computed under sub10 paragraph (A)(ii) without regard to this subparagraph. 

11 ‘‘(C) The adjustment factor under this subparagraph 

12 for an area for a year is equal to—

13 ‘‘(i) the number of consecutive years (in the 5-

14 year period ending with the year involved) in which 

15 such area was a competitive Medicare Advantage 

16 area; divided by 

17 ‘‘(ii) 5. 

18 ‘‘(2)(A) In the case of an individual who resides in 

19 an area that is within a competitive EFFS region under 

20 section 1860E–3(e) but is not within a competitive Medi21 care Advantage area under section 1853(k)(1) and who 

22 is not enrolled in a Medicare Advantage plan under part 

23 C or in an EFFS plan under part E, the monthly premium 

24 otherwise applied under this part (determined without re25 gard to subsections (b) and (f) or any adjustment under 
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1 this subsection) shall be adjusted as follows: If the fee2 for-service region-specific non-drug amount (as defined in 

3 section 1860E–3(e)(6)) for a region for a month—

4 ‘‘(i) does not exceed the competitive EFFS non5 drug monthly benchmark amount (as determined 

6 under paragraph (2) of section 1860E–3(e), without 

7 regard to paragraph (8) thereof) for such region, the 

8 amount of the premium for the individual for the 

9 month shall be reduced by an amount equal to the 

10 product of the adjustment factor under subpara11 graph (C) and 75 percent of the amount by which 

12 such competitive benchmark amount exceeds such 

13 fee-for-service region-specific non-drug benchmark 

14 amount; or 

15 ‘‘(ii) exceeds such competitive EFFS non-drug 

16 monthly benchmark amount, the amount of the pre17 mium for the individual for the month shall be ad18 justed to ensure, subject to subparagraph (B), 

19 that—

20 ‘‘(I) the sum of the amount of the adjusted 

21 premium and the competitive EFFS non-drug 

22 monthly benchmark amount for the region, is 

23 equal to 
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1 ‘‘(II) the sum of the unadjusted premium 

2 plus the amount of the EFFS region-specific 

3 non-drug monthly bidfor the region. 

4 ‘‘(B) In no case shall the actual amount of an adjust5 ment under subparagraph (A)(ii) exceed the product of 

6 the adjustment factor under subparagraph (C) and the 

7 amount of the adjustment otherwise computed under sub8 paragraph (A)(ii) without regard to this subparagraph. 

9 ‘‘(C) The adjustment factor under this subparagraph 

10 for an EFFS region for a year is equal to—

11 ‘‘(i) the number of consecutive years (in the 5-

12 year period ending with the year involved) in which 

13 such region was a competitive EFFS region; divided 

14 by 

15 ‘‘(ii) 5. 

16 ‘‘(3) Nothing in this subsection shall be construed as 

17 preventing a reduction under paragraph (1)(A) or para18 graph (2)(A) in the premium otherwise applicable under 

19 this part to zero or from requiring the provision of a re20 bate to the extent such premium would otherwise be re21 quired to be less than zero. 

22 ‘‘(4) The adjustment in the premium under this sub23 section shall be effected in such manner as the Medicare 

24 Benefits Administrator determines appropriate. 
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1 ‘‘(5) In order to carry out this subsection (insofar as 

2 it is effected through the manner of collection of premiums 

3 under 1840(a)), the Medicare Benefits Administrator shall 

4 transmit to the Commissioner of Social Security—

5 ‘‘(A) at the beginning of each year, the name, 

6 social security account number, and the amount of 

7 the adjustment (if any) under this subsection for 

8 each individual enrolled under this part for each 

9 month during the year; and 

10 ‘‘(B) periodically throughout the year, informa11 tion to update the information previously trans12 mitted under this paragraph for the year.’’. 

13 (2) NO CHANGE IN MEDICARE’S DEFINED BEN14 EFIT PACKAGE.—Nothing in this part (or the 

15 amendments made by this part) shall be construed 

16 as changing the entitlement to defined benefits 

17 under parts A and B of title XVIII of the Social Se18 curity Act. 

19 (3) CONFORMING AMENDMENT.—Section 

20 1844(c) (42 U.S.C. 1395w(c)) is amended by insert21 ing ‘‘and without regard to any premium adjustment 

22 effected under section 1839(h)’’ before the period at 

23 the end. 

24 (d) EFFECTIVE DATE.—The amendments made by 

25 this section shall take effect on January 1, 2010.
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1 TITLE III—COMBATTING WASTE, 

2 FRAUD, AND ABUSE 

3 SEC. 301. MEDICARE SECONDARY PAYOR (MSP) PROVI4 SIONS. 

5 (a) TECHNICAL AMENDMENT CONCERNING SEC6 RETARY’S AUTHORITY TO MAKE CONDITIONAL PAYMENT

7 WHEN CERTAIN PRIMARY PLANS DO NOT PAY PROMPT8 LY.—

9 (1) IN GENERAL.—Section 1862(b)(2) (42 

10 U.S.C. 1395y(b)(2)) is amended—

11 (A) in subparagraph (A)(ii), by striking 

12 ‘‘promptly (as determined in accordance with 

13 regulations)’’; 

14 (B) in subparagraph (B)—

15 (i) by redesignating clauses (i) 

16 through (iii) as clauses (ii) through (iv), 

17 respectively; and 

18 (ii) by inserting before clause (ii), as 

19 so redesignated, the following new clause: 

20 ‘‘(i) AUTHORITY TO MAKE CONDI21 TIONAL PAYMENT.—The Secretary may 

22 make payment under this title with respect 

23 to an item or service if a primary plan de24 scribed in subparagraph (A)(ii) has not 

25 made or cannot reasonably be expected to 
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1 make payment with respect to such item or 

2 service promptly (as determined in accord3 ance with regulations). Any such payment 

4 by the Secretary shall be conditioned on 

5 reimbursement to the appropriate Trust 

6 Fund in accordance with the succeeding 

7 provisions of this subsection.’’. 

8 (2) EFFECTIVE DATE.—The amendments made 

9 by paragraph (1) shall be effective as if included in 

10 the enactment of title III of the Medicare and Med11 icaid Budget Reconciliation Amendments of 1984 

12 (Public Law 98-369). 

13 (b) CLARIFYING AMENDMENTS TO CONDITIONAL

14 PAYMENT PROVISIONS.—Section 1862(b)(2) (42 U.S.C. 

15 1395y(b)(2)) is further amended—

16 (1) in subparagraph (A), in the matter fol17 lowing clause (ii), by inserting the following sentence 

18 at the end: ‘‘An entity that engages in a business, 

19 trade, or profession shall be deemed to have a self20 insured plan if it carries its own risk (whether by a 

21 failure to obtain insurance, or otherwise) in whole or 

22 in part.’’; 

23 (2) in subparagraph (B)(ii), as redesignated by 

24 subsection (a)(2)(B)—
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1 (A) by striking the first sentence and in2 serting the following: ‘‘A primary plan, and an 

3 entity that receives payment from a primary 

4 plan, shall reimburse the appropriate Trust 

5 Fund for any payment made by the Secretary 

6 under this title with respect to an item or serv7 ice if it is demonstrated that such primary plan 

8 has or had a responsibility to make payment 

9 with respect to such item or service. A primary 

10 plan’s responsibility for such payment may be 

11 demonstrated by a judgment, a payment condi12 tioned upon the recipient’s compromise, waiver, 

13 or release (whether or not there is a determina14 tion or admission of liability) of payment for 

15 items or services included in a claim against the 

16 primary plan or the primary plan’s insured, or 

17 by other means.’’; and 

18 (B) in the final sentence, by striking ‘‘on 

19 the date such notice or other information is re20 ceived’’ and inserting ‘‘on the date notice of, or 

21 information related to, a primary plan’s respon22 sibility for such payment or other information is 

23 received’’; and 

24 (3) in subparagraph (B)(iii), , as redesignated 

25 by subsection (a)(2)(B), by striking the first sen-
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1 tence and inserting the following: ‘‘In order to re2 cover payment made under this title for an item or 

3 service, the United States may bring an action 

4 against any or all entities that are or were required 

5 or responsible (directly, as an insurer or self-insurer, 

6 as a third-party administrator, as an employer that 

7 sponsors or contributes to a group health plan, or 

8 large group health plan, or otherwise) to make pay9 ment with respect to the same item or service (or 

10 any portion thereof) under a primary plan. The 

11 United States may, in accordance with paragraph 

12 (3)(A) collect double damages against any such enti13 ty. In addition, the United States may recover under 

14 this clause from any entity that has received pay15 ment from a primary plan or from the proceeds of 

16 a primary plan’s payment to any entity.’’. 

17 (c) CLERICAL AMENDMENTS.—Section 1862(b) (42 

18 U.S.C. 1395y(b)) is amended—

19 (1) in paragraph (1)(A), by moving the indenta20 tion of clauses (ii) through (v) 2 ems to the left; and 

21 (2) in paragraph (3)(A), by striking ‘‘such’’ be22 fore ‘‘paragraphs’’. 
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1 SEC. 302. COMPETITIVE ACQUISITION OF CERTAIN ITEMS 

2 AND SERVICES. 

3 (a) IN GENERAL.—Section 1847 (42 U.S.C. 1395w–

4 3) is amended to read as follows:

5 ‘‘COMPETITIVE ACQUISITION OF CERTAIN ITEMS AND

6 SERVICES

7 ‘‘SEC. 1847. (a) ESTABLISHMENT OF COMPETITIVE

8 ACQUISITION PROGRAMS.—

9 ‘‘(1) IMPLEMENTATION OF PROGRAMS.—

10 ‘‘(A) IN GENERAL.—The Secretary shall 

11 establish and implement programs under which 

12 competitive acquisition areas are established 

13 throughout the United States for contract 

14 award purposes for the furnishing under this 

15 part of competitively priced items and services 

16 (described in paragraph (2)) for which payment 

17 is made under this part. Such areas may differ 

18 for different items and services. 

19 ‘‘(B) PHASED-IN IMPLEMENTATION.—The 

20 programs shall be phased-in—

21 ‘‘(i) among competitive acquisition 

22 areas over a period of not longer than 3 

23 years in a manner so that the competition 

24 under the programs occurs in—

‘‘(I) at least 1 25 ⁄3 of such areas in 

26 2005; and 
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‘‘(II) at least 2 1 ⁄3 of such areas in 

2 2006; and 

3 ‘‘(ii) among items and services in a 

4 manner such that the programs apply to 

5 the highest cost and highest volume items 

6 and services first. 

7 ‘‘(C) WAIVER OF CERTAIN PROVISIONS.—

8 In carrying out the programs, the Secretary 

9 may waive such provisions of the Federal Ac10 quisition Regulation as are necessary for the ef11 ficient implementation of this section, other 

12 than provisions relating to confidentiality of in13 formation and such other provisions as the Sec14 retary determines appropriate. 

15 ‘‘(2) ITEMS AND SERVICES DESCRIBED.—The 

16 items and services referred to in paragraph (1) are 

17 the following: 

18 ‘‘(A) DURABLE MEDICAL EQUIPMENT AND

19 MEDICAL SUPPLIES.—Covered items (as defined 

20 in section 1834(a)(13)) for which payment is 

21 otherwise made under section 1834(a), includ22 ing items used in infusion and drugs and sup23 plies used in conjunction with durable medical 

24 equipment, but excluding class III devices 
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1 under the Federal Food, Drug, and Cosmetic 

2 Act. 

3 ‘‘(B) OTHER EQUIPMENT AND SUP4 PLIES.—Items, equipment, and supplies (as de5 scribed in section 1842(s)(2)(D) other than en6 teral nutrients). 

7 ‘‘(C) OFF-THE-SHELF ORTHOTICS.—

8 Orthotics (described in section 1861(s)(9)) for 

9 which payment is otherwise made under section 

10 1834(h) which require minimal self-adjustment 

11 for appropriate use and does not require exper12 tise in trimming, bending, molding, assembling, 

13 or customizing to fit to the patient. 

14 ‘‘(3) EXCEPTION AUTHORITY.—In carrying out 

15 the programs under this section, the Secretary may 

16 exempt—

17 ‘‘(A) rural areas and areas with low popu18 lation density within urban areas that are not 

19 competitive, unless there is a significant na20 tional market through mail order for a par21 ticular item or service; and 

22 ‘‘(B) items and services for which the ap23 plication of competitive acquisition is not likely 

24 to result in significant savings. 
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1 ‘‘(4) SPECIAL RULE FOR CERTAIN RENTED

2 ITEMS OF DURABLE MEDICAL EQUIPMENT.—In the 

3 case of a covered item for which payment is made 

4 on a rental basis under section 1834(a), the Sec5 retary shall establish a process by which rental 

6 agreements for the covered items entered into before 

7 the application of the competitive acquisition pro8 gram under this section for the item may be contin9 ued notwithstanding this section. In the case of any 

10 such continuation, the supplier involved shall provide 

11 for appropriate servicing and replacement, as re12 quired under section 1834(a). 

13 ‘‘(5) PHYSICIAN AUTHORIZATION.—The Sec14 retary may establish a process under which a physi15 cian may prescribe a particular brand or mode of de16 livery of an item or service if the item or service in17 volved is clinically more appropriate than other simi18 lar items or services. 

19 ‘‘(6) APPLICATION.—For each competitive ac20 quisition area in which the program is implemented 

21 under this subsection with respect to items and serv22 ices, the payment basis determined under the com23 petition conducted under subsection (b) shall be sub24 stituted for the payment basis otherwise applied 

25 under section 1834(a). 
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1 ‘‘(b) PROGRAM REQUIREMENTS.—

2 ‘‘(1) IN GENERAL.—The Secretary shall con3 duct a competition among entities supplying items 

4 and services described in subsection (a)(2) for each 

5 competitive acquisition area in which the program is 

6 implemented under subsection (a) with respect to 

7 such items and services. 

8 ‘‘(2) CONDITIONS FOR AWARDING CONTRACT.—

9 ‘‘(A) IN GENERAL.—The Secretary may 

10 not award a contract to any entity under the 

11 competition conducted in an competitive acqui12 sition area pursuant to paragraph (1) to fur13 nish such items or services unless the Secretary 

14 finds all of the following: 

15 ‘‘(i) The entity meets quality and fi16 nancial standards specified by the Sec17 retary or developed by the Program Advi18 sory and Oversight Committee established 

19 under subsection (c). 

20 ‘‘(ii) The total amounts to be paid 

21 under the contract (including costs associ22 ated with the administration of the con23 tract) are expected to be less than the total 

24 amounts that would otherwise be paid. 
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1 ‘‘(iii) Beneficiary access to a choice of 

2 multiple suppliers in the area is main3 tained. 

4 ‘‘(iv) Beneficiary liability is limited to 

5 20 percent of the applicable contract 

6 award price, except in such cases where a 

7 supplier has furnished an upgraded item 

8 and has executed an advanced beneficiary 

9 notice. 

10 ‘‘(B) DEVELOPMENT OF QUALITY STAND11 ARDS FOR DME PRODUCTS.—

12 ‘‘(i) IN GENERAL.—The quality stand13 ards specified under subparagraph (A)(i) 

14 shall not be less than the quality standards 

15 that would otherwise apply if this section 

16 did not apply and shall include consumer 

17 services standards. Not later than July 1, 

18 2004, the Secretary shall establish new 

19 quality standards for products subject to 

20 competitive acquisition under this section. 

21 Such standards shall be applied prospec22 tively and shall be published on the website 

23 of the Department of Health and Human 

24 Services. 
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1 ‘‘(ii) CONSULTATION WITH PROGRAM

2 ADVISORY AND OVERSIGHT COMMITTEE.—

3 The Secretary shall consult with the Pro4 gram Advisory and Oversight Committee 

5 (established under subsection (c)) to review 

6 (and advise the Secretary concerning) the 

7 quality standards referred to in clause (i). 

8 ‘‘(iii) CONSTRUCTION.—Nothing in 

9 this subparagraph shall be construed as 

10 delaying the effective date of the imple11 mentation of the competitive acquisition 

12 program under this section. 

13 ‘‘(3) CONTENTS OF CONTRACT.—

14 ‘‘(A) IN GENERAL.—A contract entered 

15 into with an entity under the competition con16 ducted pursuant to paragraph (1) is subject to 

17 terms and conditions that the Secretary may 

18 specify. 

19 ‘‘(B) TERM OF CONTRACTS.—The Sec20 retary shall recompete contracts under this sec21 tion not less often than once every 3 years. 

22 ‘‘(4) LIMIT ON NUMBER OF CONTRACTORS.—

23 ‘‘(A) IN GENERAL.—The Secretary may 

24 limit the number of contractors in a competitive 

25 acquisition area to the number needed to meet 
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1 projected demand for items and services covered 

2 under the contracts. In awarding contracts, the 

3 Secretary shall take into account the ability of 

4 bidding entities to furnish items or services in 

5 sufficient quantities to meet the anticipated 

6 needs of beneficiaries for such items or services 

7 in the geographic area covered under the con8 tract on a timely basis. 

9 ‘‘(B) MULTIPLE WINNERS.—The Secretary 

10 shall award contracts to multiple entities sub11 mitting bids in each area for an item or service. 

12 ‘‘(5) PAYMENT.—Payment under this part for 

13 competitively priced items and services described in 

14 subsection (a)(2) shall be based on the bids sub15 mitted and accepted under this section for such 

16 items and services. 

17 ‘‘(6) PARTICIPATING CONTRACTORS.—Payment 

18 shall not be made for items and services described 

19 in subsection (a)(2) furnished by a contractor and 

20 for which competition is conducted under this sec21 tion unless—

22 ‘‘(A) the contractor has submitted a bid 

23 for such items and services under this section; 

24 and 
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1 ‘‘(B) the Secretary has awarded a contract 

2 to the contractor for such items and services 

3 under this section. 

4 In this section, the term ‘bid’ means a request for 

5 a proposal for an item or service that includes the 

6 cost of the item or service, and where appropriate, 

7 any services that are attendant to the provision of 

8 the item or service. 

9 ‘‘(7) CONSIDERATION IN DETERMINING CAT10 EGORIES FOR BIDS.—The Secretary shall consider 

11 the similarity of the clinical efficiency and value of 

12 specific codes and products, including products that 

13 may provide a therapeutic advantage to bene14 ficiaries, before delineating the categories and prod15 ucts that will be subject to bidding. 

16 ‘‘(8) AUTHORITY TO CONTRACT FOR EDU17 CATION, MONITORING, OUTREACH AND COMPLAINT

18 SERVICES.—The Secretary may enter into a contract 

19 with an appropriate entity to address complaints 

20 from beneficiaries who receive items and services 

21 from an entity with a contract under this section 

22 and to conduct appropriate education of and out23 reach to such beneficiaries and monitoring quality of 

24 services with respect to the program. 
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1 ‘‘(c) PROGRAM ADVISORY AND OVERSIGHT COM2 MITTEE.—

3 ‘‘(1) ESTABLISHMENT.—There is established a 

4 Program Advisory and Oversight Committee (herein5 after in this section referred to as the ‘Committee’). 

6 ‘‘(2) MEMBERSHIP; TERMS.—The Committee 

7 shall consist of such members as the Secretary may 

8 appoint who shall serve for such term as the Sec9 retary may specify. 

10 ‘‘(3) DUTIES.—

11 ‘‘(A) TECHNICAL ASSISTANCE.—The Com12 mittee shall provide advice and technical assist13 ance to the Secretary with respect to the fol14 lowing functions: 

15 ‘‘(i) The implementation of the pro16 gram under this section. 

17 ‘‘(ii) The establishment of require18 ments for collection of data. 

19 ‘‘(iii) The development of proposals 

20 for efficient interaction among manufac21 turers and distributors of the items and 

22 services and providers and beneficiaries. 

23 ‘‘(B) ADDITIONAL DUTIES.—The Com24 mittee shall perform such additional functions 
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1 to assist the Secretary in carrying out this sec2 tion as the Secretary may specify. 

3 ‘‘(4) INAPPLICABILITY OF FACA.—The provi4 sions of the Federal Advisory Committee Act (5 

5 U.S.C. App.) shall not apply. 

6 ‘‘(d) ANNUAL REPORTS.—The Secretary shall submit 

7 to Congress an annual management report on the pro8 grams under this section. Each such report shall include 

9 information on savings, reductions in beneficiary cost10 sharing, access to and quality of items and services, and 

11 beneficiary satisfaction. 

12 ‘‘(e) DEMONSTRATION PROJECT FOR CLINICAL LAB13 ORATORY SERVICES.—

14 ‘‘(1) IN GENERAL.—The Secretary shall con15 duct a demonstration project on the application of 

16 competitive acquisition under this section to clinical 

17 diagnostic laboratory tests—

18 ‘‘(A) for which payment is otherwise made 

19 under section 1833(h) or 1834(d)(1) (relating 

20 to colorectal cancer screening tests); and 

21 ‘‘(B) which are furnished by entities that 

22 did not have a face-to-face encounter with the 

23 individual. 
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1 ‘‘(2) TERMS AND CONDITIONS.—Such project 

2 shall be under the same conditions as are applicable 

3 to items and services described in subsection (a)(2). 

4 ‘‘(3) REPORT.—The Secretary shall submit to 

5 Congress—

6 ‘‘(A) an initial report on the project not 

7 later than December 31, 2005; and 

8 ‘‘(B) such progress and final reports on 

9 the project after such date as the Secretary de10 termines appropriate.’’. 

11 (b) CONFORMING AMENDMENTS.—

12 (1) DURABLE MEDICAL EQUIPMENT; ELIMI13 NATION OF INHERENT REASONABLENESS AUTHOR14 ITY.—Section 1834(a) (42 U.S.C. 1395m(a)) is 

15 amended—

16 (A) in paragraph (1)(B), by striking ‘‘The 

17 payment basis’’ and inserting ‘‘Subject to sub18 paragraph (E)(i), the payment basis’’; 

19 (B) in paragraph (1)(C), by striking ‘‘This 

20 subsection’’ and inserting ‘‘Subject to subpara21 graph (E)(ii), this subsection’’; 

22 (C) by adding at the end of paragraph (1) 

23 the following new subparagraph: 

24 ‘‘(E) APPLICATION OF COMPETITIVE AC25 QUISITION; ELIMINATION OF INHERENT REA-
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1 SONABLENESS AUTHORITY.—In the case of cov2 ered items and services that are included in a 

3 competitive acquisition program in a competi4 tive acquisition area under section 1847(a)—

5 ‘‘(i) the payment basis under this sub6 section for such items and services fur7 nished in such area shall be the payment 

8 basis determined under such competitive 

9 acquisition program; and 

10 ‘‘(ii) the Secretary may use informa11 tion on the payment determined under 

12 such competitive acquisition programs to 

13 adjust the payment amount otherwise rec14 ognized under subparagraph (B)(ii) for an 

15 area that is not a competitive acquisition 

16 area under section 1847 and in the case of 

17 such adjustment, paragraph (10)(B) shall 

18 not be applied.’’; and 

19 (D) in paragraph (10)(B), by inserting ‘‘in 

20 an area and with respect to covered items and 

21 services for which the Secretary does not make 

22 a payment amount adjustment under paragraph 

23 (1)(E)’’ after ‘‘under this subsection’’. 
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1 (2) OFF-THE-SHELF ORTHOTICS; ELIMINATION

2 OF INHERENT REASONABLENESS AUTHORITY.—Sec3 tion 1834(h) (42 U.S.C. 1395m(h)) is amended—

4 (A) in paragraph (1)(B), by striking ‘‘and 

5 (E)’’ and inserting ‘‘, (E) , and (H)(i)’’; 

6 (B) in paragraph (1)(D), by striking ‘‘This 

7 subsection’’ and inserting ‘‘Subject to subpara8 graph (H)(ii), this subsection’’; 

9 (C) by adding at the end of paragraph (1) 

10 the following new subparagraph: 

11 ‘‘(H) APPLICATION OF COMPETITIVE AC12 QUISITION TO ORTHOTICS; ELIMINATION OF IN13 HERENT REASONABLENESS AUTHORITY.—In 

14 the case of orthotics described in paragraph 

15 (2)(B) of section 1847(a) that are included in 

16 a competitive acquisition program in a competi17 tive acquisition area under such section—

18 ‘‘(i) the payment basis under this sub19 section for such orthotics furnished in such 

20 area shall be the payment basis determined 

21 under such competitive acquisition pro22 gram; and 

23 ‘‘(ii) the Secretary may use informa24 tion on the payment determined under 

25 such competitive acquisition programs to 
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1 adjust the payment amount otherwise rec2 ognized under subparagraph (B)(ii) for an 

3 area that is not a competitive acquisition 

4 area under section 1847, and in the case 

5 of such adjustment, paragraphs (8) and 

6 (9) of section 1842(b) shall not be ap7 plied.’’. 

8 (c) REPORT ON ACTIVITIES OF SUPPLIERS.—The 

9 Secretary shall conduct a study to determine the extent 

10 to which (if any) suppliers of covered items of durable 

11 medical equipment that are subject to the competitive ac12 quisition program under section 1847 of the Social Secu13 rity Act, as amended by subsection (a), are soliciting phy14 sicians to prescribe certain brands or modes of delivery 

15 of covered items based on profitability. 

16 (d) GAO STUDY ON SAFE AND EFFECTIVE HOME IN17 FUSION AND INHALATION THERAPY; STANDARDS.—

18 (1) STUDY.—The Comptroller General of the 

19 United States shall conduct a study of the stand20 ards, professional services, and related functions 

21 necessary for the provision of safe and effective 

22 home infusion therapy and home inhalation therapy. 

23 (2) REPORT.—Not later than May 1, 2004, the 

24 Comptroller General shall submit to Congress a re25 port on the study conducted under paragraph (1). 
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1 (3) USE OF FINDINGS IN DEVELOPING STAND2 ARDS.—In promulgating regulations to carry out 

3 section 1847 of the Social Security Act, as amended 

4 by subsection (a), the Secretary shall ensure that 

5 quality standards developed under subsection 

6 (b)(2)(B) of such section reflect the findings of the 

7 Comptroller General set forth in the report under 

8 paragraph (2).

9 SEC. 303. COMPETITIVE ACQUISITION OF COVERED OUT10 PATIENT DRUGS AND BIOLOGICALS.

11 (a) ADJUSTMENT TO PHYSICIAN FEE SCHEDULE.—

12 (1) ADJUSTMENT IN PRACTICE EXPENSE REL13 ATIVE VALUE UNITS.—Section 1848(c)(2) (42 

14 U.S.C. 1395w–4(c)(2)) is amended—

15 (A) in subparagraph (B)—

16 (i) in clause (ii)(II), by striking ‘‘The 

17 adjustments’’ and inserting ‘‘Subject to 

18 clause (iv), the adjustments’’; and 

19 (ii) by adding at the end of subpara20 graph (B), the following new clause: 

21 ‘‘(iv) EXCEPTION TO BUDGET NEU22 TRALITY.—The additional expenditures at23 tributable to clauses (ii) and (iii) of sub24 paragraph (H) shall not be taken into ac-
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1 count in applying clause (ii)(II) for 2005.’’; 

2 and 

3 (B) by adding at the end the following new 

4 subparagraph: 

5 ‘‘(H) ADJUSTMENTS IN PRACTICE EX6 PENSE RELATIVE VALUE UNITS FOR 2005.—

7 ‘‘(i) IN GENERAL.—As part of the an8 nual process of establishing the physician 

9 fee schedule under subsection (b) for 2005, 

10 the Secretary shall increase the practice 

11 expense relative value units for 2005 con12 sistent with clauses (ii) and (iii). 

13 ‘‘(ii) USE OF SUPPLEMENTAL SURVEY

14 DATA.—For 2005 for any specialty that 

15 submitted survey data that included ex16 penses for the administration of drugs and 

17 biologicals for which payment is made 

18 under section 1842(o) (or section 1847A), 

19 the Secretary shall use such supplemental 

20 survey data in carrying out this subpara21 graph insofar as they are collected and 

22 provided by entities and organizations con23 sistent with the criteria established by the 

24 Secretary pursuant to section 212(a) of the 

25 Medicare, Medicaid, and SCHIP Balanced 
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1 Budget Refinement Act of 1999 and inso2 far as such data are submitted to the Sec3 retary by December 31, 2004.

4 ‘‘(iii) PROVISIONS FOR APPROPRIATE

5 REPORTING AND BILLING FOR PHYSICIANS’ 

6 SERVICES ASSOCIATED WITH THE ADMINIS7 TRATION OF COVERED OUTPATIENT DRUGS

8 AND BIOLOGICALS.—

9 ‘‘(I) EVALUATION OF CODES.—

10 The Secretary shall promptly evaluate 

11 existing codes for physicians’ services 

12 associated with the administration of 

13 covered outpatient drugs and 

14 biologicals (as defined in section 

15 1847A(a)(2)(A)) to ensure accurate 

16 reporting and billing for such services. 

17 ‘‘(II) USE OF EXISTING PROC18 ESSES.—In carrying out subclause (I), 

19 the Secretary shall use existing proc20 esses for the consideration of coding 

21 changes and, to the extent coding 

22 changes are made, shall use such 

23 processes in establishing relative val24 ues for such services. 
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1 ‘‘(III) IMPLEMENTATION.—In 

2 carrying out subclause (I), the Sec3 retary shall consult with representa4 tives of physician specialties affected 

5 by the implementation of section 

6 1847A or section 1847B, and shall 

7 take such steps within the Secretary’s 

8 authority to expedite such consider9 ations under subclause (II). 

10 ‘‘(iv) SUBSEQUENT, BUDGET NEU11 TRAL ADJUSTMENTS PERMITTED.—Noth12 ing in this subparagraph shall be construed 

13 as preventing the Secretary from providing 

14 for adjustments in practice expense relative 

15 value units under (and consistent with) 

16 subparagraph (B) for years after 2005. 

17 ‘‘(v) CONSULTATION.—Before pub18 lishing the notice of proposed rulemaking 

19 to carry out this subparagraph, the Sec20 retary shall consult with the Comptroller 

21 General of the United States and with 

22 groups representing the physician special23 ties involved. 

24 ‘‘(vi) TREATMENT AS CHANGE IN LAW

25 AND REGULATION IN SUSTAINABLE
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1 GROWTH RATE DETERMINATION.—The en2 actment of subparagraph (B)(iv) and this 

3 subparagraph shall be treated as a change 

4 in law for purposes of applying subsection 

5 (f)(2)(D).’’. 

6 (2) PROHIBITION OF ADMINISTRATIVE AND JU7 DICIAL REVIEW.—Section 1848(i)(1) (42 U.S.C. 

8 1395w–4(i)(1)) is amended—

9 (A) by striking ‘‘and’’ at the end of subpara10 graph (D); 

11 (B) by striking the period at the end of sub12 paragraph (E) and inserting ‘‘, and’’; and 

13 (C) by adding at the end the following new sub14 paragraph: 

15 ‘‘(F) adjustments in practice expense rel16 ative value units for 2005 under subsection 

17 (c)(2)(H).’’. 

18 (3) TREATMENT OF OTHER SERVICES CUR19 RENTLY IN THE NON-PHYSICIAN WORK POOL.—The 

20 Secretary shall make adjustments to the non-physi21 cian work pool methodology (as such term is used in 

22 the regulations promulgated by the Secretary in the 

23 Federal Register as of December 31, 2002) for de24 termination of practice expense relative value units 

25 under the physician fee schedule described in section 
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1 1848(c)(2)(C)(ii) of the Social Security Act so that 

2 the practice expense relative value units for services 

3 determined under such methodology are not affected 

4 relative to the practice expense relative value units 

5 of other services not determined under such non6 physician work pool methodology, as the result of 

7 amendments made by paragraph (1).

8 (b) PAYMENT BASED ON COMPETITION.—Title 

9 XVIII is amended by inserting after section 1847 (42 

10 U.S.C. 1395w–3), as amended by section 302, the fol11 lowing new sections: 

12 ‘‘COMPETITIVE ACQUISITION OF COVERED OUTPATIENT

13 DRUGS AND BIOLOGICALS

14 ‘‘SEC. 1847A. (a) IMPLEMENTATION OF COMPETI15 TIVE ACQUISITION.—

16 ‘‘(1) IMPLEMENTATION OF PROGRAM.—

17 ‘‘(A) IN GENERAL.—The Secretary shall 

18 establish and implement a competitive acquisi19 tion program under which—

20 ‘‘(i) competitive acquisition areas are 

21 established throughout the United States 

22 for contract award purposes for acquisition 

23 of and payment for categories of covered 

24 outpatient drugs and biologicals (as de25 fined in paragraph (2)) under this part; 
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1 ‘‘(ii) each physician is given the op2 portunity annually to elect to obtain drugs 

3 and biologicals under the program or 

4 under section 1847B; and 

5 ‘‘(iii) each physician who elects to ob6 tain drugs and biologicals under the pro7 gram makes an annual selection under 

8 paragraph (5) of the contractor through 

9 which drugs and biologicals within a cat10 egory of drugs and biologicals will be ac11 quired and delivered to the physician under 

12 this part. 

13 ‘‘(B) IMPLEMENTATION.—The Secretary 

14 shall implement the program so that the pro15 gram applies to—

16 ‘‘(i) the oncology category beginning 

17 in 2005; and 

18 ‘‘(ii) the non-oncology category begin19 ning in 2006. 

20 This section shall not apply in the case of a 

21 physician who elects section 1847B to apply. 

22 ‘‘(C) WAIVER OF CERTAIN PROVISIONS.—

23 In order to promote competition, efficient serv24 ice, and product quality, in carrying out the 

25 program the Secretary may waive such provi-
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1 sions of the Federal Acquisition Regulation as 

2 are necessary for the efficient implementation 

3 of this section, other than provisions relating to 

4 confidentiality of information and such other 

5 provisions as the Secretary determines appro6 priate. 

7 ‘‘(D) EXCLUSION AUTHORITY.—The Sec8 retary may exclude covered outpatient drugs 

9 and biologicals (including a class of such drugs 

10 and biologicals) from the competitive bidding 

11 system under this section if the drugs or 

12 biologicals (or class) are not appropriate for 

13 competitive bidding due to low volume of utili14 zation by beneficiaries under this part or a 

15 unique mode or method of delivery or similar 

16 reasons.

17 ‘‘(2) COVERED OUTPATIENT DRUGS AND

18 BIOLOGICALS, CATEGORIES, PROGRAM DEFINED.—

19 For purposes of this section—

20 ‘‘(A) COVERED OUTPATIENT DRUGS AND

21 BIOLOGICALS DEFINED.—The term ‘covered 

22 outpatient drugs and biologicals’ means drugs 

23 and biologicals to which section 1842(o) applies 

24 and which are not covered under section 1847 

25 (relating to competitive acquisition for items of 
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1 durable medical equipment). Such term does 

2 not include the following: 

3 ‘‘(i) Blood clotting factors. 

4 ‘‘(ii) Drugs and biologicals furnished 

5 to individuals in connection with the treat6 ment of end stage renal disease. 

7 ‘‘(iii) Radiopharmaceuticals. 

8 ‘‘(iv) Vaccines. 

9 ‘‘(B) 2 CATEGORIES.—Each of the fol10 lowing shall be a separate category of covered 

11 outpatient drugs and biologicals, as identified 

12 by the Secretary: 

13 ‘‘(i) ONCOLOGY CATEGORY.—A cat14 egory (in this section referred to as the 

15 ‘oncology category’) consisting of those 

16 covered outpatient drugs and biologicals 

17 that, as determined by the Secretary, are 

18 typically primarily billed by oncologists or 

19 are otherwise used to treat cancer. 

20 ‘‘(ii) NON-ONCOLOGY CATEGORIES.—

21 Such numbers of categories (in this section 

22 referred to as the ‘non-oncology cat23 egories’) consisting of covered outpatient 

24 drugs and biologicals not described in 

25 clause (i), and appropriate subcategories of 
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1 such drugs and biologicals as the Secretary 

2 may specify. 

3 ‘‘(C) PROGRAM.—The term ‘program’ 

4 means the competitive acquisition program 

5 under this section. 

6 ‘‘(D) COMPETITIVE ACQUISITION AREA; 

7 AREA.—The terms ‘competitive acquisition area’ 

8 and ‘area’ mean an appropriate geographic re9 gion established by the Secretary under the pro10 gram. 

11 ‘‘(E) CONTRACTOR.—The term ‘contractor’ 

12 means an entity that has entered into a con13 tract with the Secretary under this section. 

14 ‘‘(3) APPLICATION OF PROGRAM PAYMENT

15 METHODOLOGY.—With respect to covered outpatient 

16 drugs and biologicals which are supplied under the 

17 program in an area and which are prescribed by a 

18 physician who has not elected section 1847B to 

19 apply—

20 ‘‘(A) the claim for such drugs and 

21 biologicals shall be submitted by the contractor 

22 that supplied the drugs and biologicals; 

23 ‘‘(B) collection of amounts of any deduct24 ible and coinsurance applicable with respect to 

25 such drugs and biologicals shall be the responsi-
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1 bility of such contractor and shall not be col2 lected unless the drug or biological is adminis3 tered to the beneficiary involved; and 

4 ‘‘(C) the payment under this section (and 

5 related coinsurance amounts) for such drugs 

6 and biologicals—

7 ‘‘(i) shall be made only to such con8 tractor; 

9 ‘‘(ii) shall be conditioned upon the ad10 ministration of such drugs and biologicals; 

11 and 

12 ‘‘(iii) shall be based on the average of 

13 the bid prices for such drugs and 

14 biologicals in the area, as computed under 

15 subsection (d). 

16 The Secretary shall provide a process for 

17 recoupment in the case in which payment is 

18 made for drugs and biologicals which were 

19 billed at the time of dispensing but which were 

20 not actually administered. 

21 ‘‘(4) CONTRACT REQUIRED.—

22 ‘‘(A) IN GENERAL.—Payment may not be 

23 made under this part for covered outpatient 

24 drugs and biologicals prescribed by a physician 

25 who has not elected section 1847B to apply 
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1 within a category and a competitive acquisition 

2 area with respect to which the program applies 

3 unless—

4 ‘‘(i) the drugs or biologicals are sup5 plied by a contractor with a contract under 

6 this section for such category of drugs and 

7 biologicals and area; and 

8 ‘‘(ii) the physician has elected such 

9 contractor under paragraph (5) for such 

10 category and area. 

11 ‘‘(B) PHYSICIAN CHOICE.—Subparagraph 

12 (A) shall not apply for a category of drugs for 

13 an area if the physician prescribing the covered 

14 outpatient drug in such category and area has 

15 elected to apply section 1847B instead of this 

16 section.

17 ‘‘(5) CONTRACTOR SELECTION PROCESS.—

18 ‘‘(A) IN GENERAL.—The Secretary shall 

19 provide a process for the selection of a con20 tractor, on an annual basis and in such exigent 

21 circumstances as the Secretary may provide and 

22 with respect to each category of covered out23 patient drugs and biologicals for an area, by 

24 physicians prescribing such drugs and 

25 biologicals in the area of the contractor under 
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1 this section that will supply the drugs and 

2 biologicals within that category and area. Such 

3 selection shall also include the election de4 scribed in section 1847B(a). 

5 ‘‘(B) INFORMATION ON CONTRACTORS.—

6 The Secretary shall make available to physi7 cians on an ongoing basis, through a directory 

8 posted on the Department’s Internet website or 

9 otherwise and upon request, a list of the con10 tractors under this section in the different com11 petitive acquisition areas. 

12 ‘‘(C) SELECTING PHYSICIAN DEFINED.—

13 For purposes of this section, the term ‘selecting 

14 physician’ means, with respect to a contractor 

15 and category and competitive acquisition area, 

16 a physician who has not elected section 1847B 

17 to apply and has selected to apply under this 

18 section such contractor for such category and 

19 area. 

20 ‘‘(b) PROGRAM REQUIREMENTS.—

21 ‘‘(1) CONTRACT FOR COVERED OUTPATIENT

22 DRUGS AND BIOLOGICALS.—The Secretary shall con23 duct a competition among entities for the acquisition 

24 of a covered outpatient drug or biological within 
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1 each HCPCS code within each category for each 

2 competitive acquisition area. 

3 ‘‘(2) CONDITIONS FOR AWARDING CONTRACT.—

4 ‘‘(A) IN GENERAL.—The Secretary may 

5 not award a contract to any entity under the 

6 competition conducted in a competitive acquisi7 tion area pursuant to paragraph (1) with re8 spect to the acquisition of covered outpatient 

9 drugs and biologicals within a category unless 

10 the Secretary finds that the entity meets all of 

11 the following with respect to the contract period 

12 involved: 

13 ‘‘(i) CAPACITY TO SUPPLY COVERED

14 OUTPATIENT DRUG OR BIOLOGICAL WITHIN

15 CATEGORY.—

16 ‘‘(I) IN GENERAL.—The entity 

17 has sufficient arrangements to acquire 

18 and to deliver covered outpatient 

19 drugs and biologicals within such cat20 egory in the area specified in the con21 tract at the bid price specified in the 

22 contract for all physicians that may 

23 elect such entity. 

24 ‘‘(II) SHIPMENT METHOD25 OLOGY.—The entity has arrangements 
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1 in effect for the shipment at least 5 

2 days each week of covered outpatient 

3 drugs and biologicals under the con4 tract and for the timely delivery (in5 cluding for emergency situations) of 

6 such drugs and biologicals in the area 

7 under the contract. 

8 ‘‘(ii) QUALITY, SERVICE, FINANCIAL

9 PERFORMANCE AND SOLVENCY STAND10 ARDS.—The entity meets quality, service, 

11 financial performance, and solvency stand12 ards specified by the Secretary, includ13 ing—

14 ‘‘(I) the establishment of proce15 dures for the prompt response and 

16 resolution of physician and beneficiary 

17 complaints and inquiries regarding the 

18 shipment of covered outpatient drugs 

19 and biologicals; and 

20 ‘‘(II) a grievance process for the 

21 resolution of disputes. 

22 ‘‘(B) ADDITIONAL CONSIDERATIONS.—The 

23 Secretary may refuse to award a contract under 

24 this section, and may terminate such a con25 tract, with an entity based upon—
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1 ‘‘(i) the suspension or revocation, by 

2 the Federal Government or a State govern3 ment, of the entity’s license for the dis4 tribution of drugs or biologicals (including 

5 controlled substances); or 

6 ‘‘(ii) the exclusion of the entity under 

7 section 1128 from participation under this 

8 title. 

9 ‘‘(C) APPLICATION OF MEDICARE PRO10 VIDER OMBUDSMAN.—For provision providing 

11 for a program-wide Medicare Provider Ombuds12 man to review complaints, see section 1868(b), 

13 as added by section 923 of the Medicare Pre14 scription Drug and Modernization Act of 2003. 

15 ‘‘(3) AWARDING MULTIPLE CONTRACTS FOR A

16 CATEGORY AND AREA.—In order to provide a choice 

17 of at least 2 contractors in each competitive acquisi18 tion area for a category of drugs and biologicals, the 

19 Secretary may limit (but not below 2) the number 

20 of qualified entities that are awarded such contracts 

21 for any category and area. The Secretary shall select 

22 among qualified entities based on the following: 

23 ‘‘(A) The bid prices for covered outpatient 

24 drugs and biologicals within the category and 

25 area. 
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1 ‘‘(B) Bid price for distribution of such 

2 drugs and biologicals. 

3 ‘‘(C) Ability to ensure product integrity. 

4 ‘‘(D) Customer service. 

5 ‘‘(E) Past experience in the distribution of 

6 drugs and biologicals, including controlled sub7 stances. 

8 ‘‘(F) Such other factors as the Secretary 

9 may specify. 

10 ‘‘(4) TERMS OF CONTRACTS.—

11 ‘‘(A) IN GENERAL.—A contract entered 

12 into with an entity under the competition con13 ducted pursuant to paragraph (1) is subject to 

14 terms and conditions that the Secretary may 

15 specify consistent with this section. 

16 ‘‘(B) PERIOD OF CONTRACTS.—A contract 

17 under this section shall be for a term of 2 

18 years, but may be terminated by the Secretary 

19 or the entity with appropriate, advance notice. 

20 ‘‘(C) INTEGRITY OF DRUG AND BIOLOGI21 CAL DISTRIBUTION SYSTEM.—The Secretary—

22 ‘‘(i) shall require that for all drug and 

23 biological products distributed by a con24 tractor under this section be acquired di25 rectly from the manufacturer or from a 
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1 distributor that has acquired the products 

2 directly from the manufacturer; and 

3 ‘‘(ii) may require, in the case of such 

4 products that are particularly susceptible 

5 to counterfeit or diversion, that the con6 tractor comply with such additional prod7 uct integrity safeguards as may be deter8 mined to be necessary. 

9 ‘‘(D) IMPLEMENTATION OF ANTI-COUN10 TERFEITING, QUALITY, SAFETY, AND RECORD

11 KEEPING REQUIREMENTS.—The Secretary shall 

12 require each contractor to implement (through 

13 its officers, agents, representatives, and employ14 ees) requirements relating to the storage and 

15 handling of covered outpatient drugs and 

16 biologicals and for the establishment and main17 tenance of distribution records for such drugs 

18 and biologicals. A contract under this section 

19 may include requirements relating to the fol20 lowing: 

21 ‘‘(i) Secure facilities. 

22 ‘‘(ii) Safe and appropriate storage of 

23 drugs and biologicals. 

24 ‘‘(iii) Examination of drugs and 

25 biologicals received and dispensed. 
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1 ‘‘(iv) Disposition of damaged and out2 dated drugs and biologicals. 

3 ‘‘(v) Record keeping and written poli4 cies and procedures. 

5 ‘‘(vi) Compliance personnel. 

6 ‘‘(E) COMPLIANCE WITH CODE OF CON7 DUCT AND FRAUD AND ABUSE RULES.—Under 

8 the contract—

9 ‘‘(i) the contractor shall comply with a 

10 code of conduct, specified or recognized by 

11 the Secretary, that includes standards re12 lating to conflicts of interest; and 

13 ‘‘(ii) the contractor shall comply with 

14 all applicable provisions relating to preven15 tion of fraud and abuse, including compli16 ance with applicable guidelines of the De17 partment of Justice and the Inspector 

18 General of the Department of Health and 

19 Human Services. 

20 ‘‘(F) DIRECT DELIVERY OF DRUGS AND

21 BIOLOGICALS TO PHYSICIANS.—Under the con22 tract the contractor shall only supply covered 

23 outpatient drugs and biologicals directly to the 

24 selecting physicians and not directly to bene25 ficiaries, except under circumstances and set-
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1 tings where a beneficiary currently receives a 

2 drug or biological in the beneficiary’s home or 

3 other non-physician office setting as the Sec4 retary may provide. The contractor shall not de5 liver drugs and biologicals to a selecting physi6 cian except upon receipt of a prescription for 

7 such drugs and biologicals, and such necessary 

8 data as may be required by the Secretary to 

9 carry out this section. This section does not—

10 ‘‘(i) require a physician to submit a 

11 prescription for each individual treatment; 

12 or 

13 ‘‘(ii) change a physician’s flexibility in 

14 terms of writing a prescription for drugs 

15 for a single treatment or a course of treat16 ment. 

17 ‘‘(5) PERMITTING ACCESS TO DRUGS AND

18 BIOLOGICALS.—The Secretary shall establish rules 

19 under this section under which drugs and biologicals 

20 which are acquired through a contractor under this 

21 section may be used to resupply inventories of such 

22 drugs and biologicals which are administered con23 sistent with safe drug practices and with adequate 

24 safeguards against fraud and abuse. The previous 
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1 sentence shall apply if the physicians can dem2 onstrate to the Secretary all of the following: 

3 ‘‘(A) The drugs or biologicals are required 

4 immediately. 

5 ‘‘(B) The physician could not have reason6 ably anticipated the immediate requirement for 

7 the drugs or biologicals. 

8 ‘‘(C) The contractor could not deliver to 

9 the physician the drugs or biologicals in a time10 ly manner. 

11 ‘‘(D) The drugs or biologicals were admin12 istered in an emergency situation. 

13 ‘‘(6) CONSTRUCTION.—Nothing in this section 

14 shall be construed as waiving applicable State re15 quirements relating to licensing of pharmacies.

16 ‘‘(c) BIDDING PROCESS.—

17 ‘‘(1) IN GENERAL.—In awarding a contract for 

18 a category of drugs and biologicals in an area under 

19 the program, the Secretary shall consider with re20 spect to each entity seeking to be awarded a con21 tract the prices bid to acquire and supply the cov22 ered outpatient drugs and biologicals for that cat23 egory and area and the other factors referred to in 

24 subsection (b)(3). 
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1 ‘‘(2) PRICES BID.—The prices bid by an entity 

2 under paragraph (1) shall be the prices in effect and 

3 available for the supply of contracted drugs and 

4 biologicals in the area through the entity for the 

5 contract period.

6 ‘‘(3) REJECTION OF CONTRACT OFFER.—The 

7 Secretary shall reject the contract offer of an entity 

8 with respect to a category of drugs and biologicals 

9 for an area if the Secretary estimates that the prices 

10 bid, in the aggregate on average, would exceed 100 

11 percent of the average sales price (as determined 

12 under section 1847B).

13 ‘‘(4) BIDDING ON A NATIONAL OR REGIONAL

14 BASIS.—Nothing in this section shall be construed 

15 as precluding a bidder from bidding for contracts in 

16 all areas of the United States or as requiring a bid17 der to submit a bid for all areas of the United 

18 States. 

19 ‘‘(5) UNIFORMITY OF BIDS WITHIN AREA.—The 

20 amount of the bid submitted under a contract offer 

21 for any covered outpatient drug or biological for an 

22 area shall be the same for that drug or biological for 

23 all portions of that area. 

24 ‘‘(6) CONFIDENTIALITY OF BIDS.—The provi25 sions of subparagraph (D) of section 1927(b)(3) 
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1 shall apply to a bid submitted in a contract offer for 

2 a covered outpatient drug or biological under this 

3 section in the same manner as it applies to informa4 tion disclosed under such section, except that any 

5 reference—

6 ‘‘(A) in that subparagraph to a ‘manufac7 turer or wholesaler’ is deemed a reference to a 

8 ‘bidder’ under this section; 

9 ‘‘(B) in that section to ‘prices charged for 

10 drugs’ is deemed a reference to a ‘bid’ sub11 mitted under this section; and 

12 ‘‘(C) in clause (i) of that section to ‘this 

13 section’, is deemed a reference to ‘part B of 

14 title XVIII’. 

15 ‘‘(7) INCLUSION OF COSTS.—The bid price sub16 mitted in a contract offer for a covered outpatient 

17 drug or biological shall—

18 ‘‘(A) include all costs related to the deliv19 ery of the drug or biological to the selecting 

20 physician (or other point of delivery); and 

21 ‘‘(B) include the costs of dispensing (in22 cluding shipping) of such drug or biological and 

23 management fees, but shall not include any 

24 costs related to the administration of the drug 

25 or biological, or wastage, spillage, or spoilage. 
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1 ‘‘(8) PRICE ADJUSTMENTS DURING CONTRACT

2 PERIOD; DISCLOSURE OF COSTS.—Each contract 

3 awarded shall provide for—

4 ‘‘(A) disclosure to the Secretary the con5 tractor’s reasonable, net acquisition costs for 

6 periods specified by the Secretary, not more 

7 often than quarterly, of the contract; and 

8 ‘‘(B) appropriate price adjustments over 

9 the period of the contract to reflect significant 

10 increases or decreases in a contractor’s reason11 able, net acquisition costs, as so disclosed.

12 ‘‘(d) COMPUTATION OF AVERAGE BID PRICES FOR

13 A CATEGORY AND AREA.—

14 ‘‘(1) IN GENERAL.—For each year or other con15 tract period for each covered outpatient drug or bio16 logical and area with respect to which a competition 

17 is conducted under the program, the Secretary shall 

18 compute an area average of the bid prices submitted, 

19 in contract offers accepted for the category and 

20 area, for that year or other contract period. 

21 ‘‘(2) SPECIAL RULES.—The Secretary shall es22 tablish rules regarding the use under this section of 

23 the alternative payment amount provided under sec24 tion 1847B to the use of a price for specific covered 
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1 outpatient drugs and biologicals in the following 

2 cases: 

3 ‘‘(A) NEW DRUGS AND BIOLOGICALS.—A 

4 covered outpatient drug or biological for which 

5 an average bid price has not been previously de6 termined. 

7 ‘‘(B) OTHER CASES.—Such other excep8 tional cases as the Secretary may specify in 

9 regulations, such as oral drugs under section 

10 1861(s)(2)(Q) and immmunosuppressives under 

11 section 1861(s)(2)(J). 

12 ‘‘(e) COINSURANCE.—

13 ‘‘(1) IN GENERAL.—Coinsurance under this 

14 part with respect to a covered outpatient drug or bi15 ological for which payment is payable under this sec16 tion shall be based on 20 percent of the payment 

17 basis under this section. 

18 ‘‘(2) COLLECTION.—Such coinsurance shall be 

19 collected by the contractor that supplies the drug or 

20 biological involved and, subject to subsection 

21 (a)(3)(B), in the same manner as coinsurance is col22 lected for durable medical equipment under this 

23 part. 

24 ‘‘(f) SPECIAL PAYMENT RULES.—
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1 ‘‘(1) IN GENERAL.—The Secretary may not 

2 provide for an adjustment to reimbursement for cov3 ered outpatient drugs and biologicals unless adjust4 ments to the practice expense payment adjustment 

5 are made on the basis of supplemental surveys under 

6 section 1848(c)(2)(H)(ii) of the Social Security Act, 

7 as added by subsection (a)(1)(B). 

8 (2) USE IN EXCLUSION CASES.—If the Sec9 retary excludes a drug or biological (or class of 

10 drugs or biologicals) under subsection (a)(1)(D), the 

11 Secretary may provide for reimbursement to be 

12 made under this part for such drugs and biologicals 

13 (or class) using the payment methodology under sec14 tion 1847B. 

15 ‘‘(3) COORDINATION RULES.—The provisions of 

16 section 1842(h)(3) shall apply to a contractor with 

17 respect to covered outpatients drugs and biologicals 

18 supplied by that contractor in the same manner as 

19 they apply to a participating supplier. In order to 

20 administer this section, the Secretary may condition 

21 payment under this part to a person for the admin22 istration of a drug or biological supplied under this 

23 section upon person’s provision of information on 

24 such administration. 
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1 ‘‘(4) APPLICATION OF REQUIREMENT FOR AS2 SIGNMENT.—For provision requiring assignment of 

3 claims for covered outpatient drugs and biologicals, 

4 see section 1842(o)(3). 

5 ‘‘(5) PROTECTION FOR BENEFICIARY IN CASE

6 OF MEDICAL NECESSITY DENIAL.—For protection of 

7 beneficiaries against liability in the case of medical 

8 necessity determinations, see section 

9 1842(b)(3)(B)(ii)(III). 

10 ‘‘(6) PHYSICIAN ROLE IN APPEALS PROCESS.—

11 The Secretary shall establish a procedure under 

12 which a physician who prescribes a drug or biologi13 cal for which payment is made under this section 

14 has appeal rights that are similar to those provided 

15 to a physician who prescribes durable medical equip16 ment or a laboratory test. 

17 ‘‘(g) ADVISORY COMMITTEE.—The Secretary shall 

18 establish an advisory committee that includes representa19 tives of parties affected by the program under this section, 

20 including physicians, specialty pharmacies, distributors, 

21 manufacturers, and beneficiaries. The committee shall ad22 vise the Secretary on issues relating to the effective imple23 mentation of this section. 

24 ‘‘(h) ANNUAL REPORTS.—The Secretary shall submit 

25 to Congress an annual report in each of 2005, 2006, and 
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1 2007, on the program. Each such report shall include in2 formation on savings, reductions in cost-sharing, access to 

3 covered outpatient drugs and biologicals, the range of 

4 choices of contractors available to providers, and bene5 ficiary and provider satisfaction. 

6 ‘‘OPTIONAL USE OF AVERAGE SALES PRICE PAYMENT

7 METHODOLOGY

8 ‘‘SEC. 1847B. (a) IN GENERAL.—

9 ‘‘(1) ELECTION.—In connection with the an10 nual election made by a physician under section 

11 1847A(a)(5), the physician may elect to apply this 

12 section to the payment for covered outpatient drugs 

13 and biologicals instead of the payment methodology 

14 under section 1847A. 

15 ‘‘(2) IMPLEMENTATION.—This section shall be 

16 implemented with respect to categories of covered 

17 outpatient drugs and biologicals described in section 

18 1847A(a)(2)(B). 

19 ‘‘(3) COVERED OUTPATIENT DRUGS AND

20 BIOLOGICALS DEFINED.—For purposes of this sec21 tion, the term ‘covered outpatient drugs and 

22 biologicals’ has the meaning given such term in sec23 tion 1847A(a)(2)(A). 

24 ‘‘(b) COMPUTATION OF PAYMENT AMOUNT.—

25 ‘‘(1) IN GENERAL.—If this section applies with 

26 respect to a covered outpatient drug or biological, 
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1 the amount payable for the drug or biological (based 

2 on a minimum dosage unit) is, subject to applicable 

3 deductible and coinsurance—

4 ‘‘(A) in the case of a multiple source drug 

5 (as defined in subsection (c)(6)(C)), 100 per6 cent (or in the case of covered outpatient drugs 

7 and biologicals furnished during 2005 and 

8 2006, 112 percent) of the amount determined 

9 under paragraph (3); or 

10 ‘‘(B) in the case of a single source drug 

11 (as defined in subsection (c)(6)(D)), 100 per12 cent (or in the case of covered outpatient drugs 

13 and biologicals furnished during 2005 and 

14 2006, 112 percent) of the amount determined 

15 under paragraph (4). 

16 ‘‘(2) SPECIFICATION OF UNIT.—

17 ‘‘(A) SPECIFICATION BY MANUFAC18 TURER.—The manufacturer of a covered out19 patient drug shall specify the unit associated 

20 with each National Drug Code as part of the 

21 submission of data under section 

22 1927(b)(3)(A)(iii). 

23 ‘‘(B) UNIT DEFINED.—In this section, the 

24 term ‘unit’ means, with respect to a covered 

25 outpatient drug, the lowest identifiable quantity 
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1 (such as a capsule or tablet, milligram of mol2 ecules, or grams) of the drug that is dispensed, 

3 exclusive of any diluent without reference to 

4 volume measures pertaining to liquids. 

5 ‘‘(3) MULTIPLE SOURCE DRUG.—For all drug 

6 products included within the same multiple source 

7 drug, the amount specified in this paragraph is the 

8 volume-weighted average of the average sales prices 

9 reported under section 1927(b)(3)(A)(iii) computed 

10 as follows: 

11 ‘‘(A) Compute the sum of the products (for 

12 each national drug code assigned to such drug 

13 products) of—

14 ‘‘(i) the manufacturer’s average sales 

15 price (as defined in subsection (c)); and 

16 ‘‘(ii) the total number of units speci17 fied under paragraph (2) sold, as reported 

18 under section 1927(b)(3)(A)(iii). 

19 ‘‘(B) Divide the sum computed under sub20 paragraph (A) by the sum of the total number 

21 of units under subparagraph (A)(ii) for all na22 tional drug codes assigned to such drug prod23 ucts. 
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1 ‘‘(4) SINGLE SOURCE DRUG.—The amount 

2 specified in this paragraph for a single source drug 

3 is the lesser of the following: 

4 ‘‘(A) MANUFACTURER’S AVERAGE SALES

5 PRICE.—The manufacturer’s average sales price 

6 for a national drug code, as computed using the 

7 methodology applied under paragraph (3). 

8 ‘‘(B) WHOLESALE ACQUISITION COST

9 (WAC).—The wholesale acquisition cost (as de10 fined in subsection (c)(6)(B)) reported for the 

11 single source drug. 

12 ‘‘(5) BASIS FOR DETERMINATION.—The pay13 ment amount shall be determined under this sub14 section based on information reported under sub15 section (e) and without regard to any special pack16 aging, labeling, or identifiers on the dosage form or 

17 product or package. 

18 ‘‘(c) MANUFACTURER’S AVERAGE SALES PRICE.—

19 ‘‘(1) IN GENERAL.—For purposes of this sub20 section, subject to paragraphs (2) and (3), the man21 ufacturer’s ‘average sales price’ means, of a covered 

22 outpatient drug for a NDC code for a calendar quar23 ter for a manufacturer for a unit—

24 ‘‘(A) the manufacturer’s total sales (as de25 fined by the Secretary in regulations for pur-
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1 poses of section 1927(c)(1)) in the United 

2 States for such drug in the calendar quarter; 

3 divided by 

4 ‘‘(B) the total number of such units of 

5 such drug sold by the manufacturer in such 

6 quarter. 

7 ‘‘(2) CERTAIN SALES EXEMPTED FROM COM8 PUTATION.—In calculating the manufacturer’s aver9 age sales price under this subsection, the following 

10 sales shall be excluded: 

11 ‘‘(A) SALES EXEMPT FROM BEST PRICE.—

12 Sales exempt from the inclusion in the deter13 mination of ‘best price’ under section 

14 1927(c)(1)(C)(i). 

15 ‘‘(B) SALES AT NOMINAL CHARGE.—Such 

16 other sales as the Secretary identifies by regula17 tion as sales to an entity that are nominal in 

18 price or do not reflect a market price paid by 

19 an entity to which payment is made under this 

20 section. 

21 ‘‘(3) SALE PRICE NET OF DISCOUNTS.—In cal22 culating the manufacturer’s average sales price 

23 under this subsection, such price shall be determined 

24 taking into account volume discounts, prompt pay 

25 discounts, cash discounts, the free goods that are 
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1 contingent on any purchase requirement, 

2 chargebacks, and rebates (other than rebates under 

3 section 1927), that result in a reduction of the cost 

4 to the purchaser. A rebate to a payor or other entity 

5 that does not take title to a covered outpatient drug 

6 shall not be taken into account in determining such 

7 price unless the manufacturer has an agreement 

8 with the payor or other entity under which the pur9 chaser’s price for the drug is reduced as a con10 sequence of such rebate. 

11 ‘‘(4) AUTHORITY TO DISREGARD AVERAGE

12 SALES PRICE DURING FIRST QUARTER OF SALES.—

13 In the case of a covered outpatient drug during an 

14 initial period (not to exceed a full calendar quarter) 

15 in which data on the prices for sales for the drug 

16 is not sufficiently available from the manufacturer to 

17 compute an average sales price for the drug, the 

18 Secretary may determine the amount payable under 

19 this section for the drug without considering the 

20 manufacturer’s average sales price of that manufac21 turer for that drug. 

22 ‘‘(5) FREQUENCY OF DETERMINATIONS.—

23 ‘‘(A) IN GENERAL ON A QUARTERLY

24 BASIS.—The manufacturer’s average sales 

25 price, for a covered outpatient drug of a manu-
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1 facturer, shall be determined by such manufac2 turer under this subsection on a quarterly basis. 

3 In making such determination insofar as there 

4 is a lag in the reporting of the information on 

5 rebates and chargebacks under paragraph (3) 

6 so that adequate data are not available on a 

7 timely basis, the manufacturer shall apply a 

8 methodology established by the Secretary based 

9 on a 12-month rolling average for the manufac10 turer to estimate costs attributable to rebates 

11 and chargebacks. 

12 ‘‘(B) UPDATES IN RATES.—The payment 

13 rates under subsection (b)(1) and (b)(2)(A) 

14 shall be updated by the Secretary on a quar15 terly basis and shall be applied based upon the 

16 manufacturer’s average sales price determined 

17 for the most recent calendar quarter. 

18 ‘‘(C) USE OF CONTRACTORS; IMPLEMENTA19 TION.—The Secretary may use a carrier, fiscal 

20 intermediary, or other contractor to determine 

21 the payment amount under subsection (b). Not22 withstanding any other provision of law, the 

23 Secretary may implement, by program memo24 randum or otherwise, any of the provisions of 

25 this section. 
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1 ‘‘(6) DEFINITIONS AND OTHER RULES.—In this 

2 section: 

3 ‘‘(A) MANUFACTURER.—The term ‘manu4 facturer’ means, with respect to a covered out5 patient drug, the manufacturer (as defined in 

6 section 1927(k)(5)) whose national drug code 

7 appears on such drug. 

8 ‘‘(B) WHOLESALE ACQUISITION COST.—

9 The term ‘wholesale acquisition cost’ means, 

10 with respect to a covered outpatient drug, the 

11 manufacturer’s list price for the drug to whole12 salers or direct purchasers in the United States, 

13 not including prompt pay or other discounts, re14 bates or reductions in price, for the most recent 

15 month for which the information is available, as 

16 reported in wholesale price guides or other pub17 lications of drug pricing data. 

18 ‘‘(C) MULTIPLE SOURCE DRUG.—The term 

19 ‘multiple source drug’ means, for a calendar 

20 quarter, a covered outpatient drug for which 

21 there are 2 or more drug products which—

22 ‘‘(i) are rated as therapeutically equiv23 alent (under the Food and Drug Adminis24 tration’s most recent publication of ‘Ap-
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1 proved Drug Products with Therapeutic 

2 Equivalence Evaluations’), 

3 ‘‘(ii) except as provided in subpara4 graph (E), are pharmaceutically equivalent 

5 and bioequivalent, as determined under 

6 subparagraph (F) and as determined by 

7 the Food and Drug Administration, and 

8 ‘‘(iii) are sold or marketed in the 

9 United States during the quarter. 

10 ‘‘(D) SINGLE SOURCE DRUG.—The term 

11 ‘single source drug’ means a covered outpatient 

12 drug which is not a multiple source drug and 

13 which is produced or distributed under an origi14 nal new drug application approved by the Food 

15 and Drug Administration, including a drug 

16 product marketed by any cross-licensed pro17 ducers or distributors operating under the new 

18 drug application, or which is a biological. 

19 ‘‘(E) EXCEPTION FROM PHARMACEUTICAL

20 EQUIVALENCE AND BIOEQUIVALENCE REQUIRE21 MENT.—Subparagraph (C)(ii) shall not apply if 

22 the Food and Drug Administration changes by 

23 regulation the requirement that, for purposes of 

24 the publication described in subparagraph 

25 (C)(i), in order for drug products to be rated as 
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1 therapeutically equivalent, they must be phar2 maceutically equivalent and bioequivalent, as 

3 defined in subparagraph (F). 

4 ‘‘(F) DETERMINATION OF PHARMA5 CEUTICAL EQUIVALENCE AND BIOEQUIVA6 LENCE.—For purposes of this paragraph—

7 ‘‘(i) drug products are pharmaceuti8 cally equivalent if the products contain 

9 identical amounts of the same active drug 

10 ingredient in the same dosage form and 

11 meet compendial or other applicable stand12 ards of strength, quality, purity, and iden13 tity; and 

14 ‘‘(ii) drugs are bioequivalent if they do 

15 not present a known or potential bio16 equivalence problem, or, if they do present 

17 such a problem, they are shown to meet an 

18 appropriate standard of bioequivalence. 

19 ‘‘(G) INCLUSION OF VACCINES.—In apply20 ing provisions of section 1927 under this sec21 tion, ‘other than a vaccine’ is deemed deleted 

22 from section 1927(k)(2)(B). 

23 ‘‘(d) AUTHORITY TO USE ALTERNATIVE PAYMENT

24 IN RESPONSE TO PUBLIC HEALTH EMERGENCY.—In the 

25 case of a public health emergency under section 319 of 
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1 the Public Health Service Act in which there is a docu2 mented inability to access covered outpatient drugs and 

3 biologicals, and a concomitant increase in the price, of a 

4 drug or biological which is not reflected in the manufac5 turer’s average sales price for one or more quarters, the 

6 Secretary may use the wholesale acquisition cost (or other 

7 reasonable measure of drug price) instead of the manufac8 turer’s average sales price for such quarters and for subse9 quent quarters until the price and availability of the drug 

10 or biological has stabilized and is substantially reflected 

11 in the applicable manufacturer’s average sales price. 

12 ‘‘(e) REPORTS.—

13 ‘‘(1) QUARTERLY REPORT ON AVERAGE SALES

14 PRICE.—For requirements for reporting the manu15 facturer’s average sales price (and, if required to 

16 make payment, the manufacturer’s wholesale acqui17 sition cost) for the covered outpatient drug or bio18 logical, see section 1927(b)(3). 

19 ‘‘(2) ANNUAL REPORT TO CONGRESS.—The 

20 Secretary shall submit to the Committees on Energy 

21 and Commerce and Ways and Means of the House 

22 of Representatives and the Committee on Finance of 

23 the Senate an annual report on the operation of this 

24 section. Such report shall include information on the 

25 following: 
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1 ‘‘(A) Trends in average sales price under 

2 subsection (b). 

3 ‘‘(B) Administrative costs associated with 

4 compliance with this section. 

5 ‘‘(C) Total value of payments made under 

6 this section. 

7 ‘‘(D) Comparison of the average manufac8 turer price as applied under section 1927 for a 

9 covered outpatient drug or biological with the 

10 manufacturer’s average sales price for the drug 

11 or biological under this section. 

12 ‘‘(f) RESTRICTION ON ADMINISTRATIVE AND JUDI13 CIAL REVIEW.—There shall be no administrative or judi14 cial review under section 1869, section 1878, or otherwise, 

15 of determinations of manufacturer’s average sales price 

16 under subsection (c).’’. 

17 (c) CONTINUATION OF PAYMENT METHODOLOGY

18 FOR RADIOPHARMACEUTICALS.—Nothing in the amend19 ments made by this section shall be construed as changing 

20 the payment methodology under part B of title XVIII of 

21 the Social Security Act for radiopharmaceuticals, includ22 ing the use by carriers of invoice pricing methodology.

23 (d) CONFORMING AMENDMENTS.—

24 (1) IN GENERAL.—Section 1842(o) (42 U.S.C. 

25 1395u(o)) is amended—
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1 (A) in paragraph (1), by inserting ‘‘, sub2 ject to section 1847A and 1847B,’’ before ‘‘the 

3 amount payable for the drug or biological’’; and 

4 (B) by adding at the end of paragraph (2) 

5 the following: ‘‘This paragraph shall not apply 

6 in the case of payment under section 1847A or 

7 1847B.’’. 

8 (2) NO CHANGE IN COVERAGE BASIS.—Section 

9 1861(s)(2)(A) (42 U.S.C. 1395x(s)(2)(A)) is amend10 ed by inserting ‘‘(or would have been so included but 

11 for the application of section 1847A or 1847B)’’ 

12 after ‘‘included in the physicians’ bills’’. 

13 (3) PAYMENT.—Section 1833(a)(1)(S) (42 

14 U.S.C. 1395l(a)(1)(S)) is amended by inserting ‘‘(or, 

15 if applicable, under section 1847A or 1847B)’’ after 

16 ‘‘1842(o)’’. 

17 (4) CONSOLIDATED REPORTING OF PRICING IN18 FORMATION.—Section 1927 (42 U.S.C. 1396r–8) is 

19 amended—

20 (A) in subsection (a)(1), by inserting ‘‘or 

21 under part B of title XVIII’’ after ‘‘section 

22 1903(a)’’; 

23 (B) in subsection (b)(3)(A)—

24 (i) in clause (i), by striking ‘‘and’’ at 

25 the end; 
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1 (ii) in clause (ii), by striking the pe2 riod and inserting ‘‘; and’’; and 

3 (iii) by adding at the end the fol4 lowing new clause: 

5 ‘‘(iii) for calendar quarters beginning 

6 on or after April 1, 2004, in conjunction 

7 with reporting required under clause (i) 

8 and by national drug code (NDC)—

9 ‘‘(I) the manufacturer’s average 

10 sales price (as defined in section 

11 1847B(c)) and the total number of 

12 units specified under section 

13 1847B(b)(2)(A); 

14 ‘‘(II) if required to make pay15 ment under section 1847B, the manu16 facturer’s wholesale acquisition cost, 

17 as defined in subsection (c)(6) of such 

18 section; and 

19 ‘‘(III) information on those sales 

20 that were made at a nominal price or 

21 otherwise described in section 

22 1847B(c)(2)(B), which information is 

23 subject to audit by the Inspector Gen24 eral of the Department of Health and 

25 Human Services; 
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1 for a covered outpatient drug or biological 

2 for which payment is made under section 

3 1847B.’’; 

4 (C) in subsection (b)(3)(B)—

5 (i) in the heading, by inserting ‘‘AND

6 MANUFACTURER’S AVERAGE SALES PRICE’’ 

7 after ‘‘PRICE’’; and 

8 (ii) by inserting ‘‘and manufacturer’s 

9 average sales prices (including wholesale 

10 acquisition cost) if required to make pay11 ment’’ after ‘‘manufacturer prices’’; and 

12 (D) in subsection (b)(3)(D)(i), by inserting 

13 ‘‘and section 1847B’’ after ‘‘this section’’. 

14 (e) GAO STUDY.—

15 (1) STUDY.—The Comptroller General of the 

16 United States shall conduct a study to assess the 

17 impact of the amendments made by this section on 

18 the delivery of services, including their impact on—

19 (A) beneficiary access to drugs and 

20 biologicals for which payment is made under 

21 part B of title XVIII of the Social Security Act; 

22 and 

23 (B) the site of delivery of such services. 

24 (2) REPORT.—Not later than 2 years after the 

25 year in which the amendment made by subsection 
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1 (a)(1) first takes effect, the Comptroller General 

2 shall submit to Congress a report on the study con3 ducted under paragraph (1). 

4 (f) MEDPAC RECOMMENDATIONS ON BLOOD CLOT5 TING FACTORS.—The Medicare Payment Advisory Com6 mission shall submit to Congress, in its annual report in 

7 2004, specific recommendations regarding a payment 

8 amount (or amounts) for blood clotting factors and its ad9 ministration under the medicare program. 

10 (g) ESTABLISHMENT OF PHARMACEUTICAL MANAGE11 MENT FEE WHERE DRUGS PROVIDED THROUGH A CON12 TRACTOR.—Section 1848(a) (42 U.S.C. 1395w–4(a)) is 

13 amended by adding at the end the following new para14 graph: 

15 ‘‘(5) RECOGNITION OF PHARMACEUTICAL MAN16 AGEMENT FEE IN CERTAIN CASES.—In establishing 

17 the fee schedule under this section, the Secretary 

18 shall provide for a separate payment with respect to 

19 physicians’ services consisting of the unique adminis20 trative and management costs associated with cov21 ered drugs and biologicals which are furnished to 

22 physicians through a contractor under section 

23 1847A (compared with such costs if such drugs and 

24 biologicals were acquired directly by such physi25 cians).’’. 
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1 (h) STUDY ON CODES FOR NON-ONCOLOGY CODES.—

2 (1) STUDY.—The Secretary shall conduct a 

3 study to determine the appropriateness of estab4 lishing and implementing separate codes for non-on5 cology infusions that are based on the level of com6 plexity of the administration and resource consump7 tion. 

8 (2) REPORT.—Not later than 1 year after the 

9 date of the enactment of this Act, the Secretary 

10 shall submit a report to Congress on the study. To 

11 the extent the Secretary determines it to be appro12 priate, the Secretary may implement appropriate 

13 changes in the payment methodology for such codes. 

14 SEC. 304. DEMONSTRATION PROJECT FOR USE OF RECOV15 ERY AUDIT CONTRACTORS. 

16 (a) IN GENERAL.—The Secretary of Health and 

17 Human Services shall conduct a demonstration project 

18 under this section (in this section referred to as the 

19 ‘‘project’’) to demonstrate the use of recovery audit con20 tractors under the Medicare Integrity Program in identi21 fying underpayments and overpayments and recouping 

22 overpayments under the medicare program for services for 

23 which payment is made under part A or part B of title 

24 XVIII of the Social Security Act. Under the project—
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1 (1) payment may be made to such a contractor 

2 on a contingent basis; 

3 (2) a percentage of the amount recovered may 

4 be retained by the Secretary and shall be available 

5 to the program management account of the Centers 

6 for Medicare & Medicaid Services; and 

7 (3) the Secretary shall examine the efficacy of 

8 such use with respect to duplicative payments, accu9 racy of coding, and other payment policies in which 

10 inaccurate payments arise. 

11 (b) SCOPE AND DURATION.—

12 (1) SCOPE.—The project shall cover at least 2 

13 States that are among the States with—

14 (A) the highest per capita utilization rates 

15 of medicare services, and 

16 (B) at least 3 contractors. 

17 (2) DURATION.—The project shall last for not 

18 longer than 3 years. 

19 (c) WAIVER.—The Secretary of Health and Human 

20 Services shall waive such provisions of title XVIII of the 

21 Social Security Act as may be necessary to provide for 

22 payment for services under the project in accordance with 

23 subsection (a). 

24 (d) QUALIFICATIONS OF CONTRACTORS.—
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1 (1) IN GENERAL.—The Secretary shall enter 

2 into a recovery audit contract under this section 

3 with an entity only if the entity has staff that has 

4 the appropriate clinical knowledge of and experience 

5 with the payment rules and regulations under the 

6 medicare program or the entity has or will contract 

7 with another entity that has such knowledgeable and 

8 experienced staff. 

9 (2) INELIGIBILITY OF CERTAIN CONTRAC10 TORS.—The Secretary may not enter into a recovery 

11 audit contract under this section with an entity to 

12 the extent that the entity is a fiscal intermediary 

13 under section 1816 of the Social Security Act (42 

14 U.S.C. 1395h), a carrier under section 1842 of such 

15 Act (42 U.S.C. 1395u), or a Medicare Administra16 tive Contractor under section 1874A of such Act. 

17 (3) PREFERENCE FOR ENTITIES WITH DEM18 ONSTRATED PROFICIENCY.—In awarding contracts 

19 to recovery audit contractors under this section, the 

20 Secretary shall give preference to those risk entities 

21 that the Secretary determines have demonstrated 

22 more than 3 years direct management experience 

23 and a proficiency for cost control or recovery audits 

24 with private insurers, health care providers, health 
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1 plans, or under the medicaid program under title 

2 XIX of the Social Security Act. 

3 (e) CONSTRUCTION RELATING TO CONDUCT OF IN4 VESTIGATION OF FRAUD.—A recovery of an overpayment 

5 to a provider by a recovery audit contractor shall not be 

6 construed to prohibit the Secretary or the Attorney Gen7 eral from investigating and prosecuting, if appropriate, al8 legations of fraud or abuse arising from such overpay9 ment. 

10 (f) REPORT.—The Secretary of Health and Human 

11 Services shall submit to Congress a report on the project 

12 not later than 6 months after the date of its completion. 

13 Such reports shall include information on the impact of 

14 the project on savings to the medicare program and rec15 ommendations on the cost-effectiveness of extending or ex16 panding the project.

17 TITLE IV—RURAL HEALTH CARE 

18 IMPROVEMENTS 

19 SEC. 401. ENHANCED DISPROPORTIONATE SHARE HOS20 PITAL (DSH) TREATMENT FOR RURAL HOS21 PITALS AND URBAN HOSPITALS WITH FEWER 

22 THAN 100 BEDS. 

23 (a) DOUBLING THE CAP.—
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1 (1) IN GENERAL.—Section 1886(d)(5)(F) (42 

2 U.S.C. 1395ww(d)(5)(F)) is amended by adding at 

3 the end the following new clause: 

4 ‘‘(xiv)(I) In the case of discharges in a fiscal year 

5 beginning on or after October 1, 2003, subject to sub6 clause (II), there shall be substituted for the dispropor7 tionate share adjustment percentage otherwise determined 

8 under clause (iv) (other than subclause (I)) or under 

9 clause (viii), (x), (xi), (xii), or (xiii), the disproportionate 

10 share adjustment percentage determined under clause (vii) 

11 (relating to large, urban hospitals). 

12 ‘‘(II) Under subclause (I), the disproportionate share 

13 adjustment percentage shall not exceed 10 percent for a 

14 hospital that is not classified as a rural referral center 

15 under subparagraph (C).’’. 

16 (2) CONFORMING AMENDMENTS.—Section 

17 1886(d)(5)(F) (42 U.S.C. 1395ww(d)(5)(F)) is 

18 amended—

19 (A) in each of subclauses (II), (III), (IV), 

20 (V), and (VI) of clause (iv), by inserting ‘‘sub21 ject to clause (xiv) and’’ before ‘‘for discharges 

22 occurring’’; 

23 (B) in clause (viii), by striking ‘‘The for24 mula’’ and inserting ‘‘Subject to clause (xiv), 

25 the formula’’; and 
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1 (C) in each of clauses (x), (xi), (xii), and 

2 (xiii), by striking ‘‘For purposes’’ and inserting 

3 ‘‘Subject to clause (xiv), for purposes’’. 

4 (b) EFFECTIVE DATE.—The amendments made by 

5 this section shall apply with respect to discharges occur6 ring on or after October 1, 2003.

7 SEC. 402. IMMEDIATE ESTABLISHMENT OF UNIFORM 

8 STANDARDIZED AMOUNT IN RURAL AND 

9 SMALL URBAN AREAS. 

10 (a) IN GENERAL.—Section 1886(d)(3)(A) (42 U.S.C. 

11 1395ww(d)(3)(A)) is amended—

12 (1) in clause (iv), by inserting ‘‘and ending on 

13 or before September 30, 2003,’’ after ‘‘October 1, 

14 1995,’’; and 

15 (2) by redesignating clauses (v) and (vi) as 

16 clauses (vii) and (viii), respectively, and inserting 

17 after clause (iv) the following new clauses: 

18 ‘‘(v) For discharges occurring in the fiscal year 

19 beginning on October 1, 2003, the average standard20 ized amount for hospitals located in areas other than 

21 a large urban area shall be equal to the average 

22 standardized amount for hospitals located in a large 

23 urban area.’’. 

24 (b) CONFORMING AMENDMENTS.—
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1 (1) COMPUTING DRG-SPECIFIC RATES.—Section 

2 1886(d)(3)(D) (42 U.S.C. 1395ww(d)(3)(D)) is 

3 amended—

4 (A) in the heading, by striking ‘‘IN DIF5 FERENT AREAS’’; 

6 (B) in the matter preceding clause (i), by 

7 striking ‘‘, each of’’; 

8 (C) in clause (i)—

9 (i) in the matter preceding subclause 

10 (I), by inserting ‘‘for fiscal years before fis11 cal year 2004,’’ before ‘‘for hospitals’’; and 

12 (ii) in subclause (II), by striking 

13 ‘‘and’’ after the semicolon at the end; 

14 (D) in clause (ii)—

15 (i) in the matter preceding subclause 

16 (I), by inserting ‘‘for fiscal years before fis17 cal year 2004,’’ before ‘‘for hospitals’’; and 

18 (ii) in subclause (II), by striking the 

19 period at the end and inserting ‘‘; and’’; 

20 and 

21 (E) by adding at the end the following new 

22 clause: 

23 ‘‘(iii) for a fiscal year beginning after fiscal 

24 year 2003, for hospitals located in all areas, to 

25 the product of—
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1 ‘‘(I) the applicable standardized 

2 amount (computed under subparagraph 

3 (A)), reduced under subparagraph (B), 

4 and adjusted or reduced under subpara5 graph (C) for the fiscal year; and 

6 ‘‘(II) the weighting factor (determined 

7 under paragraph (4)(B)) for that diag8 nosis-related group.’’. 

9 (2) TECHNICAL CONFORMING SUNSET.—Section 

10 1886(d)(3) (42 U.S.C. 1395ww(d)(3)) is amended—

11 (A) in the matter preceding subparagraph 

12 (A), by inserting ‘‘, for fiscal years before fiscal 

13 year 1997,’’ before ‘‘a regional adjusted DRG 

14 prospective payment rate’’; and 

15 (B) in subparagraph (D), in the matter 

16 preceding clause (i), by inserting ‘‘, for fiscal 

17 years before fiscal year 1997,’’ before ‘‘a re18 gional DRG prospective payment rate for each 

19 region,’’.

20 SEC. 403. ESTABLISHMENT OF ESSENTIAL RURAL HOS21 PITAL CLASSIFICATION. 

22 (a) CLASSIFICATION.—Section 1861(mm) (42 U.S.C. 

23 1395x(mm)) is amended—

24 (1) in the heading by adding ‘‘ESSENTIAL

25 RURAL HOSPITALS’’ at the end; and 
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1 (2) by adding at the end the following new 

2 paragraphs: 

3 ‘‘(4)(A) The term ‘essential rural hospital’ means a 

4 subsection (d) hospital (as defined in section 

5 1886(d)(1)(B)) that is located in a rural area (as defined 

6 for purposes of section 1886(d)), has more than 25 li7 censed acute care inpatient beds, has applied to the Sec8 retary for classification as such a hospital, and with re9 spect to which the Secretary has determined that the clo10 sure of the hospital would significantly diminish the ability 

11 of medicare beneficiaries to obtain essential health care 

12 services. 

13 ‘‘(B) The determination under subparagraph (A) 

14 shall be based on the following criteria: 

15 ‘‘(i) HIGH PROPORTION OF MEDICARE BENE16 FICIARIES RECEIVING CARE FROM HOSPITAL.—(I) A 

17 high percentage of such beneficiaries residing in the 

18 area of the hospital who are hospitalized (during the 

19 most recent year for which complete data are avail20 able) receive basic inpatient medical care at the hos21 pital. 

22 ‘‘(II) For a hospital with more than 200 li23 censed beds, a high percentage of such beneficiaries 

24 residing in such area who are hospitalized (during 
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1 such recent year) receive specialized surgical inpa2 tient care at the hospital. 

3 ‘‘(III) Almost all physicians described in section 

4 1861(r)(1) in such area have privileges at the hos5 pital and provide their inpatient services primarily at 

6 the hospital. 

7 ‘‘(IV) The hospital inpatient score for quality of 

8 care is not less than the median hospital score for 

9 qualify of care for hospitals in the State, as estab10 lished under standards of the utilization and quality 

11 control peer review organization under part B of 

12 title XI or other quality standards recognized by the 

13 Secretary. 

14 ‘‘(ii) SIGNIFICANT ADVERSE IMPACT IN AB15 SENCE OF HOSPITAL.—If the hospital were to 

16 close—

17 ‘‘(I) there would be a significant amount of 

18 time needed for residents to reach emergency 

19 treatment, resulting in a potential significant 

20 harm to beneficiaries with critical illnesses or 

21 injuries; 

22 ‘‘(II) there would be an inability in the 

23 community to stablize emergency cases for 

24 transfers to another acute care setting, result-
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1 ing in a potential for significant harm to medi2 care beneficiaries; and 

3 ‘‘(III) any other nearby hospital lacks the 

4 physical and clinical capacity to take over the 

5 hospital’s typical admissions. 

6 ‘‘(C) In making such determination, the Secretary 

7 may also consider the following: 

8 ‘‘(i) Free-standing ambulatory surgery centers, 

9 office-based oncology care, and imaging center serv10 ices are insufficient in the hospital’s area to handle 

11 the outpatient care of the hospital. 

12 ‘‘(ii) Beneficiaries in nearby areas would be ad13 versely affected if the hospital were to close as the 

14 hospital provides specialized knowledge and services 

15 to a network of smaller hospitals and critical access 

16 hospitals. 

17 ‘‘(iii) Medicare beneficiaries would have dif18 ficulty in accessing care if the hospital were to close 

19 as the hospital provides significant subsidies to sup20 port ambulatory care in local clinics, including men21 tal health clinics and to support post acute care. 

22 ‘‘(iv) The hospital has a committment to pro23 vide graduate medical education in a rural area. 

24 A hospital classified as an essential rural hospital may not 

25 change such classification and a hospital so classified shall 
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1 not be treated as a sole community hospital, medicare de2 pendent hospital, or rural referral center for purposes of 

3 section 1886.’’. 

4 (b) PAYMENT BASED ON 102 PERCENT OF ALLOWED

5 COSTS.—

6 (1) INPATIENT HOSPITAL SERVICES.—Section 

7 1886(d) (42 U.S.C. 1395ww(d)) is amended by add8 ing at the end the following: 

9 ‘‘(11) In the case of a hospital classified as an essen10 tial rural hospital under section 1861(mm)(4) for a cost 

11 reporting period, the payment under this subsection for 

12 inpatient hospital services for discharges occurring during 

13 the period shall be based on 102 percent of the reasonable 

14 costs for such services. Nothing in this paragraph shall 

15 be construed as affecting the application or amount of 

16 deductibles or copayments otherwise applicable to such 

17 services under part A or as waiving any requirement for 

18 billing for such services.’’. 

19 (2) HOSPITAL OUTPATIENT SERVICES.—Section 

20 1833(t)(13) (42 U.S.C. 1395l(t)(13)) is amended by 

21 adding at the end the following new subparagraph: 

22 ‘‘(B) SPECIAL RULE FOR ESSENTIAL

23 RURAL HOSPITALS.—In the case of a hospital 

24 classified as an essential rural hospital under 

25 section 1861(mm)(4) for a cost reporting pe-
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1 riod, the payment under this subsection for cov2 ered OPD services during the period shall be 

3 based on 102 percent of the reasonable costs 

4 for such services. Nothing in this subparagraph 

5 shall be construed as affecting the application 

6 or amount of deductibles or copayments other7 wise applicable to such services under this part 

8 or as waiving any requirement for billing for 

9 such services.’’. 

10 (c) EFFECTIVE DATE.—The amendments made by 

11 this section shall apply to cost reporting periods beginning 

12 on or after October 1, 2004. 

13 SEC. 404. MORE FREQUENT UPDATE IN WEIGHTS USED IN 

14 HOSPITAL MARKET BASKET. 

15 (a) MORE FREQUENT UPDATES IN WEIGHTS.—After 

16 revising the weights used in the hospital market basket 

17 under section 1886(b)(3)(B)(iii) of the Social Security Act 

18 (42 U.S.C. 1395ww(b)(3)(B)(iii)) to reflect the most cur19 rent data available, the Secretary shall establish a fre20 quency for revising such weights, including the labor 

21 share, in such market basket to reflect the most current 

22 data available more frequently than once every 5 years. 

23 (b) REPORT.—Not later than October 1, 2004, the 

24 Secretary shall submit a report to Congress on the fre25 quency established under subsection (a), including an ex-
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1 planation of the reasons for, and options considered, in 

2 determining such frequency. 

3 SEC. 405. IMPROVEMENTS TO CRITICAL ACCESS HOSPITAL 

4 PROGRAM. 

5 (a) INCREASE IN PAYMENT AMOUNTS.—

6 (1) IN GENERAL.—Sections 1814(l), 

7 1834(g)(1), and 1883(a)(3) (42 U.S.C. 1395f(l); 

8 1395m(g)(1); 42 U.S.C. 1395tt(a)(3)) are each 

9 amended by inserting ‘‘equal to 102 percent of’’ be10 fore ‘‘the reasonable costs’’. 

11 (2) EFFECTIVE DATE.—The amendments made 

12 by paragraph (1) shall apply to payments for serv13 ices furnished during cost reporting periods begin14 ning on or after October 1, 2003. 

15 (b) COVERAGE OF COSTS FOR CERTAIN EMERGENCY

16 ROOM ON-CALL PROVIDERS.—

17 (1) IN GENERAL.—Section 1834(g)(5) (42 

18 U.S.C. 1395m(g)(5)) is amended—

19 (A) in the heading—

20 (i) by inserting ‘‘CERTAIN’’ before 

21 ‘‘EMERGENCY’’; and 

22 (ii) by striking ‘‘PHYSICIANS’’ and in23 serting ‘‘PROVIDERS’’; 

24 (B) by striking ‘‘emergency room physi25 cians who are on-call (as defined by the Sec-
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1 retary)’’ and inserting ‘‘physicians, physician 

2 assistants, nurse practitioners, and clinical 

3 nurse specialists who are on-call (as defined by 

4 the Secretary) to provide emergency services’’; 

5 and 

6 (C) by striking ‘‘physicians’ services’’ and 

7 inserting ‘‘services covered under this title’’. 

8 (2) EFFECTIVE DATE.—The amendment made 

9 by paragraph (1) shall apply with respect to costs 

10 incurred for services provided on or after January 1, 

11 2004. 

12 (c) MODIFICATION OF THE ISOLATION TEST FOR

13 COST-BASED CAH AMBULANCE SERVICES.—

14 (1) IN GENERAL.—Section 1834(l)(8) (42 

15 U.S.C. 1395m(l)), as added by section 205(a) of 

16 BIPA (114 Stat. 2763A–482), is amended by add17 ing at the end the following: ‘‘The limitation de18 scribed in the matter following subparagraph (B) in 

19 the previous sentence shall not apply if the ambu20 lance services are furnished by such a provider or 

21 supplier of ambulance services who is a first re22 sponder to emergencies in accordance with local pro23 tocols (as determined by the Secretary).’’. 

24 (2) EFFECTIVE DATE.—The amendment made 

25 by paragraph (1) shall apply to ambulances services 
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1 furnished on or after the first cost reporting period 

2 that begins after the date of the enactment of this 

3 Act. 

4 (d) REINSTATEMENT OF PERIODIC INTERIM PAY5 MENT (PIP).—

6 (1) IN GENERAL.—Section 1815(e)(2) (42 

7 U.S.C. 1395g(e)(2)) is amended—

8 (A) in the matter before subparagraph (A), 

9 by inserting ‘‘, in the cases described in sub10 paragraphs (A) through (D)’’ after ‘‘1986’’; 

11 and 

12 (B) by striking ‘‘and’’ at the end of sub13 paragraph (C); 

14 (C) by adding ‘‘and’’ at the end of sub15 paragraph (D); and 

16 (D) by inserting after subparagraph (D) 

17 the following new subparagraph: 

18 ‘‘(E) inpatient critical access hospital services;’’. 

19 (2) DEVELOPMENT OF ALTERNATIVE METHODS

20 OF PERIODIC INTERIM PAYMENTS.—With respect to 

21 periodic interim payments to critical access hospitals 

22 for inpatient critical access hospital services under 

23 section 1815(e)(2)(E) of the Social Security Act, as 

24 added by paragraph (1), the Secretary shall develop 
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1 alternative methods for such payments that are 

2 based on expenditures of the hospital. 

3 (3) REINSTATEMENT OF PIP.—The amend4 ments made by paragraph (1) shall apply to pay5 ments made on or after January 1, 2004. 

6 (e) CONDITION FOR APPLICATION OF SPECIAL PHY7 SICIAN PAYMENT ADJUSTMENT.—

8 (1) IN GENERAL.—Section 1834(g)(2) (42 

9 U.S.C. 1395m(g)(2)) is amended by adding after 

10 and below subparagraph (B) the following: 

11 ‘‘The Secretary may not require, as a condition for 

12 applying subparagraph (B) with respect to a critical 

13 access hospital, that each physician providing profes14 sional services in the hospital must assign billing 

15 rights with respect to such services, except that such 

16 subparagraph shall not apply to those physicians 

17 who have not assigned such billing rights.’’. 

18 (2) EFFECTIVE DATE.—The amendment made 

19 by paragraph (1) shall be effective as if included in 

20 the enactment of section 403(d) of the Medicare, 

21 Medicaid, and SCHIP Balanced Budget Refinement 

22 Act of 1999 (113 Stat. 1501A–371). 

23 (f) FLEXIBILITY IN BED LIMITATION FOR HOS24 PITALS.—Section 1820 (42 U.S.C. 1395i–4) is amended—
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1 (1) in subsection (c)(2)(B)(iii), by inserting 

2 ‘‘subject to paragraph (3)’’ after ‘‘(iii) provides’’; 

3 (2) by adding at the end of subsection (c) the 

4 following new paragraph: 

5 ‘‘(3) INCREASE IN MAXIMUM NUMBER OF BEDS

6 FOR HOSPITALS WITH STRONG SEASONAL CENSUS

7 FLUCTUATIONS.—

8 ‘‘(A) IN GENERAL.—Subject to subpara9 graph (C), in the case of a hospital that dem10 onstrates that it meets the standards estab11 lished under subparagraph (B) and has not 

12 made the election described in subsection 

13 (f)(2)(A), the bed limitations otherwise applica14 ble under paragraph (2)(B)(iii) and subsection 

15 (f) shall be increased by 5 beds. 

16 ‘‘(B) STANDARDS.—The Secretary shall 

17 specify standards for determining whether a 

18 critical access hospital has sufficiently strong 

19 seasonal variations in patient admissions to jus20 tify the increase in bed limitation provided 

21 under subparagraph (A).’’; and 

22 (3) in subsection (f)—

23 (A) by inserting ‘‘(1)’’ after ‘‘(f)’’; and 

24 (B) by adding at the end the following new 

25 paragraph: 
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1 ‘‘(2)(A) A hospital may elect to treat the reference 

2 in paragraph (1) to ‘15 beds’ as a reference to ‘25 beds’, 

3 but only if no more than 10 beds in the hospital are at 

4 any time used for non-acute care services. A hospital that 

5 makes such an election is not eligible for the increase pro6 vided under subsection (c)(3)(A). 

7 ‘‘(B) The limitations in numbers of beds under the 

8 first sentence of paragraph (1) are subject to adjustment 

9 under subsection (c)(3).’’. 

10 (4) EFFECTIVE DATE.—The amendments made 

11 by this subsection shall apply to designations made 

12 before, on, or after January 1, 2004. 

13 (g) ADDITIONAL 5-YEAR PERIOD OF FUNDING FOR

14 GRANT PROGRAM.—

15 (1) IN GENERAL.—Section 1820(g) (42 U.S.C. 

16 1395i–4(g)) is amended by adding at the end the 

17 following new paragraph: 

18 ‘‘(4) FUNDING.—

19 ‘‘(A) IN GENERAL.—Subject to subpara20 graph (B), payment for grants made under this 

21 subsection during fiscal years 2004 through 

22 2008 shall be made from the Federal Hospital 

23 Insurance Trust Fund. 

24 ‘‘(B) ANNUAL AGGREGATE LIMITATION.—

25 In no case may the amount of payment pro-
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1 vided for under subparagraph (A) for a fiscal 

2 year exceed $25,000,000.’’. 

3 (2) CONFORMING AMENDMENT.—Section 1820 

4 (42 U.S.C. 1395i–4) is amended by striking sub5 section (j).

6 SEC. 406. REDISTRIBUTION OF UNUSED RESIDENT POSI7 TIONS. 

8 (a) IN GENERAL.—Section 1886(h)(4) (42 U.S.C. 

9 1395ww(h)(4)) is amended—

10 (1) in subparagraph (F)(i), by inserting ‘‘sub11 ject to subparagraph (I),’’ after ‘‘October 1, 1997,’’; 

12 (2) in subparagraph (H)(i), by inserting ‘‘sub13 ject to subparagraph (I),’’ after ‘‘subparagraphs (F) 

14 and (G),’’; and 

15 (3) by adding at the end the following new sub16 paragraph: 

17 ‘‘(I) REDISTRIBUTION OF UNUSED RESI18 DENT POSITIONS.—

19 ‘‘(i) REDUCTION IN LIMIT BASED ON

20 UNUSED POSITIONS.—

21 ‘‘(I) IN GENERAL.—If a hos22 pital’s resident level (as defined in 

23 clause (iii)(I)) is less than the other24 wise applicable resident limit (as de25 fined in clause (iii)(II)) for each of 
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1 the reference periods (as defined in 

2 subclause (II)), effective for cost re3 porting periods beginning on or after 

4 January 1, 2004, the otherwise appli5 cable resident limit shall be reduced 

6 by 75 percent of the difference be7 tween such limit and the reference 

8 resident level specified in subclause 

9 (III) (or subclause (IV) if applicable). 

10 ‘‘(II) REFERENCE PERIODS DE11 FINED.—In this clause, the term ‘ref12 erence periods’ means, for a hospital, 

13 the 3 most recent consecutive cost re14 porting periods of the hospital for 

15 which cost reports have been settled 

16 (or, if not, submitted) on or before 

17 September 30, 2002. 

18 ‘‘(III) REFERENCE RESIDENT

19 LEVEL.—Subject to subclause (IV), 

20 the reference resident level specified in 

21 this subclause for a hospital is the 

22 highest resident level for the hospital 

23 during any of the reference periods. 

24 ‘‘(IV) ADJUSTMENT PROCESS.—

25 Upon the timely request of a hospital, 
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1 the Secretary shall adjust (subject to 

2 audit) the reference resident level for 

3 a hospital to be the resident level for 

4 the hospital for the cost reporting pe5 riod that includes July 1, 2003. 

6 ‘‘(V) AFFILIATION.—With re7 spect to hospitals which are members 

8 of the same affiliated group (as de9 fined by the Secretary under subpara10 graph (H)(ii)), the provisions of this 

11 section shall be applied with respect to 

12 such an affiliated group by deeming 

13 the affiliated group to be a single hos14 pital. 

15 ‘‘(ii) REDISTRIBUTION.—

16 ‘‘(I) IN GENERAL.—The Sec17 retary is authorized to increase the 

18 otherwise applicable resident limits for 

19 hospitals by an aggregate number es20 timated by the Secretary that does 

21 not exceed the aggregate reduction in 

22 such limits attributable to clause (i) 

23 (without taking into account any ad24 justment under subclause (IV) of such 

25 clause). 
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1 ‘‘(II) EFFECTIVE DATE.—No in2 crease under subclause (I) shall be 

3 permitted or taken into account for a 

4 hospital for any portion of a cost re5 porting period that occurs before July 

6 1, 2004, or before the date of the hos7 pital’s application for an increase 

8 under this clause. No such increase 

9 shall be permitted for a hospital un10 less the hospital has applied to the 

11 Secretary for such increase by Decem12 ber 31, 2005. 

13 ‘‘(III) CONSIDERATIONS IN RE14 DISTRIBUTION.—In determining for 

15 which hospitals the increase in the 

16 otherwise applicable resident limit is 

17 provided under subclause (I), the Sec18 retary shall take into account the 

19 need for such an increase by specialty 

20 and location involved, consistent with 

21 subclause (IV). 

22 ‘‘(IV) PRIORITY FOR RURAL AND

23 SMALL URBAN AREAS.—In deter24 mining for which hospitals and resi25 dency training programs an increase 
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1 in the otherwise applicable resident 

2 limit is provided under subclause (I), 

3 the Secretary shall first distribute the 

4 increase to programs of hospitals lo5 cated in rural areas or in urban areas 

6 that are not large urban areas (as de7 fined for purposes of subsection (d)) 

8 on a first-come-first-served basis (as 

9 determined by the Secretary) based on 

10 a demonstration that the hospital will 

11 fill the positions made available under 

12 this clause and not to exceed an in13 crease of 25 full-time equivalent posi14 tions with respect to any hospital. 

15 ‘‘(V) APPLICATION OF LOCALITY

16 ADJUSTED NATIONAL AVERAGE PER

17 RESIDENT AMOUNT.—With respect to 

18 additional residency positions in a 

19 hospital attributable to the increase 

20 provided under this clause, notwith21 standing any other provision of this 

22 subsection, the approved FTE resi23 dent amount is deemed to be equal to 

24 the locality adjusted national average 
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1 per resident amount computed under 

2 subparagraph (E) for that hospital. 

3 ‘‘(VI) CONSTRUCTION.—Nothing 

4 in this clause shall be construed as 

5 permitting the redistribution of reduc6 tions in residency positions attrib7 utable to voluntary reduction pro8 grams under paragraph (6) or as af9 fecting the ability of a hospital to es10 tablish new medical residency training 

11 programs under subparagraph (H). 

12 ‘‘(iii) RESIDENT LEVEL AND LIMIT

13 DEFINED.—In this subparagraph: 

14 ‘‘(I) RESIDENT LEVEL.—The 

15 term ‘resident level’ means, with re16 spect to a hospital, the total number 

17 of full-time equivalent residents, be18 fore the application of weighting fac19 tors (as determined under this para20 graph), in the fields of allopathic and 

21 osteopathic medicine for the hospital. 

22 ‘‘(II) OTHERWISE APPLICABLE

23 RESIDENT LIMIT.—The term ‘other24 wise applicable resident limit’ means, 

25 with respect to a hospital, the limit 
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1 otherwise applicable under subpara2 graphs (F)(i) and (H) on the resident 

3 level for the hospital determined with4 out regard to this subparagraph.’’. 

5 (b) CONFORMING AMENDMENT TO IME.—Section 

6 1886(d)(5)(B)(v) (42 U.S.C. 1395ww(d)(5)(B)(v)) is 

7 amended by adding at the end the following: ‘‘The provi8 sions of subparagraph (I) of subsection (h)(4) shall apply 

9 with respect to the first sentece of this clause in the same 

10 manner as it applies with respect to subparagraph (F) of 

11 such subsection.’’. 

12 (c) REPORT ON EXTENSION OF APPLICATIONS

13 UNDER REDISTRIBUTION PROGRAM.—Not later than July 

14 1, 2005, the Secretary shall submit to Congress a report 

15 containing recommendations regarding whether to extend 

16 the deadline for applications for an increase in resident 

17 limits under section 1886(h)(4)(I)(ii)(II) of the Social Se18 curity Act (as added by subsection (a)). 

19 SEC. 407. TWO-YEAR EXTENSION OF HOLD HARMLESS PRO20 VISIONS FOR SMALL RURAL HOSPITALS AND 

21 SOLE COMMUNITY HOSPITALS UNDER PRO22 SPECTIVE PAYMENT SYSTEM FOR HOSPITAL 

23 OUTPATIENT DEPARTMENT SERVICES. 

24 (a) HOLD HARMLESS PROVISIONS.—
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1 (1) IN GENERAL.—Section 1833(t)(7)(D)(i) (42 

2 U.S.C. 1395l(t)(7)(D)(i)) is amended—

3 (A) in the heading, by striking ‘‘SMALL’’ 

4 and inserting ‘‘CERTAIN’’; 

5 (B) by inserting ‘‘or a sole community hos6 pital (as defined in section 1886(d)(5)(D)(iii)) 

7 located in a rural area’’ after ‘‘100 beds’’; and 

8 (C) by striking ‘‘2004’’ and inserting 

9 ‘‘2006’’. 

10 (2) EFFECTIVE DATE.—The amendment made 

11 by subsection (a)(2) shall apply with respect to pay12 ment for OPD services furnished on and after Janu13 ary 1, 2004. 

14 (b) STUDY; ADJUSTMENT.—

15 (1) STUDY.—The Secretary shall conduct a 

16 study to determine if, under the prospective payment 

17 system for hospital outpatient department services 

18 under section 1833(t) of the Social Security Act (42 

19 U.S.C. 1395l(t)), costs incurred by rural providers 

20 of services by ambulatory payment classification 

21 groups (APCs) exceed those costs incurred by urban 

22 providers of services. 

23 (2) ADJUSTMENT.—Insofar as the Secretary 

24 determines under paragraph (1) that costs incurred 

25 by rural providers exceed those costs incurred by 
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1 urban providers of services, the Secretary shall pro2 vide for an appropriate adjustment under such sec3 tion 1833(t) to reflect those higher costs by January 

4 1, 2005. 

5 SEC. 408. EXCLUSION OF CERTAIN RURAL HEALTH CLINIC 

6 AND FEDERALLY QUALIFIED HEALTH CEN7 TER SERVICES FROM THE PROSPECTIVE PAY8 MENT SYSTEM FOR SKILLED NURSING FA9 CILITIES. 

10 (a) IN GENERAL.—Section 1888(e)(2)(A) (42 U.S.C. 

11 1395yy(e)(2)(A)) is amended—

12 (1) in clause (i)(II), by striking ‘‘clauses (ii) 

13 and (iii)’’ and inserting ‘‘clauses (ii), (iii), and (iv)’’; 

14 and 

15 (2) by adding at the end the following new 

16 clause: 

17 ‘‘(iv) EXCLUSION OF CERTAIN RURAL

18 HEALTH CLINIC AND FEDERALLY QUALI19 FIED HEALTH CENTER SERVICES.—Serv20 ices described in this clause are—

21 ‘‘(I) rural health clinic services 

22 (as defined in paragraph (1) of sec23 tion 1861(aa)); and 
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1 ‘‘(II) Federally qualified health 

2 center services (as defined in para3 graph (3) of such section); 

4 that would be described in clause (ii) if 

5 such services were not furnished by an in6 dividual affiliated with a rural health clinic 

7 or a Federally qualified health center.’’. 

8 (b) EFFECTIVE DATE.—The amendments made by 

9 subsection (a) shall apply to services furnished on or after 

10 January 1, 2004. 

11 SEC. 409. RECOGNITION OF ATTENDING NURSE PRACTI12 TIONERS AS ATTENDING PHYSICIANS TO 

13 SERVE HOSPICE PATIENTS. 

14 (a) IN GENERAL.—Section 1861(dd)(3)(B) (42 

15 U.S.C. 1395x(dd)(3)(B)) is amended by inserting ‘‘or 

16 nurse practitioner (as defined in subsection (aa)(5))’’ after 

17 ‘‘the physician (as defined in subsection (r)(1))’’. 

18 (b) CLARIFICATION OF HOSPICE ROLE OF NURSE

19 PRACTITIONERS.—Section 1814(a)(7)(A)(i)(I) (42 U.S.C. 

20 1395f(a)(7)(A)(i)(I)) is amended by inserting ‘‘(which for 

21 purposes of this subparagraph does not include a nurse 

22 practitioner)’’ after ‘‘attending physician (as defined in 

23 section 1861(dd)(3)(B))’’. 
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1 SEC. 410. IMPROVEMENT IN PAYMENTS TO RETAIN EMER2 GENCY CAPACITY FOR AMBULANCE SERV3 ICES IN RURAL AREAS. 

4 Section 1834(l) (42 U.S.C. 1395m(l)) is amended—

5 (1) by redesignating paragraph (8), as added by 

6 section 221(a) of BIPA (114 Stat. 2763A–486), as 

7 paragraph (9); and 

8 (2) by adding at the end the following new 

9 paragraph: 

10 ‘‘(10) ASSISTANCE FOR RURAL PROVIDERS

11 FURNISHING SERVICES IN LOW MEDICARE POPU12 LATION DENSITY AREAS.—

13 ‘‘(A) IN GENERAL.—In the case of ground 

14 ambulance services furnished on or after Janu15 ary 1, 2004, for which the transportation origi16 nates in a qualified rural area (as defined in 

17 subparagraph (B)), the Secretary shall provide 

18 for a percent increase in the base rate of the fee 

19 schedule for a trip established under this sub20 section. In establishing such percent increase, 

21 the Secretary shall estimate the average cost 

22 per trip for the base rate in the lowest quartile 

23 as compared to the average cost for the base 

24 rate for such services that is in the highest 

25 quartile of all rural county populations. 
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1 ‘‘(B) QUALIFIED RURAL AREA DEFINED.—

2 For purposes of subparagraph (A), the term 

3 ‘qualified rural area’ is a rural area (as defined 

4 in section 1886(d)(2)(D)) with a population 

5 density of medicare beneficiaries residing in the 

6 area that is in the lowest quartile of all rural 

7 county populations.’’. 

8 SEC. 411. TWO-YEAR INCREASE FOR HOME HEALTH SERV9 ICES FURNISHED IN A RURAL AREA. 

10 (a) IN GENERAL.—In the case of home health serv11 ices furnished in a rural area (as defined in section 

12 1886(d)(2)(D) of the Social Security Act (42 U.S.C. 

13 1395ww(d)(2)(D))) during 2004 and 2005, the Secretary 

14 shall increase the payment amount otherwise made under 

15 section 1895 of such Act (42 U.S.C. 1395fff ) for such 

16 services by 5 percent. 

17 (b) WAIVING BUDGET NEUTRALITY.—The Secretary 

18 shall not reduce the standard prospective payment amount 

19 (or amounts) under section 1895 of the Social Security 

20 Act (42 U.S.C. 1395fff ) applicable to home health services 

21 furnished during a period to offset the increase in pay22 ments resulting from the application of subsection (a). 
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1 SEC. 412. PROVIDING SAFE HARBOR FOR CERTAIN COL2 LABORATIVE EFFORTS THAT BENEFIT MEDI3 CALLY UNDERSERVED POPULATIONS. 

4 (a) IN GENERAL.—Section 1128B(b)(3) (42 U.S.C. 

5 1320a–7(b)(3)), as amended by section 101(b)(2), is 

6 amended—

7 (1) in subparagraph (F), by striking ‘‘and’’ 

8 after the semicolon at the end; 

9 (2) in subparagraph (G), by striking the period 

10 at the end and inserting ‘‘; and’’; and 

11 (3) by adding at the end the following new sub12 paragraph: 

13 ‘‘(H) any remuneration between a public 

14 or nonprofit private health center entity de15 scribed under clause (i) or (ii) of section 

16 1905(l)(2)(B) and any individual or entity pro17 viding goods, items, services, donations or 

18 loans, or a combination thereof, to such health 

19 center entity pursuant to a contract, lease, 

20 grant, loan, or other agreement, if such agree21 ment contributes to the ability of the health 

22 center entity to maintain or increase the avail23 ability, or enhance the quality, of services pro24 vided to a medically underserved population 

25 served by the health center entity.’’. 
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1 (b) RULEMAKING FOR EXCEPTION FOR HEALTH

2 CENTER ENTITY ARRANGEMENTS.—

3 (1) ESTABLISHMENT.—

4 (A) IN GENERAL.—The Secretary of 

5 Health and Human Services (in this subsection 

6 referred to as the ‘‘Secretary’’) shall establish, 

7 on an expedited basis, standards relating to the 

8 exception described in section 1128B(b)(3)(H) 

9 of the Social Security Act, as added by sub10 section (a), for health center entity arrange11 ments to the antikickback penalties. 

12 (B) FACTORS TO CONSIDER.—The Sec13 retary shall consider the following factors, 

14 among others, in establishing standards relating 

15 to the exception for health center entity ar16 rangements under subparagraph (A): 

17 (i) Whether the arrangement between 

18 the health center entity and the other 

19 party results in savings of Federal grant 

20 funds or increased revenues to the health 

21 center entity. 

22 (ii) Whether the arrangement between 

23 the health center entity and the other 

24 party restricts or limits a patient’s freedom 

25 of choice. 
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1 (iii) Whether the arrangement be2 tween the health center entity and the 

3 other party protects a health care profes4 sional’s independent medical judgment re5 garding medically appropriate treatment. 

6 The Secretary may also include other standards 

7 and criteria that are consistent with the intent 

8 of Congress in enacting the exception estab9 lished under this section. 

10 (2) INTERIM FINAL EFFECT.—No later than 

11 180 days after the date of enactment of this Act, the 

12 Secretary shall publish a rule in the Federal Reg13 ister consistent with the factors under paragraph 

14 (1)(B). Such rule shall be effective and final imme15 diately on an interim basis, subject to such change 

16 and revision, after public notice and opportunity (for 

17 a period of not more than 60 days) for public com18 ment, as is consistent with this subsection. 

19 SEC. 413. GAO STUDY OF GEOGRAPHIC DIFFERENCES IN 

20 PAYMENTS FOR PHYSICIANS’ SERVICES. 

21 (a) STUDY.—The Comptroller General of the United 

22 States shall conduct a study of differences in payment 

23 amounts under the physician fee schedule under section 

24 1848 of the Social Security Act (42 U.S.C. 1395w–4) for 
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1 physicians’ services in different geographic areas. Such 

2 study shall include—

3 (1) an assessment of the validity of the geo4 graphic adjustment factors used for each component 

5 of the fee schedule; 

6 (2) an evaluation of the measures used for such 

7 adjustment, including the frequency of revisions; and 

8 (3) an evaluation of the methods used to deter9 mine professional liability insurance costs used in 

10 computing the malpractice component, including a 

11 review of increases in professional liability insurance 

12 premiums and variation in such increases by State 

13 and physician specialty and methods used to update 

14 the geographic cost of practice index and relative 

15 weights for the malpractice component. 

16 (b) REPORT.—Not later than 1 year after the date 

17 of the enactment of this Act, the Comptroller General shall 

18 submit to Congress a report on the study conducted under 

19 subsection (a). The report shall include recommendations 

20 regarding the use of more current data in computing geo21 graphic cost of practice indices as well as the use of data 

22 directly representative of physicians’ costs (rather than 

23 proxy measures of such costs). 
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1 SEC. 414. TREATMENT OF MISSING COST REPORTING PERI2 ODS FOR SOLE COMMUNITY HOSPITALS. 

3 (a) IN GENERAL.—Section 1886(b)(3)(I) (42 U.S.C. 

4 1395ww(b)(3)(I)) is amended by adding at the end the 

5 following new clause: 

6 ‘‘(iii) In no case shall a hospital be denied treatment 

7 as a sole community hospital or payment (on the basis 

8 of a target rate as such as a hospital) because data are 

9 unavailable for any cost reporting period due to changes 

10 in ownership, changes in fiscal intermediaries, or other ex11 traordinary circumstances, so long as data for at least one 

12 applicable base cost reporting period is available.’’. 

13 (b) EFFECTIVE DATE.—The amendment made by 

14 subsection (a) shall apply to cost reporting periods begin15 ning on or after January 1, 2004. 

16 SEC. 415. EXTENSION OF TELEMEDICINE DEMONSTRATION 

17 PROJECT. 

18 Section 4207 of Balanced Budget Act of 1997 (Pub19 lic Law 105–33) is amended—

20 (1) in subsection (a)(4), by striking ‘‘4-year’’ 

21 and inserting ‘‘8-year’’; and 

22 (2) in subsection (d)(3), by striking 

23 ‘‘$30,000,000’’ and inserting ‘‘$60,000,000’’. 
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1 SEC. 416. ADJUSTMENT TO THE MEDICARE INPATIENT HOS2 PITAL PPS WAGE INDEX TO REVISE THE 

3 LABOR-RELATED SHARE OF SUCH INDEX. 

4 (a) IN GENERAL.—Section 1886(d)(3)(E) (42 U.S.C. 

5 1395ww(d)(3)(E)) is amended—

6 (1) by striking ‘‘WAGE LEVELS.—The Sec7 retary’’ and inserting ‘‘WAGE LEVELS.—

8 ‘‘(i) IN GENERAL.—Except as provided in 

9 clause (ii), the Secretary’’; and 

10 (2) by adding at the end the following new 

11 clause: 

12 ‘‘(ii) ALTERNATIVE PROPORTION TO BE

13 ADJUSTED BEGINNING IN FISCAL YEAR 2004.—

14 ‘‘(I) IN GENERAL.—Except as pro15 vided in subclause (II), for discharges oc16 curring on or after October 1, 2003, the 

17 Secretary shall substitute the ‘62 percent’ 

18 for the proportion described in the first 

19 sentence of clause (i). 

20 ‘‘(II) HOLD HARMLESS FOR CERTAIN

21 HOSPITALS.—If the application of sub22 clause (I) would result in lower payments 

23 to a hospital than would otherwise be 

24 made, then this subparagraph shall be ap25 plied as if this clause had not been en26 acted.’’. 
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1 (b) WAIVING BUDGET NEUTRALITY.—Section 

2 1886(d)(3)(E) (42 U.S.C. 1395ww(d)(3)(E)), as amended 

3 by subsection (a), is amended by adding at the end of 

4 clause (i) the following new sentence: ‘‘The Secretary shall 

5 apply the previous sentence for any period as if the 

6 amendments made by section 402(a) of the Medicare Pre7 scription Drug and Modernization Act of 2003 had not 

8 been enacted.’’. 

9 SEC. 417. MEDICARE INCENTIVE PAYMENT PROGRAM IM10 PROVEMENTS FOR PHYSICIAN SCARCITY. 

11 (a) ADDITIONAL BONUS PAYMENT FOR CERTAIN

12 PHYSICIAN SCARCITY AREAS.—

13 (1) IN GENERAL.—Section 1833 (42 U.S.C. 

14 1395l) is amended by adding at the end the fol15 lowing new subsection: 

16 ‘‘(u) INCENTIVE PAYMENTS FOR PHYSICIAN SCAR17 CITY AREAS.—

18 ‘‘(1) IN GENERAL.—In the case of physicians’ 

19 services furnished in a year—

20 ‘‘(A) by a primary care physician in a pri21 mary care scarcity county (identified under 

22 paragraph (4)); or 

23 ‘‘(B) by a physician who is not a primary 

24 care physician in a specialist care scarcity coun25 ty (as so identified), 
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1 in addition to the amount of payment that would 

2 otherwise be made for such services under this part, 

3 there also shall be paid an amount equal to 5 per4 cent of the payment amount for the service under 

5 this part. 

6 ‘‘(2) DETERMINATION OF RATIOS OF PHYSI7 CIANS TO MEDICARE BENEFICIARIES IN AREA.—

8 Based upon available data, the Secretary shall peri9 odically determine, for each county or equivalent 

10 area in the United States, the following: 

11 ‘‘(A) NUMBER OF PHYSICIANS PRACTICING

12 IN THE AREA.—The number of physicians who 

13 furnish physicians’ services in the active prac14 tice of medicine or osteopathy in that county or 

15 area, other than physicians whose practice is 

16 exclusively for the Federal Government, physi17 cians who are retired, or physicians who only 

18 provide administrative services. Of such num19 ber, the number of such physicians who are—

20 ‘‘(i) primary care physicians; or 

21 ‘‘(ii) physicians who are not primary 

22 care physicians. 

23 ‘‘(B) NUMBER OF MEDICARE BENE24 FICIARIES RESIDING IN THE AREA.—The num25 ber of individuals who are residing in the coun-
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1 ty and are entitled to benefits under part A or 

2 enrolled under this part, or both. 

3 ‘‘(C) DETERMINATION OF RATIOS.—

4 ‘‘(i) PRIMARY CARE RATIO.—The ratio 

5 (in this paragraph referred to as the ‘pri6 mary care ratio’) of the number of primary 

7 care physicians (determined under sub8 paragraph (A)(i)), to number of medicare 

9 beneficiaries determined under subpara10 graph (B). 

11 ‘‘(ii) SPECIALIST CARE RATIO.—The 

12 ratio (in this paragraph referred to as the 

13 ‘specialist care ratio’) of the number of 

14 other physicians (determined under sub15 paragraph (A)(ii)), to number of medicare 

16 beneficiaries determined under subpara17 graph (B). 

18 ‘‘(3) RANKING OF COUNTIES.—The Secretary 

19 shall rank each such county or area based separately 

20 on its primary care ratio and its specialist care ratio. 

21 ‘‘(4) IDENTIFICATION OF COUNTIES.—The Sec22 retary shall identify—

23 ‘‘(A) those counties and areas (in this 

24 paragraph referred to as ‘primary care scarcity 

25 counties’) with the lowest primary care ratios 
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1 that represent, if each such county or area were 

2 weighted by the number of medicare bene3 ficiaries determined under paragraph (2)(B), an 

4 aggregate total of 20 percent of the total of the 

5 medicare beneficiaries determined under such 

6 paragraph; and 

7 ‘‘(B) those counties and areas (in this sub8 section referred to as ‘specialist care scarcity 

9 counties’) with the lowest specialist care ratios 

10 that represent, if each such county or area were 

11 weighted by the number of medicare bene12 ficiaries determined under paragraph (2)(B), an 

13 aggregate total of 20 percent of the total of the 

14 medicare beneficiaries determined under such 

15 paragraph. 

16 There is no administrative or judicial review respect17 ing the identification of a county or area or the as18 signment of a specialty of any physician under this 

19 paragraph. 

20 ‘‘(5) RURAL CENSUS TRACKS.—To the extent 

21 feasible, the Secretary shall treat a rural census 

22 tract of a metropolitan statistical area (as deter23 mined under the most recent modification of the 

24 Goldsmith Modification, originally published in the 

25 Federal Register on February 27, 1992 (57 Fed. 
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1 Reg. 6725) as an equivalent area for purposes of 

2 qualifying as a primary care scarcity county or spe3 cialist care scarcity county under this subsection. 

4 ‘‘(6) PHYSICIAN DEFINED.—For purposes of 

5 this paragraph, the term ‘physician’ means a physi6 cian described in section 1861(r)(1) and the term 

7 ‘primary care physician’ means a physician who is 

8 identified in the available data as a general practi9 tioner, family practice practitioner, general internist, 

10 or obstetrician or gynecologist. 

11 ‘‘(7) PUBLICATION OF LIST OF COUNTIES.—In 

12 carrying out this subsection for a year, the Secretary 

13 shall include, as part of the proposed and final rule 

14 to implement the physician fee schedule under sec15 tion 1848 for the year, a list of all areas which will 

16 qualify as a primary care scarcity county or spe17 cialist care scarcity county under this subsection for 

18 the year involved.’’. 

19 (2) EFFECTIVE DATE.—The amendments made 

20 by subsection (a) shall apply to physicians’ services 

21 furnished or after January 1, 2004. 

22 (b) IMPROVEMENT TO MEDICARE INCENTIVE PAY23 MENT PROGRAM.—

24 (1) IN GENERAL.—Section 1833(m) (42 U.S.C. 

25 1395l(m)) is amended—
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1 (A) by inserting ‘‘(1)’’ after ‘‘(m)’’; and 

2 (B) by adding at the end the following new 

3 paragraphs: 

4 ‘‘(2) The Secretary shall establish procedures under 

5 which the Secretary, and not the physician furnishing the 

6 service, is responsible for determining when a payment is 

7 required to be made under paragraph (1). 

8 ‘‘(3) In carrying out paragraph (1) for a year, the 

9 Secretary shall include, as part of the proposed and final 

10 rule to implement the physician fee schedule under section 

11 1848 for the year, a list of all areas which will qualify 

12 as a health professional shortage area under paragraph 

13 (1) for the year involved.’’. 

14 (2) EFFECTIVE DATE.—The amendments made 

15 by paragraph (1) shall apply to physicians’ services 

16 furnished or after January 1, 2004.

17 SEC. 418. RURAL HOSPICE DEMONSTRATION PROJECT. 

18 (a) IN GENERAL.—The Secretary shall conduct a 

19 demonstration project for the delivery of hospice care to 

20 medicare beneficiaries in rural areas. Under the project 

21 medicare beneficiaries who are unable to receive hospice 

22 care in the home for lack of an appropriate caregiver are 

23 provided such care in a facility of 20 or fewer beds which 

24 offers, within its walls, the full range of services provided 
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1 by hospice programs under section 1861(dd) of the Social 

2 Security Act (42 U.S.C. 1395x(dd)). 

3 (b) SCOPE OF PROJECT.—The Secretary shall con4 duct the project under this section with respect to no more 

5 than 3 hospice programs over a period of not longer than 

6 5 years each. 

7 (c) COMPLIANCE WITH CONDITIONS.—Under the 

8 demonstration project—

9 (1) the hospice program shall comply with oth10 erwise applicable requirements, except that it shall 

11 not be required to offer services outside of the home 

12 or to meet the requirements of section 

13 1861(dd)(2)(A)(iii) of the Social Security Act; and 

14 (2) payments for hospice care shall be made at 

15 the rates otherwise applicable to such care under 

16 title XVIII of such Act. 

17 The Secretary may require the program to comply with 

18 such additional quality assurance standards for its provi19 sion of services in its facility as the Secretary deems ap20 propriate. 

21 (d) REPORT.—Upon completion of the project, the 

22 Secretary shall submit a report to Congress on the project 

23 and shall include in the report recommendations regarding 

24 extension of such project to hospice programs serving 

25 rural areas.
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1 TITLE V—PROVISIONS 

2 RELATING TO PART A 

3 Subtitle A—Inpatient Hospital 

4 Services 

5 SEC. 501. REVISION OF ACUTE CARE HOSPITAL PAYMENT 

6 UPDATES. 

7 Section 1886(b)(3)(B)(i) (42 U.S.C. 

8 1395ww(b)(3)(B)(i)) is amended—

9 (1) by striking ‘‘and’’ at the end of subclause 

10 (XVIII); 

11 (2) by striking subclause (XIX); and 

12 (3) by inserting after subclause (XVIII) the fol13 lowing new subclauses: 

14 ‘‘(XIX) for each of fiscal years 2004 through 

15 2006, the market basket percentage increase minus 

16 0.4 percentage points for hospitals in all areas; and 

17 ‘‘(XX) for fiscal year 2007 and each subsequent 

18 fiscal year, the market basket percentage increase 

19 for hospitals in all areas.’’.

20 SEC. 502. RECOGNITION OF NEW MEDICAL TECHNOLOGIES 

21 UNDER INPATIENT HOSPITAL PPS. 

22 (a) IMPROVING TIMELINESS OF DATA COLLEC23 TION.—Section 1886(d)(5)(K) (42 U.S.C. 

24 1395ww(d)(5)(K)) is amended by adding at the end the 

25 following new clause: 
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1 ‘‘(vii) Under the mechanism under this subpara2 graph, the Secretary shall provide for the addition of new 

3 diagnosis and procedure codes in April 1 of each year, but 

4 the addition of such codes shall not require the Secretary 

5 to adjust the payment (or diagnosis-related group classi6 fication) under this subsection until the fiscal year that 

7 begins after such date.’’. 

8 (b) ELIGIBILITY STANDARD FOR TECHNOLOGY

9 OUTLIERS.—

10 (1) MINIMUM PERIOD FOR RECOGNITION OF

11 NEW TECHNOLOGIES.—Section 1886(d)(5)(K)(vi) 

12 (42 U.S.C. 1395ww(d)(5)(K)(vi)) is amended—

13 (A) by inserting ‘‘(I)’’ after ‘‘(vi)’’; and 

14 (B) by adding at the end the following new 

15 subclause: 

16 ‘‘(II) Under such criteria, a service or technology 

17 shall not be denied treatment as a new service or tech18 nology on the basis of the period of time in which the serv19 ice or technology has been in use if such period ends before 

20 the end of the 2-to-3-year period that begins on the effec21 tive date of implementation of a code under ICD–9–CM 

22 (or a successor coding methodology) that enables the iden23 tification of specific discharges in which the service or 

24 technology has been used.’’. 
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1 (2) ADJUSTMENT OF THRESHOLD.—Section 

2 1886(d)(5)(K)(ii)(I) (42 U.S.C. 

3 1395ww(d)(5)(K)(ii)(I)) is amended by inserting 

4 ‘‘(applying a threshold specified by the Secretary 

5 that is the lesser of 75 percent of the standardized 

6 amount (increased to reflect the difference between 

7 cost and charges) or 75 percent of one standard de8 viation for the diagnosis-related group involved)’’ 

9 after ‘‘is inadequate’’. 

10 (3) CRITERION FOR SUBSTANTIAL IMPROVE11 MENT.—Section 1886(d)(5)(K)(vi) (42 U.S.C. 

12 1395ww(d)(5)(K)(vi)), as amended by paragraph 

13 (1), is further amended by adding at the end the fol14 lowing subclause: 

15 ‘‘(III) The Secretary shall by regulation provide for 

16 further clarification of the criteria applied to determine 

17 whether a new service or technology represents an advance 

18 in medical technology that substantially improves the diag19 nosis or treatment of beneficiaries. Under such criteria, 

20 in determining whether a new service or technology rep21 resents an advance in medical technology that substan22 tially improves the diagnosis or treatment of beneficiaries, 

23 the Secretary shall deem a service or technology as meet24 ing such requirement if the service or technology is a drug 

25 or biological that is designated under section 506 of the 
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1 Federal Food, Drug, and Cosmetic Act, approved under 

2 section 314.510 or 601.41 of title 21, Code of Federal 

3 Regulations, or designated for priority review when the 

4 marketing application for such drug or biological was filed 

5 or is a medical device for which an exemption has been 

6 granted under section 520(m) of such Act, or for which 

7 priority review has been provided under section 515(d)(5) 

8 of such Act. Nothing in this subclause shall be construed 

9 as effecting the authority of the Secretary to determine 

10 whether items and services are medically necessary and 

11 appropriate under section 1862(a)(1).’’. 

12 (4) PROCESS FOR PUBLIC INPUT.—Section 

13 1886(d)(5)(K) (42 U.S.C. 1395ww(d)(5)(K)), as 

14 amended by paragraph (1), is amended—

15 (A) in clause (i), by adding at the end the 

16 following: ‘‘Such mechanism shall be modified 

17 to meet the requirements of clause (viii).’’; and 

18 (B) by adding at the end the following new 

19 clause: 

20 ‘‘(viii) The mechanism established pursuant to clause 

21 (i) shall be adjusted to provide, before publication of a 

22 proposed rule, for public input regarding whether a new 

23 service or technology not described in the second sentence 

24 of clause (vi)(III) represents an advance in medical tech-
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1 nology that substantially improves the diagnosis or treat2 ment of beneficiaries as follows: 

3 ‘‘(I) The Secretary shall make public and peri4 odically update a list of all the services and tech5 nologies for which an application for additional pay6 ment under this subparagraph is pending. 

7 ‘‘(II) The Secretary shall accept comments, rec8 ommendations, and data from the public regarding 

9 whether the service or technology represents a sub10 stantial improvement. 

11 ‘‘(III) The Secretary shall provide for a meeting 

12 at which organizations representing hospitals, physi13 cians, medicare beneficiaries, manufacturers, and 

14 any other interested party may present comments, 

15 recommendations, and data to the clinical staff of 

16 the Centers for Medicare & Medicaid Services before 

17 publication of a notice of proposed rulemaking re18 garding whether service or technology represents a 

19 substantial improvement.’’. 

20 (c) PREFERENCE FOR USE OF DRG ADJUSTMENT.—

21 Section 1886(d)(5)(K) (42 U.S.C. 1395ww(d)(5)(K)) is 

22 further amended by adding at the end the following new 

23 clause: 

24 ‘‘(ix) Before establishing any add-on payment under 

25 this subparagraph with respect to a new technology, the 
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1 Secretary shall seek to identify one or more diagnosis-re2 lated groups associated with such technology, based on 

3 similar clinical or anatomical characteristics and the cost 

4 of the technology. Within such groups the Secretary shall 

5 assign an eligible new technology into a diagnosis-related 

6 group where the average costs of care most closely approx7 imate the costs of care of using the new technology. No 

8 add-on payment under this subparagraph shall be made 

9 with respect to such new technology and this clause shall 

10 not affect the application of paragraph (4)(C)(iii).’’. 

11 (d) IMPROVEMENT IN PAYMENT FOR NEW TECH12 NOLOGY.—Section 1886(d)(5)(K)(ii)(III) (42 U.S.C. 

13 1395ww(d)(5)(K)(ii)(III)) is amended by inserting after 

14 ‘‘the estimated average cost of such service or technology’’ 

15 the following: ‘‘(based on the marginal rate applied to 

16 costs under subparagraph (A))’’. 

17 (e) ESTABLISHMENT OF NEW FUNDING FOR HOS18 PITAL INPATIENT TECHNOLOGY.—

19 (1) IN GENERAL.—Section 

20 1886(d)(5)(K)(ii)(III) (42 U.S.C. 

21 1395ww(d)(5)(K)(ii)(III)) is amended by striking 

22 ‘‘subject to paragraph (4)(C)(iii),’’. 

23 (2) NOT BUDGET NEUTRAL.—There shall be no 

24 reduction or other adjustment in payments under 

25 section 1886 of the Social Security Act because an 
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1 additional payment is provided under subsection 

2 (d)(5)(K)(ii)(III) of such section. 

3 (f) EFFECTIVE DATE.—

4 (1) IN GENERAL.—The Secretary shall imple5 ment the amendments made by this section so that 

6 they apply to classification for fiscal years beginning 

7 with fiscal year 2005. 

8 (2) RECONSIDERATIONS OF APPLICATIONS FOR

9 FISCAL YEAR 2004 THAT ARE DENIED.—In the case 

10 of an application for a classification of a medical 

11 service or technology as a new medical service or 

12 technology under section 1886(d)(5)(K) of the Social 

13 Security Act (42 U.S.C. 1395ww(d)(5)(K)) that was 

14 filed for fiscal year 2004 and that is denied—

15 (A) the Secretary shall automatically re16 consider the application as an application for 

17 fiscal year 2005 under the amendments made 

18 by this section; and 

19 (B) the maximum time period otherwise 

20 permitted for such classification of the service 

21 or technology shall be extended by 12 months. 

22 SEC. 503. INCREASE IN FEDERAL RATE FOR HOSPITALS IN 

23 PUERTO RICO. 

24 Section 1886(d)(9) (42 U.S.C. 1395ww(d)(9)) is 

25 amended—
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1 (1) in subparagraph (A)—

2 (A) in clause (i), by striking ‘‘for dis3 charges beginning on or after October 1, 1997, 

4 50 percent (and for discharges between October 

5 1, 1987, and September 30, 1997, 75 percent)’’ 

6 and inserting ‘‘the applicable Puerto Rico per7 centage (specified in subparagraph (E))’’; and 

8 (B) in clause (ii), by striking ‘‘for dis9 charges beginning in a fiscal year beginning on 

10 or after October 1, 1997, 50 percent (and for 

11 discharges between October 1, 1987, and Sep12 tember 30, 1997, 25 percent)’’ and inserting 

13 ‘‘the applicable Federal percentage (specified in 

14 subparagraph (E))’’; and 

15 (2) by adding at the end the following new sub16 paragraph: 

17 ‘‘(E) For purposes of subparagraph (A), for dis18 charges occurring—

19 ‘‘(i) on or after October 1, 1987, and before Oc20 tober 1, 1997, the applicable Puerto Rico percentage 

21 is 75 percent and the applicable Federal percentage 

22 is 25 percent; 

23 ‘‘(ii) on or after October 1, 1997, and before 

24 October 1, 2003, the applicable Puerto Rico percent-
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1 age is 50 percent and the applicable Federal per2 centage is 50 percent; 

3 ‘‘(iii) during fiscal year 2004, the applicable 

4 Puerto Rico percentage is 41 percent and the appli5 cable Federal percentage is 59 percent; 

6 ‘‘(iv) during fiscal year 2005, the applicable 

7 Puerto Rico percentage is 33 percent and the appli8 cable Federal percentage is 67 percent; and 

9 ‘‘(v) on or after October 1, 2005, the applicable 

10 Puerto Rico percentage is 25 percent and the appli11 cable Federal percentage is 75 percent.’’. 

12 SEC. 504. WAGE INDEX ADJUSTMENT RECLASSIFICATION 

13 REFORM . 

14 (a) IN GENERAL.—Section 1886(d) (42 U.S.C. 

15 1395ww(d)) is amended by adding at the end the fol16 lowing: 

17 ‘‘(11)(A) In order to recognize commuting patterns 

18 among Metropolitan Statistical Areas and between such 

19 Areas and rural areas, the Secretary shall establish a proc20 ess, upon application of a subsection (d) hospital that es21 tablishes that it is a qualifying hospital described in sub22 paragraph (B), for an increase of the wage index applied 

23 under paragraph (3)(E) for the hospital in the amount 

24 computed under subparagraph (D). 
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1 ‘‘(B) A qualifying hospital described in this subpara2 graph is a subsection (d) hospital—

3 ‘‘(i) the average wages of which exceed the av4 erage wages for the area in which the hospital is lo5 cated; and 

6 ‘‘(ii) which has at least 10 percent of its em7 ployees who reside in one or more higher wage index 

8 areas. 

9 ‘‘(C) For purposes of this paragraph, the term ‘high10 er wage index area’ means, with respect to a hospital, an 

11 area with a wage index that exceeds that of the area in 

12 which the hospital is located. 

13 ‘‘(D) The increase in the wage index under subpara14 graph (A) for a hospital shall be equal to the percentage 

15 of the employees of the hospital that resides in any higher 

16 wage index area multiplied by the sum of the products, 

17 for each higher wage index area of—

18 ‘‘(i) the difference between (I) the wage index 

19 for such area, and (II) the wage index of the area 

20 in which the hospital is located (before the applica21 tion of this paragraph); and 

22 ‘‘(ii) the number of employees of the hospital 

23 that reside in such higher wage index area divided 

24 by the total number of such employees that reside in 

25 all high wage index areas. 
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1 ‘‘(E) The process under this paragraph shall be based 

2 upon the process used by the Medicare Geographic Classi3 fication Review Board under paragraph (10) with respect 

4 to data submitted by hospitals to the Board on the loca5 tion of residence of hospital employees and wages under 

6 the applicable schedule established for geographic reclassi7 fication. 

8 ‘‘(F) A reclassification under this paragraph shall be 

9 effective for a period of 3 fiscal years, except that the Sec10 retary shall establish procedures under which a subsection 

11 (d) hospital may elect to terminate such reclassification 

12 before the end of such period. 

13 ‘‘(G) A hospital that is reclassified under this para14 graph for a period is not eligible for reclassification under 

15 paragraphs (8) or (10) during that period. 

16 ‘‘(H) Any increase in a wage index under this para17 graph for a hospital shall not be taken into account for 

18 purposes of—

19 ‘‘(i) computing the wage index for the area in 

20 which the hospital is located or any other area; or 

21 ‘‘(ii) applying any budget neutrality adjustment 

22 with respect to such index under paragraph 

23 (8)(D).’’. 
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1 (b) EFFECTIVE DATE.—The amendment made by 

2 subsection (a) shall first apply to the wage index for dis3 charges occurring on or after October 1, 2004. 

4 SEC. 505. MEDPAC REPORT ON SPECIALTY HOSPITALS. 

5 (a) MEDPAC STUDY.—The Medicare Payment Advi6 sory Commission shall conduct a study of specialty hos7 pitals compared with other similar general acute care hos8 pitals under the medicare program. Such study shall ex9 amine—

10 (1) whether there are excessive self-referrals; 

11 (2) quality of care furnished; 

12 (3) the impact of specialty hospitals on such 

13 general acute care hospitals; and 

14 (4) differences in the scope of services, medicaid 

15 utilization, and uncompensated care furnished. 

16 (b) REPORT.—Not later than 1 year after the date 

17 of the enactment of this Act, the Secretary shall submit 

18 to Congress a report on the study conducted under sub19 section (a), and shall include any recommendations for 

20 legislation or administrative change as the Secretary de21 termines appropriate. 
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1 Subtitle B—Other Provisions 

2 SEC. 511. PAYMENT FOR COVERED SKILLED NURSING FA3 CILITY SERVICES. 

4 (a) ADJUSTMENT TO RUGS FOR AIDS RESI5 DENTS.—Paragraph (12) of section 1888(e) (42 U.S.C. 

6 1395yy(e)) is amended to read as follows: 

7 ‘‘(12) ADJUSTMENT FOR RESIDENTS WITH

8 AIDS.—

9 ‘‘(A) IN GENERAL.—Subject to subpara10 graph (B), in the case of a resident of a skilled 

11 nursing facility who is afflicted with acquired 

12 immune deficiency syndrome (AIDS), the per 

13 diem amount of payment otherwise applicable 

14 shall be increased by 128 percent to reflect in15 creased costs associated with such residents. 

16 ‘‘(B) SUNSET.—Subparagraph (A) shall 

17 not apply on and after such date as the Sec18 retary certifies that there is an appropriate ad19 justment in the case mix under paragraph 

20 (4)(G)(i) to compensate for the increased costs 

21 associated with residents described in such sub22 paragraph.’’. 

23 (b) EFFECTIVE DATE.—The amendment made by 

24 paragraph (1) shall apply to services furnished on or after 

25 October 1, 2003. 
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1 SEC. 512. COVERAGE OF HOSPICE CONSULTATION SERV2 ICES. 

3 (a) COVERAGE OF HOSPICE CONSULTATION SERV4 ICES.—Section 1812(a) (42 U.S.C. 1395d(a)) is amend5 ed—

6 (1) by striking ‘‘and’’ at the end of paragraph 

7 (3); 

8 (2) by striking the period at the end of para9 graph (4) and inserting ‘‘; and’’; and 

10 (3) by inserting after paragraph (4) the fol11 lowing new paragraph: 

12 ‘‘(5) for individuals who are terminally ill, have 

13 not made an election under subsection (d)(1), and 

14 have not previously received services under this 

15 paragraph, services that are furnished by a physi16 cian who is either the medical director or an em17 ployee of a hospice program and that consist of—

18 ‘‘(A) an evaluation of the individual’s need 

19 for pain and symptom management; 

20 ‘‘(B) counseling the individual with respect 

21 to end-of-life issues and care options; and 

22 ‘‘(C) advising the individual regarding ad23 vanced care planning.’’. 

24 (b) PAYMENT.—Section 1814(i) (42 U.S.C. l395f(i)) 

25 is amended by adding at the end the following new para26 graph: 
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1 ‘‘(4) The amount paid to a hospice program with re2 spect to the services under section 1812(a)(5) for which 

3 payment may be made under this part shall be equal to 

4 an amount equivalent to the amount established for an 

5 office or other outpatient visit for evaluation and manage6 ment associated with presenting problems of moderate se7 verity under the fee schedule established under section 

8 1848(b), other than the portion of such amount attrib9 utable to the practice expense component.’’. 

10 (c) CONFORMING AMENDMENT.—Section 

11 1861(dd)(2)(A)(i) (42 U.S.C. 1395x(dd)(2)(A)(i)) is 

12 amended by inserting before the comma at the end the 

13 following: ‘‘and services described in section 1812(a)(5)’’. 

14 (d) EFFECTIVE DATE.—The amendments made by 

15 this section shall apply to services provided by a hospice 

16 program on or after January 1, 2004.

17 SEC. 513. CORRECTION OF TRUST FUND HOLDINGS. 

18 (a) IN GENERAL.—Within 120 days after the effec19 tive date of this section, the Secretary of the Treasury 

20 shall take the actions described in subsection (b) with re21 spect to the Federal Hospital Insurance Trust Fund (in 

22 this section referred to as the ‘‘Trust Fund’’) with the goal 

23 being that, after the actions are taken, the holdings of the 

24 Trust Fund will replicate, to the extent practicable in the 

25 judgment of the Secretary of the Treasury, in consultation 
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1 with the Secretary, the obligations that would have been 

2 held by the trust fund if the clerical error had not oc3 curred. 

4 (b) OBLIGATIONS ISSUED AND REDEEMED.—The 

5 Secretary of the Treasury shall—

6 (1) issue to the Trust Fund obligations under 

7 chapter 31 of title 31, United States Code, that bear 

8 issue dates, interest rates, and maturity dates as the 

9 obligations that—

10 (A) would have been issued to the Trust 

11 Fund if the clerical error had not occurred; or 

12 (B) were issued to the Trust Fund and 

13 were redeemed by reason of the clerical error; 

14 and 

15 (2) redeem from the Trust Fund obligations 

16 that would have been redeemed from the Trust 

17 Fund if the clerical error had not occurred. 

18 (c) APPROPRIATION TO TRUST FUND.—Within 120 

19 days after the effective date of this section, there is hereby 

20 appropriated to the Trust Fund, out of any money in the 

21 Treasury not otherwise appropriated, an amount deter22 mined by the Secretary of the Treasury, in consultation 

23 with the Secretary of Health and Human Services, to be 

24 equal to the interest income lost by the trust fund through 

25 the date of credit by reason of the clerical error. 
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1 (d) CLERICAL ERROR DEFINED.—For purposes of 

2 this section, the term ‘‘clerical error’’ means the failure 

3 to have transferred the correct amount from the general 

4 fund to the Trust Fund, which failure occurred on April 

5 15, 2001.

6 TITLE VI—PROVISIONS 

7 RELATING TO PART B 

8 Subtitle A—Physicians’ Services

9 SEC. 601. REVISION OF UPDATES FOR PHYSICIANS’ SERV10 ICES. 

11 (a) UPDATE FOR 2004 AND 2005.—

12 (1) IN GENERAL.—Section 1848(d) (42 U.S.C. 

13 1395w–4(d)) is amended by adding at the end the 

14 following new paragraph: 

15 ‘‘(5) UPDATE FOR 2004 AND 2005.—The update 

16 to the single conversion factor established in para17 graph (1)(C) for each of 2004 and 2005 shall be not 

18 less than 1.5 percent.’’. 

19 (2) CONFORMING AMENDMENT.—Paragraph 

20 (4)(B) of such section is amended, in the matter be21 fore clause (i), by inserting ‘‘and paragraph (5)’’ 

22 after ‘‘subparagraph (D)’’. 

23 (3) NOT TREATED AS CHANGE IN LAW AND

24 REGULATION IN SUSTAINABLE GROWTH RATE DE25 TERMINATION.—The amendments made by this sub-
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1 section shall not be treated as a change in law for 

2 purposes of applying section 1848(f)(2)(D) of the 

3 Social Security Act (42 U.S.C. 1395w–4(f)(2)(D)). 

4 (b) USE OF 10-YEAR ROLLING AVERAGE IN COM5 PUTING GROSS DOMESTIC PRODUCT.—

6 (1) IN GENERAL.—Section 1848(f)(2)(C) (42 

7 U.S.C. 1395w–4(f)(2)(C)) is amended—

8 (A) by striking ‘‘projected’’ and inserting 

9 ‘‘annual average’’; and 

10 (B) by striking ‘‘from the previous applica11 ble period to the applicable period involved’’ 

12 and inserting ‘‘during the 10-year period ending 

13 with the applicable period involved’’.

14 (2) EFFECTIVE DATE.—The amendment made 

15 by paragraph (1) shall apply to computations of the 

16 sustainable growth rate for years beginning with 

17 2003. 

18 SEC. 602. STUDIES ON ACCESS TO PHYSICIANS’ SERVICES. 

19 (a) GAO STUDY ON BENEFICIARY ACCESS TO PHYSI20 CIANS’ SERVICES.—

21 (1) STUDY.—The Comptroller General of the 

22 United States shall conduct a study on access of 

23 medicare beneficiaries to physicians’ services under 

24 the medicare program. The study shall include—
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1 (A) an assessment of the use by bene2 ficiaries of such services through an analysis of 

3 claims submitted by physicians for such services 

4 under part B of the medicare program; 

5 (B) an examination of changes in the use 

6 by beneficiaries of physicians’ services over 

7 time; 

8 (C) an examination of the extent to which 

9 physicians are not accepting new medicare 

10 beneficiaries as patients. 

11 (2) REPORT.—Not later than 18 months after 

12 the date of the enactment of this Act, the Comp13 troller General shall submit to Congress a report on 

14 the study conducted under paragraph (1). The re15 port shall include a determination whether—

16 (A) data from claims submitted by physi17 cians under part B of the medicare program in18 dicate potential access problems for medicare 

19 beneficiaries in certain geographic areas; and 

20 (B) access by medicare beneficiaries to 

21 physicians’ services may have improved, re22 mained constant, or deteriorated over time.

23 (b) STUDY AND REPORT ON SUPPLY OF PHYSI24 CIANS.—
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1 (1) STUDY.—The Secretary shall request the 

2 Institute of Medicine of the National Academy of 

3 Sciences to conduct a study on the adequacy of the 

4 supply of physicians (including specialists) in the 

5 United States and the factors that affect such sup6 ply. 

7 (2) REPORT TO CONGRESS.—Not later than 2 

8 years after the date of enactment of this section, the 

9 Secretary shall submit to Congress a report on the 

10 results of the study described in paragraph (1), in11 cluding any recommendations for legislation. 

12 (c) GAO STUDY OF MEDICARE PAYMENT FOR INHA13 LATION THERAPY.—

14 (1) STUDY.—The Comptroller General of the 

15 United States shall conduct a study to examine the 

16 adequacy of current reimbursements for inhalation 

17 therapy under the medicare program. 

18 (2) REPORT.—Not later than May 1, 2004, the 

19 Comptroller General shall submit to Congress a re20 port on the study conducted under paragraph (1). 

21 SEC. 603. MEDPAC REPORT ON PAYMENT FOR PHYSICIANS’

22 SERVICES. 

23 (a) PRACTICE EXPENSE COMPONENT.—Not later 

24 than 1 year after the date of the enactment of this Act, 

25 the Medicare Payment Advisory Commission shall submit 
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1 to Congress a report on the effect of refinements to the 

2 practice expense component of payments for physicians’ 

3 services, after the transition to a full resource-based pay4 ment system in 2002, under section 1848 of the Social 

5 Security Act (42 U.S.C. 1395w–4). Such report shall ex6 amine the following matters by physician specialty: 

7 (1) The effect of such refinements on payment 

8 for physicians’ services. 

9 (2) The interaction of the practice expense com10 ponent with other components of and adjustments to 

11 payment for physicians’ services under such section. 

12 (3) The appropriateness of the amount of com13 pensation by reason of such refinements. 

14 (4) The effect of such refinements on access to 

15 care by medicare beneficiaries to physicians’ serv16 ices. 

17 (5) The effect of such refinements on physician 

18 participation under the medicare program. 

19 (b) VOLUME OF PHYSICIAN SERVICES.—The Medi20 care Payment Advisory Commission shall submit to Con21 gress a report on the extent to which increases in the vol22 ume of physicians’ services under part B of the medicare 

23 program are a result of care that improves the health and 

24 well-being of medicare beneficiaries. The study shall in25 clude the following: 
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1 (1) An analysis of recent and historic growth in 

2 the components that the Secretary includes under 

3 the sustainable growth rate (under section 1848(f) 

4 of the Social Security Act). 

5 (2) An examination of the relative growth of 

6 volume in physician services between medicare bene7 ficiaries and other populations. 

8 (3) An analysis of the degree to which new 

9 technology, including coverage determinations of the 

10 Centers for Medicare & Medicaid Services, has af11 fected the volume of physicians’ services. 

12 (4) An examination of the impact on volume of 

13 demographic changes. 

14 (5) An examination of shifts in the site of serv15 ice of services that influence the number and inten16 sity of services furnished in physicians’ offices and 

17 the extent to which changes in reimbursement rates 

18 to other providers have affected these changes. 

19 (6) An evaluation of the extent to which the 

20 Centers for Medicare & Medicaid Services takes into 

21 account the impact of law and regulations on the 

22 sustainable growth rate. 
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1 SEC. 604. INCLUSION OF PODIATRISTS AND DENTISTS 

2 UNDER PRIVATE CONTRACTING AUTHORITY. 

3 Section 1802(b)(5)(B) (42 U.S.C. 1395a(b)(5)(B)) is 

4 amended by striking ‘‘section 1861(r)(1)’’ and inserting 

5 ‘‘paragraphs (1), (2), and (3) of section 1861(r)’’. 

6 SEC. 605. ESTABLISHMENT OF FLOOR ON WORK GEO7 GRAPHIC ADJUSTMENT. 

8 (a) MINIMUM INDEX.—Section 1848(e)(1) (42 

9 U.S.C. 1395w–4(e)(1)) is amended by adding at the end 

10 the following new subparagraph: 

11 ‘‘(E) FLOOR AT 1.0 ON WORK GEOGRAPHIC

12 INDEX.—

13 ‘‘(i) IN GENERAL.—Subject to clause 

14 (ii), after calculating the work geographic 

15 index in subparagraph (A)(iii), for pur16 poses of payment for services furnished on 

17 or after January 1, 2004, and before Jan18 uary 1, 2006, the Secretary shall increase 

19 the work geographic index to 1.00 for any 

20 locality for which such work geographic 

21 index is less than 1.00. 

22 ‘‘(ii) SECRETARIAL DISCRETION.—

23 Clause (i) shall have no force or effect in 

24 law if the Secretary determines, taking 

25 into account the report of the Comptroller 

26 General under section 605(b)(2) of the 
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1 Medicare Prescription Drug and Mod2 ernization Act of 2003, that there is no 

3 sound economic rationale for the imple4 mentation of that clause.’’. 

5 (b) GAO REPORT.—

6 (1) EVALUATION.—As part of the study on geo7 graphic differences in payments for physicians’ serv8 ices conducted under section 413, the Comptroller 

9 General of the United States shall evaluate the fol10 lowing: 

11 (A) Whether there is a sound economic 

12 basis for the implementation of the adjustment 

13 of the work geographic index under section 

14 1848(e)(1) of the Social Security Act under 

15 subsection (a) in those areas in which the ad16 justment applies. 

17 (B) The effect of such adjustment on phy18 sician location and retention in areas affected 

19 by such adjustment, taking into account—

20 (i) differences in recruitment costs 

21 and retention rates for physicians, includ22 ing specialists, between large urban areas 

23 and other areas; and 

24 (ii) the mobility of physicians, includ25 ing specialists, over the last decade. 
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1 (C) The appropriateness of establishing a 

2 floor of 1.0 for the work geographic index. 

3 (2) REPORT.—By not later than September 1, 

4 2004, the Comptroller General shall submit to Con5 gress and to the Secretary a report on the evaluation 

6 conducted under paragraph (1). 

7 Subtitle B—Preventive Services 

8 SEC. 611. COVERAGE OF AN INITIAL PREVENTIVE PHYS9 ICAL EXAMINATION. 

10 (a) COVERAGE.—Section 1861(s)(2) (42 U.S.C. 

11 1395x(s)(2)) is amended—

12 (1) in subparagraph (U), by striking ‘‘and’’ at 

13 the end; 

14 (2) in subparagraph (V), by inserting ‘‘and’’ at 

15 the end; and 

16 (3) by adding at the end the following new sub17 paragraph: 

18 ‘‘(W) an initial preventive physical examination 

19 (as defined in subsection (ww));’’. 

20 (b) SERVICES DESCRIBED.—Section 1861 (42 U.S.C. 

21 1395x) is amended by adding at the end the following new 

22 subsection: 

23 ‘‘Initial Preventive Physical Examination 

24 ‘‘(ww) The term ‘initial preventive physical examina25 tion’ means physicians’ services consisting of a physical 
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1 examination with the goal of health promotion and disease 

2 detection and includes items and services (excluding clin3 ical laboratory tests), as determined by the Secretary, con4 sistent with the recommendations of the United States 

5 Preventive Services Task Force.’’. 

6 (c) WAIVER OF DEDUCTIBLE AND COINSURANCE.—

7 (1) DEDUCTIBLE.—The first sentence of sec8 tion 1833(b) (42 U.S.C. 1395l(b)) is amended—

9 (A) by striking ‘‘and’’ before ‘‘(6)’’, and 

10 (B) by inserting before the period at the 

11 end the following: ‘‘, and (7) such deductible 

12 shall not apply with respect to an initial preven13 tive physical examination (as defined in section 

14 1861(ww))’’. 

15 (2) COINSURANCE.—Section 1833(a)(1) (42 

16 U.S.C. 1395l(a)(1)) is amended—

17 (A) in clause (N), by inserting ‘‘(or 100 

18 percent in the case of an initial preventive phys19 ical examination, as defined in section 

20 1861(ww))’’ after ‘‘80 percent’’; and 

21 (B) in clause (O), by inserting ‘‘(or 100 

22 percent in the case of an initial preventive phys23 ical examination, as defined in section 

24 1861(ww))’’ after ‘‘80 percent’’. 
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1 (d) PAYMENT AS PHYSICIANS’ SERVICES.—Section 

2 1848(j)(3) (42 U.S.C. 1395w–4(j)(3)) is amended by in3 serting ‘‘(2)(W),’’ after ‘‘(2)(S),’’. 

4 (e) OTHER CONFORMING AMENDMENTS.—Section 

5 1862(a) (42 U.S.C. 1395y(a)) is amended—

6 (1) in paragraph (1)—

7 (A) by striking ‘‘and’’ at the end of sub8 paragraph (H); 

9 (B) by striking the semicolon at the end of 

10 subparagraph (I) and inserting ‘‘, and’’; and 

11 (C) by adding at the end the following new 

12 subparagraph: 

13 ‘‘(J) in the case of an initial preventive physical 

14 examination, which is performed not later than 6 

15 months after the date the individual’s first coverage 

16 period begins under part B;’’; and 

17 (2) in paragraph (7), by striking ‘‘or (H)’’ and 

18 inserting ‘‘(H), or (J)’’. 

19 (f) EFFECTIVE DATE.—The amendments made by 

20 this section shall apply to services furnished on or after 

21 January 1, 2004, but only for individuals whose coverage 

22 period begins on or after such date. 
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1 SEC. 612. COVERAGE OF CHOLESTEROL AND BLOOD LIPID 

2 SCREENING. 

3 (a) COVERAGE.—Section 1861(s)(2) (42 U.S.C. 

4 1395x(s)(2)), as amended by section 611(a), is amended—

5 (1) in subparagraph (V), by striking ‘‘and’’ at 

6 the end; 

7 (2) in subparagraph (W), by inserting ‘‘and’’ at 

8 the end; and 

9 (3) by adding at the end the following new sub10 paragraph: 

11 ‘‘(X) cholesterol and other blood lipid 

12 screening tests (as defined in subsection 

13 (XX));’’. 

14 (b) SERVICES DESCRIBED.—Section 1861 (42 U.S.C. 

15 1395x), as amended by section 611(b), is amended by add16 ing at the end the following new subsection: 

17 ‘‘Cholesterol and Other Blood Lipid Screening Test 

18 ‘‘(xx)(1) The term ‘cholesterol and other blood lipid 

19 screening test’ means diagnostic testing of cholesterol and 

20 other lipid levels of the blood for the purpose of early de21 tection of abnormal cholesterol and other lipid levels. 

22 ‘‘(2) The Secretary shall establish standards, in con23 sultation with appropriate organizations, regarding the 

24 frequency and type of cholesterol and other blood lipid 

25 screening tests, except that such frequency may not be 

26 more often than once every 2 years.’’. 
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1 (c) FREQUENCY.—Section 1862(a)(1) (42 U.S.C. 

2 1395y(a)(1)), as amended by section 611(e), is amend3 ed—

4 (1) by striking ‘‘and’’ at the end of subpara5 graph (I); 

6 (2) by striking the semicolon at the end of sub7 paragraph (J) and inserting ‘‘; and’’; and 

8 (3) by adding at the end the following new sub9 paragraph: 

10 ‘‘(K) in the case of a cholesterol and other 

11 blood lipid screening test (as defined in section 

12 1861(xx)(1)), which is performed more frequently 

13 than is covered under section 1861(xx)(2).’’. 

14 (d) EFFECTIVE DATE.—The amendments made by 

15 this section shall apply to tests furnished on or after Janu16 ary 1, 2005. 

17 SEC. 613. WAIVER OF DEDUCTIBLE FOR COLORECTAL CAN18 CER SCREENING TESTS. 

19 (a) IN GENERAL.—The first sentence of section 

20 1833(b) (42 U.S.C. 1395l(b)), as amended by section 

21 611(c)(1), is amended—

22 (1) by striking ‘‘and’’ before ‘‘(7)’’; and 

23 (2) by inserting before the period at the end the 

24 following: ‘‘, and (8) such deductible shall not apply 
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1 with respect to colorectal cancer screening tests (as 

2 described in section 1861(pp)(1))’’. 

3 (b) CONFORMING AMENDMENTS.—Paragraphs 

4 (2)(C)(ii) and (3)(C)(ii) of section 1834(d) (42 U.S.C. 

5 1395m(d)) are each amended—

6 (1) by striking ‘‘DEDUCTIBLE AND’’ in the 

7 heading; and 

8 (2) in subclause (I), by striking ‘‘deductible or’’ 

9 each place it appears. 

10 (c) EFFECTIVE DATE.—The amendment made by 

11 this section shall apply to items and services furnished on 

12 or after Janaury 1, 2004.

13 SEC. 614. IMPROVED PAYMENT FOR CERTAIN MAMMOG14 RAPHY SERVICES. 

15 (a) EXCLUSION FROM OPD FEE SCHEDULE.—Sec16 tion 1833(t)(1)(B)(iv) (42 U.S.C. 1395l(t)(1)(B)(iv)) is 

17 amended by inserting before the period at the end the fol18 lowing: ‘‘and does not include screening mammography (as 

19 defined in section 1861(jj)) and unilateral and bilateral 

20 diagnostic mammography’’. 

21 (b) EFFECTIVE DATE.—The amendment made by 

22 subsection (a) shall apply to mammography performed on 

23 or after January 1, 2004.
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1 Subtitle C—Other Services 

2 SEC. 621. HOSPITAL OUTPATIENT DEPARTMENT (HOPD) 

3 PAYMENT REFORM. 

4 (a) PAYMENT FOR DRUGS.—

5 (1) MODIFICATION OF AMBULATORY PAYMENT

6 CLASSIFICATION (APC) GROUPS.—Section 1833(t) 

7 (42 U.S.C. 1395l(t)) is amended—

8 (A) by redesignating paragraph (13) as 

9 paragraph (14); and 

10 (B) by inserting after paragraph (12) the 

11 following new paragraph: 

12 ‘‘(13) DRUG APC PAYMENT RATES.—

13 ‘‘(A) IN GENERAL.—With respect to pay14 ment for covered OPD services that includes a 

15 specified covered outpatient drug (defined in 

16 subparagraph (B)), the amount provided for 

17 payment for such drug under the payment sys18 tem under this subsection for services furnished 

19 in—

20 ‘‘(i) 2004, 2005, or 2006, shall in no 

21 case—

22 ‘‘(I) exceed 95 percent of the av23 erage wholesale price for the drug; or 

24 ‘‘(II) be less than the transition 

25 percentage (under subparagraph (C)) 
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1 of the average wholesale price for the 

2 drug; or 

3 ‘‘(ii) a subsequent year, shall be equal 

4 to the average price for the drug for that 

5 area and year established under the com6 petitive acquisition program under section 

7 1847A as calculated and applied by the 

8 Secretary for purposes of this paragraph. 

9 ‘‘(B) SPECIFIED COVERED OUTPATIENT

10 DRUG DEFINED.—

11 ‘‘(i) IN GENERAL.—In this paragraph, 

12 the term ‘specified covered outpatient 

13 drug’ means, subject to clause (ii), a cov14 ered outpatient drug (as defined in 

15 1927(k)(2), that is—

16 ‘‘(I) a radiopharmaceutical; or 

17 ‘‘(II) a drug or biological for 

18 which payment was made under para19 graph (6) (relating to pass-through 

20 payments) on or before December 31, 

21 2002. 

22 ‘‘(ii) EXCEPTION.—Such term does 

23 not include—
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1 ‘‘(I) a drug for which payment is 

2 first made on or after January 1, 

3 2003, under paragraph (6); or 

4 ‘‘(II) a drug for a which a tem5 porary HCPCS code has not been as6 signed. 

7 ‘‘(C) TRANSITION TOWARDS HISTORICAL

8 AVERAGE ACQUISITION COST.—The transition 

9 percentage under this subparagraph for drugs 

10 furnished in a year is determined in accordance 

11 with the following table:

For the year—

The transition percentage for—

Single source 

drugs are—

Innovator multiple source 

drugs are—

Generic drugs 

are—

2004 ............................. 83% 81.5% 46%

2005 ............................. 77% 75% 46%

2006 ............................. 71% 68% 46%

12 ‘‘(D) PAYMENT FOR NEW DRUGS UNTIL

13 TEMPORARY HCPCS CODE ASSIGNED.—With 

14 respect to payment for covered OPD services 

15 that includes a covered outpatient drug (as de16 fined in 1927(k)) for a which a temporary 

17 HCPCS code has not been assigned, the 

18 amount provided for payment for such drug 

19 under the payment system under this sub20 section shall be equal to 95 percent of the aver21 age wholesale price for the drug. 
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1 ‘‘(E) CLASSES OF DRUGS.—For purposes 

2 of this paragraph, each of the following shall be 

3 treated as a separate class of drugs: 

4 ‘‘(i) SOLE SOURCE DRUGS.—A sole 

5 source drug which for purposes of this 

6 paragraph means a drug or biological that 

7 is not a multiple source drug (as defined in 

8 subclauses (I) and (II) of section 

9 1927(k)(7)(A)(i)) and is not a drug ap10 proved under an abbreviated new drug ap11 plication under section 355(j) of the Fed12 eral Food, Drug, and Cosmetic Act. 

13 ‘‘(ii) INNOVATOR MULTIPLE SOURCE

14 DRUGS.—Innovator multiple source drugs 

15 (as defined in section 1927(k)(7)(A)(ii)). 

16 ‘‘(iii) NONINNOVATOR MULTIPLE

17 SOURCE DRUGS.—Noninnovator multiple 

18 source drugs (as defined in section 

19 1927(k)(7)(A)(iii)). 

20 ‘‘(F) INAPPLICABILITY OF EXPENDITURES

21 IN DETERMINING CONVERSION FACTORS.—Ad22 ditional expenditures resulting from this para23 graph and paragraph (14)(C) in a year shall 

24 not be taken into account in establishing the 

25 conversion factor for that year.’’. 
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1 (2) REDUCTION IN THRESHOLD FOR SEPARATE

2 APCS FOR DRUGS.—Section 1833(t)(14), as redesig3 nated by paragraph (1)(A), is amended by adding at 

4 the end the following new subparagraph: 

5 ‘‘(B) THRESHOLD FOR ESTABLISHMENT

6 OF SEPARATE APCS FOR DRUGS.—The Sec7 retary shall reduce the threshold for the estab8 lishment of separate ambulatory payment clas9 sification groups (APCs) with respect to drugs 

10 to $50 per administration.’’. 

11 (3) EXCLUSION OF SEPARATE DRUG APCS FROM

12 OUTLIER PAYMENTS.—Section 1833(t)(5) is amend13 ed by adding at the end the following new subpara14 graph: 

15 ‘‘(E) EXCLUSION OF SEPARATE DRUG

16 APCS FROM OUTLIER PAYMENTS.—No addi17 tional payment shall be made under subpara18 graph (A) in the case of ambulatory procedure 

19 codes established separately for drugs.’’. 

20 (4) PAYMENT FOR PASS THROUGH DRUGS.—

21 Clause (i) of section 1833(t)(6)(D) (42 U.S.C. 

22 1395l(t)(6)(D)) is amended by inserting after 

23 ‘‘under section 1842(o)’’ the following: ‘‘(or if the 

24 drug is covered under a competitive acquisition con25 tract under section 1847A for an area, an amount 
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1 determined by the Secretary equal to the average 

2 price for the drug for that area and year established 

3 under such section as calculated and applied by the 

4 Secretary for purposes of this paragraph)’’. 

5 (5) EFFECTIVE DATE.—The amendments made 

6 by this subsection shall apply to services furnished 

7 on or after January 1, 2004. 

8 (b) SPECIAL PAYMENT FOR BRACHYTHERAPY.—

9 (1) IN GENERAL.—Section 1833(t)(14), as so 

10 redesignated and amended by subsection (a)(2), is 

11 amended by adding at the end the following new 

12 subparagraph: 

13 ‘‘(C) PAYMENT FOR DEVICES OF

14 BRACHYTHERAPY AT CHARGES ADJUSTED TO

15 COST.—Notwithstanding the preceding provi16 sions of this subsection, for a device of 

17 brachytherapy furnished on or after January 1, 

18 2004, and before January 1, 2007, the payment 

19 basis for the device under this subsection shall 

20 be equal to the hospital’s charges for each de21 vice furnished, adjusted to cost.’’. 

22 (2) SPECIFICATION OF GROUPS FOR

23 BRACHYTHERAPY DEVICES.—Section 1833(t)(2) (42 

24 U.S.C. 1395l(t)(2) is amended—
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1 (A) in subparagraph (F), by striking 

2 ‘‘and’’ at the end; 

3 (B) in subparagraph (G), by striking the 

4 period at the end and inserting ‘‘; and’’; and 

5 (C) by adding at the end the following new 

6 subparagraph: 

7 ‘‘(H) with respect to devices of 

8 brachytherapy, the Secretary shall create addi9 tional groups of covered OPD services that clas10 sify such devices separately from the other serv11 ices (or group of services) paid for under this 

12 subsection in a manner reflecting the number, 

13 isotope, and radioactive intensity of such de14 vices furnished, including separate groups for 

15 palladium-103 and iodine-125 devices.’’. 

16 (3) GAO REPORT.—The Comptroller General of 

17 the United States shall conduct a study to determine 

18 appropriate payment amounts under section 

19 1833(t)(13)(B) of the Social Security Act, as added 

20 by paragraph (1), for devices of brachytherapy. Not 

21 later than January 1, 2005, the Comptroller General 

22 shall submit to Congress and the Secretary a report 

23 on the study conducted under this paragraph, and 

24 shall include specific recommendations for appro25 priate payments for such devices.
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1 (c) APPLICATION OF FUNCTIONAL EQUIVALENCE

2 TEST.—

3 (1) IN GENERAL.—Section 1833(t)(6) (42 

4 U.S.C. 1395l(t)(6)) is amended by adding at the end 

5 the following new subparagraph: 

6 ‘‘(F) LIMITATION ON APPLICATION OF

7 FUNCTIONAL EQUIVALENCE STANDARD.—The 

8 Secretary may not apply a ‘functional equiva9 lence’ payment standard (including such stand10 ard promulgated on November 1, 2002) or any 

11 other similar standard in order to deem a par12 ticular product to be functionally equivalent (or 

13 a similar standard) unless the Commissioner of 

14 Food and Drugs establishes a functional 

15 equivalence standard and certifies, under such 

16 standards, that the two products are function17 ally equivalent. If the Commissioner makes such 

18 a certification with respect to two or more prod19 ucts, the Secretary may, after complying with 

20 applicable rulemaking requirements, implement 

21 such standard with respect to such products 

22 under this subsection.’’. 

23 (2) EFFECTIVE DATE.—The amendment made 

24 by paragraph (1) shall apply to the application of a 

25 functional equivalence standard to a drug or biologi-
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1 cal on or after the date of the enactment of this Act, 

2 unless such application was being made to such drug 

3 or biological prior to June 13, 2003. 

4 (d) HOSPITAL ACQUISITION COST STUDY.—

5 (1) IN GENERAL.—The Secretary shall conduct 

6 a study on the costs incurred by hospitals in acquir7 ing covered outpatient drugs for which payment is 

8 made under section 1833(t) of the Social Security 

9 Act (42 U.S.C. 1395l(t)). 

10 (2) DRUGS COVERED.—The study in paragraph 

11 (1) shall not include those drugs for which the ac12 quisition costs is less than $50 per administration. 

13 (3) REPRESENTATIVE SAMPLE OF HOS14 PITALS.—In conducting the study under paragraph 

15 (1), the Secretary shall collect data from a statis16 tically valid sample of hospitals with an urban/rural 

17 stratification. 

18 (4) REPORT.—Not later than January 1, 2006, 

19 the Secretary shall submit to Congress a report on 

20 the study conducted under paragraph (1), and shall 

21 include recommendations with respect to the fol22 lowing: 

23 (A) Whether the study should be repeated, 

24 and if so, how frequently. 
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1 (B) Whether the study produced useful 

2 data on hospital acquisition cost. 

3 (C) Whether data produced in the study is 

4 appropriate for use in making adjustments to 

5 payments for drugs and biologicals under sec6 tion 1847A of the Social Security Act. 

7 (D) Whether separate estimates can be 

8 made of overhead costs, including handing and 

9 administering costs for drugs.

10 SEC. 622. PAYMENT FOR AMBULANCE SERVICES. 

11 (a) PHASE-IN PROVIDING FLOOR USING BLEND OF

12 FEE SCHEDULE AND REGIONAL FEE SCHEDULES.—Sec13 tion 1834(l) (42 U.S.C. 1395m(l)), as amended by section 

14 410(a), is amended—

15 (1) in paragraph (2)(E), by inserting ‘‘con16 sistent with paragraph (11)’’ after ‘‘in an efficient 

17 and fair manner’’; and 

18 (2) by adding at the end the following new 

19 paragraph: 

20 ‘‘(11) PHASE-IN PROVIDING FLOOR USING

21 BLEND OF FEE SCHEDULE AND REGIONAL FEE

22 SCHEDULES.—In carrying out the phase-in under 

23 paragraph (2)(E) for each level of service furnished 

24 in a year, the portion of the payment amount that 

25 is based on the fee schedule shall be the greater of 
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1 the amount determined under such fee schedule 

2 (without regard to this paragraph) or the following 

3 blended rate of the fee schedule under paragraph (1) 

4 and of a regional fee schedule for the region in5 volved: 

6 ‘‘(A) For 2004, the blended rate shall be 

7 based 20 percent on the fee schedule under 

8 paragraph (1) and 80 percent on the regional 

9 fee schedule. 

10 ‘‘(B) For 2005, the blended rate shall be 

11 based 40 percent on the fee schedule under 

12 paragraph (1) and 60 percent on the regional 

13 fee schedule. 

14 ‘‘(C) For 2006, the blended rate shall be 

15 based 60 percent on the fee schedule under 

16 paragraph (1) and 40 percent on the regional 

17 fee schedule. 

18 ‘‘(D) For 2007, 2008, and 2009, the 

19 blended rate shall be based 80 percent on the 

20 fee schedule under paragraph (1) and 20 per21 cent on the regional fee schedule. 

22 ‘‘(E) For 2010 and each succeeding year, 

23 the blended rate shall be based 100 percent on 

24 the fee schedule under paragraph (1). 
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1 For purposes of this paragraph, the Secretary shall 

2 establish a regional fee schedule for each of the 9 

3 Census divisions using the methodology (used in es4 tablishing the fee schedule under paragraph (1)) to 

5 calculate a regional conversion factor and a regional 

6 mileage payment rate and using the same payment 

7 adjustments and the same relative value units as 

8 used in the fee schedule under such paragraph.’’. 

9 (b) ADJUSTMENT IN PAYMENT FOR CERTAIN LONG

10 TRIPS.—Section 1834(l), as amended by subsection (a), 

11 is further amended by adding at the end the following new 

12 paragraph: 

13 ‘‘(12) ADJUSTMENT IN PAYMENT FOR CERTAIN

14 LONG TRIPS.—In the case of ground ambulance 

15 services furnished on or after January 1, 2004, and 

16 before January 1, 2009, regardless of where the 

17 transportation originates, the fee schedule estab18 lished under this subsection shall provide that, with 

19 respect to the payment rate for mileage for a trip 

20 above 50 miles the per mile rate otherwise established shall be increased by 1 21 ⁄4 of the payment per 

22 mile otherwise applicable to such miles.’’. 

23 (c) GAO REPORT ON COSTS AND ACCESS.—Not later 

24 than December 31, 2005, the Comptroller General of the 

25 United States shall submit to Congress an initial report 
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1 on how costs differ among the types of ambulance pro2 viders and on access, supply, and quality of ambulance 

3 services in those regions and States that have a reduction 

4 in payment under the medicare ambulance fee schedule 

5 (under section 1834(l) of the Social Security Act, as 

6 amended by this section). Not later than December 31, 

7 2007, the Comptroller General shall submit to Congress 

8 a final report on such access and supply. 

9 (d) EFFECTIVE DATE.—The amendments made by 

10 this section shall apply to ambulance services furnished 

11 on or after January 1, 2004.

12 SEC. 623. RENAL DIALYSIS SERVICES. 

13 (a) DEMONSTRATION OF ALTERNATIVE DELIVERY

14 MODELS.—

15 (1) USE OF ADVISORY BOARD.—In carrying out 

16 the demonstration project relating to improving care 

17 for people with end-stage renal disease through al18 ternative delivery models (as published in the Fed19 eral Register of June 4, 2003), the Secretary shall 

20 establish an advisory board comprised of representa21 tives described in paragraph (2) to provide advice 

22 and recommendations with respect to the establish23 ment and operation of such demonstration project. 
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1 (2) REPRESENTATIVES.—Representatives re2 ferred to in paragraph (1) include representatives of 

3 the following: 

4 (A) Patient organizations. 

5 (B) Clinicians. 

6 (C) The medicare payment advisory com7 mission, established under section 1805 of the 

8 Social Security Act (42 U.S.C. 1395b–6). 

9 (D) The National Kidney Foundation. 

10 (E) The National Institute of Diabetes and 

11 Digestive and Kidney Diseases of National In12 stitutes of Health. 

13 (F) End-stage renal disease networks. 

14 (G) Medicare contractors to monitor qual15 ity of care. 

16 (I) providers of services and renal dialysis 

17 facilities furnishing end-stage renal disease 

18 services. 

19 (J) Economists. 

20 (K) Researchers. 

21 (b) RESTORING COMPOSITE RATE EXCEPTIONS FOR

22 PEDIATRIC FACILITIES.—

23 (1) IN GENERAL.—Section 422(a)(2) of BIPA 

24 is amended—
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1 (A) in subparagraph (A), by striking ‘‘and 

2 (C)’’ and inserting ‘‘, (C), and (D)’’; 

3 (B) in subparagraph (B), by striking ‘‘In 

4 the case’’ and inserting ‘‘Subject to subpara5 graph (D), in the case’’; and 

6 (C) by adding at the end the following new 

7 subparagraph: 

8 ‘‘(D) INAPPLICABILITY TO PEDIATRIC FA9 CILITIES.—Subparagraphs (A) and (B) shall 

10 not apply, as of October 1, 2002, to pediatric 

11 facilities that do not have an exception rate de12 scribed in subparagraph (C) in effect on such 

13 date. For purposes of this subparagraph, the 

14 term ‘pediatric facility’ means a renal facility at 

15 least 50 percent of whose patients are individ16 uals under 18 years of age.’’. 

17 (2) CONFORMING AMENDMENT.—The fourth 

18 sentence of section 1881(b)(7) (42 U.S.C. 

19 1395rr(b)(7)), as amended by subsection (b), is fur20 ther amended by striking ‘‘Until’’ and inserting 

21 ‘‘Subject to section 422(a)(2) of the Medicare, Med22 icaid, and SCHIP Benefits Improvement and Pro23 tection Act of 2000, and until’’. 

24 (c) INCREASE IN RENAL DIALYSIS COMPOSITE RATE

25 FOR SERVICES FURNISHED IN 2004.—Notwithstanding 
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1 any other provision of law, with respect to payment under 

2 part B of title XVIII of the Social Security Act for renal 

3 dialysis services furnished in 2004, the composite payment 

4 rate otherwise established under section 1881(b)(7) of 

5 such Act (42 U.S.C. 1395rr(b)(7)) shall be increased by 

6 1.6 percent. 

7 SEC. 624. ONE-YEAR MORATORIUM ON THERAPY CAPS; 

8 PROVISIONS RELATING TO REPORTS. 

9 (a) 1-YEAR MORATORIUM ON THERAPY CAPS.—Sec10 tion 1833(g)(4) (42 U.S.C. 1395l(g)(4)) is amended by 

11 striking ‘‘and 2002’’ and inserting ‘‘2002, and 2004’’. 

12 (b) PROMPT SUBMISSION OF OVERDUE REPORTS ON

13 PAYMENT AND UTILIZATION OF OUTPATIENT THERAPY

14 SERVICES.—Not later than December 31, 2003, the Sec15 retary shall submit to Congress the reports required under 

16 section 4541(d)(2) of the Balanced Budget Act of 1997 

17 (relating to alternatives to a single annual dollar cap on 

18 outpatient therapy) and under section 221(d) of the Medi19 care, Medicaid, and SCHIP Balanced Budget Refinement 

20 Act of 1999 (relating to utilization patterns for outpatient 

21 therapy).

22 (c) IDENTIFICATION OF CONDITIONS AND DISEASES

23 JUSTIFYING WAIVER OF THERAPY CAP.—

24 (1) STUDY.—The Secretary shall request the 

25 Institute of Medicine of the National Academy of 
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1 Sciences to identify conditions or diseases that 

2 should justify conducting an assessment of the need 

3 to waive the therapy caps under section 1833(g)(4) 

4 of the Social Security Act (42 U.S.C. 1395l(g)(4)). 

5 (2) REPORTS TO CONGRESS.—

6 (A) PRELIMINARY REPORT.—Not later 

7 than July 1, 2004, the Secretary shall submit 

8 to Congress a preliminary report on the condi9 tions and diseases identified under paragraph 

10 (1). 

11 (B) FINAL REPORT.—Not later than Sep12 tember 1, 2004, the Secretary shall submit to 

13 Congress a final report on such conditions and 

14 diseases. 

15 (C) RECOMMENDATIONS.—Not later than 

16 October 1, 2004, the Secretary shall submit to 

17 Congress a recommendation of criteria, with re18 spect to such conditions and disease, under 

19 which a waiver of the therapy caps would apply. 

20 (d) GAO STUDY OF PATIENT ACCESS TO PHYSICAL

21 THERAPIST SERVICES.—

22 (1) STUDY.—The Comptroller General of the 

23 United States shall conduct a study on access to 

24 physical therapist services in States authorizing such 

25 services without a physician referral and in States 
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1 that require such a physician referral. The study 

2 shall—

3 (A) examine the use of and referral pat4 terns for physical therapist services for patients 

5 age 50 and older in States that authorize such 

6 services without a physician referral and in 

7 States that require such a physician referral; 

8 (B) examine the use of and referral pat9 terns for physical therapist services for patients 

10 who are medicare beneficiaries; 

11 (C) examine the potential effect of prohib12 iting a physician from referring patients to 

13 physical therapy services owned by the physi14 cian and provided in the physician’s office; 

15 (D) examine the delivery of physical thera16 pists’ services within the facilities of Depart17 ment of Defense; and 

18 (E) analyze the potential impact on medi19 care beneficiaries and on expenditures under 

20 the medicare program of eliminating the need 

21 for a physician referral and physician certifi22 cation for physical therapist services under the 

23 medicare program. 

24 (2) REPORT.—The Comptroller General shall 

25 submit to Congress a report on the study conducted 
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1 under paragraph (1) by not later than 1 year after 

2 the date of the enactment of this Act. 

3 SEC. 625. ADJUSTMENT TO PAYMENTS FOR SERVICES FUR4 NISHED IN AMBULATORY SURGICAL CEN5 TERS. 

6 Section 1833(i)(2)(C) (42 U.S.C. 1395l(i)(2)(C)) is 

7 amended in the last sentence by inserting ‘‘and each of 

8 fiscal years 2004 through 2008’’ after ‘‘In each of the fis9 cal years 1998 through 2002’’. 

10 SEC. 626. PAYMENT FOR CERTAIN SHOES AND INSERTS 

11 UNDER THE FEE SCHEDULE FOR ORTHOTICS 

12 AND PROSTHETICS. 

13 (a) IN GENERAL.—Section 1833(o) (42 U.S.C. 

14 1395l(o)) is amended—

15 (1) in paragraph (1), by striking ‘‘no more than 

16 the limits established under paragraph (2)’’ and in17 serting ‘‘no more than the amount of payment appli18 cable under paragraph (2)’’; and 

19 (2) in paragraph (2), to read as follows: 

20 ‘‘(2)(A) Except as provided by the Secretary under 

21 subparagraphs (B) and (C), the amount of payment under 

22 this paragraph for custom molded shoes, extra depth 

23 shoes, and inserts shall be the amount determined for such 

24 items by the Secretary under section 1834(h). 
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1 ‘‘(B) The Secretary or a carrier may establish pay2 ment amounts for shoes and inserts that are lower than 

3 the amount established under section 1834(h) if the Sec4 retary finds that shoes and inserts of an appropriate qual5 ity are readily available at or below the amount established 

6 under such section. 

7 ‘‘(C) In accordance with procedures established by 

8 the Secretary, an individual entitled to benefits with re9 spect to shoes described in section 1861(s)(12) may sub10 stitute modification of such shoes instead of obtaining one 

11 (or more, as specified by the Secretary) pair of inserts 

12 (other than the original pair of inserts with respect to such 

13 shoes). In such case, the Secretary shall substitute, for 

14 the payment amount established under section 1834(h), 

15 a payment amount that the Secretary estimates will assure 

16 that there is no net increase in expenditures under this 

17 subsection as a result of this subparagraph.’’. 

18 (b) CONFORMING AMENDMENTS.—(1) Section 

19 1834(h)(4)(C) (42 U.S.C. 1395m(h)(4)(C)) is amended by 

20 inserting ‘‘(and includes shoes described in section 

21 1861(s)(12))’’ after ‘‘in section 1861(s)(9)’’. 

22 (2) Section 1842(s)(2) (42 U.S.C. 1395u(s)(2)) is 

23 amended by striking subparagraph (C). 
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1 (c) EFFECTIVE DATE.—The amendments made by 

2 this section shall apply to items furnished on or after Jan3 uary 1, 2004.

4 SEC. 627. WAIVER OF PART B LATE ENROLLMENT PENALTY 

5 FOR CERTAIN MILITARY RETIREES; SPECIAL 

6 ENROLLMENT PERIOD. 

7 (a) WAIVER OF PENALTY.—

8 (1) IN GENERAL.—Section 1839(b) (42 U.S.C. 

9 1395r(b)) is amended by adding at the end the fol10 lowing new sentence: ‘‘No increase in the premium 

11 shall be effected for a month in the case of an indi12 vidual who is 65 years of age or older, who enrolls 

13 under this part during 2001, 2002, 2003, or 2004 

14 and who demonstrates to the Secretary before De15 cember 31, 2004, that the individual is a covered 

16 beneficiary (as defined in section 1072(5) of title 10, 

17 United States Code). The Secretary of Health and 

18 Human Services shall consult with the Secretary of 

19 Defense in identifying individuals described in the 

20 previous sentence.’’. 

21 (2) EFFECTIVE DATE.—The amendment made 

22 by paragraph (1) shall apply to premiums for 

23 months beginning with January 2004. The Secretary 

24 of Health and Human Services shall establish a 

25 method for providing rebates of premium penalties 
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1 paid for months on or after January 2004 for which 

2 a penalty does not apply under such amendment but 

3 for which a penalty was previously collected. 

4 (b) MEDICARE PART B SPECIAL ENROLLMENT PE5 RIOD.—

6 (1) IN GENERAL.—In the case of any individual 

7 who, as of the date of the enactment of this Act, is 

8 65 years of age or older, is eligible to enroll but is 

9 not enrolled under part B of title XVIII of the So10 cial Security Act, and is a covered beneficiary (as 

11 defined in section 1072(5) of title 10, United States 

12 Code), the Secretary of Health and Human Services 

13 shall provide for a special enrollment period during 

14 which the individual may enroll under such part. 

15 Such period shall begin as soon as possible after the 

16 date of the enactment of this Act and shall end on 

17 December 31, 2004. 

18 (2) COVERAGE PERIOD.—In the case of an indi19 vidual who enrolls during the special enrollment pe20 riod provided under paragraph (1), the coverage pe21 riod under part B of title XVIII of the Social Secu22 rity Act shall begin on the first day of the month 

23 following the month in which the individual enrolls. 

24 SEC. 628. PART B DEDUCTIBLE. 

25 Section 1833(b) (42 U.S.C. 1395l(b)) is amended—
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1 (1) by striking ‘‘1991 and’’ and inserting 

2 ‘‘1991,’’; and 

3 (2) by striking ‘‘and subsequent years’’ and in4 serting ‘‘and each subsequent year through 2003, 

5 and for a subsequent year after 2003 the amount of 

6 such deductible for the previous year increased by 

7 the annual percentage increase in the monthly actu8 arial rate under section 1839(a)(1) ending with such 

9 subsequent year (rounded to the nearest $1)’’.

10 SEC. 629. EXTENSION OF COVERAGE OF INTRAVENOUS IM11 MUNE GLOBULIN (IVIG) FOR THE TREAT12 MENT OF PRIMARY IMMUNE DEFICIENCY DIS13 EASES IN THE HOME. 

14 (a) IN GENERAL.—Section 1861 (42 U.S.C. 1395x), 

15 as amended by sections 611(a) and 612(a) is amended—

16 (1) in subsection (s)(2)—

17 (A) by striking ‘‘and’’ at the end of sub18 paragraph (W); 

19 (B) by adding ‘‘and’’ at the end of sub20 paragraph (X); and 

21 (C) by adding at the end the following new 

22 subparagraph: 

23 ‘‘(Y) intravenous immune globulin for the 

24 treatment of primary immune deficiency dis-
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1 eases in the home (as defined in subsection 

2 (yy));’’; and 

3 (2) by adding at the end the following new sub4 section: 

5 ‘‘Intravenous Immune Globulin 

6 ‘‘(yy) The term ‘intravenous immune globulin’ means 

7 an approved pooled plasma derivative for the treatment 

8 in the patient’s home of a patient with a diagnosed pri9 mary immune deficiency disease, but not including items 

10 or services related to the administration of the derivative, 

11 if a physician determines administration of the derivative 

12 in the patient’s home is medically appropriate.’’. 

13 (b) PAYMENT AS A DRUG OR BIOLOGICAL.—Section 

14 1833(a)(1)(S) (42 U.S.C. 1395l(a)(1)(S)) is amended by 

15 inserting ‘‘(including intravenous immune globulin (as de16 fined in section 1861(yy)))’’ after ‘‘with respect to drugs 

17 and biologicals’’. 

18 (c) EFFECTIVE DATE.—The amendments made by 

19 this section shall apply to items furnished administered 

20 on or after January 1, 2004. 

21 SEC. 630. MEDICARE COVERAGE OF DIABETES LABORA22 TORY DIAGNOSTIC TESTS. 

23 (a) COVERAGE.—Section 1861(s)(2) (42 U.S.C. 

24 1395x(s)(2)), as amended by sections 611 and 612, is 

25 amended—
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1 (1) in subparagraph (W), by striking ‘‘and’’ at 

2 the end; 

3 (2) in subparagraph (X), by adding ‘‘and’’ at 

4 the end; and 

5 (3) by adding at the end the following new sub6 paragraph: 

7 ‘‘(Y) diabetes screening tests and services (as 

8 defined in subsection (yy));’’. 

9 (b) SERVICES DESCRIBED.—Section 1861 (42 U.S.C. 

10 1395x), as amended by sections 611 and 612, is further 

11 amended by adding at the end the following new sub12 section: 

13 ‘‘Diabetes Screening Tests and Services 

14 ‘‘(yy)(1) The term ‘diabetes screening tests’ means 

15 diagnostic testing furnished to an individual at risk for 

16 diabetes (as defined in paragraph (2)) for the purpose of 

17 early detection of diabetes, including—

18 ‘‘(A) a fasting plasma glucose test; and 

19 ‘‘(B) such other tests, and modifications to 

20 tests, as the Secretary determines appropriate, in 

21 consultation with appropriate organizations. 

22 ‘‘(2) For purposes of paragraph (1), the term ‘indi23 vidual at risk for diabetes’ means an individual who has 

24 any, a combination of, or all of the following risk factors 

25 for diabetes: 
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1 ‘‘(A) A family history of diabetes. 

2 ‘‘(B) Overweight defined as a body mass index 

3 greater than or equal to 25 kg/m2. 

4 ‘‘(C) Habitual physical inactivity. 

5 ‘‘(D) Belonging to a high-risk ethnic or racial 

6 group. 

7 ‘‘(E) Previous identification of an elevated im8 paired fasting glucose. 

9 ‘‘(F) Identification of impaired glucose toler10 ance. 

11 ‘‘(G) Hypertension. 

12 ‘‘(H) Dyslipidemia. 

13 ‘‘(I) History of gestational diabetes mellitus or 

14 delivery of a baby weighing greater than 9 pounds. 

15 ‘‘(J) Polycystic ovary syndrome. 

16 ‘‘(3) The Secretary shall establish standards, in con17 sultation with appropriate organizations, regarding the 

18 frequency of diabetes screening tests, except that such fre19 quency may not be more often than twice within the 12-

20 month period following the date of the most recent diabe21 tes screening test of that individual.’’. 

22 (c) FREQUENCY.—Section 1862(a)(1) (42 U.S.C. 

23 1395y(a)(1)), as amended by sections 611 and 612, is 

24 amended—
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1 (1) by striking ‘‘and’’ at the end of subpara2 graph (J); 

3 (2) by striking the semicolon at the end of sub4 paragraph (K) and inserting ‘‘; and’’; and 

5 (3) by adding at the end the following new sub6 paragraph: 

7 ‘‘(L) in the case of a diabetes screening tests or 

8 service (as defined in section 1861(yy)(1)), which is 

9 performed more frequently than is covered under 

10 section 1861(yy)(3).’’. 

11 (d) EFFECTIVE DATE.—The amendments made by 

12 this section shall apply to tests furnished on or after the 

13 date that is 90 days after the date of enactment of this 

14 Act.

15 SEC. 631. DEMONSTRATION PROJECT FOR COVERAGE OF 

16 CERTAIN PRESCRIPTION DRUGS AND BIO17 LOGICS. 

18 (a) DEMONSTRATION PROJECT.—The Secretary shall 

19 conduct a demonstration project under part B of title 

20 XVIII of the Social Security Act under which payment is 

21 made for drugs or biologics that are prescribed as replace22 ments for drugs and biologicals described in section 

23 1861(s)(2)(A) or 1861(s)(2)(Q) of such Act (42 U.S.C. 

24 1395x(s)(2)(A), 1395x(s)(2)(Q))), or both, for which pay25 ment is made under such part. 
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1 (b) DEMONSTRATION PROJECT SITES.—The project 

2 established under this section shall be conducted in 3 

3 States selected by the Secretary. 

4 (c) DURATION.—The Secretary shall conduct the 

5 demonstration project for the 2-year period beginning on 

6 the date that is 90 days after the date of the enactment 

7 of this Act, but in no case may the project extend beyond 

8 December 31, 2005. 

9 (d) LIMITATION.—Under the demonstration project 

10 over the duration of the project, the Secretary may not 

11 provide—

12 (1) coverage for more than 10,000 patients; 

13 and 

14 (2) more than $100,000,000 in funding. 

15 (e) REPORT.—Not later than January 1, 2006, the 

16 Secretary shall submit to Congress a report on the project. 

17 The report shall include an evaluation of patient access 

18 to care and patient outcomes under the project, as well 

19 as an analysis of the cost effectiveness of the project, in20 cluding an evaluation of the costs savings (if any) to the 

21 medicare program attributable to reduced physicians’ 

22 services and hospital outpatient departments services for 

23 administration of the biological.
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1 TITLE VII—PROVISIONS 

2 RELATING TO PARTS A AND B 

3 Subtitle A—Home Health Services 

4 SEC. 701. UPDATE IN HOME HEALTH SERVICES. 

5 (a) CHANGE TO CALENDER YEAR UPDATE.—

6 (1) IN GENERAL.—Section 1895(b) (42 U.S.C. 

7 1395fff(b)(3)) is amended—

8 (A) in paragraph (3)(B)(i)—

9 (i) by striking ‘‘each fiscal year (be10 ginning with fiscal year 2002)’’ and insert11 ing ‘‘fiscal year 2002 and for fiscal year 

12 2003 and for each subsequent year (begin13 ning with 2004)’’; and 

14 (ii) by inserting ‘‘or year’’ after ‘‘the 

15 fiscal year’’; 

16 (B) in paragraph (3)(B)(ii)(II), by striking 

17 ‘‘any subsequent fiscal year’’ and inserting 

18 ‘‘2004 and any subsequent year’’; 

19 (C) in paragraph (3)(B)(iii), by inserting 

20 ‘‘or year’’ after ‘‘fiscal year’’ each place it ap21 pears; 

22 (D) in paragraph (3)(B)(iv)—

23 (i) by inserting ‘‘or year’’ after ‘‘fiscal 

24 year’’ each place it appears; and 
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1 (ii) by inserting ‘‘or years’’ after ‘‘fis2 cal years’’; and 

3 (E) in paragraph (5), by inserting ‘‘or 

4 year’’ after ‘‘fiscal year’’. 

5 (2) TRANSITION RULE.—The standard prospec6 tive payment amount (or amounts) under section 

7 1895(b)(3) of the Social Security Act for the cal8 endar quarter beginning on October 1, 2003, shall 

9 be such amount (or amounts) for the previous cal10 endar quarter. 

11 (b) CHANGES IN UPDATES FOR 2004, 2005, AND

12 2006.—Section 1895(b)(3)(B)(ii) (42 U.S.C. 

13 1395fff(b)(3)(B)(ii)), as amended by subsection (a)(1)(B), 

14 is amended—

15 (1) by striking ‘‘or’’ at the end of subclause (I); 

16 (2) by redesignating subclause (II) as subclause 

17 (III); 

18 (3) in subclause (III), as so redesignated, by 

19 striking ‘‘2004’’ and inserting ‘‘2007’’; and 

20 (4) by inserting after subclause (I) the fol21 lowing new subclause: 

22 ‘‘(II) each of 2004, 2005, and 

23 2006 the home health market basket 

24 percentage increase minus 0.4 per25 centage points; or’’.
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1 SEC. 702. ESTABLISHMENT OF REDUCED COPAYMENT FOR 

2 A HOME HEALTH SERVICE EPISODE OF CARE 

3 FOR CERTAIN BENEFICIARIES. 

4 (a) PART A.—

5 (1) IN GENERAL.—Section 1813(a) (42 U.S.C. 

6 1395e(a)) is amended by adding at the end the fol7 lowing new paragraph: 

8 ‘‘(5)(A)(i) Subject to clause (ii), the amount payable 

9 for home health services furnished to the individual under 

10 this title for each episode of care beginning in a year (be11 ginning with 2004) shall be reduced by a copayment equal 

12 to the copayment amount specified in subparagraph 

13 (B)(ii) for such year. 

14 ‘‘(ii) The copayment under clause (i) shall not 

15 apply—

16 ‘‘(I) in the case of an individual who has been 

17 determined to be entitled to medical assistance 

18 under section 1902(a)(10)(A) or 1902(a)(10)(C) or 

19 to be a qualified medicare beneficiary (as defined in 

20 section 1905(p)(1)), a specified low-income medicare 

21 beneficiary described in section 1902(a)(10)(E)(iii), 

22 or a qualifying individual described in section 

23 1902(a)(10)(E)(iv)(I); and 

24 ‘‘(II) in the case of an episode of care which 

25 consists of 4 or fewer visits. 
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1 ‘‘(B)(i) The Secretary shall estimate, before the be2 ginning of each year (beginning with 2004), the national 

3 average payment under this title per episode for home 

4 health services projected for the year involved. 

5 ‘‘(ii) For each year the copayment amount under this 

6 clause is equal to 1.5 percent of the national average pay7 ment estimated for the year involved under clause (i). Any 

8 amount determined under the preceding sentence which 

9 is not a multiple of $5 shall be rounded to the nearest 

10 multiple of $5. 

11 ‘‘(iii) There shall be no administrative or judicial re12 view under section 1869, 1878, or otherwise of the esti13 mation of average payment under clause (i).’’. 

14 (2) TIMELY IMPLEMENTATION.—Unless the 

15 Secretary of Health and Human Services otherwise 

16 provides on a timely basis, the copayment amount 

17 specified under section 1813(a)(5)(B)(ii) of the So18 cial Security Act (as added by paragraph (1)) for 

19 2004 shall be deemed to be $40. 

20 (b) CONFORMING PROVISIONS.—

21 (1) Section 1833(a)(2)(A) (42 U.S.C. 

22 1395l(a)(2)(A)) is amended by inserting ‘‘less the 

23 copayment amount applicable under section 

24 1813(a)(5)’’ after ‘‘1895’’. 
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1 (2) Section 1866(a)(2)(A)(i) (42 U.S.C. 

2 1395cc(a)(2)(A)(i)) is amended—

3 (A) by striking ‘‘or coinsurance’’ and in4 serting ‘‘, coinsurance, or copayment’’; and 

5 (B) by striking ‘‘or (a)(4)’’ and inserting 

6 ‘‘(a)(4), or (a)(5)’’. 

7 SEC. 703. MEDPAC STUDY ON MEDICARE MARGINS OF 

8 HOME HEALTH AGENCIES. 

9 (a) STUDY.—The Medicare Payment Advisory Com10 mission shall conduct a study of payment margins of home 

11 health agencies under the home health prospective pay12 ment system under section 1895 of the Social Security Act 

13 (42 U.S.C. 1395fff). Such study shall examine whether 

14 systematic differences in payment margins are related to 

15 differences in case mix (as measured by home health re16 source groups (HHRGs)) among such agencies. The study 

17 shall use the partial or full-year cost reports filed by home 

18 health agencies. 

19 (b) REPORT.—Not later than 2 years after the date 

20 of the enactment of this Act, the Commission shall submit 

21 to Congress a report on the study under subsection (a). 

22 SEC. 704. DEMONSTRATION PROJECT TO CLARIFY THE 

23 DEFINITION OF HOMEBOUND. 

24 (a) DEMONSTRATION PROJECT.—Not later than 180 

25 days after the date of the enactment of this Act, the Sec-
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1 retary shall conduct a two-year demonstration project 

2 under part B of title XVIII of the Social Security Act 

3 under which medicare beneficiaries with chronic conditions 

4 described in subsection (b) are deemed to be homebound 

5 for purposes of receiving home health services under the 

6 medicare program. 

7 (b) MEDICARE BENEFICIARY DESCRIBED.—For pur8 poses of subsection (a), a medicare beneficiary is eligible 

9 to be deemed to be homebound, without regard to the pur10 pose, frequency, or duration of absences from the home, 

11 if—

12 (1) the beneficiary has been certified by one 

13 physician as an individual who has a permanent and 

14 severe condition that will not improve; 

15 (2) the beneficiary requires the individual to re16 ceive assistance from another individual with at least 

17 3 out of the 5 activities of daily living for the rest 

18 of the individual’s life; 

19 (3) the beneficiary requires skilled nursing serv20 ices on a permanent basis and the skilled nursing is 

21 more than medication management; 

22 (4) either (A) an attendant is needed during 

23 the day to monitor and treat the beneficiary’s med24 ical condition, or (B) the beneficiary needs daily 
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1 skilled nursing on a permanent basis and the skilled 

2 nursing is more than medication management; and 

3 (5) the beneficiary requires technological assist4 ance or the assistance of another person to leave the 

5 home. 

6 (c) DEMONSTRATION PROJECT SITES.—The dem7 onstration project established under this section shall be 

8 conducted in 3 States selected by the Secretary to rep9 resent the Northeast, Midwest, and Western regions of the 

10 United States. 

11 (d) LIMITATION ON NUMBER OF PARTICIPANTS.—

12 The aggregate number of such beneficiaries that may par13 ticipate in the project may not exceed 15,000. 

14 (e) DATA.—The Secretary shall collect such data on 

15 the demonstration project with respect to the provision of 

16 home health services to medicare beneficiaries that relates 

17 to quality of care, patient outcomes, and additional costs, 

18 if any, to the medicare program. 

19 (f) REPORT TO CONGRESS.—Not later than 1 year 

20 after the date of the completion of the demonstration 

21 project under this section, the Secretary shall submit to 

22 Congress a report on the project using the data collected 

23 under subsection (e) and shall include—
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1 (1) an examination of whether the provision of 

2 home health services to medicare beneficiaries under 

3 the project—

4 (A) adversely effects the provision of home 

5 health services under the medicare program; or 

6 (B) directly causes an unreasonable in7 crease of expenditures under the medicare pro8 gram for the provision of such services that is 

9 directly attributable to such clarification; 

10 (2) the specific data evidencing the amount of 

11 any increase in expenditures that is a directly attrib12 utable to the demonstration project (expressed both 

13 in absolute dollar terms and as a percentage) above 

14 expenditures that would otherwise have been in15 curred for home health services under the medicare 

16 program; and 

17 (3) specific recommendations to exempt perma18 nently and severely disabled homebound beneficiaries 

19 from restrictions on the length, frequency and pur20 pose of their absences from the home to qualify for 

21 home health services without incurring additional 

22 unreasonable costs to the medicare program. 

23 (g) WAIVER AUTHORITY.—The Secretary shall waive 

24 compliance with the requirements of title XVIII of the So25 cial Security Act (42 U.S.C. 1395 et seq.) to such extent 
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1 and for such period as the Secretary determines is nec2 essary to conduct demonstration projects. 

3 (h) CONSTRUCTION.—Nothing in this section shall be 

4 construed as waiving any applicable civil monetary pen5 alty, criminal penalty, or other remedy available to the 

6 Secretary under title XI or title XVIII of the Social Secu7 rity Act for acts prohibited under such titles, including 

8 penalties for false certifications for purposes of receipt of 

9 items or services under the medicare program. 

10 (i) AUTHORIZATION OF APPROPRIATIONS.—Pay11 ments for the costs of carrying out the demonstration 

12 project under this section shall be made from the Federal 

13 Supplementary Insurance Trust Fund under section 1841 

14 of such Act (42 U.S.C. 1395t). 

15 (j) DEFINITIONS.—In this section: 

16 (1) MEDICARE BENEFICIARY.—The term 

17 ‘‘medicare beneficiary’’ means an individual who is 

18 enrolled under part B of title XVIII of the Social 

19 Security Act. 

20 (2) HOME HEALTH SERVICES.—The term 

21 ‘‘home health services’’ has the meaning given such 

22 term in section 1861(m) of the Social Security Act 

23 (42 U.S.C. 1395x(m)). 
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1 (3) ACTIVITIES OF DAILY LIVING DEFINED.—

2 The term ‘‘activities of daily living’’ means eating, 

3 toileting, transferring, bathing, and dressing. 

4 (4) SECRETARY.—The term ‘‘Secretary’’ means 

5 the Secretary of Health and Human Services.

6 Subtitle B—Direct Graduate 

7 Medical Education 

8 SEC. 711. EXTENSION OF UPDATE LIMITATION ON HIGH 

9 COST PROGRAMS. 

10 Section 1886(h)(2)(D)(iv) (42 U.S.C. 

11 1395ww(h)(2)(D)(iv)) is amended—

12 (1) in subclause (I)—

13 (A) by inserting ‘‘AND 2004 THROUGH

14 2013’’ after ‘‘AND 2002’’; and 

15 (B) by inserting ‘‘or during the period be16 ginning with fiscal year 2004 and ending with 

17 fiscal year 2013’’ after ‘‘during fiscal year 2001 

18 or fiscal year 2002’’; and 

19 (2) in subclause (II)—

20 (A) by striking ‘‘fiscal year 2004, or fiscal 

21 year 2005,’’ and 

22 (B) by striking ‘‘For a’’ and inserting 

23 ‘‘For the’’.
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1 Subtitle C—Chronic Care 

2 Improvement 

3 SEC. 721. VOLUNTARY CHRONIC CARE IMPROVEMENT 

4 UNDER TRADITIONAL FEE-FOR-SERVICE. 

5 Title XVIII, as amended by section 105(a), is amend6 ed by inserting after section 1807 the following new sec7 tion: 

8 ‘‘CHRONIC CARE IMPROVEMENT

9 ‘‘SEC. 1808. (a) IN GENERAL.—

10 ‘‘(1) IN GENERAL.—The Secretary shall estab11 lish a process for providing chronic care improve12 ment programs in each CCIA region for medicare 

13 beneficiaries who are not enrolled under part C or 

14 E and who have certain chronic conditions, such as 

15 congestive heart failure, diabetes, chronic obstructive 

16 pulmonary disease (COPD), stroke, prostate and 

17 colon cancer, hypertension, or other disease as iden18 tified by the Secretary as appropriate for chronic 

19 care improvement. Such a process shall begin to be 

20 implemented no later than 1 year after the date of 

21 the enactment of this section. 

22 ‘‘(2) TERMINOLOGY.—For purposes of this sec23 tion: 

24 ‘‘(A) CCIA REGION.—The term ‘CCIA re25 gion’ means a chronic care improvement admin-
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1 istrative region delineated under subsection 

2 (b)(2). 

3 ‘‘(B) CHRONIC CARE IMPROVEMENT PRO4 GRAM.—The terms ‘chronic care improvement 

5 program’ and ‘program’ means such a program 

6 provided by a contractor under this section. 

7 ‘‘(C) CONTRACTOR.—The term ‘contractor’ 

8 means an entity with a contract to provide a 

9 chronic care improvement program in a CCIA 

10 region under this section. 

11 ‘‘(D) INDIVIDUAL PLAN.—The term ‘indi12 vidual plan’ means a chronic care improvement 

13 plan established under subsection (c)(5) for an 

14 individual. 

15 ‘‘(3) CONSTRUCTION.—Nothing in this section 

16 shall be construed as expanding the amount, dura17 tion, or scope of benefits under this title. 

18 ‘‘(b) COMPETITIVE BIDDING PROCESS.—

19 ‘‘(1) IN GENERAL.—Under this section the Sec20 retary shall award contracts to qualified entities for 

21 chronic care improvement programs for each CCIA 

22 region under this section through a competitive bid23 ding process. 

24 ‘‘(2) PROCESS.—Under such process—
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1 ‘‘(A) the Secretary shall delineate the 

2 United States into multiple chronic care im3 provement administrative regions; and 

4 ‘‘(B) the Secretary shall select at least 2 

5 winning bidders in each CCIA region on the 

6 basis of the ability of each bidder to carry out 

7 a chronic care improvement program in accord8 ance with this section, in order to achieve im9 proved health and financial outcomes. 

10 ‘‘(3) ELIGIBLE CONTRACTOR.—A contractor 

11 may be a disease improvement organization, health 

12 insurer, provider organization, a group of physicians, 

13 or any other legal entity that the Secretary deter14 mines appropriate. 

15 ‘‘(c) CHRONIC CARE IMPROVEMENT PROGRAMS.—

16 ‘‘(1) IN GENERAL.—Each contract under this 

17 section shall provide for the operation of a chronic 

18 care improvement program by a contractor in a 

19 CCIA region consistent with this subsection. 

20 ‘‘(2) IDENTIFICATION OF PROSPECTIVE PRO21 GRAM PARTICIPANTS.—Each contractor shall have a 

22 method for identifying medicare beneficiaries in the 

23 region to whom it will offer services under its pro24 gram. The contractor shall identify such bene25 ficiaries through claims or other data and other 
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1 means permitted consistent with applicable disclo2 sure provisions. 

3 ‘‘(3) INITIAL CONTACT BY SECRETARY.—The 

4 Secretary shall communicate with each beneficiary 

5 identified under paragraph (2) as a prospective par6 ticipant in one or more programs concerning partici7 pation in a program. Such communication may be 

8 made by the Secretary (or on behalf of the Sec9 retary) and shall include information on the fol10 lowing: 

11 ‘‘(A) A description of the advantages to 

12 the beneficiary in participating in a program. 

13 ‘‘(B) Notification that the contractor offer14 ing a program may contact the beneficiary di15 rectly concerning such participation. 

16 ‘‘(C) Notification that participation in a 

17 program is voluntary. 

18 ‘‘(D) A description of the method for the 

19 beneficiary to select the single program in 

20 which the beneficiary wishes to participate and 

21 for declining to participate and a method for 

22 obtaining additional information concerning 

23 such participation. 

24 ‘‘(4) PARTICIPATION.—A medicare beneficiary 

25 may participate in only one program under this sec-
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1 tion and may terminate participation at any time in 

2 a manner specified by the Secretary. 

3 ‘‘(5) INDIVIDUAL CHRONIC CARE IMPROVEMENT

4 PLANS.—

5 ‘‘(A) IN GENERAL.—For each beneficiary 

6 participating in a program of a contractor 

7 under this section, the contractor shall develop 

8 with the beneficiary an individualized, goal-ori9 ented chronic care improvement plan. 

10 ‘‘(B) ELEMENTS OF INDIVIDUAL PLAN.—

11 Each individual plan developed under subpara12 graph (A) shall include a single point of contact 

13 to coordinate care and the following, as appro14 priate: 

15 ‘‘(i) Self-improvement education for 

16 the beneficiary (such as education for dis17 ease management through medical nutri18 tion therapy) and support education for 

19 health care providers, primary caregivers, 

20 and family members. 

21 ‘‘(ii) Coordination of health care serv22 ices, such as application of a prescription 

23 drug regimen and home health services. 
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1 ‘‘(iii) Collaboration with physicians 

2 and other providers to enhance commu3 nication of relevant clinical information. 

4 ‘‘(iv) The use of monitoring tech5 nologies that enable patient guidance 

6 through the exchange of pertinent clinical 

7 information, such as vital signs, sympto8 matic information, and health self-assess9 ment. 

10 ‘‘(v) The provision of information 

11 about hospice care, pain and palliative 

12 care, and end-of-life care. 

13 ‘‘(C) CONTRACTOR RESPONSIBILITIES.—In 

14 establishing and carrying out individual plans 

15 under a program, a contractor shall, directly or 

16 through subcontractors—

17 ‘‘(i) guide participants in managing 

18 their health, including all their co19 morbidities, and in performing activities as 

20 specified under the elements of the plan; 

21 ‘‘(ii) use decision support tools such 

22 as evidence-based practice guidelines or 

23 other criteria as determined by the Sec24 retary; and 
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1 ‘‘(iii) develop a clinical information 

2 database to track and monitor each partic3 ipant across settings and to evaluate out4 comes. 

5 ‘‘(6) ADDITIONAL REQUIREMENTS.—The Sec6 retary may establish additional requirements for pro7 grams and contractors under this section. 

8 ‘‘(7) ACCREDITATION.—The Secretary may pro9 vide that programs that are accredited by qualified 

10 organizations may be deemed to meet such require11 ments under this section as the Secretary may speci12 fy. 

13 ‘‘(c) CONTRACT TERMS.—

14 ‘‘(1) IN GENERAL.—A contract under this sec15 tion shall contain such terms and conditions as the 

16 Secretary may specify consistent with this section. 

17 The Secretary may not enter into a contract with an 

18 entity under this section unless the entity meets 

19 such clinical, quality improvement, financial, and 

20 other requirements as the Secretary deems to be ap21 propriate for the population to be served. 

22 ‘‘(2) USE OF SUBCONTRACTORS PERMITTED.—

23 A contractor may carry out a program directly or 

24 through contracts with subcontractors. 
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1 ‘‘(3) BUDGET NEUTRAL PAYMENT CONDI2 TION.—In entering into a contract with an entity 

3 under this subsection, the Secretary shall establish 

4 payment rates that assure that there will be no net 

5 aggregate increase in payments under this title over 

6 any period of 3 years or longer, as agreed to by the 

7 Secretary. Under this section, the Secretary shall as8 sure that medicare program outlays plus administra9 tive expenses (that would not have been paid under 

10 this title without implementation of this section), in11 cluding contractor fees, shall not exceed the expendi12 tures that would have been incurred under this title 

13 for a comparable population in the absence of the 

14 program under this section for the 3-year contract 

15 period. 

16 ‘‘(4) AT RISK RELATIONSHIP.—For purposes of 

17 section 1128B(b)(3)(F), a contract under this sec18 tion shall be treated as a risk-sharing arrangement 

19 referred to in such section. 

20 ‘‘(5) PERFORMANCE STANDARDS.—Payment to 

21 contractors under this section shall be subject to the 

22 contractor’s meeting of clinical and financial per23 formance standards set by the Secretary. 

24 ‘‘(6) CONTRACTOR OUTCOMES REPORT.—Each 

25 contractor offering a program shall monitor and re-
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1 port to the Secretary, in a manner specified by the 

2 Secretary, the quality of care and efficacy of such 

3 program in terms of—

4 ‘‘(A) process measures, such as reductions 

5 in errors of treatment and rehospitalization 

6 rates; 

7 ‘‘(B) beneficiary and provider satisfaction; 

8 ‘‘(C) health outcomes; and 

9 ‘‘(D) financial outcomes. 

10 ‘‘(7) PHASED IN IMPLEMENTATION.—Nothing 

11 in this section shall be construed as preventing the 

12 Secretary from phasing in the implementation of 

13 programs. 

14 ‘‘(d) BIANNUAL OUTCOMES REPORTS.—The Sec15 retary shall submit to the Congress biannual reports on 

16 the implementation of this section. Each such report shall 

17 include information on—

18 ‘‘(1) the scope of implementation (in terms of 

19 both regions and chronic conditions); 

20 ‘‘(2) program design; and 

21 ‘‘(3) improvements in health outcomes and fi22 nancial efficiencies that result from such implemen23 tation. 

24 ‘‘(e) CLINICAL TRIALS.—The Secretary shall conduct 

25 randomized clinical trials, that compare program partici-
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1 pants with medicare beneficiaries who are offered, but de2 cline, to participate, in order to assess the potential of pro3 grams to—

4 ‘‘(1) reduce costs under this title; and 

5 ‘‘(2) improve health outcomes under this title. 

6 ‘‘(f) AUTHORIZATION OF APPROPRIATIONS.—There 

7 are authorized to be appropriated to the Secretary, in ap8 propriate part from the Hospital Insurance Trust Fund 

9 and the Supplementary Medical Insurance Trust Fund, 

10 such sums as may be necessary to provide for contracts 

11 with chronic care improvement programs under this sec12 tion. 

13 ‘‘(g) LIMITATION ON FUNDING.—In no case shall the 

14 funding under this section exceed $100,000,000 over a pe15 riod of 3 years.’’. 

16 SEC. 722. CHRONIC CARE IMPROVEMENT UNDER MEDI17 CARE ADVANTAGE AND ENHANCED FEE-FOR18 SERVICE PROGRAMS. 

19 (a) UNDER MEDICARE ADVANTAGE PROGRAM.—Sec20 tion 1852 (42 U.S.C. 1395w–22) is amended—

21 (1) by amending subsection (e) to read as fol22 lows: 

23 ‘‘(e) IMPLEMENTATION OF CHRONIC CARE IMPROVE24 MENT PROGRAMS FOR BENEFICIARIES WITH MULTIPLE

25 OR SUFFICIENTLY SEVERE CHRONIC CONDITIONS.—
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1 ‘‘(1) IN GENERAL.—Each Medicare Advantage 

2 organization with respect to each Medicare Advan3 tage plan it offers shall have in effect, for enrollees 

4 with multiple or sufficiently severe chronic condi5 tions, a chronic care improvement program that is 

6 designed to manage the needs of such enrollees and 

7 that meets the requirements of this subsection. 

8 ‘‘(2) ENROLLEE WITH MULTIPLE OR SUFFI9 CIENTLY SEVERE CHRONIC CONDITIONS.—For pur10 poses of this subsection, the term ‘enrollee with mul11 tiple or sufficiently severe chronic conditions’ means, 

12 with respect to an enrollee in a Medicare Advantage 

13 plan of a Medicare Advantage organization, an en14 rollee in the plan who has one or more chronic con15 ditions, such as congestive heart failure, diabetes, 

16 COPD, stroke, prostate and colon cancer, hyper17 tension, or other disease as identified by the organi18 zation as appropriate for chronic care improvement. 

19 ‘‘(3) GENERAL REQUIREMENTS.—

20 ‘‘(A) IN GENERAL.—Each chronic care im21 provement program under this subsection shall 

22 be conducted consistent with this subsection. 

23 ‘‘(B) IDENTIFICATION OF ENROLLEES.—

24 Each such program shall have a method for 

25 monitoring and identifying enrollees with mul-
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1 tiple or sufficiently severe chronic conditions 

2 that meet the organization’s criteria for partici3 pation under the program. 

4 ‘‘(C) DEVELOPMENT OF PLANS.—For an 

5 enrollee identified under subparagraph (B) for 

6 participation in a program, the program shall 

7 develop, with the enrollee’s consent, an individ8 ualized, goal-oriented chronic care improvement 

9 plan for chronic care improvement. 

10 ‘‘(D) ELEMENTS OF PLANS.—Each chronic 

11 care improvement plan developed under sub12 paragraph (C) shall include a single point of 

13 contact to coordinate care and the following, as 

14 appropriate: 

15 ‘‘(i) Self-improvement education for 

16 the enrollee (such as education for disease 

17 management through medical nutrition 

18 therapy) and support education for health 

19 care providers, primary caregivers, and 

20 family members. 

21 ‘‘(ii) Coordination of health care serv22 ices, such as application of a prescription 

23 drug regimen and home health services. 
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1 ‘‘(iii) Collaboration with physicians 

2 and other providers to enhance commu3 nication of relevant clinical information. 

4 ‘‘(iv) The use of monitoring tech5 nologies that enable patient guidance 

6 through the exchange of pertinent clinical 

7 information, such as vital signs, sympto8 matic information, and health self-assess9 ment. 

10 ‘‘(v) The provision of information 

11 about hospice care, pain and palliative 

12 care, and end-of-life care. 

13 ‘‘(E) ORGANIZATION RESPONSIBILITIES.—

14 In establishing and carrying out chronic care 

15 improvement plans for participants under this 

16 paragraph, a Medicare Advantage organization 

17 shall, directly or through subcontractors—

18 ‘‘(i) guide participants in managing 

19 their health, including all their co20 morbidities, and in performing the activi21 ties as specified under the elements of the 

22 plan; 

23 ‘‘(ii) use decision support tools such 

24 as evidence-based practice guidelines or 
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1 other criteria as determined by the Sec2 retary; and 

3 ‘‘(iii) develop a clinical information 

4 database to track and monitor each partic5 ipant across settings and to evaluate out6 comes. 

7 ‘‘(3) ADDITIONAL REQUIREMENTS.—The Sec8 retary may establish additional requirements for 

9 chronic care improvement programs under this sec10 tion. 

11 ‘‘(4) ACCREDITATION.—The Secretary may pro12 vide that chronic care improvement programs that 

13 are accredited by qualified organizations may be 

14 deemed to meet such requirements under this sub15 section as the Secretary may specify. 

16 ‘‘(5) OUTCOMES REPORT.—Each Medicare Ad17 vantage organization with respect to its chronic care 

18 improvement program under this subsection shall 

19 monitor and report to the Secretary information on 

20 the quality of care and efficacy of such program as 

21 the Secretary may require.’’; and 

22 (2) by amending subparagraph (I) of subsection 

23 (c)(1) to read as follows: 

24 ‘‘(I) CHRONIC CARE IMPROVEMENT PRO25 GRAM.—A description of the organization’s 
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1 chronic care improvement program under sub2 section (e).’’. 

3 (b) APPLICATION UNDER ENHANCED FEE-FOR4 SERVICE PROGRAM.—Section 1860E–2(c)(3), as inserted 

5 by section 201(a), is amended by inserting ‘‘, including 

6 subsection (e) (relating to implementation of chronic care 

7 improvement programs)’’ after ‘‘The provisions of section 

8 1852’’. 

9 (c) EFFECTIVE DATE.—The amendments made by 

10 this section shall apply for contract years beginning on 

11 or after 1 year after the date of the enactment of this 

12 Act. 

13 SEC. 723. INSTITUTE OF MEDICINE REPORT. 

14 (a) STUDY.—

15 (1) IN GENERAL.—The Secretary of Health and 

16 Human Services shall contract with the Institute of 

17 Medicine of the National Academy of Sciences to 

18 conduct a study of the barriers to effective inte19 grated care improvement for medicare beneficiaries 

20 with multiple or severe chronic conditions across set21 tings and over time and to submit a report under 

22 subsection (b). 

23 (2) SPECIFIC ITEMS.—The study shall examine 

24 the statutory and regulatory barriers to coordinating 

25 care across settings for medicare beneficiaries in 
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1 transition from one setting to another (such as be2 tween hospital, nursing facility, home health, hos3 pice, and home). The study shall specifically identify 

4 the following: 

5 (A) Clinical, financial, or administrative re6 quirements in the medicare program that 

7 present barriers to effective, seamless transi8 tions across care settings. 

9 (B) Policies that impede the establishment 

10 of administrative and clinical information sys11 tems to track health status, utilization, cost, 

12 and quality data across settings. 

13 (C) State-level requirements that may 

14 present barriers to better care for medicare 

15 beneficiaries. 

16 (3) CONSULTATION.—The study under this 

17 subsection shall be conducted in consultation with 

18 experts in the field of chronic care, consumers, and 

19 family caregivers, working to integrate care delivery 

20 and create more seamless transitions across settings 

21 and over time. 

22 (b) REPORT.—The report under this subsection shall 

23 be submitted to the Secretary and Congress not later than 

24 18 months after the date of the enactment of this Act. 
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1 SEC. 724. MEDPAC REPORT. 

2 (a) EVALUATION.—shall conduct an evaluation that 

3 includes a description of the status of the implementation 

4 of chronic care improvement programs under section 1808 

5 of the Social Security Act, the quality of health care serv6 ices provided to individuals in such program, the health 

7 status of the participants of such program, and the cost 

8 savings attributed to implementation of such program. 

9 (b) REPORT.—Not later than 2 years after the date 

10 of implementation of such chronic care improvement pro11 grams, the Commission shall submit a report on such eval12 uation.

13 Subtitle D—Other Provisions 

14 SEC. 731. MODIFICATIONS TO MEDICARE PAYMENT ADVI15 SORY COMMISSION (MEDPAC). 

16 (a) EXAMINATION OF BUDGET CONSEQUENCES.—

17 Section 1805(b) (42 U.S.C. 1395b–6(b)) is amended by 

18 adding at the end the following new paragraph: 

19 ‘‘(8) EXAMINATION OF BUDGET CON20 SEQUENCES.—Before making any recommendations, 

21 the Commission shall examine the budget con22 sequences of such recommendations, directly or 

23 through consultation with appropriate expert enti24 ties.’’. 

25 (b) CONSIDERATION OF EFFICIENT PROVISION OF

26 SERVICES.—Section 1805(b)(2)(B)(i) (42 U.S.C. 1395b–
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1 6(b)(2)(B)(i)) is amended by inserting ‘‘the efficient provi2 sion of’’ after ‘‘expenditures for’’. 

3 (c) APPLICATION OF DISCLOSURE REQUIRE4 MENTS.—

5 (1) IN GENERAL.—Section 1805(c)(2)(D) (42 

6 U.S.C. 1395b–6(c)(2)(D)) is amended by adding at 

7 the end the following: ‘‘Members of the Commission 

8 shall be treated as employees of the Congress for 

9 purposes of applying title I of the Ethics in Govern10 ment Act of 1978 (Public Law 95-521).’’. 

11 (2) EFFECTIVE DATE.—The amendment made 

12 by paragraph (1) shall take effect on January 1, 

13 2004. 

14 (d) ADDITIONAL REPORTS.—

15 (1) DATA NEEDS AND SOURCES.—The Medicare 

16 Payment Advisory Commission shall conduct a 

17 study, and submit a report to Congress by not later 

18 than June 1, 2004, on the need for current data, 

19 and sources of current data available, to determine 

20 the solvency and financial circumstances of hospitals 

21 and other medicare providers of services. The Com22 mission shall examine data on uncompensated care, 

23 as well as the share of uncompensated care ac24 counted for by the expenses for treating illegal 

25 aliens. 
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1 (2) USE OF TAX-RELATED RETURNS.—Using 

2 return information provided under Form 990 of the 

3 Internal Revenue Service, the Commission shall sub4 mit to Congress, by not later than June 1, 2004, a 

5 report on the following: 

6 (A) Investments, endowments, and fund7 raising of hospitals participating under the 

8 medicare program and related foundations. 

9 (B) Access to capital financing for private 

10 and for not-for-profit hospitals. 

11 SEC. 732. DEMONSTRATION PROJECT FOR MEDICAL ADULT 

12 DAY CARE SERVICES. 

13 (a) ESTABLISHMENT.—Subject to the succeeding 

14 provisions of this section, the Secretary of Health and 

15 Human Services shall establish a demonstration project 

16 (in this section referred to as the ‘‘demonstration project’’) 

17 under which the Secretary shall, as part of a plan of an 

18 episode of care for home health services established for 

19 a medicare beneficiary, permit a home health agency, di20 rectly or under arrangements with a medical adult day 

21 care facility, to provide medical adult day care services as 

22 a substitute for a portion of home health services that 

23 would otherwise be provided in the beneficiary’s home. 

24 (b) PAYMENT.—
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1 (1) IN GENERAL.—The amount of payment for 

2 an episode of care for home health services, a por3 tion of which consists of substitute medical adult 

4 day care services, under the demonstration project 

5 shall be made at a rate equal to 95 percent of the 

6 amount that would otherwise apply for such home 

7 health services under section 1895 of the Social Se8 curity Act (42 u.s.c. 1395fff). In no case may a 

9 home health agency, or a medical adult day care fa10 cility under arrangements with a home health agen11 cy, separately charge a beneficiary for medical adult 

12 day care services furnished under the plan of care. 

13 (2) BUDGET NEUTRALITY FOR DEMONSTRA14 TION PROJECT.—Notwithstanding any other provi15 sion of law, the Secretary shall provide for an appro16 priate reduction in the aggregate amount of addi17 tional payments made under section 1895 of the So18 cial Security Act (42 U.S.C. 1395fff) to reflect any 

19 increase in amounts expended from the Trust Funds 

20 as a result of the demonstration project conducted 

21 under this section. 

22 (c) DEMONSTRATION PROJECT SITES.—The project 

23 established under this section shall be conducted in not 

24 more than 5 States selected by the Secretary that license 
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1 or certify providers of services that furnish medical adult 

2 day care services. 

3 (d) DURATION.—The Secretary shall conduct the 

4 demonstration project for a period of 3 years. 

5 (e) VOLUNTARY PARTICIPATION.—Participation of 

6 medicare beneficiaries in the demonstration project shall 

7 be voluntary. The total number of such beneficiaries that 

8 may participate in the project at any given time may not 

9 exceed 15,000. 

10 (f) PREFERENCE IN SELECTING AGENCIES.—In se11 lecting home health agencies to participate under the dem12 onstration project, the Secretary shall give preference to 

13 those agencies that are currently licensed or certified 

14 through common ownership and control to furnish medical 

15 adult day care services. 

16 (g) WAIVER AUTHORITY.—The Secretary may waive 

17 such requirements of title XVIII of the Social Security Act 

18 as may be necessary for the purposes of carrying out the 

19 demonstration project, other than waiving the requirement 

20 that an individual be homebound in order to be eligible 

21 for benefits for home health services. 

22 (h) EVALUATION AND REPORT.—The Secretary shall 

23 conduct an evaluation of the clinical and cost effectiveness 

24 of the demonstration project. Not later 30 months after 

25 the commencement of the project, the Secretary shall sub-
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1 mit to Congress a report on the evaluation, and shall in2 clude in the report the following: 

3 (1) An analysis of the patient outcomes and 

4 costs of furnishing care to the medicare beneficiaries 

5 participating in the project as compared to such out6 comes and costs to beneficiaries receiving only home 

7 health services for the same health conditions. 

8 (2) Such recommendations regarding the exten9 sion, expansion, or termination of the project as the 

10 Secretary determines appropriate. 

11 (i) DEFINITIONS.—In this section: 

12 (1) HOME HEALTH AGENCY.—The term ‘‘home 

13 health agency’’ has the meaning given such term in 

14 section 1861(o) of the Social Security Act (42 

15 U.S.C. 1395x(o)). 

16 (2) MEDICAL ADULT DAY CARE FACILITY.—The 

17 term ‘‘medical adult day care facility’’ means a facil18 ity that—

19 (A) has been licensed or certified by a 

20 State to furnish medical adult day care services 

21 in the State for a continuous 2-year period; 

22 (B) is engaged in providing skilled nursing 

23 services and other therapeutic services directly 

24 or under arrangement with a home health agen25 cy; 
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1 (C) meets such standards established by 

2 the Secretary to assure quality of care and such 

3 other requirements as the Secretary finds nec4 essary in the interest of the health and safety 

5 of individuals who are furnished services in the 

6 facility; and 

7 (D) provides medical adult day care serv8 ices. 

9 (3) MEDICAL ADULT DAY CARE SERVICES.—

10 The term ‘‘medical adult day care services’’ means—

11 (A) home health service items and services 

12 described in paragraphs (1) through (7) of sec13 tion 1861(m) furnished in a medical adult day 

14 care facility; 

15 (B) a program of supervised activities fur16 nished in a group setting in the facility that—

17 (i) meet such criteria as the Secretary 

18 determines appropriate; and 

19 (ii) is designed to promote physical 

20 and mental health of the individuals; and 

21 (C) such other services as the Secretary 

22 may specify. 

23 (4) MEDICARE BENEFICIARY.—The term 

24 ‘‘medicare beneficiary’’ means an individual entitled 
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1 to benefits under part A of this title, enrolled under 

2 part B of this title, or both. 

3 SEC. 733. IMPROVEMENTS IN NATIONAL AND LOCAL COV4 ERAGE DETERMINATION PROCESS TO RE5 SPOND TO CHANGES IN TECHNOLOGY. 

6 (a) NATIONAL AND LOCAL COVERAGE DETERMINA7 TION PROCESS.—

8 (1) IN GENERAL.—Section 1862 (42 U.S.C. 

9 1395y) is amended—

10 (A) in the third sentence of subsection (a) 

11 by inserting ‘‘consistent with subsection (k)’’ 

12 after ‘‘the Secretary shall ensure’’; and 

13 (B) by adding at the end the following new 

14 subsection: 

15 ‘‘(k) NATIONAL AND LOCAL COVERAGE DETERMINA16 TION PROCESS.—

17 ‘‘(1) FACTORS AND EVIDENCE USED IN MAKING

18 NATIONAL COVERAGE DETERMINATIONS.—The Sec19 retary shall make available to the public the factors 

20 considered in making national coverage determina21 tions of whether an item or service is reasonable and 

22 necessary. The Secretary shall develop guidance doc23 uments to carry out this paragraph in a manner 

24 similar to the development of guidance documents 
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1 under section 701(h) of the Federal Food, Drug, 

2 and Cosmetic Act (21 U.S.C. 371(h)). 

3 ‘‘(2) TIMEFRAME FOR DECISIONS ON REQUESTS

4 FOR NATIONAL COVERAGE DETERMINATIONS.—In 

5 the case of a request for a national coverage deter6 mination that—

7 ‘‘(A) does not require a technology assess8 ment from an outside entity or deliberation 

9 from the Medicare Coverage Advisory Com10 mittee, the decision on the request shall be 

11 made not later than 6 months after the date of 

12 the request; or 

13 ‘‘(B) requires such an assessment or delib14 eration and in which a clinical trial is not re15 quested, the decision on the request shall be 

16 made not later than 9 months after the date of 

17 the request. 

18 ‘‘(3) PROCESS FOR PUBLIC COMMENT IN NA19 TIONAL COVERAGE DETERMINATIONS.—At the end 

20 of the 6-month period (or 9-month period for re21 quests described in paragraph (2)(B)) that begins on 

22 the date a request for a national coverage deter23 mination is made, the Secretary shall—

24 ‘‘(A) make a draft of proposed decision on 

25 the request available to the public through the 
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1 Medicare Internet site of the Department of 

2 Health and Human Services or other appro3 priate means; 

4 ‘‘(B) provide a 30-day period for public 

5 comment on such draft; 

6 ‘‘(C) make a final decision on the request 

7 within 60 days of the conclusion of the 30-day 

8 period referred to under subparagraph (B); 

9 ‘‘(D) include in such final decision sum10 maries of the public comments received and re11 sponses thereto; 

12 ‘‘(E) make available to the public the clin13 ical evidence and other data used in making 

14 such a decision when the decision differs from 

15 the recommendations of the Medicare Coverage 

16 Advisory Committee; and 

17 ‘‘(F) in the case of a decision to grant the 

18 coverage determination, assign a temporary or 

19 permanent code and implement the coding 

20 change. 

21 ‘‘(4) CONSULTATION WITH OUTSIDE EXPERTS

22 IN CERTAIN NATIONAL COVERAGE DETERMINA23 TIONS.—With respect to a request for a national 

24 coverage determination for which there is not a re25 view by the Medicare Coverage Advisory Committee, 
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1 the Secretary shall consult with appropriate outside 

2 clinical experts. 

3 ‘‘(5) LOCAL COVERAGE DETERMINATION PROC4 ESS.—With respect to local coverage determinations 

5 made on or after January 1, 2004—

6 ‘‘(A) PLAN TO PROMOTE CONSISTENCY OF

7 COVERAGE DETERMINATIONS.—The Secretary 

8 shall develop a plan to evaluate new local cov9 erage determinations to determine which deter10 minations should be adopted nationally and to 

11 what extent greater consistency can be achieved 

12 among local coverage determinations. 

13 ‘‘(B) CONSULTATION.—The Secretary 

14 shall require the fiscal intermediaries or car15 riers providing services within the same area to 

16 consult on all new local coverage determinations 

17 within the area. 

18 ‘‘(C) DISSEMINATION OF INFORMATION.—

19 The Secretary should serve as a center to dis20 seminate information on local coverage deter21 minations among fiscal intermediaries and car22 riers to reduce duplication of effort. 

23 ‘‘(6) NATIONAL AND LOCAL COVERAGE DETER24 MINATION DEFINED.—For purposes of this sub25 section, the terms ‘national coverage determination’ 
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1 and ‘local coverage determination’ have the meaning 

2 given such terms in paragraphs (1)(B) and (2)(B), 

3 respectively, of section 1869(f).’’. 

4 (2) EFFECTIVE DATE.—The amendments made 

5 by paragraph (1) shall apply to national and local 

6 coverage determinations as of January 1, 2004. 

7 (b) MEDICARE COVERAGE OF ROUTINE COSTS ASSO8 CIATED WITH CERTAIN CLINICAL TRIALS.—

9 (1) IN GENERAL.—With respect to the coverage 

10 of routine costs of care for beneficiaries participating 

11 in a qualifying clinical trial, as set forth on the date 

12 of the enactment of this Act in National Coverage 

13 Determination 30-1 of the Medicare Coverage Issues 

14 Manual, the Secretary shall deem clinical trials con15 ducted in accordance with an investigational device 

16 exemption approved under section 520(g) of the 

17 Federal Food, Drug, and Cosmetic Act (42 U.S.C. 

18 360j(g)) to be automatically qualified for such cov19 erage. 

20 (2) RULE OF CONSTRUCTION.—Nothing in this 

21 subsection shall be construed as authorizing or re22 quiring the Secretary to modify the regulations set 

23 forth on the date of the enactment of this Act at 

24 subpart B of part 405 of title 42, Code of Federal 

25 Regulations, or subpart A of part 411 of such title, 
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1 relating to coverage of, and payment for, a medical 

2 device that is the subject of an investigational device 

3 exemption by the Food and Drug Administration 

4 (except as may be necessary to implement paragraph 

5 (1)). 

6 (3) EFFECTIVE DATE.—This subsection shall 

7 apply to clinical trials begun before, on, or after the 

8 date of the enactment of this Act and to items and 

9 services furnished on or after such date. 

10 (c) ISSUANCE OF TEMPORARY NATIONAL CODES.—

11 Not later than January 1, 2004, the Secretary shall imple12 ment revised procedures for the issuance of temporary na13 tional HCPCS codes under part B of title XVIII of the 

14 Social Security Act. 

15 SEC. 734. TREATMENT OF CERTAIN PHYSICIAN PATHOLOGY 

16 SERVICES. 

17 (a) IN GENERAL.—Section 1848(i) (42 U.S.C. 

18 1395w–4(i)) is amended by adding at the end the fol19 lowing new paragraph: 

20 ‘‘(4) TREATMENT OF CERTAIN INPATIENT PHY21 SICIAN PATHOLOGY SERVICES.—

22 ‘‘(A) IN GENERAL.—With respect to serv23 ices furnished on or after January 1, 2004, and 

24 before January 1, 2009, if an independent lab25 oratory furnishes the technical component of a 
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1 physician pathology service to a fee-for-service 

2 medicare beneficiary who is an inpatient or out3 patient of a covered hospital, the Secretary 

4 shall treat such component as a service for 

5 which payment shall be made to the laboratory 

6 under this section and not as an inpatient hos7 pital service for which payment is made to the 

8 hospital under section 1886(d) or as a hospital 

9 outpatient service for which payment is made to 

10 the hospital under section 1833(t). 

11 ‘‘(B) DEFINITIONS.—In this paragraph: 

12 ‘‘(i) COVERED HOSPITAL.—

13 ‘‘(I) IN GENERAL.—The term 

14 ‘covered hospital’ means, with respect 

15 to an inpatient or outpatient, a hos16 pital that had an arrangement with 

17 an independent laboratory that was in 

18 effect as of July 22, 1999, under 

19 which a laboratory furnished the tech20 nical component of physician pathol21 ogy services to fee-for-service medi22 care beneficiaries who were hospital 

23 inpatients or outpatients, respectively, 

24 and submitted claims for payment for 

25 such component to a carrier with a 
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1 contract under section 1842 and not 

2 to the hospital. 

3 ‘‘(II) CHANGE IN OWNERSHIP

4 DOES NOT AFFECT DETERMINA5 TION.—A change in ownership with 

6 respect to a hospital on or after the 

7 date referred to in subclause (I) shall 

8 not affect the determination of wheth9 er such hospital is a covered hospital 

10 for purposes of such subclause. 

11 ‘‘(ii) FEE-FOR-SERVICE MEDICARE

12 BENEFICIARY.—The term ‘fee-for-service 

13 medicare beneficiary’ means an individual 

14 who is entitled to benefits under part A, or 

15 enrolled under this part, or both, but is not 

16 enrolled in any of the following: 

17 ‘‘(I) A Medicare+Choice plan 

18 under part C. 

19 ‘‘(II) A plan offered by an eligi20 ble organization under section 1876. 

21 ‘‘(III) A program of all-inclusive 

22 care for the elderly (PACE) under 

23 section 1894. 

24 ‘‘(IV) A social health mainte25 nance organization (SHMO) dem-
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1 onstration project established under 

2 section 4018(b) of the Omnibus 

3 Budget Reconciliation Act of 1987 

4 (Public Law 100–203).’’. 

5 (b) CONFORMING AMENDMENT.—Section 542 of the 

6 Medicare, Medicaid, and SCHIP Benefits Improvement 

7 and Protection Act of 2000 (114 Stat. 2763A–550), as 

8 enacted into law by section 1(a)(6) of Public Law 106–

9 554, is repealed. 

10 (c) EFFECTIVE DATES.—The amendments made by 

11 this section shall take effect as if included in the enact12 ment of the Medicare, Medicaid, and SCHIP Benefits Im13 provement and Protection Act of 2000 (Appendix F, 114 

14 Stat. 2763A–463), as enacted into law by section 1(a)(6) 

15 of Public Law 106–554. 

16 SEC. 735. CLINICAL INVESTIGATION OF MEDICARE PAN17 CREATIC ISLET CELL TRANSPLANTS. 

18 The Secretary shall authorize payment under title 

19 XVIII of the Social Security Act for the routine costs for 

20 items and services for medicare beneficiaries received as 

21 part of a clinical investigation of pancreatic islet cell trans22 plants conducted by the National Institutes of Health.

23 SEC. 736. DEMONSTRATION PROJECT FOR CONSUMER-DI24 RECTED CHRONIC OUTPATIENT SERVICES. 

25 (a) ESTABLISHMENT.—
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1 (1) IN GENERAL.—Subject to the succeeding 

2 provisions of this section, the Secretary shall estab3 lish demonstration projects (in this section referred 

4 to as ‘‘demonstration projects’’) under which the 

5 Secretary shall evaluate methods that improve the 

6 quality of care provided to medicare beneficiaries 

7 with chronic conditions and that reduce expenditures 

8 that would otherwise be made under the medicare 

9 program on behalf of such individuals for such 

10 chronic conditions, such methods to include permit11 ting those beneficiaries to direct their own health 

12 care needs and services. 

13 (2) MEDICARE BENEFICIARIES WITH CHRONIC

14 CONDITIONS DEFINED.—In this section, the term 

15 ‘‘medicare beneficiaries with chronic conditions’’ 

16 means an individual entitled to benefits under part 

17 A of title XVIII of the Social Security Act, and en18 rolled under part B of such title, but who is not en19 rolled under part C of such title who is diagnosed 

20 as having one or more chronic conditions (as defined 

21 by the Secretary), such as diabetes. 

22 (b) DESIGN OF PROJECTS.—

23 (1) IN GENERAL.—In establishing the dem24 onstration projects under this section, the Secretary 

25 shall evaluate practices employed by group health 
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1 plans and practices under State plans for medical 

2 assistance under the medicaid program under title 

3 XIX of the Social Security Act that permit patients 

4 to self-direct the provision of personal care services. 

5 (2) SCOPE OF SERVICES.—The Secretary shall 

6 determine the appropriate scope of personal care 

7 services that would apply under the demonstration 

8 projects. 

9 (c) VOLUNTARY PARTICIPATION.—Participation of 

10 medicare beneficiaries in the demonstration projects shall 

11 be voluntary. 

12 (d) DEMONSTRATION PROJECTS SITES.—Not later 

13 than 2 years after the date of the enactment of this Act, 

14 the Secretary shall conduct no fewer than 3 demonstration 

15 projects established under this section. Of those dem16 onstration projects, the Secretary shall conduct at least 

17 one in each of the following areas: 

18 (1) An urban area. 

19 (2) A rural area. 

20 (3) An area that the Secretary determines has 

21 a medicare population with rate of incidence of dia22 betes that significantly exceeds the national average 

23 rate of all areas. 

24 (e) EVALUATION AND REPORT.—
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1 (1) EVALUATIONS.—The Secretary shall con2 duct evaluations of the clinical and cost effectiveness 

3 of the demonstration projects. 

4 (2) REPORTS.—Not later than 2 years after the 

5 commencement of the demonstration projects, and 

6 biannually thereafter, the Secretary shall submit to 

7 Congress a report on the evaluation, and shall in8 clude in the report the following: 

9 (A) An analysis of the patient outcomes 

10 and costs of furnishing care to the medicare 

11 beneficiaries participating in the projects as 

12 compared to such outcomes and costs to other 

13 beneficiaries for the same health conditions. 

14 (B) Evaluation of patient satisfaction 

15 under the demonstration projects. 

16 (C) Such recommendations regarding the 

17 extension, expansion, or termination of the 

18 projects as the Secretary determines appro19 priate.
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1 TITLE VIII—MEDICARE 

2 BENEFITS ADMINISTRATION

3 SEC. 801. ESTABLISHMENT OF MEDICARE BENEFITS AD4 MINISTRATION. 

5 (a) IN GENERAL.—Title XVIII (42 U.S.C. 1395 et 

6 seq.), as amended by sections 105 and 721, is amended 

7 by inserting after 1808 the following new section: 

8 ‘‘MEDICARE BENEFITS ADMINISTRATION

9 ‘‘SEC. 1809. (a) ESTABLISHMENT.—There is estab10 lished within the Department of Health and Human Serv11 ices an agency to be known as the Medicare Benefits Ad12 ministration. 

13 ‘‘(b) ADMINISTRATOR; DEPUTY ADMINISTRATOR; 

14 CHIEF ACTUARY.—

15 ‘‘(1) ADMINISTRATOR.—

16 ‘‘(A) IN GENERAL.—The Medicare Bene17 fits Administration shall be headed by an ad18 ministrator to be known as the ‘Medicare Bene19 fits Administrator’ (in this section referred to 

20 as the ‘Administrator’) who shall be appointed 

21 by the President, by and with the advice and 

22 consent of the Senate. The Administrator shall 

23 be in direct line of authority to the Secretary. 

24 ‘‘(B) COMPENSATION.—The Administrator 

25 shall be paid at the rate of basic pay payable 
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1 for level III of the Executive Schedule under 

2 section 5314 of title 5, United States Code. 

3 ‘‘(C) TERM OF OFFICE.—The Adminis4 trator shall be appointed for a term of 4 years. 

5 In any case in which a successor does not take 

6 office at the end of an Administrator’s term of 

7 office, that Administrator may continue in of8 fice until the entry upon office of such a suc9 cessor. An Administrator appointed to a term of 

10 office after the commencement of such term 

11 may serve under such appointment only for the 

12 remainder of such term. 

13 ‘‘(D) GENERAL AUTHORITY.—The Admin14 istrator shall be responsible for the exercise of 

15 all powers and the discharge of all duties of the 

16 Administration, and shall have authority and 

17 control over all personnel and activities thereof. 

18 ‘‘(E) RULEMAKING AUTHORITY.—The Ad19 ministrator may prescribe such rules and regu20 lations as the Administrator determines nec21 essary or appropriate to carry out the functions 

22 of the Administration. The regulations pre23 scribed by the Administrator shall be subject to 

24 the rulemaking procedures established under 

25 section 553 of title 5, United States Code. The 
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1 Administrator shall provide for the issuance of 

2 new regulations to carry out parts C, D, and E. 

3 ‘‘(F) AUTHORITY TO ESTABLISH ORGANI4 ZATIONAL UNITS.—The Administrator may es5 tablish, alter, consolidate, or discontinue such 

6 organizational units or components within the 

7 Administration as the Administrator considers 

8 necessary or appropriate, except as specified in 

9 this section. 

10 ‘‘(G) AUTHORITY TO DELEGATE.—The Ad11 ministrator may assign duties, and delegate, or 

12 authorize successive redelegations of, authority 

13 to act and to render decisions, to such officers 

14 and employees of the Administration as the Ad15 ministrator may find necessary. Within the lim16 itations of such delegations, redelegations, or 

17 assignments, all official acts and decisions of 

18 such officers and employees shall have the same 

19 force and effect as though performed or ren20 dered by the Administrator. 

21 ‘‘(2) DEPUTY ADMINISTRATOR.—

22 ‘‘(A) IN GENERAL.—There shall be a Dep23 uty Administrator of the Medicare Benefits Ad24 ministration who shall be appointed by the 
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1 President, by and with the advice and consent 

2 of the Senate. 

3 ‘‘(B) COMPENSATION.—The Deputy Ad4 ministrator shall be paid at the rate of basic 

5 pay payable for level IV of the Executive Sched6 ule under section 5315 of title 5, United States 

7 Code. 

8 ‘‘(C) TERM OF OFFICE.—The Deputy Ad9 ministrator shall be appointed for a term of 4 

10 years. In any case in which a successor does not 

11 take office at the end of a Deputy Administra12 tor’s term of office, such Deputy Administrator 

13 may continue in office until the entry upon of14 fice of such a successor. A Deputy Adminis15 trator appointed to a term of office after the 

16 commencement of such term may serve under 

17 such appointment only for the remainder of 

18 such term. 

19 ‘‘(D) DUTIES.—The Deputy Administrator 

20 shall perform such duties and exercise such 

21 powers as the Administrator shall from time to 

22 time assign or delegate. The Deputy Adminis23 trator shall be Acting Administrator of the Ad24 ministration during the absence or disability of 

25 the Administrator and, unless the President 
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1 designates another officer of the Government as 

2 Acting Administrator, in the event of a vacancy 

3 in the office of the Administrator. 

4 ‘‘(3) CHIEF ACTUARY.—

5 ‘‘(A) IN GENERAL.—There is established in 

6 the Administration the position of Chief Actu7 ary. The Chief Actuary shall be appointed by, 

8 and in direct line of authority to, the Adminis9 trator of such Administration. The Chief Actu10 ary shall be appointed from among individuals 

11 who have demonstrated, by their education and 

12 experience, superior expertise in the actuarial 

13 sciences. The Chief Actuary may be removed 

14 only for cause. 

15 ‘‘(B) COMPENSATION.—The Chief Actuary 

16 shall be compensated at the highest rate of 

17 basic pay for the Senior Executive Service 

18 under section 5382(b) of title 5, United States 

19 Code. 

20 ‘‘(C) DUTIES.—The Chief Actuary shall 

21 exercise such duties as are appropriate for the 

22 office of the Chief Actuary and in accordance 

23 with professional standards of actuarial inde24 pendence. 
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1 ‘‘(4) SECRETARIAL COORDINATION OF PROGRAM

2 ADMINISTRATION.—The Secretary shall ensure ap3 propriate coordination between the Administrator 

4 and the Administrator of the Centers for Medicare 

5 & Medicaid Services in carrying out the programs 

6 under this title. 

7 ‘‘(c) DUTIES; ADMINISTRATIVE PROVISIONS.—

8 ‘‘(1) DUTIES.—

9 ‘‘(A) GENERAL DUTIES.—The Adminis10 trator shall carry out parts C, D, and E, in11 cluding—

12 ‘‘(i) negotiating, entering into, and en13 forcing, contracts with plans for the offer14 ing of Medicare Advantage plans under 

15 part C and EFFS plans under part E, in16 cluding the offering of qualified prescrip17 tion drug coverage under such plans; and 

18 ‘‘(ii) negotiating, entering into, and 

19 enforcing, contracts with PDP sponsors for 

20 the offering of prescription drug plans 

21 under part D. 

22 ‘‘(B) OTHER DUTIES.—The Administrator 

23 shall carry out any duty provided for under 

24 part C, part D, or part E, including demonstra25 tion projects carried out in part or in whole 
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1 under such parts, the programs of all-inclusive 

2 care for the elderly (PACE program) under sec3 tion 1894, the social health maintenance orga4 nization (SHMO) demonstration projects (re5 ferred to in section 4104(c) of the Balanced 

6 Budget Act of 1997), medicare cost contractors 

7 under section 1876(h), and through a Medicare 

8 Advantage project that demonstrates the appli9 cation of capitation payment rates for frail el10 derly medicare beneficiaries through the use of 

11 a interdisciplinary team and through the provi12 sion of primary care services to such bene13 ficiaries by means of such a team at the nurs14 ing facility involved). 

15 ‘‘(C) PRESCRIPTION DRUG CARD.—The 

16 Administrator shall carry out section 1807 (re17 lating to the medicare prescription drug dis18 count card endorsement program). 

19 ‘‘(D) NONINTERFERENCE.—In carrying 

20 out its duties with respect to the provision of 

21 qualified prescription drug coverage to bene22 ficiaries under this title, the Administrator may 

23 not—
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1 ‘‘(i) require a particular formulary or 

2 institute a price structure for the reim3 bursement of covered outpatient drugs; 

4 ‘‘(ii) interfere in any way with nego5 tiations between PDP sponsors and Medi6 care Advantage organizations and EFFS 

7 organizations and drug manufacturers, 

8 wholesalers, or other suppliers of covered 

9 outpatient drugs; and 

10 ‘‘(iii) otherwise interfere with the 

11 competitive nature of providing such cov12 erage through such sponsors and organiza13 tions. 

14 ‘‘(E) ANNUAL REPORTS.—Not later March 

15 31 of each year, the Administrator shall submit 

16 to Congress and the President a report on the 

17 administration of parts C, D, and E during the 

18 previous fiscal year. 

19 ‘‘(2) STAFF.—

20 ‘‘(A) IN GENERAL.—The Administrator, 

21 with the approval of the Secretary, may employ, 

22 without regard to chapter 31 of title 5, United 

23 States Code, other than sections 3102 through 

24 3108, 3110 through 3113, 3136m and 3151, 

25 such officers and employees as are necessary to 
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1 administer the activities to be carried out 

2 through the Medicare Benefits Administration. 

3 The Administrator shall employ staff with ap4 propriate and necessary expertise in negotiating 

5 contracts in the private sector. 

6 ‘‘(B) FLEXIBILITY WITH RESPECT TO COM7 PENSATION.—

8 ‘‘(i) IN GENERAL.—The staff of the 

9 Medicare Benefits Administration shall, 

10 subject to clause (ii), be paid without re11 gard to the provisions of chapter 51 (other 

12 than section 5101) and chapter 53 (other 

13 than section 5301) of such title (relating to 

14 classification and schedule pay rates). 

15 ‘‘(ii) MAXIMUM RATE.—In no case 

16 may the rate of compensation determined 

17 under clause (i) exceed the rate of basic 

18 pay payable for level IV of the Executive 

19 Schedule under section 5315 of title 5, 

20 United States Code. 

21 ‘‘(C) LIMITATION ON FULL-TIME EQUIVA22 LENT STAFFING FOR CURRENT CMS FUNCTIONS

23 BEING TRANSFERRED.—The Administrator may 

24 not employ under this paragraph a number of 

25 full-time equivalent employees, to carry out 
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1 functions that were previously conducted by the 

2 Centers for Medicare & Medicaid Services and 

3 that are conducted by the Administrator by rea4 son of this section, that exceeds the number of 

5 such full-time equivalent employees authorized 

6 to be employed by the Centers for Medicare & 

7 Medicaid Services to conduct such functions as 

8 of the date of the enactment of this Act. 

9 ‘‘(3) REDELEGATION OF CERTAIN FUNCTIONS

10 OF THE CENTERS FOR MEDICARE & MEDICAID SERV11 ICES.—

12 ‘‘(A) IN GENERAL.—The Secretary, the 

13 Administrator, and the Administrator of the 

14 Centers for Medicare & Medicaid Services shall 

15 establish an appropriate transition of responsi16 bility in order to redelegate the administration 

17 of part C from the Secretary and the Adminis18 trator of the Centers for Medicare & Medicaid 

19 Services to the Administrator as is appropriate 

20 to carry out the purposes of this section. 

21 ‘‘(B) TRANSFER OF DATA AND INFORMA22 TION.—The Secretary shall ensure that the Ad23 ministrator of the Centers for Medicare & Med24 icaid Services transfers to the Administrator of 

25 the Medicare Benefits Administration such in-
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1 formation and data in the possession of the Ad2 ministrator of the Centers for Medicare & Med3 icaid Services as the Administrator of the Medi4 care Benefits Administration requires to carry 

5 out the duties described in paragraph (1). 

6 ‘‘(C) CONSTRUCTION.—Insofar as a re7 sponsibility of the Secretary or the Adminis8 trator of the Centers for Medicare & Medicaid 

9 Services is redelegated to the Administrator 

10 under this section, any reference to the Sec11 retary or the Administrator of the Centers for 

12 Medicare & Medicaid Services in this title or 

13 title XI with respect to such responsibility is 

14 deemed to be a reference to the Administrator.

15 ‘‘(d) OFFICE OF BENEFICIARY ASSISTANCE.—

16 ‘‘(1) ESTABLISHMENT.—The Secretary shall es17 tablish within the Medicare Benefits Administration 

18 an Office of Beneficiary Assistance to coordinate 

19 functions relating to outreach and education of 

20 medicare beneficiaries under this title, including the 

21 functions described in paragraph (2). The Office 

22 shall be separate operating division within the Ad23 ministration. 

24 ‘‘(2) DISSEMINATION OF INFORMATION ON

25 BENEFITS AND APPEALS RIGHTS.—
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1 ‘‘(A) DISSEMINATION OF BENEFITS INFOR2 MATION.—The Office of Beneficiary Assistance 

3 shall disseminate, directly or through contract, 

4 to medicare beneficiaries, by mail, by posting on 

5 the Internet site of the Medicare Benefits Ad6 ministration and through a toll-free telephone 

7 number, information with respect to the fol8 lowing: 

9 ‘‘(i) Benefits, and limitations on pay10 ment (including cost-sharing, stop-loss pro11 visions, and formulary restrictions) under 

12 parts C, D, and E. 

13 ‘‘(ii) Benefits, and limitations on pay14 ment under parts A and B, including in15 formation on medicare supplemental poli16 cies under section 1882. 

17 Such information shall be presented in a man18 ner so that medicare beneficiaries may compare 

19 benefits under parts A, B, D, and medicare 

20 supplemental policies with benefits under Medi21 care Advantage plans under part C and EFFS 

22 plans under part E. 

23 ‘‘(B) DISSEMINATION OF APPEALS RIGHTS

24 INFORMATION.—The Office of Beneficiary As25 sistance shall disseminate to medicare bene-
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1 ficiaries in the manner provided under subpara2 graph (A) a description of procedural rights (in3 cluding grievance and appeals procedures) of 

4 beneficiaries under the original medicare fee5 for-service program under parts A and B, the 

6 Medicare Advantage program under part C, the 

7 Voluntary Prescription Drug Benefit Program 

8 under part D, and the Enhanced Fee-for-Serv9 ice program under part E. 

10 ‘‘(e) MEDICARE POLICY ADVISORY BOARD.—

11 ‘‘(1) ESTABLISHMENT.—There is established 

12 within the Medicare Benefits Administration the 

13 Medicare Policy Advisory Board (in this section re14 ferred to the ‘Board’). The Board shall advise, con15 sult with, and make recommendations to the Admin16 istrator of the Medicare Benefits Administration 

17 with respect to the administration of parts C, D, 

18 and E, including the review of payment policies 

19 under such parts. 

20 ‘‘(2) REPORTS.—

21 ‘‘(A) IN GENERAL.—With respect to mat22 ters of the administration of parts C, D, and E 

23 the Board shall submit to Congress and to the 

24 Administrator of the Medicare Benefits Admin25 istration such reports as the Board determines 
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1 appropriate. Each such report may contain such 

2 recommendations as the Board determines ap3 propriate for legislative or administrative 

4 changes to improve the administration of such 

5 parts, including the topics described in subpara6 graph (B). Each such report shall be published 

7 in the Federal Register. 

8 ‘‘(B) TOPICS DESCRIBED.—Reports re9 quired under subparagraph (A) may include the 

10 following topics: 

11 ‘‘(i) FOSTERING COMPETITION.—Rec12 ommendations or proposals to increase 

13 competition under parts C, D, and E for 

14 services furnished to medicare bene15 ficiaries. 

16 ‘‘(ii) EDUCATION AND ENROLL17 MENT.—Recommendations for the im18 provement to efforts to provide medicare 

19 beneficiaries information and education on 

20 the program under this title, and specifi21 cally parts C, D, and E, and the program 

22 for enrollment under the title. 

23 ‘‘(iii) IMPLEMENTATION OF RISK-AD24 JUSTMENT.—Evaluation of the implemen25 tation under section 1853(a)(3)(C) of the 
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1 risk adjustment methodology to payment 

2 rates under that section to Medicare Ad3 vantage organizations offering Medicare 

4 Advantage plans (and the corresponding 

5 payment provisions under part E) that ac6 counts for variations in per capita costs 

7 based on health status, geography, and 

8 other demographic factors. 

9 ‘‘(iv) RURAL ACCESS.—Recommenda10 tions to improve competition and access to 

11 plans under parts C, D, and E in rural 

12 areas. 

13 ‘‘(C) MAINTAINING INDEPENDENCE OF

14 BOARD.—The Board shall directly submit to 

15 Congress reports required under subparagraph 

16 (A). No officer or agency of the United States 

17 may require the Board to submit to any officer 

18 or agency of the United States for approval, 

19 comments, or review, prior to the submission to 

20 Congress of such reports. 

21 ‘‘(3) DUTY OF ADMINISTRATOR OF MEDICARE

22 BENEFITS ADMINISTRATION.—With respect to any 

23 report submitted by the Board under paragraph 

24 (2)(A), not later than 90 days after the report is 

25 submitted, the Administrator of the Medicare Bene-
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1 fits Administration shall submit to Congress and the 

2 President an analysis of recommendations made by 

3 the Board in such report. Each such analysis shall 

4 be published in the Federal Register. 

5 ‘‘(4) MEMBERSHIP.—

6 ‘‘(A) APPOINTMENT.—Subject to the suc7 ceeding provisions of this paragraph, the Board 

8 shall consist of seven members to be appointed 

9 as follows: 

10 ‘‘(i) Three members shall be ap11 pointed by the President. 

12 ‘‘(ii) Two members shall be appointed 

13 by the Speaker of the House of Represent14 atives, with the advice of the chairmen and 

15 the ranking minority members of the Com16 mittees on Ways and Means and on En17 ergy and Commerce of the House of Rep18 resentatives. 

19 ‘‘(iii) Two members shall be appointed 

20 by the President pro tempore of the Senate 

21 with the advice of the chairman and the 

22 ranking minority member of the Senate 

23 Committee on Finance. 

24 ‘‘(B) QUALIFICATIONS.—The members 

25 shall be chosen on the basis of their integrity, 
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1 impartiality, and good judgment, and shall be 

2 individuals who are, by reason of their edu3 cation and experience in health care benefits 

4 management, exceptionally qualified to perform 

5 the duties of members of the Board. 

6 ‘‘(C) PROHIBITION ON INCLUSION OF FED7 ERAL EMPLOYEES.—No officer or employee of 

8 the United States may serve as a member of 

9 the Board. 

10 ‘‘(5) COMPENSATION.—Members of the Board 

11 shall receive, for each day (including travel time) 

12 they are engaged in the performance of the functions 

13 of the board, compensation at rates not to exceed 

14 the daily equivalent to the annual rate in effect for 

15 level IV of the Executive Schedule under section 

16 5315 of title 5, United States Code. 

17 ‘‘(6) TERMS OF OFFICE.—

18 ‘‘(A) IN GENERAL.—The term of office of 

19 members of the Board shall be 3 years. 

20 ‘‘(B) TERMS OF INITIAL APPOINTEES.—As 

21 designated by the President at the time of ap22 pointment, of the members first appointed—

23 ‘‘(i) one shall be appointed for a term 

24 of 1 year; 
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1 ‘‘(ii) three shall be appointed for 

2 terms of 2 years; and 

3 ‘‘(iii) three shall be appointed for 

4 terms of 3 years. 

5 ‘‘(C) REAPPOINTMENTS.—Any person ap6 pointed as a member of the Board may not 

7 serve for more than 8 years. 

8 ‘‘(D) VACANCY.—Any member appointed 

9 to fill a vacancy occurring before the expiration 

10 of the term for which the member’s predecessor 

11 was appointed shall be appointed only for the 

12 remainder of that term. A member may serve 

13 after the expiration of that member’s term until 

14 a successor has taken office. A vacancy in the 

15 Board shall be filled in the manner in which the 

16 original appointment was made. 

17 ‘‘(7) CHAIR.—The Chair of the Board shall be 

18 elected by the members. The term of office of the 

19 Chair shall be 3 years. 

20 ‘‘(8) MEETINGS.—The Board shall meet at the 

21 call of the Chair, but in no event less than three 

22 times during each fiscal year. 

23 ‘‘(9) DIRECTOR AND STAFF.—
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1 ‘‘(A) APPOINTMENT OF DIRECTOR.—The 

2 Board shall have a Director who shall be ap3 pointed by the Chair. 

4 ‘‘(B) IN GENERAL.—With the approval of 

5 the Board, the Director may appoint, without 

6 regard to chapter 31 of title 5, United States 

7 Code, such additional personnel as the Director 

8 considers appropriate. 

9 ‘‘(C) FLEXIBILITY WITH RESPECT TO COM10 PENSATION.—

11 ‘‘(i) IN GENERAL.—The Director and 

12 staff of the Board shall, subject to clause 

13 (ii), be paid without regard to the provi14 sions of chapter 51 and chapter 53 of such 

15 title (relating to classification and schedule 

16 pay rates). 

17 ‘‘(ii) MAXIMUM RATE.—In no case 

18 may the rate of compensation determined 

19 under clause (i) exceed the rate of basic 

20 pay payable for level IV of the Executive 

21 Schedule under section 5315 of title 5, 

22 United States Code. 

23 ‘‘(D) ASSISTANCE FROM THE ADMINIS24 TRATOR OF THE MEDICARE BENEFITS ADMINIS25 TRATION.—The Administrator of the Medicare 
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1 Benefits Administration shall make available to 

2 the Board such information and other assist3 ance as it may require to carry out its func4 tions. 

5 ‘‘(10) CONTRACT AUTHORITY.—The Board may 

6 contract with and compensate government and pri7 vate agencies or persons to carry out its duties 

8 under this subsection, without regard to section 

9 3709 of the Revised Statutes (41 U.S.C. 5). 

10 ‘‘(f) FUNDING.—There is authorized to be appro11 priated, in appropriate part from the Federal Hospital In12 surance Trust Fund and from the Federal Supplementary 

13 Medical Insurance Trust Fund (including the Medicare 

14 Prescription Drug Account), such sums as are necessary 

15 to carry out this section.’’. 

16 (b) EFFECTIVE DATE.—

17 (1) IN GENERAL.—The amendment made by 

18 subsection (a) shall take effect on the date of the en19 actment of this Act. 

20 (2) DUTIES WITH RESPECT TO ELIGIBILITY DE21 TERMINATIONS AND ENROLLMENT.—The Adminis22 trator of the Medicare Benefits Administration shall 

23 carry out enrollment under title XVIII of the Social 

24 Security Act, make eligibility determinations under 
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1 such title, and carry out parts C and E of such title 

2 for years beginning or after January 1, 2006. 

3 (3) TRANSITION.—Before the date the Adminis4 trator of the Medicare Benefits Administration is 

5 appointed and assumes responsibilities under this 

6 section and section 1807 of the Social Security Act, 

7 the Secretary of Health and Human Services shall 

8 provide for the conduct of any responsibilities of 

9 such Administrator that are otherwise provided 

10 under law. 

11 (c) MISCELLANEOUS ADMINISTRATIVE PROVI12 SIONS.—

13 (1) ADMINISTRATOR AS MEMBER OF THE

14 BOARD OF TRUSTEES OF THE MEDICARE TRUST

15 FUNDS.—Section 1817(b) and section 1841(b) (42 

16 U.S.C. 1395i(b), 1395t(b)) are each amended by 

17 striking ‘‘and the Secretary of Health and Human 

18 Services, all ex officio,’’ and inserting ‘‘the Secretary 

19 of Health and Human Services, and the Adminis20 trator of the Medicare Benefits Administration, all 

21 ex officio,’’. 

22 (2) INCREASE IN GRADE TO EXECUTIVE LEVEL

23 III FOR THE ADMINISTRATOR OF THE CENTERS FOR

24 MEDICARE & MEDICAID SERVICES; LEVEL FOR MEDI25 CARE BENEFITS ADMINISTRATOR.—
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1 (A) IN GENERAL.—Section 5314 of title 5, 

2 United States Code, by adding at the end the 

3 following: 

4 ‘‘Administrator of the Centers for Medicare & 

5 Medicaid Services. 

6 ‘‘Administrator of the Medicare Benefits Ad7 ministration.’’. 

8 (B) CONFORMING AMENDMENT.—Section 

9 5315 of such title is amended by striking ‘‘Ad10 ministrator of the Health Care Financing Ad11 ministration.’’. 

12 (C) EFFECTIVE DATE.—The amendments 

13 made by this paragraph take effect on January 

14 1, 2004.

15 TITLE IX—REGULATORY REDUC16 TION AND CONTRACTING RE17 FORM 

18 Subtitle A—Regulatory Reform 

19 SEC. 901. CONSTRUCTION; DEFINITION OF SUPPLIER. 

20 (a) CONSTRUCTION.—Nothing in this title shall be 

21 construed—

22 (1) to compromise or affect existing legal rem23 edies for addressing fraud or abuse, whether it be 

24 criminal prosecution, civil enforcement, or adminis25 trative remedies, including under sections 3729 
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1 through 3733 of title 31, United States Code 

2 (known as the False Claims Act); or 

3 (2) to prevent or impede the Department of 

4 Health and Human Services in any way from its on5 going efforts to eliminate waste, fraud, and abuse in 

6 the medicare program. 

7 Furthermore, the consolidation of medicare administrative 

8 contracting set forth in this division does not constitute 

9 consolidation of the Federal Hospital Insurance Trust 

10 Fund and the Federal Supplementary Medical Insurance 

11 Trust Fund or reflect any position on that issue. 

12 (b) DEFINITION OF SUPPLIER.—Section 1861 (42 

13 U.S.C. 1395x) is amended by inserting after subsection 

14 (c) the following new subsection: 

15 ‘‘Supplier 

16 ‘‘(d) The term ‘supplier’ means, unless the context 

17 otherwise requires, a physician or other practitioner, a fa18 cility, or other entity (other than a provider of services) 

19 that furnishes items or services under this title.’’. 

20 SEC. 902. ISSUANCE OF REGULATIONS. 

21 (a) REGULAR TIMELINE FOR PUBLICATION OF

22 FINAL RULES.—

23 (1) IN GENERAL.—Section 1871(a) (42 U.S.C. 

24 1395hh(a)) is amended by adding at the end the fol25 lowing new paragraph: 
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1 ‘‘(3)(A) The Secretary, in consultation with the Di2 rector of the Office of Management and Budget, shall es3 tablish and publish a regular timeline for the publication 

4 of final regulations based on the previous publication of 

5 a proposed regulation or an interim final regulation. 

6 ‘‘(B) Such timeline may vary among different regula7 tions based on differences in the complexity of the regula8 tion, the number and scope of comments received, and 

9 other relevant factors, but shall not be longer than 3 years 

10 except under exceptional circumstances. If the Secretary 

11 intends to vary such timeline with respect to the publica12 tion of a final regulation, the Secretary shall cause to have 

13 published in the Federal Register notice of the different 

14 timeline by not later than the timeline previously estab15 lished with respect to such regulation. Such notice shall 

16 include a brief explanation of the justification for such 

17 variation. 

18 ‘‘(C) In the case of interim final regulations, upon 

19 the expiration of the regular timeline established under 

20 this paragraph for the publication of a final regulation 

21 after opportunity for public comment, the interim final 

22 regulation shall not continue in effect unless the Secretary 

23 publishes (at the end of the regular timeline and, if appli24 cable, at the end of each succeeding 1-year period) a notice 

25 of continuation of the regulation that includes an expla-
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1 nation of why the regular timeline (and any subsequent 

2 1-year extension) was not complied with. If such a notice 

3 is published, the regular timeline (or such timeline as pre4 viously extended under this paragraph) for publication of 

5 the final regulation shall be treated as having been ex6 tended for 1 additional year. 

7 ‘‘(D) The Secretary shall annually submit to Con8 gress a report that describes the instances in which the 

9 Secretary failed to publish a final regulation within the 

10 applicable regular timeline under this paragraph and that 

11 provides an explanation for such failures.’’. 

12 (2) EFFECTIVE DATE.—The amendment made 

13 by paragraph (1) shall take effect on the date of the 

14 enactment of this Act. The Secretary shall provide 

15 for an appropriate transition to take into account 

16 the backlog of previously published interim final reg17 ulations. 

18 (b) LIMITATIONS ON NEW MATTER IN FINAL REGU19 LATIONS.—

20 (1) IN GENERAL.—Section 1871(a) (42 U.S.C. 

21 1395hh(a)), as amended by subsection (a), is 

22 amended by adding at the end the following new 

23 paragraph: 

24 ‘‘(4) If the Secretary publishes a final regulation that 

25 includes a provision that is not a logical outgrowth of a 
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1 previously published notice of proposed rulemaking or in2 terim final rule, such provision shall be treated as a pro3 posed regulation and shall not take effect until there is 

4 the further opportunity for public comment and a publica5 tion of the provision again as a final regulation.’’. 

6 (2) EFFECTIVE DATE.—The amendment made 

7 by paragraph (1) shall apply to final regulations 

8 published on or after the date of the enactment of 

9 this Act. 

10 SEC. 903. COMPLIANCE WITH CHANGES IN REGULATIONS 

11 AND POLICIES. 

12 (a) NO RETROACTIVE APPLICATION OF SUB13 STANTIVE CHANGES.—

14 (1) IN GENERAL.—Section 1871 (42 U.S.C. 

15 1395hh), as amended by section 902(a), is amended 

16 by adding at the end the following new subsection: 

17 ‘‘(e)(1)(A) A substantive change in regulations, man18 ual instructions, interpretative rules, statements of policy, 

19 or guidelines of general applicability under this title shall 

20 not be applied (by extrapolation or otherwise) retroactively 

21 to items and services furnished before the effective date 

22 of the change, unless the Secretary determines that—

23 ‘‘(i) such retroactive application is necessary to 

24 comply with statutory requirements; or 
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1 ‘‘(ii) failure to apply the change retroactively 

2 would be contrary to the public interest.’’. 

3 (2) EFFECTIVE DATE.—The amendment made 

4 by paragraph (1) shall apply to substantive changes 

5 issued on or after the date of the enactment of this 

6 Act. 

7 (b) TIMELINE FOR COMPLIANCE WITH SUBSTANTIVE

8 CHANGES AFTER NOTICE.—

9 (1) IN GENERAL.—Section 1871(e)(1), as 

10 added by subsection (a), is amended by adding at 

11 the end the following: 

12 ‘‘(B)(i) Except as provided in clause (ii), a sub13 stantive change referred to in subparagraph (A) shall not 

14 become effective before the end of the 30-day period that 

15 begins on the date that the Secretary has issued or pub16 lished, as the case may be, the substantive change. 

17 ‘‘(ii) The Secretary may provide for such a sub18 stantive change to take effect on a date that precedes the 

19 end of the 30-day period under clause (i) if the Secretary 

20 finds that waiver of such 30-day period is necessary to 

21 comply with statutory requirements or that the application 

22 of such 30-day period is contrary to the public interest. 

23 If the Secretary provides for an earlier effective date pur24 suant to this clause, the Secretary shall include in the 

25 issuance or publication of the substantive change a finding 
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1 described in the first sentence, and a brief statement of 

2 the reasons for such finding. 

3 ‘‘(C) No action shall be taken against a provider of 

4 services or supplier with respect to noncompliance with 

5 such a substantive change for items and services furnished 

6 before the effective date of such a change.’’. 

7 (2) EFFECTIVE DATE.—The amendment made 

8 by paragraph (1) shall apply to compliance actions 

9 undertaken on or after the date of the enactment of 

10 this Act. 

11 (c) RELIANCE ON GUIDANCE.—

12 (1) IN GENERAL.—Section 1871(e), as added 

13 by subsection (a), is further amended by adding at 

14 the end the following new paragraph: 

15 ‘‘(2)(A) If—

16 ‘‘(i) a provider of services or supplier follows 

17 the written guidance (which may be transmitted 

18 electronically) provided by the Secretary or by a 

19 medicare contractor (as defined in section 1889(g)) 

20 acting within the scope of the contractor’s contract 

21 authority, with respect to the furnishing of items or 

22 services and submission of a claim for benefits for 

23 such items or services with respect to such provider 

24 or supplier; 
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1 ‘‘(ii) the Secretary determines that the provider 

2 of services or supplier has accurately presented the 

3 circumstances relating to such items, services, and 

4 claim to the contractor in writing; and 

5 ‘‘(iii) the guidance was in error; 

6 the provider of services or supplier shall not be subject 

7 to any sanction (including any penalty or requirement for 

8 repayment of any amount) if the provider of services or 

9 supplier reasonably relied on such guidance. 

10 ‘‘(B) Subparagraph (A) shall not be construed as pre11 venting the recoupment or repayment (without any addi12 tional penalty) relating to an overpayment insofar as the 

13 overpayment was solely the result of a clerical or technical 

14 operational error.’’. 

15 (2) EFFECTIVE DATE.—The amendment made 

16 by paragraph (1) shall take effect on the date of the 

17 enactment of this Act but shall not apply to any 

18 sanction for which notice was provided on or before 

19 the date of the enactment of this Act. 

20 SEC. 904. REPORTS AND STUDIES RELATING TO REGU21 LATORY REFORM. 

22 (a) GAO STUDY ON ADVISORY OPINION AUTHOR23 ITY.—

24 (1) STUDY.—The Comptroller General of the 

25 United States shall conduct a study to determine the 
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1 feasibility and appropriateness of establishing in the 

2 Secretary authority to provide legally binding advi3 sory opinions on appropriate interpretation and ap4 plication of regulations to carry out the medicare 

5 program under title XVIII of the Social Security 

6 Act. Such study shall examine the appropriate time7 frame for issuing such advisory opinions, as well as 

8 the need for additional staff and funding to provide 

9 such opinions. 

10 (2) REPORT.—The Comptroller General shall 

11 submit to Congress a report on the study conducted 

12 under paragraph (1) by not later than one year after 

13 the date of the enactment of this Act. 

14 (b) REPORT ON LEGAL AND REGULATORY INCON15 SISTENCIES.—Section 1871 (42 U.S.C. 1395hh), as 

16 amended by section 2(a), is amended by adding at the end 

17 the following new subsection: 

18 ‘‘(f)(1) Not later than 2 years after the date of the 

19 enactment of this subsection, and every 2 years thereafter, 

20 the Secretary shall submit to Congress a report with re21 spect to the administration of this title and areas of incon22 sistency or conflict among the various provisions under 

23 law and regulation. 

24 ‘‘(2) In preparing a report under paragraph (1), the 

25 Secretary shall collect—
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1 ‘‘(A) information from individuals entitled to 

2 benefits under part A or enrolled under part B, or 

3 both, providers of services, and suppliers and from 

4 the Medicare Beneficiary Ombudsman and the Medi5 care Provider Ombudsman with respect to such 

6 areas of inconsistency and conflict; and 

7 ‘‘(B) information from medicare contractors 

8 that tracks the nature of written and telephone in9 quiries. 

10 ‘‘(3) A report under paragraph (1) shall include a de11 scription of efforts by the Secretary to reduce such incon12 sistency or conflicts, and recommendations for legislation 

13 or administrative action that the Secretary determines ap14 propriate to further reduce such inconsistency or con15 flicts.’’. 

16 Subtitle B—Contracting Reform 

17 SEC. 911. INCREASED FLEXIBILITY IN MEDICARE ADMINIS18 TRATION. 

19 (a) CONSOLIDATION AND FLEXIBILITY IN MEDICARE

20 ADMINISTRATION.—

21 (1) IN GENERAL.—Title XVIII is amended by 

22 inserting after section 1874 the following new sec23 tion: 

24 ‘‘CONTRACTS WITH MEDICARE ADMINISTRATIVE

25 CONTRACTORS

26 ‘‘SEC. 1874A. (a) AUTHORITY.—
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1 ‘‘(1) AUTHORITY TO ENTER INTO CON2 TRACTS.—The Secretary may enter into contracts 

3 with any eligible entity to serve as a medicare ad4 ministrative contractor with respect to the perform5 ance of any or all of the functions described in para6 graph (4) or parts of those functions (or, to the ex7 tent provided in a contract, to secure performance 

8 thereof by other entities). 

9 ‘‘(2) ELIGIBILITY OF ENTITIES.—An entity is 

10 eligible to enter into a contract with respect to the 

11 performance of a particular function described in 

12 paragraph (4) only if—

13 ‘‘(A) the entity has demonstrated capa14 bility to carry out such function; 

15 ‘‘(B) the entity complies with such conflict 

16 of interest standards as are generally applicable 

17 to Federal acquisition and procurement; 

18 ‘‘(C) the entity has sufficient assets to fi19 nancially support the performance of such func20 tion; and 

21 ‘‘(D) the entity meets such other require22 ments as the Secretary may impose. 

23 ‘‘(3) MEDICARE ADMINISTRATIVE CONTRACTOR

24 DEFINED.—For purposes of this title and title XI—
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1 ‘‘(A) IN GENERAL.—The term ‘medicare 

2 administrative contractor’ means an agency, or3 ganization, or other person with a contract 

4 under this section. 

5 ‘‘(B) APPROPRIATE MEDICARE ADMINIS6 TRATIVE CONTRACTOR.—With respect to the 

7 performance of a particular function in relation 

8 to an individual entitled to benefits under part 

9 A or enrolled under part B, or both, a specific 

10 provider of services or supplier (or class of such 

11 providers of services or suppliers), the ‘appro12 priate’ medicare administrative contractor is the 

13 medicare administrative contractor that has a 

14 contract under this section with respect to the 

15 performance of that function in relation to that 

16 individual, provider of services or supplier or 

17 class of provider of services or supplier. 

18 ‘‘(4) FUNCTIONS DESCRIBED.—The functions 

19 referred to in paragraphs (1) and (2) are payment 

20 functions, provider services functions, and functions 

21 relating to services furnished to individuals entitled 

22 to benefits under part A or enrolled under part B, 

23 or both, as follows: 

24 ‘‘(A) DETERMINATION OF PAYMENT

25 AMOUNTS.—Determining (subject to the provi-
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1 sions of section 1878 and to such review by the 

2 Secretary as may be provided for by the con3 tracts) the amount of the payments required 

4 pursuant to this title to be made to providers 

5 of services, suppliers and individuals. 

6 ‘‘(B) MAKING PAYMENTS.—Making pay7 ments described in subparagraph (A) (including 

8 receipt, disbursement, and accounting for funds 

9 in making such payments). 

10 ‘‘(C) BENEFICIARY EDUCATION AND AS11 SISTANCE.—Providing education and outreach 

12 to individuals entitled to benefits under part A 

13 or enrolled under part B, or both, and pro14 viding assistance to those individuals with spe15 cific issues, concerns or problems. 

16 ‘‘(D) PROVIDER CONSULTATIVE SERV17 ICES.—Providing consultative services to insti18 tutions, agencies, and other persons to enable 

19 them to establish and maintain fiscal records 

20 necessary for purposes of this title and other21 wise to qualify as providers of services or sup22 pliers. 

23 ‘‘(E) COMMUNICATION WITH PRO24 VIDERS.—Communicating to providers of serv25 ices and suppliers any information or instruc-
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1 tions furnished to the medicare administrative 

2 contractor by the Secretary, and facilitating 

3 communication between such providers and sup4 pliers and the Secretary. 

5 ‘‘(F) PROVIDER EDUCATION AND TECH6 NICAL ASSISTANCE.—Performing the functions 

7 relating to provider education, training, and 

8 technical assistance. 

9 ‘‘(G) ADDITIONAL FUNCTIONS.—Per10 forming such other functions as are necessary 

11 to carry out the purposes of this title. 

12 ‘‘(5) RELATIONSHIP TO MIP CONTRACTS.—

13 ‘‘(A) NONDUPLICATION OF DUTIES.—In 

14 entering into contracts under this section, the 

15 Secretary shall assure that functions of medi16 care administrative contractors in carrying out 

17 activities under parts A and B do not duplicate 

18 activities carried out under the Medicare Integ19 rity Program under section 1893. The previous 

20 sentence shall not apply with respect to the ac21 tivity described in section 1893(b)(5) (relating 

22 to prior authorization of certain items of dura23 ble medical equipment under section 

24 1834(a)(15)). 
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1 ‘‘(B) CONSTRUCTION.—An entity shall not 

2 be treated as a medicare administrative con3 tractor merely by reason of having entered into 

4 a contract with the Secretary under section 

5 1893. 

6 ‘‘(6) APPLICATION OF FEDERAL ACQUISITION

7 REGULATION.—Except to the extent inconsistent 

8 with a specific requirement of this title, the Federal 

9 Acquisition Regulation applies to contracts under 

10 this title. 

11 ‘‘(b) CONTRACTING REQUIREMENTS.—

12 ‘‘(1) USE OF COMPETITIVE PROCEDURES.—

13 ‘‘(A) IN GENERAL.—Except as provided in 

14 laws with general applicability to Federal acqui15 sition and procurement or in subparagraph (B), 

16 the Secretary shall use competitive procedures 

17 when entering into contracts with medicare ad18 ministrative contractors under this section, tak19 ing into account performance quality as well as 

20 price and other factors. 

21 ‘‘(B) RENEWAL OF CONTRACTS.—The Sec22 retary may renew a contract with a medicare 

23 administrative contractor under this section 

24 from term to term without regard to section 5 

25 of title 41, United States Code, or any other 
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1 provision of law requiring competition, if the 

2 medicare administrative contractor has met or 

3 exceeded the performance requirements applica4 ble with respect to the contract and contractor, 

5 except that the Secretary shall provide for the 

6 application of competitive procedures under 

7 such a contract not less frequently than once 

8 every five years. 

9 ‘‘(C) TRANSFER OF FUNCTIONS.—The 

10 Secretary may transfer functions among medi11 care administrative contractors consistent with 

12 the provisions of this paragraph. The Secretary 

13 shall ensure that performance quality is consid14 ered in such transfers. The Secretary shall pro15 vide public notice (whether in the Federal Reg16 ister or otherwise) of any such transfer (includ17 ing a description of the functions so trans18 ferred, a description of the providers of services 

19 and suppliers affected by such transfer, and 

20 contact information for the contractors in21 volved). 

22 ‘‘(D) INCENTIVES FOR QUALITY.—The 

23 Secretary shall provide incentives for medicare 

24 administrative contractors to provide quality 

25 service and to promote efficiency. 
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1 ‘‘(2) COMPLIANCE WITH REQUIREMENTS.—No 

2 contract under this section shall be entered into with 

3 any medicare administrative contractor unless the 

4 Secretary finds that such medicare administrative 

5 contractor will perform its obligations under the con6 tract efficiently and effectively and will meet such 

7 requirements as to financial responsibility, legal au8 thority, quality of services provided, and other mat9 ters as the Secretary finds pertinent. 

10 ‘‘(3) PERFORMANCE REQUIREMENTS.—

11 ‘‘(A) DEVELOPMENT OF SPECIFIC PER12 FORMANCE REQUIREMENTS.—In developing 

13 contract performance requirements, the Sec14 retary shall develop performance requirements 

15 applicable to functions described in subsection 

16 (a)(4). 

17 ‘‘(B) CONSULTATION.—In developing such 

18 requirements, the Secretary may consult with 

19 providers of services and suppliers, organiza20 tions representing individuals entitled to bene21 fits under part A or enrolled under part B, or 

22 both, and organizations and agencies per23 forming functions necessary to carry out the 

24 purposes of this section with respect to such 

25 performance requirements. 
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1 ‘‘(C) INCLUSION IN CONTRACTS.—All con2 tractor performance requirements shall be set 

3 forth in the contract between the Secretary and 

4 the appropriate medicare administrative con5 tractor. Such performance requirements—

6 ‘‘(i) shall reflect the performance re7 quirements developed under subparagraph 

8 (A), but may include additional perform9 ance requirements; 

10 ‘‘(ii) shall be used for evaluating con11 tractor performance under the contract; 

12 and 

13 ‘‘(iii) shall be consistent with the writ14 ten statement of work provided under the 

15 contract. 

16 ‘‘(4) INFORMATION REQUIREMENTS.—The Sec17 retary shall not enter into a contract with a medi18 care administrative contractor under this section un19 less the contractor agrees—

20 ‘‘(A) to furnish to the Secretary such time21 ly information and reports as the Secretary may 

22 find necessary in performing his functions 

23 under this title; and 

24 ‘‘(B) to maintain such records and afford 

25 such access thereto as the Secretary finds nec-
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1 essary to assure the correctness and verification 

2 of the information and reports under subpara3 graph (A) and otherwise to carry out the pur4 poses of this title. 

5 ‘‘(5) SURETY BOND.—A contract with a medi6 care administrative contractor under this section 

7 may require the medicare administrative contractor, 

8 and any of its officers or employees certifying pay9 ments or disbursing funds pursuant to the contract, 

10 or otherwise participating in carrying out the con11 tract, to give surety bond to the United States in 

12 such amount as the Secretary may deem appro13 priate. 

14 ‘‘(c) TERMS AND CONDITIONS.—

15 ‘‘(1) IN GENERAL.—A contract with any medi16 care administrative contractor under this section 

17 may contain such terms and conditions as the Sec18 retary finds necessary or appropriate and may pro19 vide for advances of funds to the medicare adminis20 trative contractor for the making of payments by it 

21 under subsection (a)(4)(B). 

22 ‘‘(2) PROHIBITION ON MANDATES FOR CERTAIN

23 DATA COLLECTION.—The Secretary may not require, 

24 as a condition of entering into, or renewing, a con25 tract under this section, that the medicare adminis-
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1 trative contractor match data obtained other than in 

2 its activities under this title with data used in the 

3 administration of this title for purposes of identi4 fying situations in which the provisions of section 

5 1862(b) may apply. 

6 ‘‘(d) LIMITATION ON LIABILITY OF MEDICARE AD7 MINISTRATIVE CONTRACTORS AND CERTAIN OFFICERS.—

8 ‘‘(1) CERTIFYING OFFICER.—No individual des9 ignated pursuant to a contract under this section as 

10 a certifying officer shall, in the absence of the reck11 less disregard of the individual’s obligations or the 

12 intent by that individual to defraud the United 

13 States, be liable with respect to any payments cer14 tified by the individual under this section. 

15 ‘‘(2) DISBURSING OFFICER.—No disbursing of16 ficer shall, in the absence of the reckless disregard 

17 of the officer’s obligations or the intent by that offi18 cer to defraud the United States, be liable with re19 spect to any payment by such officer under this sec20 tion if it was based upon an authorization (which 

21 meets the applicable requirements for such internal 

22 controls established by the Comptroller General) of 

23 a certifying officer designated as provided in para24 graph (1) of this subsection. 
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1 ‘‘(3) LIABILITY OF MEDICARE ADMINISTRATIVE

2 CONTRACTOR.—

3 ‘‘(A) IN GENERAL.—No medicare administra4 tive contractor shall be liable to the United States 

5 for a payment by a certifying or disbursing officer 

6 unless, in connection with such payment, the medi7 care administrative contractor acted with reckless 

8 disregard of its obligations under its medicare ad9 ministrative contract or with intent to defraud the 

10 United States. 

11 ‘‘(B) RELATIONSHIP TO FALSE CLAIMS ACT.—

12 Nothing in this subsection shall be construed to limit 

13 liability for conduct that would constitute a violation 

14 of sections 3729 through 3731 of title 31, United 

15 States Code (commonly known as the ‘False Claims 

16 Act’). 

17 ‘‘(4) INDEMNIFICATION BY SECRETARY.—

18 ‘‘(A) IN GENERAL.—Subject to subpara19 graphs (B) and (D), in the case of a medicare 

20 administrative contractor (or a person who is a 

21 director, officer, or employee of such a con22 tractor or who is engaged by the contractor to 

23 participate directly in the claims administration 

24 process) who is made a party to any judicial or 

25 administrative proceeding arising from or relat-
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1 ing directly to the claims administration process 

2 under this title, the Secretary may, to the ex3 tent the Secretary determines to be appropriate 

4 and as specified in the contract with the con5 tractor, indemnify the contractor and such per6 sons. 

7 ‘‘(B) CONDITIONS.—The Secretary may 

8 not provide indemnification under subparagraph 

9 (A) insofar as the liability for such costs arises 

10 directly from conduct that is determined by the 

11 judicial proceeding or by the Secretary to be 

12 criminal in nature, fraudulent, or grossly neg13 ligent. If indemnification is provided by the Sec14 retary with respect to a contractor before a de15 termination that such costs arose directly from 

16 such conduct, the contractor shall reimburse the 

17 Secretary for costs of indemnification. 

18 ‘‘(C) SCOPE OF INDEMNIFICATION.—In19 demnification by the Secretary under subpara20 graph (A) may include payment of judgments, 

21 settlements (subject to subparagraph (D)), 

22 awards, and costs (including reasonable legal 

23 expenses). 

24 ‘‘(D) WRITTEN APPROVAL FOR SETTLE25 MENTS.—A contractor or other person de-
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1 scribed in subparagraph (A) may not propose to 

2 negotiate a settlement or compromise of a pro3 ceeding described in such subparagraph without 

4 the prior written approval of the Secretary to 

5 negotiate such settlement or compromise. Any 

6 indemnification under subparagraph (A) with 

7 respect to amounts paid under a settlement or 

8 compromise of a proceeding described in such 

9 subparagraph are conditioned upon prior writ10 ten approval by the Secretary of the final settle11 ment or compromise. 

12 ‘‘(E) CONSTRUCTION.—Nothing in this 

13 paragraph shall be construed—

14 ‘‘(i) to change any common law immu15 nity that may be available to a medicare 

16 administrative contractor or person de17 scribed in subparagraph (A); or 

18 ‘‘(ii) to permit the payment of costs 

19 not otherwise allowable, reasonable, or allo20 cable under the Federal Acquisition Regu21 lations.’’. 

22 (2) CONSIDERATION OF INCORPORATION OF

23 CURRENT LAW STANDARDS.—In developing contract 

24 performance requirements under section 1874A(b) 

25 of the Social Security Act, as inserted by paragraph 
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1 (1), the Secretary shall consider inclusion of the per2 formance standards described in sections 1816(f)(2) 

3 of such Act (relating to timely processing of recon4 siderations and applications for exemptions) and sec5 tion 1842(b)(2)(B) of such Act (relating to timely 

6 review of determinations and fair hearing requests), 

7 as such sections were in effect before the date of the 

8 enactment of this Act. 

9 (b) CONFORMING AMENDMENTS TO SECTION 1816 

10 (RELATING TO FISCAL INTERMEDIARIES).—Section 1816 

11 (42 U.S.C. 1395h) is amended as follows: 

12 (1) The heading is amended to read as follows: 

13 ‘‘PROVISIONS RELATING TO THE ADMINISTRATION OF

14 PART A’’. 

15 (2) Subsection (a) is amended to read as fol16 lows: 

17 ‘‘(a) The administration of this part shall be con18 ducted through contracts with medicare administrative 

19 contractors under section 1874A.’’. 

20 (3) Subsection (b) is repealed. 

21 (4) Subsection (c) is amended—

22 (A) by striking paragraph (1); and 

23 (B) in each of paragraphs (2)(A) and 

24 (3)(A), by striking ‘‘agreement under this sec25 tion’’ and inserting ‘‘contract under section 
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1 1874A that provides for making payments 

2 under this part’’. 

3 (5) Subsections (d) through (i) are repealed. 

4 (6) Subsections (j) and (k) are each amended—

5 (A) by striking ‘‘An agreement with an 

6 agency or organization under this section’’ and 

7 inserting ‘‘A contract with a medicare adminis8 trative contractor under section 1874A with re9 spect to the administration of this part’’; and 

10 (B) by striking ‘‘such agency or organiza11 tion’’ and inserting ‘‘such medicare administra12 tive contractor’’ each place it appears. 

13 (7) Subsection (l) is repealed. 

14 (c) CONFORMING AMENDMENTS TO SECTION 1842 

15 (RELATING TO CARRIERS).—Section 1842 (42 U.S.C. 

16 1395u) is amended as follows: 

17 (1) The heading is amended to read as follows: 

18 ‘‘PROVISIONS RELATING TO THE ADMINISTRATION OF

19 PART B’’. 

20 (2) Subsection (a) is amended to read as fol21 lows: 

22 ‘‘(a) The administration of this part shall be con23 ducted through contracts with medicare administrative 

24 contractors under section 1874A.’’. 

25 (3) Subsection (b) is amended—

26 (A) by striking paragraph (1); 
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1 (B) in paragraph (2)—

2 (i) by striking subparagraphs (A) and 

3 (B); 

4 (ii) in subparagraph (C), by striking 

5 ‘‘carriers’’ and inserting ‘‘medicare admin6 istrative contractors’’; and 

7 (iii) by striking subparagraphs (D) 

8 and (E); 

9 (C) in paragraph (3)—

10 (i) in the matter before subparagraph 

11 (A), by striking ‘‘Each such contract shall 

12 provide that the carrier’’ and inserting 

13 ‘‘The Secretary’’; 

14 (ii) by striking ‘‘will’’ the first place it 

15 appears in each of subparagraphs (A), (B), 

16 (F), (G), (H), and (L) and inserting 

17 ‘‘shall’’; 

18 (iii) in subparagraph (B), in the mat19 ter before clause (i), by striking ‘‘to the 

20 policyholders and subscribers of the car21 rier’’ and inserting ‘‘to the policyholders 

22 and subscribers of the medicare adminis23 trative contractor’’; 

24 (iv) by striking subparagraphs (C), 

25 (D), and (E); 
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1 (v) in subparagraph (H)—

2 (I) by striking ‘‘if it makes deter3 minations or payments with respect to 

4 physicians’ services,’’ in the matter 

5 preceding clause (i); and 

6 (II) by striking ‘‘carrier’’ and in7 serting ‘‘medicare administrative con8 tractor’’ in clause (i); 

9 (vi) by striking subparagraph (I); 

10 (vii) in subparagraph (L), by striking 

11 the semicolon and inserting a period; 

12 (viii) in the first sentence, after sub13 paragraph (L), by striking ‘‘and shall con14 tain’’ and all that follows through the pe15 riod; and 

16 (ix) in the seventh sentence, by insert17 ing ‘‘medicare administrative contractor,’’ 

18 after ‘‘carrier,’’; and 

19 (D) by striking paragraph (5); 

20 (E) in paragraph (6)(D)(iv), by striking 

21 ‘‘carrier’’ and inserting ‘‘medicare administra22 tive contractor’’; and 

23 (F) in paragraph (7), by striking ‘‘the car24 rier’’ and inserting ‘‘the Secretary’’ each place 

25 it appears. 
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1 (4) Subsection (c) is amended—

2 (A) by striking paragraph (1); 

3 (B) in paragraph (2)(A), by striking ‘‘con4 tract under this section which provides for the 

5 disbursement of funds, as described in sub6 section (a)(1)(B),’’ and inserting ‘‘contract 

7 under section 1874A that provides for making 

8 payments under this part’’; 

9 (C) in paragraph (3)(A), by striking ‘‘sub10 section (a)(1)(B)’’ and inserting ‘‘section 

11 1874A(a)(3)(B)’’; 

12 (D) in paragraph (4), in the matter pre13 ceding subparagraph (A), by striking ‘‘carrier’’ 

14 and inserting ‘‘medicare administrative con15 tractor’’; and 

16 (E) by striking paragraphs (5) and (6). 

17 (5) Subsections (d), (e), and (f) are repealed. 

18 (6) Subsection (g) is amended by striking ‘‘car19 rier or carriers’’ and inserting ‘‘medicare administra20 tive contractor or contractors’’. 

21 (7) Subsection (h) is amended—

22 (A) in paragraph (2)—

23 (i) by striking ‘‘Each carrier having 

24 an agreement with the Secretary under 
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1 subsection (a)’’ and inserting ‘‘The Sec2 retary’’; and 

3 (ii) by striking ‘‘Each such carrier’’ 

4 and inserting ‘‘The Secretary’’; 

5 (B) in paragraph (3)(A)—

6 (i) by striking ‘‘a carrier having an 

7 agreement with the Secretary under sub8 section (a)’’ and inserting ‘‘medicare ad9 ministrative contractor having a contract 

10 under section 1874A that provides for 

11 making payments under this part’’; and 

12 (ii) by striking ‘‘such carrier’’ and in13 serting ‘‘such contractor’’; 

14 (C) in paragraph (3)(B)—

15 (i) by striking ‘‘a carrier’’ and insert16 ing ‘‘a medicare administrative contractor’’ 

17 each place it appears; and 

18 (ii) by striking ‘‘the carrier’’ and in19 serting ‘‘the contractor’’ each place it ap20 pears; and 

21 (D) in paragraphs (5)(A) and (5)(B)(iii), 

22 by striking ‘‘carriers’’ and inserting ‘‘medicare 

23 administrative contractors’’ each place it ap24 pears. 

25 (8) Subsection (l) is amended—
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1 (A) in paragraph (1)(A)(iii), by striking 

2 ‘‘carrier’’ and inserting ‘‘medicare administra3 tive contractor’’; and 

4 (B) in paragraph (2), by striking ‘‘carrier’’ 

5 and inserting ‘‘medicare administrative con6 tractor’’. 

7 (9) Subsection (p)(3)(A) is amended by striking 

8 ‘‘carrier’’ and inserting ‘‘medicare administrative 

9 contractor’’. 

10 (10) Subsection (q)(1)(A) is amended by strik11 ing ‘‘carrier’’. 

12 (d) EFFECTIVE DATE; TRANSITION RULE.—

13 (1) EFFECTIVE DATE.—

14 (A) IN GENERAL.—Except as otherwise 

15 provided in this subsection, the amendments 

16 made by this section shall take effect on Octo17 ber 1, 2005, and the Secretary is authorized to 

18 take such steps before such date as may be nec19 essary to implement such amendments on a 

20 timely basis. 

21 (B) CONSTRUCTION FOR CURRENT CON22 TRACTS.—Such amendments shall not apply to 

23 contracts in effect before the date specified 

24 under subparagraph (A) that continue to retain 

25 the terms and conditions in effect on such date 
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1 (except as otherwise provided under this Act, 

2 other than under this section) until such date 

3 as the contract is let out for competitive bid4 ding under such amendments. 

5 (C) DEADLINE FOR COMPETITIVE BID6 DING.—The Secretary shall provide for the let7 ting by competitive bidding of all contracts for 

8 functions of medicare administrative contrac9 tors for annual contract periods that begin on 

10 or after October 1, 2010. 

11 (D) WAIVER OF PROVIDER NOMINATION

12 PROVISIONS DURING TRANSITION.—During the 

13 period beginning on the date of the enactment 

14 of this Act and before the date specified under 

15 subparagraph (A), the Secretary may enter into 

16 new agreements under section 1816 of the So17 cial Security Act (42 U.S.C. 1395h) without re18 gard to any of the provider nomination provi19 sions of such section. 

20 (2) GENERAL TRANSITION RULES.—The Sec21 retary shall take such steps, consistent with para22 graph (1)(B) and (1)(C), as are necessary to provide 

23 for an appropriate transition from contracts under 

24 section 1816 and section 1842 of the Social Security 
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1 Act (42 U.S.C. 1395h, 1395u) to contracts under 

2 section 1874A, as added by subsection (a)(1). 

3 (3) AUTHORIZING CONTINUATION OF MIP

4 FUNCTIONS UNDER CURRENT CONTRACTS AND

5 AGREEMENTS AND UNDER ROLLOVER CONTRACTS.—

6 The provisions contained in the exception in section 

7 1893(d)(2) of the Social Security Act (42 U.S.C. 

8 1395ddd(d)(2)) shall continue to apply notwith9 standing the amendments made by this section, and 

10 any reference in such provisions to an agreement or 

11 contract shall be deemed to include a contract under 

12 section 1874A of such Act, as inserted by subsection 

13 (a)(1), that continues the activities referred to in 

14 such provisions. 

15 (e) REFERENCES.—On and after the effective date 

16 provided under subsection (d)(1), any reference to a fiscal 

17 intermediary or carrier under title XI or XVIII of the So18 cial Security Act (or any regulation, manual instruction, 

19 interpretative rule, statement of policy, or guideline issued 

20 to carry out such titles) shall be deemed a reference to 

21 a medicare administrative contractor (as provided under 

22 section 1874A of the Social Security Act). 

23 (f) REPORTS ON IMPLEMENTATION.—

24 (1) PLAN FOR IMPLEMENTATION.—By not later 

25 than October 1, 2004, the Secretary shall submit a 
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1 report to Congress and the Comptroller General of 

2 the United States that describes the plan for imple3 mentation of the amendments made by this section. 

4 The Comptroller General shall conduct an evaluation 

5 of such plan and shall submit to Congress, not later 

6 than 6 months after the date the report is received, 

7 a report on such evaluation and shall include in such 

8 report such recommendations as the Comptroller 

9 General deems appropriate. 

10 (2) STATUS OF IMPLEMENTATION.—The Sec11 retary shall submit a report to Congress not later 

12 than October 1, 2008, that describes the status of 

13 implementation of such amendments and that in14 cludes a description of the following: 

15 (A) The number of contracts that have 

16 been competitively bid as of such date. 

17 (B) The distribution of functions among 

18 contracts and contractors. 

19 (C) A timeline for complete transition to 

20 full competition. 

21 (D) A detailed description of how the Sec22 retary has modified oversight and management 

23 of medicare contractors to adapt to full com24 petition. 
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1 SEC. 912. REQUIREMENTS FOR INFORMATION SECURITY 

2 FOR MEDICARE ADMINISTRATIVE CONTRAC3 TORS. 

4 (a) IN GENERAL.—Section 1874A, as added by sec5 tion 911(a)(1), is amended by adding at the end the fol6 lowing new subsection: 

7 ‘‘(e) REQUIREMENTS FOR INFORMATION SECU8 RITY.—

9 ‘‘(1) DEVELOPMENT OF INFORMATION SECU10 RITY PROGRAM.—A medicare administrative con11 tractor that performs the functions referred to in 

12 subparagraphs (A) and (B) of subsection (a)(4) (re13 lating to determining and making payments) shall 

14 implement a contractor-wide information security 

15 program to provide information security for the op16 eration and assets of the contractor with respect to 

17 such functions under this title. An information secu18 rity program under this paragraph shall meet the re19 quirements for information security programs im20 posed on Federal agencies under paragraphs (1) 

21 through (8) of section 3544(b) of title 44, United 

22 States Code (other than the requirements under 

23 paragraphs (2)(D)(i), (5)(A), and (5)(B) of such 

24 section). 

25 ‘‘(2) INDEPENDENT AUDITS.—
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1 ‘‘(A) PERFORMANCE OF ANNUAL EVALUA2 TIONS.—Each year a medicare administrative 

3 contractor that performs the functions referred 

4 to in subparagraphs (A) and (B) of subsection 

5 (a)(4) (relating to determining and making pay6 ments) shall undergo an evaluation of the infor7 mation security of the contractor with respect 

8 to such functions under this title. The evalua9 tion shall—

10 ‘‘(i) be performed by an entity that 

11 meets such requirements for independence 

12 as the Inspector General of the Depart13 ment of Health and Human Services may 

14 establish; and 

15 ‘‘(ii) test the effectiveness of informa16 tion security control techniques of an ap17 propriate subset of the contractor’s infor18 mation systems (as defined in section 

19 3502(8) of title 44, United States Code) 

20 relating to such functions under this title 

21 and an assessment of compliance with the 

22 requirements of this subsection and related 

23 information security policies, procedures, 

24 standards and guidelines, including policies 

25 and procedures as may be prescribed by 
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1 the Director of the Office of Management 

2 and Budget and applicable information se3 curity standards promulgated under sec4 tion 11331 of title 40, United States Code. 

5 ‘‘(B) DEADLINE FOR INITIAL EVALUA6 TION.—

7 ‘‘(i) NEW CONTRACTORS.—In the case 

8 of a medicare administrative contractor 

9 covered by this subsection that has not 

10 previously performed the functions referred 

11 to in subparagraphs (A) and (B) of sub12 section (a)(4) (relating to determining and 

13 making payments) as a fiscal intermediary 

14 or carrier under section 1816 or 1842, the 

15 first independent evaluation conducted 

16 pursuant subparagraph (A) shall be com17 pleted prior to commencing such functions. 

18 ‘‘(ii) OTHER CONTRACTORS.—In the 

19 case of a medicare administrative con20 tractor covered by this subsection that is 

21 not described in clause (i), the first inde22 pendent evaluation conducted pursuant 

23 subparagraph (A) shall be completed with24 in 1 year after the date the contractor 
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1 commences functions referred to in clause 

2 (i) under this section. 

3 ‘‘(C) REPORTS ON EVALUATIONS.—

4 ‘‘(i) TO THE DEPARTMENT OF

5 HEALTH AND HUMAN SERVICES.—The re6 sults of independent evaluations under sub7 paragraph (A) shall be submitted promptly 

8 to the Inspector General of the Depart9 ment of Health and Human Services and 

10 to the Secretary. 

11 ‘‘(ii) TO CONGRESS.—The Inspector 

12 General of Department of Health and 

13 Human Services shall submit to Congress 

14 annual reports on the results of such eval15 uations, including assessments of the scope 

16 and sufficiency of such evaluations. 

17 ‘‘(iii) AGENCY REPORTING.—The Sec18 retary shall address the results of such 

19 evaluations in reports required under sec20 tion 3544(c) of title 44, United States 

21 Code.’’. 

22 (b) APPLICATION OF REQUIREMENTS TO FISCAL

23 INTERMEDIARIES AND CARRIERS.—

24 (1) IN GENERAL.—The provisions of section 

25 1874A(e)(2) of the Social Security Act (other than 
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1 subparagraph (B)), as added by subsection (a), shall 

2 apply to each fiscal intermediary under section 1816 

3 of the Social Security Act (42 U.S.C. 1395h) and 

4 each carrier under section 1842 of such Act (42 

5 U.S.C. 1395u) in the same manner as they apply to 

6 medicare administrative contractors under such pro7 visions. 

8 (2) DEADLINE FOR INITIAL EVALUATION.—In 

9 the case of such a fiscal intermediary or carrier with 

10 an agreement or contract under such respective sec11 tion in effect as of the date of the enactment of this 

12 Act, the first evaluation under section 

13 1874A(e)(2)(A) of the Social Security Act (as added 

14 by subsection (a)), pursuant to paragraph (1), shall 

15 be completed (and a report on the evaluation sub16 mitted to the Secretary) by not later than 1 year 

17 after such date. 

18 Subtitle C—Education and 

19 Outreach 

20 SEC. 921. PROVIDER EDUCATION AND TECHNICAL ASSIST21 ANCE. 

22 (a) COORDINATION OF EDUCATION FUNDING.—

23 (1) IN GENERAL.—Title XVIII is amended by 

24 inserting after section 1888 the following new sec25 tion: 
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1 ‘‘PROVIDER EDUCATION AND TECHNICAL ASSISTANCE

2 ‘‘SEC. 1889. (a) COORDINATION OF EDUCATION

3 FUNDING.—The Secretary shall coordinate the edu4 cational activities provided through medicare contractors 

5 (as defined in subsection (g), including under section 

6 1893) in order to maximize the effectiveness of Federal 

7 education efforts for providers of services and suppliers.’’. 

8 (2) EFFECTIVE DATE.—The amendment made 

9 by paragraph (1) shall take effect on the date of the 

10 enactment of this Act. 

11 (3) REPORT.—Not later than October 1, 2004, 

12 the Secretary shall submit to Congress a report that 

13 includes a description and evaluation of the steps 

14 taken to coordinate the funding of provider edu15 cation under section 1889(a) of the Social Security 

16 Act, as added by paragraph (1). 

17 (b) INCENTIVES TO IMPROVE CONTRACTOR PER18 FORMANCE.—

19 (1) IN GENERAL.—Section 1874A, as added by 

20 section 911(a)(1) and as amended by section 912(a), 

21 is amended by adding at the end the following new 

22 subsection: 

23 ‘‘(f) INCENTIVES TO IMPROVE CONTRACTOR PER24 FORMANCE IN PROVIDER EDUCATION AND OUTREACH.—

25 The Secretary shall use specific claims payment error 
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1 rates or similar methodology of medicare administrative 

2 contractors in the processing or reviewing of medicare 

3 claims in order to give such contractors an incentive to 

4 implement effective education and outreach programs for 

5 providers of services and suppliers.’’. 

6 (2) APPLICATION TO FISCAL INTERMEDIARIES

7 AND CARRIERS.—The provisions of section 1874A(f) 

8 of the Social Security Act, as added by paragraph 

9 (1), shall apply to each fiscal intermediary under 

10 section 1816 of the Social Security Act (42 U.S.C. 

11 1395h) and each carrier under section 1842 of such 

12 Act (42 U.S.C. 1395u) in the same manner as they 

13 apply to medicare administrative contractors under 

14 such provisions. 

15 (3) GAO REPORT ON ADEQUACY OF METHOD16 OLOGY.—Not later than October 1, 2004, the Comp17 troller General of the United States shall submit to 

18 Congress and to the Secretary a report on the ade19 quacy of the methodology under section 1874A(f) of 

20 the Social Security Act, as added by paragraph (1), 

21 and shall include in the report such recommenda22 tions as the Comptroller General determines appro23 priate with respect to the methodology. 

24 (4) REPORT ON USE OF METHODOLOGY IN AS25 SESSING CONTRACTOR PERFORMANCE.—Not later 
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1 than October 1, 2004, the Secretary shall submit to 

2 Congress a report that describes how the Secretary 

3 intends to use such methodology in assessing medi4 care contractor performance in implementing effec5 tive education and outreach programs, including 

6 whether to use such methodology as a basis for per7 formance bonuses. The report shall include an anal8 ysis of the sources of identified errors and potential 

9 changes in systems of contractors and rules of the 

10 Secretary that could reduce claims error rates. 

11 (c) PROVISION OF ACCESS TO AND PROMPT RE12 SPONSES FROM MEDICARE ADMINISTRATIVE CONTRAC13 TORS.—

14 (1) IN GENERAL.—Section 1874A, as added by 

15 section 911(a)(1) and as amended by section 912(a) 

16 and subsection (b), is further amended by adding at 

17 the end the following new subsection: 

18 ‘‘(g) COMMUNICATIONS WITH BENEFICIARIES, PRO19 VIDERS OF SERVICES AND SUPPLIERS.—

20 ‘‘(1) COMMUNICATION STRATEGY.—The Sec21 retary shall develop a strategy for communications 

22 with individuals entitled to benefits under part A or 

23 enrolled under part B, or both, and with providers 

24 of services and suppliers under this title. 
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1 ‘‘(2) RESPONSE TO WRITTEN INQUIRIES.—Each 

2 medicare administrative contractor shall, for those 

3 providers of services and suppliers which submit 

4 claims to the contractor for claims processing and 

5 for those individuals entitled to benefits under part 

6 A or enrolled under part B, or both, with respect to 

7 whom claims are submitted for claims processing, 

8 provide general written responses (which may be 

9 through electronic transmission) in a clear, concise, 

10 and accurate manner to inquiries of providers of 

11 services, suppliers and individuals entitled to bene12 fits under part A or enrolled under part B, or both, 

13 concerning the programs under this title within 45 

14 business days of the date of receipt of such inquiries. 

15 ‘‘(3) RESPONSE TO TOLL-FREE LINES.—The 

16 Secretary shall ensure that each medicare adminis17 trative contractor shall provide, for those providers 

18 of services and suppliers which submit claims to the 

19 contractor for claims processing and for those indi20 viduals entitled to benefits under part A or enrolled 

21 under part B, or both, with respect to whom claims 

22 are submitted for claims processing, a toll-free tele23 phone number at which such individuals, providers 

24 of services and suppliers may obtain information re-
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1 garding billing, coding, claims, coverage, and other 

2 appropriate information under this title. 

3 ‘‘(4) MONITORING OF CONTRACTOR RE4 SPONSES.—

5 ‘‘(A) IN GENERAL.—Each medicare admin6 istrative contractor shall, consistent with stand7 ards developed by the Secretary under subpara8 graph (B)—

9 ‘‘(i) maintain a system for identifying 

10 who provides the information referred to in 

11 paragraphs (2) and (3); and 

12 ‘‘(ii) monitor the accuracy, consist13 ency, and timeliness of the information so 

14 provided. 

15 ‘‘(B) DEVELOPMENT OF STANDARDS.—

16 ‘‘(i) IN GENERAL.—The Secretary 

17 shall establish and make public standards 

18 to monitor the accuracy, consistency, and 

19 timeliness of the information provided in 

20 response to written and telephone inquiries 

21 under this subsection. Such standards shall 

22 be consistent with the performance require23 ments established under subsection (b)(3). 

24 ‘‘(ii) EVALUATION.—In conducting 

25 evaluations of individual medicare adminis-
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1 trative contractors, the Secretary shall 

2 take into account the results of the moni3 toring conducted under subparagraph (A) 

4 taking into account as performance re5 quirements the standards established 

6 under clause (i). The Secretary shall, in 

7 consultation with organizations rep8 resenting providers of services, suppliers, 

9 and individuals entitled to benefits under 

10 part A or enrolled under part B, or both, 

11 establish standards relating to the accu12 racy, consistency, and timeliness of the in13 formation so provided. 

14 ‘‘(C) DIRECT MONITORING.—Nothing in 

15 this paragraph shall be construed as preventing 

16 the Secretary from directly monitoring the ac17 curacy, consistency, and timeliness of the infor18 mation so provided.’’. 

19 (2) EFFECTIVE DATE.—The amendment made 

20 by paragraph (1) shall take effect October 1, 2004. 

21 (3) APPLICATION TO FISCAL INTERMEDIARIES

22 AND CARRIERS.—The provisions of section 1874A(g) 

23 of the Social Security Act, as added by paragraph 

24 (1), shall apply to each fiscal intermediary under 

25 section 1816 of the Social Security Act (42 U.S.C. 
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1 1395h) and each carrier under section 1842 of such 

2 Act (42 U.S.C. 1395u) in the same manner as they 

3 apply to medicare administrative contractors under 

4 such provisions. 

5 (d) IMPROVED PROVIDER EDUCATION AND TRAIN6 ING.—

7 (1) IN GENERAL.—Section 1889, as added by 

8 subsection (a), is amended by adding at the end the 

9 following new subsections: 

10 ‘‘(b) ENHANCED EDUCATION AND TRAINING.—

11 ‘‘(1) ADDITIONAL RESOURCES.—There are au12 thorized to be appropriated to the Secretary (in ap13 propriate part from the Federal Hospital Insurance 

14 Trust Fund and the Federal Supplementary Medical 

15 Insurance Trust Fund) $25,000,000 for each of fis16 cal years 2005 and 2006 and such sums as may be 

17 necessary for succeeding fiscal years. 

18 ‘‘(2) USE.—The funds made available under 

19 paragraph (1) shall be used to increase the conduct 

20 by medicare contractors of education and training of 

21 providers of services and suppliers regarding billing, 

22 coding, and other appropriate items and may also be 

23 used to improve the accuracy, consistency, and time24 liness of contractor responses. 
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1 ‘‘(c) TAILORING EDUCATION AND TRAINING ACTIVI2 TIES FOR SMALL PROVIDERS OR SUPPLIERS.—

3 ‘‘(1) IN GENERAL.—Insofar as a medicare con4 tractor conducts education and training activities, it 

5 shall tailor such activities to meet the special needs 

6 of small providers of services or suppliers (as defined 

7 in paragraph (2)). 

8 ‘‘(2) SMALL PROVIDER OF SERVICES OR SUP9 PLIER.—In this subsection, the term ‘small provider 

10 of services or supplier’ means—

11 ‘‘(A) a provider of services with fewer than 

12 25 full-time-equivalent employees; or 

13 ‘‘(B) a supplier with fewer than 10 full14 time-equivalent employees.’’. 

15 (2) EFFECTIVE DATE.—The amendment made 

16 by paragraph (1) shall take effect on October 1, 

17 2004. 

18 (e) REQUIREMENT TO MAINTAIN INTERNET

19 SITES.—

20 (1) IN GENERAL.—Section 1889, as added by 

21 subsection (a) and as amended by subsection (d), is 

22 further amended by adding at the end the following 

23 new subsection: 

24 ‘‘(d) INTERNET SITES; FAQS.—The Secretary, and 

25 each medicare contractor insofar as it provides services 
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1 (including claims processing) for providers of services or 

2 suppliers, shall maintain an Internet site which—

3 ‘‘(1) provides answers in an easily accessible 

4 format to frequently asked questions, and 

5 ‘‘(2) includes other published materials of the 

6 contractor, 

7 that relate to providers of services and suppliers under the 

8 programs under this title (and title XI insofar as it relates 

9 to such programs).’’. 

10 (2) EFFECTIVE DATE.—The amendment made 

11 by paragraph (1) shall take effect on October 1, 

12 2004. 

13 (f) ADDITIONAL PROVIDER EDUCATION PROVI14 SIONS.—

15 (1) IN GENERAL.—Section 1889, as added by 

16 subsection (a) and as amended by subsections (d) 

17 and (e), is further amended by adding at the end the 

18 following new subsections: 

19 ‘‘(e) ENCOURAGEMENT OF PARTICIPATION IN EDU20 CATION PROGRAM ACTIVITIES.—A medicare contractor 

21 may not use a record of attendance at (or failure to at22 tend) educational activities or other information gathered 

23 during an educational program conducted under this sec24 tion or otherwise by the Secretary to select or track pro-
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1 viders of services or suppliers for the purpose of con2 ducting any type of audit or prepayment review. 

3 ‘‘(f) CONSTRUCTION.—Nothing in this section or sec4 tion 1893(g) shall be construed as providing for disclosure 

5 by a medicare contractor of information that would com6 promise pending law enforcement activities or reveal find7 ings of law enforcement-related audits. 

8 ‘‘(g) DEFINITIONS.—For purposes of this section, the 

9 term ‘medicare contractor’ includes the following: 

10 ‘‘(1) A medicare administrative contractor with 

11 a contract under section 1874A, including a fiscal 

12 intermediary with a contract under section 1816 and 

13 a carrier with a contract under section 1842. 

14 ‘‘(2) An eligible entity with a contract under 

15 section 1893. 

16 Such term does not include, with respect to activities of 

17 a specific provider of services or supplier an entity that 

18 has no authority under this title or title IX with respect 

19 to such activities and such provider of services or sup20 plier.’’. 

21 (2) EFFECTIVE DATE.—The amendment made 

22 by paragraph (1) shall take effect on the date of the 

23 enactment of this Act. 
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1 SEC. 922. SMALL PROVIDER TECHNICAL ASSISTANCE DEM2 ONSTRATION PROGRAM. 

3 (a) ESTABLISHMENT.—

4 (1) IN GENERAL.—The Secretary shall establish 

5 a demonstration program (in this section referred to 

6 as the ‘‘demonstration program’’) under which tech7 nical assistance described in paragraph (2) is made 

8 available, upon request and on a voluntary basis, to 

9 small providers of services or suppliers in order to 

10 improve compliance with the applicable requirements 

11 of the programs under medicare program under title 

12 XVIII of the Social Security Act (including provi13 sions of title XI of such Act insofar as they relate 

14 to such title and are not administered by the Office 

15 of the Inspector General of the Department of 

16 Health and Human Services). 

17 (2) FORMS OF TECHNICAL ASSISTANCE.—The 

18 technical assistance described in this paragraph is—

19 (A) evaluation and recommendations re20 garding billing and related systems; and 

21 (B) information and assistance regarding 

22 policies and procedures under the medicare pro23 gram, including coding and reimbursement. 

24 (3) SMALL PROVIDERS OF SERVICES OR SUP25 PLIERS.—In this section, the term ‘‘small providers 

26 of services or suppliers’’ means—
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1 (A) a provider of services with fewer than 

2 25 full-time-equivalent employees; or 

3 (B) a supplier with fewer than 10 full4 time-equivalent employees. 

5 (b) QUALIFICATION OF CONTRACTORS.—In con6 ducting the demonstration program, the Secretary shall 

7 enter into contracts with qualified organizations (such as 

8 peer review organizations or entities described in section 

9 1889(g)(2) of the Social Security Act, as inserted by sec10 tion 5(f)(1)) with appropriate expertise with billing sys11 tems of the full range of providers of services and sup12 pliers to provide the technical assistance. In awarding such 

13 contracts, the Secretary shall consider any prior investiga14 tions of the entity’s work by the Inspector General of De15 partment of Health and Human Services or the Comp16 troller General of the United States. 

17 (c) DESCRIPTION OF TECHNICAL ASSISTANCE.—The 

18 technical assistance provided under the demonstration 

19 program shall include a direct and in-person examination 

20 of billing systems and internal controls of small providers 

21 of services or suppliers to determine program compliance 

22 and to suggest more efficient or effective means of achiev23 ing such compliance. 

24 (d) AVOIDANCE OF RECOVERY ACTIONS FOR PROB25 LEMS IDENTIFIED AS CORRECTED.—The Secretary shall 
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1 provide that, absent evidence of fraud and notwith2 standing any other provision of law, any errors found in 

3 a compliance review for a small provider of services or sup4 plier that participates in the demonstration program shall 

5 not be subject to recovery action if the technical assistance 

6 personnel under the program determine that—

7 (1) the problem that is the subject of the com8 pliance review has been corrected to their satisfac9 tion within 30 days of the date of the visit by such 

10 personnel to the small provider of services or sup11 plier; and 

12 (2) such problem remains corrected for such pe13 riod as is appropriate. 

14 The previous sentence applies only to claims filed as part 

15 of the demonstration program and lasts only for the dura16 tion of such program and only as long as the small pro17 vider of services or supplier is a participant in such pro18 gram. 

19 (e) GAO EVALUATION.—Not later than 2 years after 

20 the date of the date the demonstration program is first 

21 implemented, the Comptroller General, in consultation 

22 with the Inspector General of the Department of Health 

23 and Human Services, shall conduct an evaluation of the 

24 demonstration program. The evaluation shall include a de25 termination of whether claims error rates are reduced for 
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1 small providers of services or suppliers who participated 

2 in the program and the extent of improper payments made 

3 as a result of the demonstration program. The Comp4 troller General shall submit a report to the Secretary and 

5 the Congress on such evaluation and shall include in such 

6 report recommendations regarding the continuation or ex7 tension of the demonstration program. 

8 (f) FINANCIAL PARTICIPATION BY PROVIDERS.—The 

9 provision of technical assistance to a small provider of 

10 services or supplier under the demonstration program is 

11 conditioned upon the small provider of services or supplier 

12 paying an amount estimated (and disclosed in advance of 

13 a provider’s or supplier’s participation in the program) to 

14 be equal to 25 percent of the cost of the technical assist15 ance. 

16 (g) AUTHORIZATION OF APPROPRIATIONS.—There 

17 are authorized to be appropriated to the Secretary (in ap18 propriate part from the Federal Hospital Insurance Trust 

19 Fund and the Federal Supplementary Medical Insurance 

20 Trust Fund) to carry out the demonstration program— 

21 (1) for fiscal year 2005, $1,000,000, and 

22 (2) for fiscal year 2006, $6,000,000. 
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1 SEC. 923. MEDICARE PROVIDER OMBUDSMAN; MEDICARE 

2 BENEFICIARY OMBUDSMAN. 

3 (a) MEDICARE PROVIDER OMBUDSMAN.—Section 

4 1868 (42 U.S.C. 1395ee) is amended—

5 (1) by adding at the end of the heading the fol6 lowing: ‘‘; MEDICARE PROVIDER OMBUDSMAN’’; 

7 (2) by inserting ‘‘PRACTICING PHYSICIANS AD8 VISORY COUNCIL.—(1)’’ after ‘‘(a)’’; 

9 (3) in paragraph (1), as so redesignated under 

10 paragraph (2), by striking ‘‘in this section’’ and in11 serting ‘‘in this subsection’’; 

12 (4) by redesignating subsections (b) and (c) as 

13 paragraphs (2) and (3), respectively; and 

14 (5) by adding at the end the following new sub15 section: 

16 ‘‘(b) MEDICARE PROVIDER OMBUDSMAN.—The Sec17 retary shall appoint within the Department of Health and 

18 Human Services a Medicare Provider Ombudsman. The 

19 Ombudsman shall—

20 ‘‘(1) provide assistance, on a confidential basis, 

21 to providers of services and suppliers with respect to 

22 complaints, grievances, and requests for information 

23 concerning the programs under this title (including 

24 provisions of title XI insofar as they relate to this 

25 title and are not administered by the Office of the 

26 Inspector General of the Department of Health and 
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1 Human Services) and in the resolution of unclear or 

2 conflicting guidance given by the Secretary and 

3 medicare contractors to such providers of services 

4 and suppliers regarding such programs and provi5 sions and requirements under this title and such 

6 provisions; and 

7 ‘‘(2) submit recommendations to the Secretary 

8 for improvement in the administration of this title 

9 and such provisions, including—

10 ‘‘(A) recommendations to respond to recur11 ring patterns of confusion in this title and such 

12 provisions (including recommendations regard13 ing suspending imposition of sanctions where 

14 there is widespread confusion in program ad15 ministration), and 

16 ‘‘(B) recommendations to provide for an 

17 appropriate and consistent response (including 

18 not providing for audits) in cases of self-identi19 fied overpayments by providers of services and 

20 suppliers. 

21 The Ombudsman shall not serve as an advocate for any 

22 increases in payments or new coverage of services, but 

23 may identify issues and problems in payment or coverage 

24 policies.’’. 
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1 (b) MEDICARE BENEFICIARY OMBUDSMAN.—Title 

2 XVIII, as previously amended, is amended by inserting 

3 after section 1809 the following new section: 

4 ‘‘MEDICARE BENEFICIARY OMBUDSMAN

5 ‘‘SEC. 1810. (a) IN GENERAL.—The Secretary shall 

6 appoint within the Department of Health and Human 

7 Services a Medicare Beneficiary Ombudsman who shall 

8 have expertise and experience in the fields of health care 

9 and education of (and assistance to) individuals entitled 

10 to benefits under this title. 

11 ‘‘(b) DUTIES.—The Medicare Beneficiary Ombuds12 man shall—

13 ‘‘(1) receive complaints, grievances, and re14 quests for information submitted by individuals enti15 tled to benefits under part A or enrolled under part 

16 B, or both, with respect to any aspect of the medi17 care program; 

18 ‘‘(2) provide assistance with respect to com19 plaints, grievances, and requests referred to in para20 graph (1), including—

21 ‘‘(A) assistance in collecting relevant infor22 mation for such individuals, to seek an appeal 

23 of a decision or determination made by a fiscal 

24 intermediary, carrier, Medicare+Choice organi25 zation, or the Secretary; 
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1 ‘‘(B) assistance to such individuals with 

2 any problems arising from disenrollment from a 

3 Medicare+Choice plan under part C; and 

4 ‘‘(C) assistance to such individuals in pre5 senting information under section 1860D–

6 2(b)(4)(D)(v); and 

7 ‘‘(3) submit annual reports to Congress and the 

8 Secretary that describe the activities of the Office 

9 and that include such recommendations for improve10 ment in the administration of this title as the Om11 budsman determines appropriate. 

12 The Ombudsman shall not serve as an advocate for any 

13 increases in payments or new coverage of services, but 

14 may identify issues and problems in payment or coverage 

15 policies. 

16 ‘‘(c) WORKING WITH HEALTH INSURANCE COUN17 SELING PROGRAMS.—To the extent possible, the Ombuds18 man shall work with health insurance counseling programs 

19 (receiving funding under section 4360 of Omnibus Budget 

20 Reconciliation Act of 1990) to facilitate the provision of 

21 information to individuals entitled to benefits under part 

22 A or enrolled under part B, or both regarding 

23 Medicare+Choice plans and changes to those plans. Noth24 ing in this subsection shall preclude further collaboration 

25 between the Ombudsman and such programs.’’. 
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1 (c) DEADLINE FOR APPOINTMENT.—The Secretary 

2 shall appoint the Medicare Provider Ombudsman and the 

3 Medicare Beneficiary Ombudsman, under the amendments 

4 made by subsections (a) and (b), respectively, by not later 

5 than 1 year after the date of the enactment of this Act. 

6 (d) FUNDING.—There are authorized to be appro7 priated to the Secretary (in appropriate part from the 

8 Federal Hospital Insurance Trust Fund and the Federal 

9 Supplementary Medical Insurance Trust Fund) to carry 

10 out the provisions of subsection (b) of section 1868 of the 

11 Social Security Act (relating to the Medicare Provider 

12 Ombudsman), as added by subsection (a)(5) and section 

13 1807 of such Act (relating to the Medicare Beneficiary 

14 Ombudsman), as added by subsection (b), such sums as 

15 are necessary for fiscal year 2004 and each succeeding fis16 cal year. 

17 (e) USE OF CENTRAL, TOLL-FREE NUMBER (1–800–

18 MEDICARE).—

19 (1) PHONE TRIAGE SYSTEM; LISTING IN MEDI20 CARE HANDBOOK INSTEAD OF OTHER TOLL-FREE

21 NUMBERS.—Section 1804(b) (42 U.S.C. 1395b–

22 2(b)) is amended by adding at the end the following: 

23 ‘‘The Secretary shall provide, through the toll-free 

24 number 1–800–MEDICARE, for a means by which 

25 individuals seeking information about, or assistance 
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1 with, such programs who phone such toll-free num2 ber are transferred (without charge) to appropriate 

3 entities for the provision of such information or as4 sistance. Such toll-free number shall be the toll-free 

5 number listed for general information and assistance 

6 in the annual notice under subsection (a) instead of 

7 the listing of numbers of individual contractors.’’. 

8 (2) MONITORING ACCURACY.—

9 (A) STUDY.—The Comptroller General of 

10 the United States shall conduct a study to mon11 itor the accuracy and consistency of information 

12 provided to individuals entitled to benefits 

13 under part A or enrolled under part B, or both, 

14 through the toll-free number 1–800–MEDI15 CARE, including an assessment of whether the 

16 information provided is sufficient to answer 

17 questions of such individuals. In conducting the 

18 study, the Comptroller General shall examine 

19 the education and training of the individuals 

20 providing information through such number. 

21 (B) REPORT.—Not later than 1 year after 

22 the date of the enactment of this Act, the 

23 Comptroller General shall submit to Congress a 

24 report on the study conducted under subpara25 graph (A). 
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1 SEC. 924. BENEFICIARY OUTREACH DEMONSTRATION PRO2 GRAM. 

3 (a) IN GENERAL.—The Secretary shall establish a 

4 demonstration program (in this section referred to as the 

5 ‘‘demonstration program’’) under which medicare special6 ists employed by the Department of Health and Human 

7 Services provide advice and assistance to individuals enti8 tled to benefits under part A of title XVIII of the Social 

9 Security Act, or enrolled under part B of such title, or 

10 both, regarding the medicare program at the location of 

11 existing local offices of the Social Security Administration. 

12 (b) LOCATIONS.—

13 (1) IN GENERAL.—The demonstration program 

14 shall be conducted in at least 6 offices or areas. 

15 Subject to paragraph (2), in selecting such offices 

16 and areas, the Secretary shall provide preference for 

17 offices with a high volume of visits by individuals re18 ferred to in subsection (a). 

19 (2) ASSISTANCE FOR RURAL BENEFICIARIES.—

20 The Secretary shall provide for the selection of at 

21 least 2 rural areas to participate in the demonstra22 tion program. In conducting the demonstration pro23 gram in such rural areas, the Secretary shall provide 

24 for medicare specialists to travel among local offices 

25 in a rural area on a scheduled basis. 
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1 (c) DURATION.—The demonstration program shall be 

2 conducted over a 3-year period. 

3 (d) EVALUATION AND REPORT.—

4 (1) EVALUATION.—The Secretary shall provide 

5 for an evaluation of the demonstration program. 

6 Such evaluation shall include an analysis of—

7 (A) utilization of, and satisfaction of those 

8 individuals referred to in subsection (a) with, 

9 the assistance provided under the program; and 

10 (B) the cost-effectiveness of providing ben11 eficiary assistance through out-stationing medi12 care specialists at local offices of the Social Se13 curity Administration. 

14 (2) REPORT.—The Secretary shall submit to 

15 Congress a report on such evaluation and shall in16 clude in such report recommendations regarding the 

17 feasibility of permanently out-stationing medicare 

18 specialists at local offices of the Social Security Ad19 ministration. 

20 SEC. 925. INCLUSION OF ADDITIONAL INFORMATION IN NO21 TICES TO BENEFICIARIES ABOUT SKILLED 

22 NURSING FACILITY BENEFITS. 

23 (a) IN GENERAL.—The Secretary shall provide that 

24 in medicare beneficiary notices provided (under section 

25 1806(a) of the Social Security Act, 42 U.S.C. 1395b–7(a)) 
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1 with respect to the provision of post-hospital extended care 

2 services under part A of title XVIII of the Social Security 

3 Act, there shall be included information on the number 

4 of days of coverage of such services remaining under such 

5 part for the medicare beneficiary and spell of illness in6 volved. 

7 (b) EFFECTIVE DATE.—Subsection (a) shall apply to 

8 notices provided during calendar quarters beginning more 

9 than 6 months after the date of the enactment of this Act. 

10 SEC. 926. INFORMATION ON MEDICARE-CERTIFIED 

11 SKILLED NURSING FACILITIES IN HOSPITAL 

12 DISCHARGE PLANS. 

13 (a) AVAILABILITY OF DATA.—The Secretary shall 

14 publicly provide information that enables hospital dis15 charge planners, medicare beneficiaries, and the public to 

16 identify skilled nursing facilities that are participating in 

17 the medicare program. 

18 (b) INCLUSION OF INFORMATION IN CERTAIN HOS19 PITAL DISCHARGE PLANS.—

20 (1) IN GENERAL.—Section 1861(ee)(2)(D) (42 

21 U.S.C. 1395x(ee)(2)(D)) is amended—

22 (A) by striking ‘‘hospice services’’ and in23 serting ‘‘hospice care and post-hospital ex24 tended care services’’; and 
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1 (B) by inserting before the period at the 

2 end the following: ‘‘and, in the case of individ3 uals who are likely to need post-hospital ex4 tended care services, the availability of such 

5 services through facilities that participate in the 

6 program under this title and that serve the area 

7 in which the patient resides’’. 

8 (2) EFFECTIVE DATE.—The amendments made 

9 by paragraph (1) shall apply to discharge plans 

10 made on or after such date as the Secretary shall 

11 specify, but not later than 6 months after the date 

12 the Secretary provides for availability of information 

13 under subsection (a). 

14 Subtitle D—Appeals and Recovery 

15 SEC. 931. TRANSFER OF RESPONSIBILITY FOR MEDICARE 

16 APPEALS. 

17 (a) TRANSITION PLAN.—

18 (1) IN GENERAL.—Not later than October 1, 

19 2004, the Commissioner of Social Security and the 

20 Secretary shall develop and transmit to Congress 

21 and the Comptroller General of the United States a 

22 plan under which the functions of administrative law 

23 judges responsible for hearing cases under title 

24 XVIII of the Social Security Act (and related provi25 sions in title XI of such Act) are transferred from 
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1 the responsibility of the Commissioner and the So2 cial Security Administration to the Secretary and 

3 the Department of Health and Human Services. 

4 (2) GAO EVALUATION.—The Comptroller Gen5 eral of the United States shall evaluate the plan 

6 and, not later than the date that is 6 months after 

7 the date on which the plan is received by the Comp8 troller General, shall submit to Congress a report on 

9 such evaluation. 

10 (b) TRANSFER OF ADJUDICATION AUTHORITY.—

11 (1) IN GENERAL.—Not earlier than July 1, 

12 2005, and not later than October 1, 2005, the Com13 missioner of Social Security and the Secretary shall 

14 implement the transition plan under subsection (a) 

15 and transfer the administrative law judge functions 

16 described in such subsection from the Social Secu17 rity Administration to the Secretary. 

18 (2) ASSURING INDEPENDENCE OF JUDGES.—

19 The Secretary shall assure the independence of ad20 ministrative law judges performing the administra21 tive law judge functions transferred under para22 graph (1) from the Centers for Medicare & Medicaid 

23 Services and its contractors. In order to assure such 

24 independence, the Secretary shall place such judges 

25 in an administrative office that is organizationally 
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1 and functionally separate from such Centers. Such 

2 judges shall report to, and be under the general su3 pervision of, the Secretary, but shall not report to, 

4 or be subject to supervision by, another other officer 

5 of the Department. 

6 (3) GEOGRAPHIC DISTRIBUTION.—The Sec7 retary shall provide for an appropriate geographic 

8 distribution of administrative law judges performing 

9 the administrative law judge functions transferred 

10 under paragraph (1) throughout the United States 

11 to ensure timely access to such judges. 

12 (4) HIRING AUTHORITY.—Subject to the 

13 amounts provided in advance in appropriations Act, 

14 the Secretary shall have authority to hire adminis15 trative law judges to hear such cases, giving priority 

16 to those judges with prior experience in handling 

17 medicare appeals and in a manner consistent with 

18 paragraph (3), and to hire support staff for such 

19 judges. 

20 (5) FINANCING.—Amounts payable under law 

21 to the Commissioner for administrative law judges 

22 performing the administrative law judge functions 

23 transferred under paragraph (1) from the Federal 

24 Hospital Insurance Trust Fund and the Federal 

25 Supplementary Medical Insurance Trust Fund shall 
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1 become payable to the Secretary for the functions so 

2 transferred. 

3 (6) SHARED RESOURCES.—The Secretary shall 

4 enter into such arrangements with the Commissioner 

5 as may be appropriate with respect to transferred 

6 functions of administrative law judges to share office 

7 space, support staff, and other resources, with ap8 propriate reimbursement from the Trust Funds de9 scribed in paragraph (5). 

10 (c) INCREASED FINANCIAL SUPPORT.—In addition to 

11 any amounts otherwise appropriated, to ensure timely ac12 tion on appeals before administrative law judges and the 

13 Departmental Appeals Board consistent with section 1869 

14 of the Social Security Act (as amended by section 521 of 

15 BIPA, 114 Stat. 2763A–534), there are authorized to be 

16 appropriated (in appropriate part from the Federal Hos17 pital Insurance Trust Fund and the Federal Supple18 mentary Medical Insurance Trust Fund) to the Secretary 

19 such sums as are necessary for fiscal year 2005 and each 

20 subsequent fiscal year to—

21 (1) increase the number of administrative law 

22 judges (and their staffs) under subsection (b)(4); 

23 (2) improve education and training opportuni24 ties for administrative law judges (and their staffs); 

25 and 
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1 (3) increase the staff of the Departmental Ap2 peals Board. 

3 (d) CONFORMING AMENDMENT.—Section 

4 1869(f)(2)(A)(i) (42 U.S.C. 1395ff(f)(2)(A)(i)), as added 

5 by section 522(a) of BIPA (114 Stat. 2763A–543), is 

6 amended by striking ‘‘of the Social Security Administra7 tion’’. 

8 SEC. 932. PROCESS FOR EXPEDITED ACCESS TO REVIEW. 

9 (a) EXPEDITED ACCESS TO JUDICIAL REVIEW.—Sec10 tion 1869(b) (42 U.S.C. 1395ff(b)) as amended by BIPA, 

11 is amended—

12 (1) in paragraph (1)(A), by inserting ‘‘, subject 

13 to paragraph (2),’’ before ‘‘to judicial review of the 

14 Secretary’s final decision’’; 

15 (2) in paragraph (1)(F)—

16 (A) by striking clause (ii); 

17 (B) by striking ‘‘PROCEEDING’’ and all 

18 that follows through ‘‘DETERMINATION’’ and in19 serting ‘‘DETERMINATIONS AND RECONSIDER20 ATIONS’’; and 

21 (C) by redesignating subclauses (I) and 

22 (II) as clauses (i) and (ii) and by moving the 

23 indentation of such subclauses (and the matter 

24 that follows) 2 ems to the left; and 
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1 (3) by adding at the end the following new 

2 paragraph: 

3 ‘‘(2) EXPEDITED ACCESS TO JUDICIAL RE4 VIEW.—

5 ‘‘(A) IN GENERAL.—The Secretary shall 

6 establish a process under which a provider of 

7 services or supplier that furnishes an item or 

8 service or an individual entitled to benefits 

9 under part A or enrolled under part B, or both, 

10 who has filed an appeal under paragraph (1) 

11 may obtain access to judicial review when a re12 view panel (described in subparagraph (D)), on 

13 its own motion or at the request of the appel14 lant, determines that no entity in the adminis15 trative appeals process has the authority to de16 cide the question of law or regulation relevant 

17 to the matters in controversy and that there is 

18 no material issue of fact in dispute. The appel19 lant may make such request only once with re20 spect to a question of law or regulation in a 

21 case of an appeal. 

22 ‘‘(B) PROMPT DETERMINATIONS.—If, after 

23 or coincident with appropriately filing a request 

24 for an administrative hearing, the appellant re25 quests a determination by the appropriate re-
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1 view panel that no review panel has the author2 ity to decide the question of law or regulations 

3 relevant to the matters in controversy and that 

4 there is no material issue of fact in dispute and 

5 if such request is accompanied by the docu6 ments and materials as the appropriate review 

7 panel shall require for purposes of making such 

8 determination, such review panel shall make a 

9 determination on the request in writing within 

10 60 days after the date such review panel re11 ceives the request and such accompanying docu12 ments and materials. Such a determination by 

13 such review panel shall be considered a final de14 cision and not subject to review by the Sec15 retary. 

16 ‘‘(C) ACCESS TO JUDICIAL REVIEW.—

17 ‘‘(i) IN GENERAL.—If the appropriate 

18 review panel—

19 ‘‘(I) determines that there are no 

20 material issues of fact in dispute and 

21 that the only issue is one of law or 

22 regulation that no review panel has 

23 the authority to decide; or 
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1 ‘‘(II) fails to make such deter2 mination within the period provided 

3 under subparagraph (B); 

4 then the appellant may bring a civil action 

5 as described in this subparagraph. 

6 ‘‘(ii) DEADLINE FOR FILING.—Such 

7 action shall be filed, in the case described 

8 in—

9 ‘‘(I) clause (i)(I), within 60 days 

10 of date of the determination described 

11 in such subparagraph; or 

12 ‘‘(II) clause (i)(II), within 60 

13 days of the end of the period provided 

14 under subparagraph (B) for the deter15 mination. 

16 ‘‘(iii) VENUE.—Such action shall be 

17 brought in the district court of the United 

18 States for the judicial district in which the 

19 appellant is located (or, in the case of an 

20 action brought jointly by more than one 

21 applicant, the judicial district in which the 

22 greatest number of applicants are located) 

23 or in the district court for the District of 

24 Columbia. 
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1 ‘‘(iv) INTEREST ON AMOUNTS IN CON2 TROVERSY.—Where a provider of services 

3 or supplier seeks judicial review pursuant 

4 to this paragraph, the amount in con5 troversy shall be subject to annual interest 

6 beginning on the first day of the first 

7 month beginning after the 60-day period 

8 as determined pursuant to clause (ii) and 

9 equal to the rate of interest on obligations 

10 issued for purchase by the Federal Hos11 pital Insurance Trust Fund and by the 

12 Federal Supplementary Medical Insurance 

13 Trust Fund for the month in which the 

14 civil action authorized under this para15 graph is commenced, to be awarded by the 

16 reviewing court in favor of the prevailing 

17 party. No interest awarded pursuant to the 

18 preceding sentence shall be deemed income 

19 or cost for the purposes of determining re20 imbursement due providers of services or 

21 suppliers under this Act. 

22 ‘‘(D) REVIEW PANELS.—For purposes of 

23 this subsection, a ‘review panel’ is a panel con24 sisting of 3 members (who shall be administra25 tive law judges, members of the Departmental 
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1 Appeals Board, or qualified individuals associ2 ated with a qualified independent contractor (as 

3 defined in subsection (c)(2)) or with another 

4 independent entity) designated by the Secretary 

5 for purposes of making determinations under 

6 this paragraph.’’. 

7 (b) APPLICATION TO PROVIDER AGREEMENT DETER8 MINATIONS.—Section 1866(h)(1) (42 U.S.C. 

9 1395cc(h)(1)) is amended—

10 (1) by inserting ‘‘(A)’’ after ‘‘(h)(1)’’; and 

11 (2) by adding at the end the following new sub12 paragraph: 

13 ‘‘(B) An institution or agency described in subpara14 graph (A) that has filed for a hearing under subparagraph 

15 (A) shall have expedited access to judicial review under 

16 this subparagraph in the same manner as providers of 

17 services, suppliers, and individuals entitled to benefits 

18 under part A or enrolled under part B, or both, may ob19 tain expedited access to judicial review under the process 

20 established under section 1869(b)(2). Nothing in this sub21 paragraph shall be construed to affect the application of 

22 any remedy imposed under section 1819 during the pend23 ency of an appeal under this subparagraph.’’. 
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1 (c) EFFECTIVE DATE.—The amendments made by 

2 this section shall apply to appeals filed on or after October 

3 1, 2004. 

4 (d) EXPEDITED REVIEW OF CERTAIN PROVIDER

5 AGREEMENT DETERMINATIONS.—

6 (1) TERMINATION AND CERTAIN OTHER IMME7 DIATE REMEDIES.—The Secretary shall develop and 

8 implement a process to expedite proceedings under 

9 sections 1866(h) of the Social Security Act (42 

10 U.S.C. 1395cc(h)) in which the remedy of termi11 nation of participation, or a remedy described in 

12 clause (i) or (iii) of section 1819(h)(2)(B) of such 

13 Act (42 U.S.C. 1395i–3(h)(2)(B)) which is applied 

14 on an immediate basis, has been imposed. Under 

15 such process priority shall be provided in cases of 

16 termination. 

17 (2) INCREASED FINANCIAL SUPPORT.—In addi18 tion to any amounts otherwise appropriated, to re19 duce by 50 percent the average time for administra20 tive determinations on appeals under section 

21 1866(h) of the Social Security Act (42 U.S.C. 

22 1395cc(h)), there are authorized to be appropriated 

23 (in appropriate part from the Federal Hospital In24 surance Trust Fund and the Federal Supplementary 

25 Medical Insurance Trust Fund) to the Secretary 
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1 such additional sums for fiscal year 2005 and each 

2 subsequent fiscal year as may be necessary. The 

3 purposes for which such amounts are available in4 clude increasing the number of administrative law 

5 judges (and their staffs) and the appellate level staff 

6 at the Departmental Appeals Board of the Depart7 ment of Health and Human Services and educating 

8 such judges and staffs on long-term care issues. 

9 (e) PROCESS FOR REINSTATEMENT OF APPROVAL OF

10 CERTAIN SNF TRAINING PROGRAMS.—

11 (1) IN GENERAL.—In the case of a termination 

12 of approval of a nurse aide training program de13 scribed in paragraph (2) of a skilled nursing facility, 

14 the Secretary shall develop and implement a process 

15 for the reinstatement of approval of such program 

16 before the end of the mandatory 2 year disapproval 

17 period if the facility and program is certified by the 

18 Secretary, in coordination with the applicable State 

19 survey and certification agency and after public no20 tice, as being in compliance with applicable require21 ments and as having remedied any deficiencies in 

22 the facility or program that resulted in noncompli23 ance. 

24 (2) TERMINATION OF APPROVAL DESCRIBED.—

25 A termination of approval of a training program de-
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1 scribed in this paragraph is a mandatory 2-year dis2 approval provided for under section 

3 1819(f)(2)(B)(iii) of the Social Security Act (42 

4 U.S.C. 1395i–3(f)(2)(B)(iii)) if the only basis for 

5 the mandatory disapproval was the assessment of a 

6 civil money penalty of not less than $5,000. 

7 SEC. 933. REVISIONS TO MEDICARE APPEALS PROCESS. 

8 (a) REQUIRING FULL AND EARLY PRESENTATION OF

9 EVIDENCE.—

10 (1) IN GENERAL.—Section 1869(b) (42 U.S.C. 

11 1395ff(b)), as amended by BIPA and as amended by 

12 section 932(a), is further amended by adding at the 

13 end the following new paragraph: 

14 ‘‘(3) REQUIRING FULL AND EARLY PRESEN15 TATION OF EVIDENCE BY PROVIDERS.—A provider 

16 of services or supplier may not introduce evidence in 

17 any appeal under this section that was not presented 

18 at the reconsideration conducted by the qualified 

19 independent contractor under subsection (c), unless 

20 there is good cause which precluded the introduction 

21 of such evidence at or before that reconsideration.’’. 

22 (2) EFFECTIVE DATE.—The amendment made 

23 by paragraph (1) shall take effect on October 1, 

24 2004. 
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1 (b) USE OF PATIENTS’ MEDICAL RECORDS.—Section 

2 1869(c)(3)(B)(i) (42 U.S.C. 1395ff(c)(3)(B)(i)), as 

3 amended by BIPA, is amended by inserting ‘‘(including 

4 the medical records of the individual involved)’’ after 

5 ‘‘clinical experience’’. 

6 (c) NOTICE REQUIREMENTS FOR MEDICARE AP7 PEALS.— 

8 (1) INITIAL DETERMINATIONS AND REDETER9 MINATIONS.—Section 1869(a) (42 U.S.C. 

10 1395ff(a)), as amended by BIPA, is amended by 

11 adding at the end the following new paragraphs: 

12 ‘‘(4) REQUIREMENTS OF NOTICE OF DETER13 MINATIONS.—With respect to an initial determina14 tion insofar as it results in a denial of a claim for 

15 benefits—

16 ‘‘(A) the written notice on the determina17 tion shall include—

18 ‘‘(i) the reasons for the determination, 

19 including whether a local medical review 

20 policy or a local coverage determination 

21 was used; 

22 ‘‘(ii) the procedures for obtaining ad23 ditional information concerning the deter24 mination, including the information de25 scribed in subparagraph (B); and 
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1 ‘‘(iii) notification of the right to seek 

2 a redetermination or otherwise appeal the 

3 determination and instructions on how to 

4 initiate such a redetermination under this 

5 section; and 

6 ‘‘(B) the person provided such notice may 

7 obtain, upon request, the specific provision of 

8 the policy, manual, or regulation used in mak9 ing the determination. 

10 ‘‘(5) REQUIREMENTS OF NOTICE OF REDETER11 MINATIONS.—With respect to a redetermination in12 sofar as it results in a denial of a claim for bene13 fits—

14 ‘‘(A) the written notice on the redeter15 mination shall include—

16 ‘‘(i) the specific reasons for the rede17 termination; 

18 ‘‘(ii) as appropriate, a summary of the 

19 clinical or scientific evidence used in mak20 ing the redetermination; 

21 ‘‘(iii) a description of the procedures 

22 for obtaining additional information con23 cerning the redetermination; and 

24 ‘‘(iv) notification of the right to ap25 peal the redetermination and instructions 
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1 on how to initiate such an appeal under 

2 this section; 

3 ‘‘(B) such written notice shall be provided 

4 in printed form and written in a manner cal5 culated to be understood by the individual enti6 tled to benefits under part A or enrolled under 

7 part B, or both; and 

8 ‘‘(C) the person provided such notice may 

9 obtain, upon request, information on the spe10 cific provision of the policy, manual, or regula11 tion used in making the redetermination.’’. 

12 (2) RECONSIDERATIONS.—Section 

13 1869(c)(3)(E) (42 U.S.C. 1395ff(c)(3)(E)), as 

14 amended by BIPA, is amended—

15 (A) by inserting ‘‘be written in a manner 

16 calculated to be understood by the individual 

17 entitled to benefits under part A or enrolled 

18 under part B, or both, and shall include (to the 

19 extent appropriate)’’ after ‘‘in writing, ’’; and 

20 (B) by inserting ‘‘and a notification of the 

21 right to appeal such determination and instruc22 tions on how to initiate such appeal under this 

23 section’’ after ‘‘such decision,’’. 

24 (3) APPEALS.—Section 1869(d) (42 U.S.C. 

25 1395ff(d)), as amended by BIPA, is amended—
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1 (A) in the heading, by inserting ‘‘; NO2 TICE’’ after ‘‘SECRETARY’’; and 

3 (B) by adding at the end the following new 

4 paragraph: 

5 ‘‘(4) NOTICE.—Notice of the decision of an ad6 ministrative law judge shall be in writing in a man7 ner calculated to be understood by the individual en8 titled to benefits under part A or enrolled under part 

9 B, or both, and shall include—

10 ‘‘(A) the specific reasons for the deter11 mination (including, to the extent appropriate, 

12 a summary of the clinical or scientific evidence 

13 used in making the determination); 

14 ‘‘(B) the procedures for obtaining addi15 tional information concerning the decision; and 

16 ‘‘(C) notification of the right to appeal the 

17 decision and instructions on how to initiate 

18 such an appeal under this section.’’. 

19 (4) SUBMISSION OF RECORD FOR APPEAL.—

20 Section 1869(c)(3)(J)(i) (42 U.S.C. 

21 1395ff(c)(3)(J)(i)) by striking ‘‘prepare’’ and insert22 ing ‘‘submit’’ and by striking ‘‘with respect to’’ and 

23 all that follows through ‘‘and relevant policies’’. 

24 (d) QUALIFIED INDEPENDENT CONTRACTORS.—
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1 (1) ELIGIBILITY REQUIREMENTS OF QUALIFIED

2 INDEPENDENT CONTRACTORS.—Section 1869(c)(3) 

3 (42 U.S.C. 1395ff(c)(3)), as amended by BIPA, is 

4 amended—

5 (A) in subparagraph (A), by striking ‘‘suf6 ficient training and expertise in medical science 

7 and legal matters’’ and inserting ‘‘sufficient 

8 medical, legal, and other expertise (including 

9 knowledge of the program under this title) and 

10 sufficient staffing’’; and 

11 (B) by adding at the end the following new 

12 subparagraph: 

13 ‘‘(K) INDEPENDENCE REQUIREMENTS.—

14 ‘‘(i) IN GENERAL.—Subject to clause 

15 (ii), a qualified independent contractor 

16 shall not conduct any activities in a case 

17 unless the entity—

18 ‘‘(I) is not a related party (as de19 fined in subsection (g)(5)); 

20 ‘‘(II) does not have a material fa21 milial, financial, or professional rela22 tionship with such a party in relation 

23 to such case; and 

24 ‘‘(III) does not otherwise have a 

25 conflict of interest with such a party. 
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1 ‘‘(ii) EXCEPTION FOR REASONABLE

2 COMPENSATION.—Nothing in clause (i) 

3 shall be construed to prohibit receipt by a 

4 qualified independent contractor of com5 pensation from the Secretary for the con6 duct of activities under this section if the 

7 compensation is provided consistent with 

8 clause (iii). 

9 ‘‘(iii) LIMITATIONS ON ENTITY COM10 PENSATION.—Compensation provided by 

11 the Secretary to a qualified independent 

12 contractor in connection with reviews 

13 under this section shall not be contingent 

14 on any decision rendered by the contractor 

15 or by any reviewing professional.’’. 

16 (2) ELIGIBILITY REQUIREMENTS FOR REVIEW17 ERS.—Section 1869 (42 U.S.C. 1395ff), as amended 

18 by BIPA, is amended—

19 (A) by amending subsection (c)(3)(D) to 

20 read as follows: 

21 ‘‘(D) QUALIFICATIONS FOR REVIEWERS.—

22 The requirements of subsection (g) shall be met 

23 (relating to qualifications of reviewing profes24 sionals).’’; and 
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1 (B) by adding at the end the following new 

2 subsection: 

3 ‘‘(g) QUALIFICATIONS OF REVIEWERS.—

4 ‘‘(1) IN GENERAL.—In reviewing determina5 tions under this section, a qualified independent con6 tractor shall assure that—

7 ‘‘(A) each individual conducting a review 

8 shall meet the qualifications of paragraph (2); 

9 ‘‘(B) compensation provided by the con10 tractor to each such reviewer is consistent with 

11 paragraph (3); and 

12 ‘‘(C) in the case of a review by a panel de13 scribed in subsection (c)(3)(B) composed of 

14 physicians or other health care professionals 

15 (each in this subsection referred to as a ‘review16 ing professional’), a reviewing professional 

17 meets the qualifications described in paragraph 

18 (4) and, where a claim is regarding the fur19 nishing of treatment by a physician (allopathic 

20 or osteopathic) or the provision of items or 

21 services by a physician (allopathic or osteo22 pathic), a reviewing professional shall be a phy23 sician (allopathic or osteopathic). 

24 ‘‘(2) INDEPENDENCE.—
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1 ‘‘(A) IN GENERAL.—Subject to subpara2 graph (B), each individual conducting a review 

3 in a case shall—

4 ‘‘(i) not be a related party (as defined 

5 in paragraph (5)); 

6 ‘‘(ii) not have a material familial, fi7 nancial, or professional relationship with 

8 such a party in the case under review; and 

9 ‘‘(iii) not otherwise have a conflict of 

10 interest with such a party. 

11 ‘‘(B) EXCEPTION.—Nothing in subpara12 graph (A) shall be construed to—

13 ‘‘(i) prohibit an individual, solely on 

14 the basis of a participation agreement with 

15 a fiscal intermediary, carrier, or other con16 tractor, from serving as a reviewing profes17 sional if—

18 ‘‘(I) the individual is not involved 

19 in the provision of items or services in 

20 the case under review; 

21 ‘‘(II) the fact of such an agree22 ment is disclosed to the Secretary and 

23 the individual entitled to benefits 

24 under part A or enrolled under part 
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1 B, or both, (or authorized representa2 tive) and neither party objects; and 

3 ‘‘(III) the individual is not an 

4 employee of the intermediary, carrier, 

5 or contractor and does not provide 

6 services exclusively or primarily to or 

7 on behalf of such intermediary, car8 rier, or contractor; 

9 ‘‘(ii) prohibit an individual who has 

10 staff privileges at the institution where the 

11 treatment involved takes place from serv12 ing as a reviewer merely on the basis of 

13 having such staff privileges if the existence 

14 of such privileges is disclosed to the Sec15 retary and such individual (or authorized 

16 representative), and neither party objects; 

17 or 

18 ‘‘(iii) prohibit receipt of compensation 

19 by a reviewing professional from a con20 tractor if the compensation is provided 

21 consistent with paragraph (3). 

22 For purposes of this paragraph, the term ‘par23 ticipation agreement’ means an agreement re24 lating to the provision of health care services by 

25 the individual and does not include the provi-
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1 sion of services as a reviewer under this sub2 section. 

3 ‘‘(3) LIMITATIONS ON REVIEWER COMPENSA4 TION.—Compensation provided by a qualified inde5 pendent contractor to a reviewer in connection with 

6 a review under this section shall not be contingent 

7 on the decision rendered by the reviewer. 

8 ‘‘(4) LICENSURE AND EXPERTISE.—Each re9 viewing professional shall be—

10 ‘‘(A) a physician (allopathic or osteopathic) 

11 who is appropriately credentialed or licensed in 

12 one or more States to deliver health care serv13 ices and has medical expertise in the field of 

14 practice that is appropriate for the items or 

15 services at issue; or 

16 ‘‘(B) a health care professional who is le17 gally authorized in one or more States (in ac18 cordance with State law or the State regulatory 

19 mechanism provided by State law) to furnish 

20 the health care items or services at issue and 

21 has medical expertise in the field of practice 

22 that is appropriate for such items or services. 

23 ‘‘(5) RELATED PARTY DEFINED.—For purposes 

24 of this section, the term ‘related party’ means, with 

25 respect to a case under this title involving a specific 
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1 individual entitled to benefits under part A or en2 rolled under part B, or both, any of the following: 

3 ‘‘(A) The Secretary, the medicare adminis4 trative contractor involved, or any fiduciary, of5 ficer, director, or employee of the Department 

6 of Health and Human Services, or of such con7 tractor. 

8 ‘‘(B) The individual (or authorized rep9 resentative). 

10 ‘‘(C) The health care professional that pro11 vides the items or services involved in the case. 

12 ‘‘(D) The institution at which the items or 

13 services (or treatment) involved in the case are 

14 provided. 

15 ‘‘(E) The manufacturer of any drug or 

16 other item that is included in the items or serv17 ices involved in the case. 

18 ‘‘(F) Any other party determined under 

19 any regulations to have a substantial interest in 

20 the case involved.’’. 

21 (3) REDUCING MINIMUM NUMBER OF QUALI22 FIED INDEPENDENT CONTRACTORS.—Section 

23 1869(c)(4) (42 U.S.C. 1395ff(c)(4)) is amended by 

24 striking ‘‘not fewer than 12 qualified independent 

25 contractors under this subsection’’ and inserting 
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1 ‘‘with a sufficient number of qualified independent 

2 contractors (but not fewer than 4 such contractors) 

3 to conduct reconsiderations consistent with the time4 frames applicable under this subsection’’. 

5 (4) EFFECTIVE DATE.—The amendments made 

6 by paragraphs (1) and (2) shall be effective as if in7 cluded in the enactment of the respective provisions 

8 of subtitle C of title V of BIPA, (114 Stat. 2763A–

9 534). 

10 (5) TRANSITION.—In applying section 1869(g) 

11 of the Social Security Act (as added by paragraph 

12 (2)), any reference to a medicare administrative con13 tractor shall be deemed to include a reference to a 

14 fiscal intermediary under section 1816 of the Social 

15 Security Act (42 U.S.C. 1395h) and a carrier under 

16 section 1842 of such Act (42 U.S.C. 1395u). 

17 SEC. 934. PREPAYMENT REVIEW. 

18 (a) IN GENERAL.—Section 1874A, as added by sec19 tion 911(a)(1) and as amended by sections 912(b), 

20 921(b)(1), and 921(c)(1), is further amended by adding 

21 at the end the following new subsection: 

22 ‘‘(h) CONDUCT OF PREPAYMENT REVIEW.—

23 ‘‘(1) CONDUCT OF RANDOM PREPAYMENT RE24 VIEW.—
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1 ‘‘(A) IN GENERAL.—A medicare adminis2 trative contractor may conduct random prepay3 ment review only to develop a contractor-wide 

4 or program-wide claims payment error rates or 

5 under such additional circumstances as may be 

6 provided under regulations, developed in con7 sultation with providers of services and sup8 pliers. 

9 ‘‘(B) USE OF STANDARD PROTOCOLS

10 WHEN CONDUCTING PREPAYMENT REVIEWS.—

11 When a medicare administrative contractor con12 ducts a random prepayment review, the con13 tractor may conduct such review only in accord14 ance with a standard protocol for random pre15 payment audits developed by the Secretary. 

16 ‘‘(C) CONSTRUCTION.—Nothing in this 

17 paragraph shall be construed as preventing the 

18 denial of payments for claims actually reviewed 

19 under a random prepayment review. 

20 ‘‘(D) RANDOM PREPAYMENT REVIEW.—

21 For purposes of this subsection, the term ‘ran22 dom prepayment review’ means a demand for 

23 the production of records or documentation ab24 sent cause with respect to a claim. 
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1 ‘‘(2) LIMITATIONS ON NON-RANDOM PREPAY2 MENT REVIEW.—

3 ‘‘(A) LIMITATIONS ON INITIATION OF NON4 RANDOM PREPAYMENT REVIEW.—A medicare 

5 administrative contractor may not initiate non6 random prepayment review of a provider of 

7 services or supplier based on the initial identi8 fication by that provider of services or supplier 

9 of an improper billing practice unless there is a 

10 likelihood of sustained or high level of payment 

11 error (as defined in subsection (i)(3)(A)). 

12 ‘‘(B) TERMINATION OF NON-RANDOM PRE13 PAYMENT REVIEW.—The Secretary shall issue 

14 regulations relating to the termination, includ15 ing termination dates, of non-random prepay16 ment review. Such regulations may vary such a 

17 termination date based upon the differences in 

18 the circumstances triggering prepayment re19 view.’’. 

20 (b) EFFECTIVE DATE.—

21 (1) IN GENERAL.—Except as provided in this 

22 subsection, the amendment made by subsection (a) 

23 shall take effect 1 year after the date of the enact24 ment of this Act. 
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1 (2) DEADLINE FOR PROMULGATION OF CER2 TAIN REGULATIONS.—The Secretary shall first issue 

3 regulations under section 1874A(h) of the Social Se4 curity Act, as added by subsection (a), by not later 

5 than 1 year after the date of the enactment of this 

6 Act. 

7 (3) APPLICATION OF STANDARD PROTOCOLS

8 FOR RANDOM PREPAYMENT REVIEW.—Section 

9 1874A(h)(1)(B) of the Social Security Act, as added 

10 by subsection (a), shall apply to random prepayment 

11 reviews conducted on or after such date (not later 

12 than 1 year after the date of the enactment of this 

13 Act) as the Secretary shall specify. 

14 (c) APPLICATION TO FISCAL INTERMEDIARIES AND

15 CARRIERS.—The provisions of section 1874A(h) of the So16 cial Security Act, as added by subsection (a), shall apply 

17 to each fiscal intermediary under section 1816 of the So18 cial Security Act (42 U.S.C. 1395h) and each carrier 

19 under section 1842 of such Act (42 U.S.C. 1395u) in the 

20 same manner as they apply to medicare administrative 

21 contractors under such provisions. 

22 SEC. 935. RECOVERY OF OVERPAYMENTS. 

23 (a) IN GENERAL.—Section 1893 (42 U.S.C. 

24 1395ddd) is amended by adding at the end the following 

25 new subsection: 
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1 ‘‘(f) RECOVERY OF OVERPAYMENTS.—

2 ‘‘(1) USE OF REPAYMENT PLANS.—

3 ‘‘(A) IN GENERAL.—If the repayment, 

4 within 30 days by a provider of services or sup5 plier, of an overpayment under this title would 

6 constitute a hardship (as defined in subpara7 graph (B)), subject to subparagraph (C), upon 

8 request of the provider of services or supplier 

9 the Secretary shall enter into a plan with the 

10 provider of services or supplier for the repay11 ment (through offset or otherwise) of such over12 payment over a period of at least 6 months but 

13 not longer than 3 years (or not longer than 5 

14 years in the case of extreme hardship, as deter15 mined by the Secretary). Interest shall accrue 

16 on the balance through the period of repay17 ment. Such plan shall meet terms and condi18 tions determined to be appropriate by the Sec19 retary. 

20 ‘‘(B) HARDSHIP.—

21 ‘‘(i) IN GENERAL.—For purposes of 

22 subparagraph (A), the repayment of an 

23 overpayment (or overpayments) within 30 

24 days is deemed to constitute a hardship 

25 if—
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1 ‘‘(I) in the case of a provider of 

2 services that files cost reports, the ag3 gregate amount of the overpayments 

4 exceeds 10 percent of the amount paid 

5 under this title to the provider of 

6 services for the cost reporting period 

7 covered by the most recently sub8 mitted cost report; or 

9 ‘‘(II) in the case of another pro10 vider of services or supplier, the ag11 gregate amount of the overpayments 

12 exceeds 10 percent of the amount paid 

13 under this title to the provider of 

14 services or supplier for the previous 

15 calendar year. 

16 ‘‘(ii) RULE OF APPLICATION.—The 

17 Secretary shall establish rules for the ap18 plication of this subparagraph in the case 

19 of a provider of services or supplier that 

20 was not paid under this title during the 

21 previous year or was paid under this title 

22 only during a portion of that year. 

23 ‘‘(iii) TREATMENT OF PREVIOUS

24 OVERPAYMENTS.—If a provider of services 

25 or supplier has entered into a repayment 
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1 plan under subparagraph (A) with respect 

2 to a specific overpayment amount, such 

3 payment amount under the repayment plan 

4 shall not be taken into account under 

5 clause (i) with respect to subsequent over6 payment amounts. 

7 ‘‘(C) EXCEPTIONS.—Subparagraph (A) 

8 shall not apply if—

9 ‘‘(i) the Secretary has reason to sus10 pect that the provider of services or sup11 plier may file for bankruptcy or otherwise 

12 cease to do business or discontinue partici13 pation in the program under this title; or 

14 ‘‘(ii) there is an indication of fraud or 

15 abuse committed against the program. 

16 ‘‘(D) IMMEDIATE COLLECTION IF VIOLA17 TION OF REPAYMENT PLAN.—If a provider of 

18 services or supplier fails to make a payment in 

19 accordance with a repayment plan under this 

20 paragraph, the Secretary may immediately seek 

21 to offset or otherwise recover the total balance 

22 outstanding (including applicable interest) 

23 under the repayment plan. 

24 ‘‘(E) RELATION TO NO FAULT PROVI25 SION.—Nothing in this paragraph shall be con-
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1 strued as affecting the application of section 

2 1870(c) (relating to no adjustment in the cases 

3 of certain overpayments). 

4 ‘‘(2) LIMITATION ON RECOUPMENT.—

5 ‘‘(A) IN GENERAL.—In the case of a pro6 vider of services or supplier that is determined 

7 to have received an overpayment under this title 

8 and that seeks a reconsideration by a qualified 

9 independent contractor on such determination 

10 under section 1869(b)(1), the Secretary may 

11 not take any action (or authorize any other per12 son, including any medicare contractor, as de13 fined in subparagraph (C)) to recoup the over14 payment until the date the decision on the re15 consideration has been rendered. If the provi16 sions of section 1869(b)(1) (providing for such 

17 a reconsideration by a qualified independent 

18 contractor) are not in effect, in applying the 

19 previous sentence any reference to such a recon20 sideration shall be treated as a reference to a 

21 redetermination by the fiscal intermediary or 

22 carrier involved. 

23 ‘‘(B) COLLECTION WITH INTEREST.—Inso24 far as the determination on such appeal is 

25 against the provider of services or supplier, in-
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1 terest on the overpayment shall accrue on and 

2 after the date of the original notice of overpay3 ment. Insofar as such determination against the 

4 provider of services or supplier is later reversed, 

5 the Secretary shall provide for repayment of the 

6 amount recouped plus interest at the same rate 

7 as would apply under the previous sentence for 

8 the period in which the amount was recouped. 

9 ‘‘(C) MEDICARE CONTRACTOR DEFINED.—

10 For purposes of this subsection, the term ‘medi11 care contractor’ has the meaning given such 

12 term in section 1889(g). 

13 ‘‘(3) LIMITATION ON USE OF EXTRAPO14 LATION.—A medicare contractor may not use ex15 trapolation to determine overpayment amounts to be 

16 recovered by recoupment, offset, or otherwise un17 less—

18 ‘‘(A) there is a sustained or high level of 

19 payment error (as defined by the Secretary by 

20 regulation); or 

21 ‘‘(B) documented educational intervention 

22 has failed to correct the payment error (as de23 termined by the Secretary). 

24 ‘‘(4) PROVISION OF SUPPORTING DOCUMENTA25 TION.—In the case of a provider of services or sup-
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1 plier with respect to which amounts were previously 

2 overpaid, a medicare contractor may request the 

3 periodic production of records or supporting docu4 mentation for a limited sample of submitted claims 

5 to ensure that the previous practice is not con6 tinuing. 

7 ‘‘(5) CONSENT SETTLEMENT REFORMS.—

8 ‘‘(A) IN GENERAL.—The Secretary may 

9 use a consent settlement (as defined in sub10 paragraph (D)) to settle a projected overpay11 ment. 

12 ‘‘(B) OPPORTUNITY TO SUBMIT ADDI13 TIONAL INFORMATION BEFORE CONSENT SET14 TLEMENT OFFER.—Before offering a provider 

15 of services or supplier a consent settlement, the 

16 Secretary shall—

17 ‘‘(i) communicate to the provider of 

18 services or supplier—

19 ‘‘(I) that, based on a review of 

20 the medical records requested by the 

21 Secretary, a preliminary evaluation of 

22 those records indicates that there 

23 would be an overpayment; 

24 ‘‘(II) the nature of the problems 

25 identified in such evaluation; and 
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1 ‘‘(III) the steps that the provider 

2 of services or supplier should take to 

3 address the problems; and 

4 ‘‘(ii) provide for a 45-day period dur5 ing which the provider of services or sup6 plier may furnish additional information 

7 concerning the medical records for the 

8 claims that had been reviewed. 

9 ‘‘(C) CONSENT SETTLEMENT OFFER.—The 

10 Secretary shall review any additional informa11 tion furnished by the provider of services or 

12 supplier under subparagraph (B)(ii). Taking 

13 into consideration such information, the Sec14 retary shall determine if there still appears to 

15 be an overpayment. If so, the Secretary—

16 ‘‘(i) shall provide notice of such deter17 mination to the provider of services or sup18 plier, including an explanation of the rea19 son for such determination; and 

20 ‘‘(ii) in order to resolve the overpay21 ment, may offer the provider of services or 

22 supplier—

23 ‘‘(I) the opportunity for a statis24 tically valid random sample; or 

25 ‘‘(II) a consent settlement. 
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1 The opportunity provided under clause (ii)(I) 

2 does not waive any appeal rights with respect to 

3 the alleged overpayment involved. 

4 ‘‘(D) CONSENT SETTLEMENT DEFINED.—

5 For purposes of this paragraph, the term ‘con6 sent settlement’ means an agreement between 

7 the Secretary and a provider of services or sup8 plier whereby both parties agree to settle a pro9 jected overpayment based on less than a statis10 tically valid sample of claims and the provider 

11 of services or supplier agrees not to appeal the 

12 claims involved. 

13 ‘‘(6) NOTICE OF OVER-UTILIZATION OF

14 CODES.—The Secretary shall establish, in consulta15 tion with organizations representing the classes of 

16 providers of services and suppliers, a process under 

17 which the Secretary provides for notice to classes of 

18 providers of services and suppliers served by the con19 tractor in cases in which the contractor has identi20 fied that particular billing codes may be overutilized 

21 by that class of providers of services or suppliers 

22 under the programs under this title (or provisions of 

23 title XI insofar as they relate to such programs). 

24 ‘‘(7) PAYMENT AUDITS.—
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1 ‘‘(A) WRITTEN NOTICE FOR POST-PAY2 MENT AUDITS.—Subject to subparagraph (C), if 

3 a medicare contractor decides to conduct a 

4 post-payment audit of a provider of services or 

5 supplier under this title, the contractor shall 

6 provide the provider of services or supplier with 

7 written notice (which may be in electronic form) 

8 of the intent to conduct such an audit. 

9 ‘‘(B) EXPLANATION OF FINDINGS FOR ALL

10 AUDITS.—Subject to subparagraph (C), if a 

11 medicare contractor audits a provider of serv12 ices or supplier under this title, the contractor 

13 shall—

14 ‘‘(i) give the provider of services or 

15 supplier a full review and explanation of 

16 the findings of the audit in a manner that 

17 is understandable to the provider of serv18 ices or supplier and permits the develop19 ment of an appropriate corrective action 

20 plan; 

21 ‘‘(ii) inform the provider of services or 

22 supplier of the appeal rights under this 

23 title as well as consent settlement options 

24 (which are at the discretion of the Sec25 retary); 
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1 ‘‘(iii) give the provider of services or 

2 supplier an opportunity to provide addi3 tional information to the contractor; and 

4 ‘‘(iv) take into account information 

5 provided, on a timely basis, by the provider 

6 of services or supplier under clause (iii). 

7 ‘‘(C) EXCEPTION.—Subparagraphs (A) 

8 and (B) shall not apply if the provision of no9 tice or findings would compromise pending law 

10 enforcement activities, whether civil or criminal, 

11 or reveal findings of law enforcement-related 

12 audits. 

13 ‘‘(8) STANDARD METHODOLOGY FOR PROBE

14 SAMPLING.—The Secretary shall establish a stand15 ard methodology for medicare contractors to use in 

16 selecting a sample of claims for review in the case 

17 of an abnormal billing pattern.’’. 

18 (b) EFFECTIVE DATES AND DEADLINES.—

19 (1) USE OF REPAYMENT PLANS.—Section 

20 1893(f)(1) of the Social Security Act, as added by 

21 subsection (a), shall apply to requests for repayment 

22 plans made after the date of the enactment of this 

23 Act. 

24 (2) LIMITATION ON RECOUPMENT.—Section 

25 1893(f)(2) of the Social Security Act, as added by 
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1 subsection (a), shall apply to actions taken after the 

2 date of the enactment of this Act. 

3 (3) USE OF EXTRAPOLATION.—Section 

4 1893(f)(3) of the Social Security Act, as added by 

5 subsection (a), shall apply to statistically valid ran6 dom samples initiated after the date that is 1 year 

7 after the date of the enactment of this Act. 

8 (4) PROVISION OF SUPPORTING DOCUMENTA9 TION.—Section 1893(f)(4) of the Social Security 

10 Act, as added by subsection (a), shall take effect on 

11 the date of the enactment of this Act. 

12 (5) CONSENT SETTLEMENT.—Section 

13 1893(f)(5) of the Social Security Act, as added by 

14 subsection (a), shall apply to consent settlements en15 tered into after the date of the enactment of this 

16 Act. 

17 (6) NOTICE OF OVERUTILIZATION.—Not later 

18 than 1 year after the date of the enactment of this 

19 Act, the Secretary shall first establish the process 

20 for notice of overutilization of billing codes under 

21 section 1893A(f)(6) of the Social Security Act, as 

22 added by subsection (a). 

23 (7) PAYMENT AUDITS.—Section 1893A(f)(7) of 

24 the Social Security Act, as added by subsection (a), 
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1 shall apply to audits initiated after the date of the 

2 enactment of this Act. 

3 (8) STANDARD FOR ABNORMAL BILLING PAT4 TERNS.—Not later than 1 year after the date of the 

5 enactment of this Act, the Secretary shall first es6 tablish a standard methodology for selection of sam7 ple claims for abnormal billing patterns under sec8 tion 1893(f)(8) of the Social Security Act, as added 

9 by subsection (a). 

10 SEC. 936. PROVIDER ENROLLMENT PROCESS; RIGHT OF AP11 PEAL. 

12 (a) IN GENERAL.—Section 1866 (42 U.S.C. 1395cc) 

13 is amended—

14 (1) by adding at the end of the heading the fol15 lowing: ‘‘; ENROLLMENT PROCESSES’’; and 

16 (2) by adding at the end the following new sub17 section: 

18 ‘‘(j) ENROLLMENT PROCESS FOR PROVIDERS OF

19 SERVICES AND SUPPLIERS.—

20 ‘‘(1) ENROLLMENT PROCESS.—

21 ‘‘(A) IN GENERAL.—The Secretary shall 

22 establish by regulation a process for the enroll23 ment of providers of services and suppliers 

24 under this title. 
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1 ‘‘(B) DEADLINES.—The Secretary shall es2 tablish by regulation procedures under which 

3 there are deadlines for actions on applications 

4 for enrollment (and, if applicable, renewal of 

5 enrollment). The Secretary shall monitor the 

6 performance of medicare administrative con7 tractors in meeting the deadlines established 

8 under this subparagraph. 

9 ‘‘(C) CONSULTATION BEFORE CHANGING

10 PROVIDER ENROLLMENT FORMS.—The Sec11 retary shall consult with providers of services 

12 and suppliers before making changes in the pro13 vider enrollment forms required of such pro14 viders and suppliers to be eligible to submit 

15 claims for which payment may be made under 

16 this title. 

17 ‘‘(2) HEARING RIGHTS IN CASES OF DENIAL OR

18 NON-RENEWAL.—A provider of services or supplier 

19 whose application to enroll (or, if applicable, to 

20 renew enrollment) under this title is denied may 

21 have a hearing and judicial review of such denial 

22 under the procedures that apply under subsection 

23 (h)(1)(A) to a provider of services that is dissatisfied 

24 with a determination by the Secretary.’’. 

25 (b) EFFECTIVE DATES.—
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1 (1) ENROLLMENT PROCESS.—The Secretary 

2 shall provide for the establishment of the enrollment 

3 process under section 1866(j)(1) of the Social Secu4 rity Act, as added by subsection (a)(2), within 6 

5 months after the date of the enactment of this Act. 

6 (2) CONSULTATION.—Section 1866(j)(1)(C) of 

7 the Social Security Act, as added by subsection 

8 (a)(2), shall apply with respect to changes in pro9 vider enrollment forms made on or after January 1, 

10 2004. 

11 (3) HEARING RIGHTS.—Section 1866(j)(2) of 

12 the Social Security Act, as added by subsection 

13 (a)(2), shall apply to denials occurring on or after 

14 such date (not later than 1 year after the date of 

15 the enactment of this Act) as the Secretary specifies. 

16 SEC. 937. PROCESS FOR CORRECTION OF MINOR ERRORS 

17 AND OMISSIONS WITHOUT PURSUING AP18 PEALS PROCESS. 

19 (a) CLAIMS.—The Secretary shall develop, in con20 sultation with appropriate medicare contractors (as de21 fined in section 1889(g) of the Social Security Act, as in22 serted by section 301(a)(1)) and representatives of pro23 viders of services and suppliers, a process whereby, in the 

24 case of minor errors or omissions (as defined by the Sec25 retary) that are detected in the submission of claims under 
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1 the programs under title XVIII of such Act, a provider 

2 of services or supplier is given an opportunity to correct 

3 such an error or omission without the need to initiate an 

4 appeal. Such process shall include the ability to resubmit 

5 corrected claims. 

6 (b) PERMITTING USE OF CORRECTED AND SUPPLE7 MENTARY DATA.—

8 (1) IN GENERAL.—Section 1886(d)(10)(D)(vi) 

9 (42 U.S.C. 1395ww(d)(10)(D)(vi)) is amended by 

10 adding after subclause (II) at the end the following: 

11 ‘‘Notwithstanding subclause (I), a hospital may submit, 

12 and the Secretary may accept upon verification, data that 

13 corrects or supplements the data described in such sub14 clause without regard to whether the corrected or supple15 mentary data relate to a cost report that has been set16 tled.’’. 

17 (2) EFFECTIVE DATE.—The amendment made 

18 by paragraph (1) shall apply to fiscal years begin19 ning with fiscal year 2004. 

20 (3) SUBMITTAL AND RESUBMITTAL OF APPLI21 CATIONS PERMITTED FOR FISCAL YEAR 2004.—

22 (A) IN GENERAL.—Notwithstanding any 

23 other provision of law, a hospital may submit 

24 (or resubmit) an application for a change de25 scribed in section 1886(d)(10)(C)(i)(II) of the 
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1 Social Security Act for fiscal year 2004 if the 

2 hospital demonstrates on a timely basis to the 

3 satisfaction of the Secretary that the use of cor4 rected or supplementary data under the amend5 ment made by paragraph (1) would materially 

6 affect the approval of such an application. 

7 (B) APPLICATION OF BUDGET NEU8 TRALITY.—If one or more hospital’s applica9 tions are approved as a result of paragraph (1) 

10 and subparagraph (A) for fiscal year 2004, the 

11 Secretary shall make a proportional adjustment 

12 in the standardized amounts determined under 

13 section 1886(d)(3) of the Social Security Act 

14 (42 U.S.C. 1395ww(d)(3)) for fiscal year 2004 

15 to assure that approval of such applications 

16 does not result in aggregate payments under 

17 section 1886(d) of such Act that are greater or 

18 less than those that would otherwise be made if 

19 paragraph (1) and subparagraph (A) did not 

20 apply. 

21 SEC. 938. PRIOR DETERMINATION PROCESS FOR CERTAIN 

22 ITEMS AND SERVICES; ADVANCE BENE23 FICIARY NOTICES. 

24 (a) IN GENERAL.—Section 1869 (42 U.S.C. 

25 1395ff(b)), as amended by sections 521 and 522 of BIPA 
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1 and section 933(d)(2)(B), is further amended by adding 

2 at the end the following new subsection: 

3 ‘‘(h) PRIOR DETERMINATION PROCESS FOR CERTAIN

4 ITEMS AND SERVICES.—

5 ‘‘(1) ESTABLISHMENT OF PROCESS.—

6 ‘‘(A) IN GENERAL.—With respect to a 

7 medicare administrative contractor that has a 

8 contract under section 1874A that provides for 

9 making payments under this title with respect 

10 to eligible items and services described in sub11 paragraph (C), the Secretary shall establish a 

12 prior determination process that meets the re13 quirements of this subsection and that shall be 

14 applied by such contractor in the case of eligible 

15 requesters. 

16 ‘‘(B) ELIGIBLE REQUESTER.—For pur17 poses of this subsection, each of the following 

18 shall be an eligible requester: 

19 ‘‘(i) A physician, but only with respect 

20 to eligible items and services for which the 

21 physician may be paid directly. 

22 ‘‘(ii) An individual entitled to benefits 

23 under this title, but only with respect to an 

24 item or service for which the individual re25 ceives, from the physician who may be paid 
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1 directly for the item or service, an advance 

2 beneficiary notice under section 1879(a) 

3 that payment may not be made (or may no 

4 longer be made) for the item or service 

5 under this title. 

6 ‘‘(C) ELIGIBLE ITEMS AND SERVICES.—

7 For purposes of this subsection and subject to 

8 paragraph (2), eligible items and services are 

9 items and services which are physicians’ serv10 ices (as defined in paragraph (4)(A) of section 

11 1848(f) for purposes of calculating the sustain12 able growth rate under such section). 

13 ‘‘(2) SECRETARIAL FLEXIBILITY.—The Sec14 retary shall establish by regulation reasonable limits 

15 on the categories of eligible items and services for 

16 which a prior determination of coverage may be re17 quested under this subsection. In establishing such 

18 limits, the Secretary may consider the dollar amount 

19 involved with respect to the item or service, adminis20 trative costs and burdens, and other relevant factors. 

21 ‘‘(3) REQUEST FOR PRIOR DETERMINATION.—

22 ‘‘(A) IN GENERAL.—Subject to paragraph 

23 (2), under the process established under this 

24 subsection an eligible requester may submit to 

25 the contractor a request for a determination, 
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1 before the furnishing of an eligible item or serv2 ice involved as to whether the item or service is 

3 covered under this title consistent with the ap4 plicable requirements of section 1862(a)(1)(A) 

5 (relating to medical necessity). 

6 ‘‘(B) ACCOMPANYING DOCUMENTATION.—

7 The Secretary may require that the request be 

8 accompanied by a description of the item or 

9 service, supporting documentation relating to 

10 the medical necessity for the item or service, 

11 and any other appropriate documentation. In 

12 the case of a request submitted by an eligible 

13 requester who is described in paragraph 

14 (1)(B)(ii), the Secretary may require that the 

15 request also be accompanied by a copy of the 

16 advance beneficiary notice involved. 

17 ‘‘(4) RESPONSE TO REQUEST.—

18 ‘‘(A) IN GENERAL.—Under such process, 

19 the contractor shall provide the eligible re20 quester with written notice of a determination 

21 as to whether—

22 ‘‘(i) the item or service is so covered; 

23 ‘‘(ii) the item or service is not so cov24 ered; or 
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1 ‘‘(iii) the contractor lacks sufficient 

2 information to make a coverage determina3 tion. 

4 If the contractor makes the determination de5 scribed in clause (iii), the contractor shall in6 clude in the notice a description of the addi7 tional information required to make the cov8 erage determination. 

9 ‘‘(B) DEADLINE TO RESPOND.—Such no10 tice shall be provided within the same time pe11 riod as the time period applicable to the con12 tractor providing notice of initial determinations 

13 on a claim for benefits under subsection 

14 (a)(2)(A). 

15 ‘‘(C) INFORMING BENEFICIARY IN CASE OF

16 PHYSICIAN REQUEST.—In the case of a request 

17 in which an eligible requester is not the indi18 vidual described in paragraph (1)(B)(ii), the 

19 process shall provide that the individual to 

20 whom the item or service is proposed to be fur21 nished shall be informed of any determination 

22 described in clause (ii) (relating to a determina23 tion of non-coverage) and the right (referred to 

24 in paragraph (6)(B)) to obtain the item or serv-
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1 ice and have a claim submitted for the item or 

2 service. 

3 ‘‘(5) EFFECT OF DETERMINATIONS.—

4 ‘‘(A) BINDING NATURE OF POSITIVE DE5 TERMINATION.—If the contractor makes the de6 termination described in paragraph (4)(A)(i), 

7 such determination shall be binding on the con8 tractor in the absence of fraud or evidence of 

9 misrepresentation of facts presented to the con10 tractor. 

11 ‘‘(B) NOTICE AND RIGHT TO REDETER12 MINATION IN CASE OF A DENIAL.—

13 ‘‘(i) IN GENERAL.—If the contractor 

14 makes the determination described in para15 graph (4)(A)(ii)—

16 ‘‘(I) the eligible requester has the 

17 right to a redetermination by the con18 tractor on the determination that the 

19 item or service is not so covered; and 

20 ‘‘(II) the contractor shall include 

21 in notice under paragraph (4)(A) a 

22 brief explanation of the basis for the 

23 determination, including on what na24 tional or local coverage or noncov25 erage determination (if any) the de-
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1 termination is based, and the right to 

2 such a redetermination. 

3 ‘‘(ii) DEADLINE FOR REDETERMINA4 TIONS.—The contractor shall complete and 

5 provide notice of such redetermination 

6 within the same time period as the time 

7 period applicable to the contractor pro8 viding notice of redeterminations relating 

9 to a claim for benefits under subsection 

10 (a)(3)(C)(ii). 

11 ‘‘(6) LIMITATION ON FURTHER REVIEW.—

12 ‘‘(A) IN GENERAL.—Contractor determina13 tions described in paragraph (4)(A)(ii) or 

14 (4)(A)(iii) (and redeterminations made under 

15 paragraph (5)(B)), relating to pre-service 

16 claims are not subject to further administrative 

17 appeal or judicial review under this section or 

18 otherwise. 

19 ‘‘(B) DECISION NOT TO SEEK PRIOR DE20 TERMINATION OR NEGATIVE DETERMINATION

21 DOES NOT IMPACT RIGHT TO OBTAIN SERVICES, 

22 SEEK REIMBURSEMENT, OR APPEAL RIGHTS.—

23 Nothing in this subsection shall be construed as 

24 affecting the right of an individual who—
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1 ‘‘(i) decides not to seek a prior deter2 mination under this subsection with re3 spect to items or services; or 

4 ‘‘(ii) seeks such a determination and 

5 has received a determination described in 

6 paragraph (4)(A)(ii), 

7 from receiving (and submitting a claim for) 

8 such items services and from obtaining adminis9 trative or judicial review respecting such claim 

10 under the other applicable provisions of this 

11 section. Failure to seek a prior determination 

12 under this subsection with respect to items and 

13 services shall not be taken into account in such 

14 administrative or judicial review. 

15 ‘‘(C) NO PRIOR DETERMINATION AFTER

16 RECEIPT OF SERVICES.—Once an individual is 

17 provided items and services, there shall be no 

18 prior determination under this subsection with 

19 respect to such items or services.’’. 

20 (b) EFFECTIVE DATE; TRANSITION.—

21 (1) EFFECTIVE DATE.—The Secretary shall es22 tablish the prior determination process under the 

23 amendment made by subsection (a) in such a man24 ner as to provide for the acceptance of requests for 

25 determinations under such process filed not later 
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1 than 18 months after the date of the enactment of 

2 this Act. 

3 (2) TRANSITION.—During the period in which 

4 the amendment made by subsection (a) has become 

5 effective but contracts are not provided under sec6 tion 1874A of the Social Security Act with medicare 

7 administrative contractors, any reference in section 

8 1869(g) of such Act (as added by such amendment) 

9 to such a contractor is deemed a reference to a fiscal 

10 intermediary or carrier with an agreement under 

11 section 1816, or contract under section 1842, re12 spectively, of such Act. 

13 (3) LIMITATION ON APPLICATION TO SGR.—For 

14 purposes of applying section 1848(f)(2)(D) of the 

15 Social Security Act (42 U.S.C. 1395w–4(f)(2)(D)), 

16 the amendment made by subsection (a) shall not be 

17 considered to be a change in law or regulation. 

18 (c) PROVISIONS RELATING TO ADVANCE BENE19 FICIARY NOTICES; REPORT ON PRIOR DETERMINATION

20 PROCESS.—

21 (1) DATA COLLECTION.—The Secretary shall 

22 establish a process for the collection of information 

23 on the instances in which an advance beneficiary no24 tice (as defined in paragraph (5)) has been provided 

25 and on instances in which a beneficiary indicates on 
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1 such a notice that the beneficiary does not intend to 

2 seek to have the item or service that is the subject 

3 of the notice furnished. 

4 (2) OUTREACH AND EDUCATION.—The Sec5 retary shall establish a program of outreach and 

6 education for beneficiaries and providers of services 

7 and other persons on the appropriate use of advance 

8 beneficiary notices and coverage policies under the 

9 medicare program. 

10 (3) GAO REPORT REPORT ON USE OF ADVANCE

11 BENEFICIARY NOTICES.—Not later than 18 months 

12 after the date on which section 1869(g) of the Social 

13 Security Act (as added by subsection (a)) takes ef14 fect, the Comptroller General of the United States 

15 shall submit to Congress a report on the use of ad16 vance beneficiary notices under title XVIII of such 

17 Act. Such report shall include information con18 cerning the providers of services and other persons 

19 that have provided such notices and the response of 

20 beneficiaries to such notices. 

21 (4) GAO REPORT ON USE OF PRIOR DETER22 MINATION PROCESS.—Not later than 18 months 

23 after the date on which section 1869(g) of the Social 

24 Security Act (as added by subsection (a)) takes ef25 fect, the Comptroller General of the United States 
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1 shall submit to Congress a report on the use of the 

2 prior determination process under such section. Such 

3 report shall include—

4 (A) information concerning the types of 

5 procedures for which a prior determination has 

6 been sought, determinations made under the 

7 process, and changes in receipt of services re8 sulting from the application of such process; 

9 and 

10 (B) an evaluation of whether the process 

11 was useful for physicians (and other suppliers) 

12 and beneficiaries, whether it was timely, and 

13 whether the amount of information required 

14 was burdensome to physicians and beneficiaries. 

15 (5) ADVANCE BENEFICIARY NOTICE DE16 FINED.—In this subsection, the term ‘‘advance bene17 ficiary notice’’ means a written notice provided 

18 under section 1879(a) of the Social Security Act (42 

19 U.S.C. 1395pp(a)) to an individual entitled to bene20 fits under part A or B of title XVIII of such Act 

21 before items or services are furnished under such 

22 part in cases where a provider of services or other 

23 person that would furnish the item or service be24 lieves that payment will not be made for some or all 

25 of such items or services under such title. 
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1 Subtitle V—Miscellaneous 

2 Provisions 

3 SEC. 941. POLICY DEVELOPMENT REGARDING EVALUATION 

4 AND MANAGEMENT (E & M) DOCUMENTATION 

5 GUIDELINES. 

6 (a) IN GENERAL.—The Secretary may not implement 

7 any new documentation guidelines for, or clinical examples 

8 of, evaluation and management physician services under 

9 the title XVIII of the Social Security Act on or after the 

10 date of the enactment of this Act unless the Secretary—

11 (1) has developed the guidelines in collaboration 

12 with practicing physicians (including both generalists 

13 and specialists) and provided for an assessment of 

14 the proposed guidelines by the physician community; 

15 (2) has established a plan that contains specific 

16 goals, including a schedule, for improving the use of 

17 such guidelines; 

18 (3) has conducted appropriate and representa19 tive pilot projects under subsection (b) to test modi20 fications to the evaluation and management docu21 mentation guidelines; 

22 (4) finds that the objectives described in sub23 section (c) will be met in the implementation of such 

24 guidelines; and 
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1 (5) has established, and is implementing, a pro2 gram to educate physicians on the use of such guide3 lines and that includes appropriate outreach. 

4 The Secretary shall make changes to the manner in which 

5 existing evaluation and management documentation guide6 lines are implemented to reduce paperwork burdens on 

7 physicians. 

8 (b) PILOT PROJECTS TO TEST EVALUATION AND

9 MANAGEMENT DOCUMENTATION GUIDELINES.—

10 (1) IN GENERAL.—The Secretary shall conduct 

11 under this subsection appropriate and representative 

12 pilot projects to test new evaluation and manage13 ment documentation guidelines referred to in sub14 section (a). 

15 (2) LENGTH AND CONSULTATION.—Each pilot 

16 project under this subsection shall—

17 (A) be voluntary; 

18 (B) be of sufficient length as determined 

19 by the Secretary to allow for preparatory physi20 cian and medicare contractor education, anal21 ysis, and use and assessment of potential eval22 uation and management guidelines; and 

23 (C) be conducted, in development and 

24 throughout the planning and operational stages 

25 of the project, in consultation with practicing 
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1 physicians (including both generalists and spe2 cialists). 

3 (3) RANGE OF PILOT PROJECTS.—Of the pilot 

4 projects conducted under this subsection—

5 (A) at least one shall focus on a peer re6 view method by physicians (not employed by a 

7 medicare contractor) which evaluates medical 

8 record information for claims submitted by phy9 sicians identified as statistical outliers relative 

10 to definitions published in the Current Proce11 dures Terminology (CPT) code book of the 

12 American Medical Association; 

13 (B) at least one shall focus on an alter14 native method to detailed guidelines based on 

15 physician documentation of face to face encoun16 ter time with a patient; 

17 (C) at least one shall be conducted for 

18 services furnished in a rural area and at least 

19 one for services furnished outside such an area; 

20 and 

21 (D) at least one shall be conducted in a 

22 setting where physicians bill under physicians’ 

23 services in teaching settings and at least one 

24 shall be conducted in a setting other than a 

25 teaching setting. 
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1 (4) BANNING OF TARGETING OF PILOT

2 PROJECT PARTICIPANTS.—Data collected under this 

3 subsection shall not be used as the basis for overpay4 ment demands or post-payment audits. Such limita5 tion applies only to claims filed as part of the pilot 

6 project and lasts only for the duration of the pilot 

7 project and only as long as the provider is a partici8 pant in the pilot project. 

9 (5) STUDY OF IMPACT.—Each pilot project 

10 shall examine the effect of the new evaluation and 

11 management documentation guidelines on—

12 (A) different types of physician practices, 

13 including those with fewer than 10 full-time14 equivalent employees (including physicians); 

15 and 

16 (B) the costs of physician compliance, in17 cluding education, implementation, auditing, 

18 and monitoring. 

19 (6) PERIODIC REPORTS.—The Secretary shall 

20 submit to Congress periodic reports on the pilot 

21 projects under this subsection. 

22 (c) OBJECTIVES FOR EVALUATION AND MANAGE23 MENT GUIDELINES.—The objectives for modified evalua24 tion and management documentation guidelines developed 

25 by the Secretary shall be to—
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1 (1) identify clinically relevant documentation 

2 needed to code accurately and assess coding levels 

3 accurately; 

4 (2) decrease the level of non-clinically pertinent 

5 and burdensome documentation time and content in 

6 the physician’s medical record; 

7 (3) increase accuracy by reviewers; and 

8 (4) educate both physicians and reviewers. 

9 (d) STUDY OF SIMPLER, ALTERNATIVE SYSTEMS OF

10 DOCUMENTATION FOR PHYSICIAN CLAIMS.—

11 (1) STUDY.—The Secretary shall carry out a 

12 study of the matters described in paragraph (2). 

13 (2) MATTERS DESCRIBED.—The matters re14 ferred to in paragraph (1) are—

15 (A) the development of a simpler, alter16 native system of requirements for documenta17 tion accompanying claims for evaluation and 

18 management physician services for which pay19 ment is made under title XVIII of the Social 

20 Security Act; and 

21 (B) consideration of systems other than 

22 current coding and documentation requirements 

23 for payment for such physician services. 

24 (3) CONSULTATION WITH PRACTICING PHYSI25 CIANS.—In designing and carrying out the study 
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1 under paragraph (1), the Secretary shall consult 

2 with practicing physicians, including physicians who 

3 are part of group practices and including both gen4 eralists and specialists. 

5 (4) APPLICATION OF HIPAA UNIFORM CODING

6 REQUIREMENTS.—In developing an alternative sys7 tem under paragraph (2), the Secretary shall con8 sider requirements of administrative simplification 

9 under part C of title XI of the Social Security Act. 

10 (5) REPORT TO CONGRESS.—(A) Not later than 

11 October 1, 2005, the Secretary shall submit to Con12 gress a report on the results of the study conducted 

13 under paragraph (1). 

14 (B) The Medicare Payment Advisory Commis15 sion shall conduct an analysis of the results of the 

16 study included in the report under subparagraph (A) 

17 and shall submit a report on such analysis to Con18 gress. 

19 (e) STUDY ON APPROPRIATE CODING OF CERTAIN

20 EXTENDED OFFICE VISITS.—The Secretary shall conduct 

21 a study of the appropriateness of coding in cases of ex22 tended office visits in which there is no diagnosis made. 

23 Not later than October 1, 2005, the Secretary shall submit 

24 a report to Congress on such study and shall include rec25 ommendations on how to code appropriately for such visits 
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1 in a manner that takes into account the amount of time 

2 the physician spent with the patient. 

3 (f) DEFINITIONS.—In this section—

4 (1) the term ‘‘rural area’’ has the meaning 

5 given that term in section 1886(d)(2)(D) of the So6 cial Security Act, 42 U.S.C. 1395ww(d)(2)(D); and 

7 (2) the term ‘‘teaching settings’’ are those set8 tings described in section 415.150 of title 42, Code 

9 of Federal Regulations. 

10 SEC. 942. IMPROVEMENT IN OVERSIGHT OF TECHNOLOGY 

11 AND COVERAGE. 

12 (a) COUNCIL FOR TECHNOLOGY AND INNOVATION.—

13 Section 1868 (42 U.S.C. 1395ee), as amended by section 

14 921(a), is amended by adding at the end the following new 

15 subsection: 

16 ‘‘(c) COUNCIL FOR TECHNOLOGY AND INNOVA17 TION.—

18 ‘‘(1) ESTABLISHMENT.—The Secretary shall es19 tablish a Council for Technology and Innovation 

20 within the Centers for Medicare & Medicaid Services 

21 (in this section referred to as ‘CMS’). 

22 ‘‘(2) COMPOSITION.—The Council shall be com23 posed of senior CMS staff and clinicians and shall 

24 be chaired by the Executive Coordinator for Tech-
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1 nology and Innovation (appointed or designated 

2 under paragraph (4)). 

3 ‘‘(3) DUTIES.—The Council shall coordinate the 

4 activities of coverage, coding, and payment processes 

5 under this title with respect to new technologies and 

6 procedures, including new drug therapies, and shall 

7 coordinate the exchange of information on new tech8 nologies between CMS and other entities that make 

9 similar decisions. 

10 ‘‘(4) EXECUTIVE COORDINATOR FOR TECH11 NOLOGY AND INNOVATION.—The Secretary shall ap12 point (or designate) a noncareer appointee (as de13 fined in section 3132(a)(7) of title 5, United States 

14 Code) who shall serve as the Executive Coordinator 

15 for Technology and Innovation. Such executive coor16 dinator shall report to the Administrator of CMS, 

17 shall chair the Council, shall oversee the execution of 

18 its duties, and shall serve as a single point of con19 tact for outside groups and entities regarding the 

20 coverage, coding, and payment processes under this 

21 title.’’. 

22 (b) METHODS FOR DETERMINING PAYMENT BASIS

23 FOR NEW LAB TESTS.—Section 1833(h) (42 U.S.C. 

24 1395l(h)) is amended by adding at the end the following: 
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1 ‘‘(8)(A) The Secretary shall establish by regulation 

2 procedures for determining the basis for, and amount of, 

3 payment under this subsection for any clinical diagnostic 

4 laboratory test with respect to which a new or substan5 tially revised HCPCS code is assigned on or after January 

6 1, 2005 (in this paragraph referred to as ‘new tests’). 

7 ‘‘(B) Determinations under subparagraph (A) shall 

8 be made only after the Secretary—

9 ‘‘(i) makes available to the public (through an 

10 Internet site and other appropriate mechanisms) a 

11 list that includes any such test for which establish12 ment of a payment amount under this subsection is 

13 being considered for a year; 

14 ‘‘(ii) on the same day such list is made avail15 able, causes to have published in the Federal Reg16 ister notice of a meeting to receive comments and 

17 recommendations (and data on which recommenda18 tions are based) from the public on the appropriate 

19 basis under this subsection for establishing payment 

20 amounts for the tests on such list; 

21 ‘‘(iii) not less than 30 days after publication of 

22 such notice convenes a meeting, that includes rep23 resentatives of officials of the Centers for Medicare 

24 & Medicaid Services involved in determining pay25 ment amounts, to receive such comments and rec-
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1 ommendations (and data on which the recommenda2 tions are based); 

3 ‘‘(iv) taking into account the comments and rec4 ommendations (and accompanying data) received at 

5 such meeting, develops and makes available to the 

6 public (through an Internet site and other appro7 priate mechanisms) a list of proposed determinations 

8 with respect to the appropriate basis for establishing 

9 a payment amount under this subsection for each 

10 such code, together with an explanation of the rea11 sons for each such determination, the data on which 

12 the determinations are based, and a request for pub13 lic written comments on the proposed determination; 

14 and 

15 ‘‘(v) taking into account the comments received 

16 during the public comment period, develops and 

17 makes available to the public (through an Internet 

18 site and other appropriate mechanisms) a list of 

19 final determinations of the payment amounts for 

20 such tests under this subsection, together with the 

21 rationale for each such determination, the data on 

22 which the determinations are based, and responses 

23 to comments and suggestions received from the pub24 lic. 
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1 ‘‘(C) Under the procedures established pursuant to 

2 subparagraph (A), the Secretary shall—

3 ‘‘(i) set forth the criteria for making determina4 tions under subparagraph (A); and 

5 ‘‘(ii) make available to the public the data 

6 (other than proprietary data) considered in making 

7 such determinations. 

8 ‘‘(D) The Secretary may convene such further public 

9 meetings to receive public comments on payment amounts 

10 for new tests under this subsection as the Secretary deems 

11 appropriate. 

12 ‘‘(E) For purposes of this paragraph: 

13 ‘‘(i) The term ‘HCPCS’ refers to the Health 

14 Care Procedure Coding System. 

15 ‘‘(ii) A code shall be considered to be ‘substan16 tially revised’ if there is a substantive change to the 

17 definition of the test or procedure to which the code 

18 applies (such as a new analyte or a new methodology 

19 for measuring an existing analyte-specific test).’’. 

20 (c) GAO STUDY ON IMPROVEMENTS IN EXTERNAL

21 DATA COLLECTION FOR USE IN THE MEDICARE INPA22 TIENT PAYMENT SYSTEM.—

23 (1) STUDY.—The Comptroller General of the 

24 United States shall conduct a study that analyzes 

25 which external data can be collected in a shorter 
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1 time frame by the Centers for Medicare & Medicaid 

2 Services for use in computing payments for inpatient 

3 hospital services. The study may include an evalua4 tion of the feasibility and appropriateness of using 

5 of quarterly samples or special surveys or any other 

6 methods. The study shall include an analysis of 

7 whether other executive agencies, such as the Bu8 reau of Labor Statistics in the Department of Com9 merce, are best suited to collect this information. 

10 (2) REPORT.—By not later than October 1, 

11 2004, the Comptroller General shall submit a report 

12 to Congress on the study under paragraph (1). 

13 (d) PROCESS FOR ADOPTION OF ICD CODES AS

14 DATA STANDARD.—Section 1172(f) (42 U.S.C. 1320d–

15 1(f)) is amended by inserting after the first sentence the 

16 following: ‘‘Notwithstanding the first sentence of this sub17 section, if the National Committee on Vital and Health 

18 Statistics has not made a recommendation to the Sec19 retary, within 1 year after the date of the enactment of 

20 this sentence, with respect to the adoption of the Inter21 national Classification of Diseases, 10th Revision, Proce22 dure Coding System (‘ICD–10–PCS’) and the Inter23 national Classification of Diseases, 10th Revision, Clinical 

24 Modification (‘ICD–10–CM’) as a standard under this 
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1 part, then the Secretary may adopt ICD–10–PCS and 

2 ICD–10–CM as such a standard.’’. 

3 SEC. 943. TREATMENT OF HOSPITALS FOR CERTAIN SERV4 ICES UNDER MEDICARE SECONDARY PAYOR 

5 (MSP) PROVISIONS. 

6 (a) IN GENERAL.—The Secretary shall not require 

7 a hospital (including a critical access hospital) to ask ques8 tions (or obtain information) relating to the application 

9 of section 1862(b) of the Social Security Act (relating to 

10 medicare secondary payor provisions) in the case of ref11 erence laboratory services described in subsection (b), if 

12 the Secretary does not impose such requirement in the 

13 case of such services furnished by an independent labora14 tory. 

15 (b) REFERENCE LABORATORY SERVICES DE16 SCRIBED.—Reference laboratory services described in this 

17 subsection are clinical laboratory diagnostic tests (or the 

18 interpretation of such tests, or both) furnished without a 

19 face-to-face encounter between the individual entitled to 

20 benefits under part A or enrolled under part B, or both, 

21 and the hospital involved and in which the hospital sub22 mits a claim only for such test or interpretation. 

23 SEC. 944. EMTALA IMPROVEMENTS. 

24 (a) PAYMENT FOR EMTALA-MANDATED SCREEN25 ING AND STABILIZATION SERVICES.—
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1 (1) IN GENERAL.—Section 1862 (42 U.S.C. 

2 1395y) is amended by inserting after subsection (c) 

3 the following new subsection: 

4 ‘‘(d) For purposes of subsection (a)(1)(A), in the case 

5 of any item or service that is required to be provided pur6 suant to section 1867 to an individual who is entitled to 

7 benefits under this title, determinations as to whether the 

8 item or service is reasonable and necessary shall be made 

9 on the basis of the information available to the treating 

10 physician or practitioner (including the patient’s pre11 senting symptoms or complaint) at the time the item or 

12 service was ordered or furnished by the physician or prac13 titioner (and not on the patient’s principal diagnosis). 

14 When making such determinations with respect to such 

15 an item or service, the Secretary shall not consider the 

16 frequency with which the item or service was provided to 

17 the patient before or after the time of the admission or 

18 visit.’’. 

19 (2) EFFECTIVE DATE.—The amendment made 

20 by paragraph (1) shall apply to items and services 

21 furnished on or after January 1, 2004. 

22 (b) NOTIFICATION OF PROVIDERS WHEN EMTALA 

23 INVESTIGATION CLOSED.—Section 1867(d) (42 U.S.C. 42 

24 U.S.C. 1395dd(d)) is amended by adding at the end the 

25 following new paragraph: 
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1 ‘‘(4) NOTICE UPON CLOSING AN INVESTIGA2 TION.—The Secretary shall establish a procedure to 

3 notify hospitals and physicians when an investigation 

4 under this section is closed.’’. 

5 (c) PRIOR REVIEW BY PEER REVIEW ORGANIZA6 TIONS IN EMTALA CASES INVOLVING TERMINATION OF

7 PARTICIPATION.—

8 (1) IN GENERAL.—Section 1867(d)(3) (42 

9 U.S.C. 1395dd(d)(3)) is amended—

10 (A) in the first sentence, by inserting ‘‘or 

11 in terminating a hospital’s participation under 

12 this title’’ after ‘‘in imposing sanctions under 

13 paragraph (1)’’; and 

14 (B) by adding at the end the following new 

15 sentences: ‘‘Except in the case in which a delay 

16 would jeopardize the health or safety of individ17 uals, the Secretary shall also request such a re18 view before making a compliance determination 

19 as part of the process of terminating a hos20 pital’s participation under this title for viola21 tions related to the appropriateness of a med22 ical screening examination, stabilizing treat23 ment, or an appropriate transfer as required by 

24 this section, and shall provide a period of 5 

25 days for such review. The Secretary shall pro-
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1 vide a copy of the organization’s report to the 

2 hospital or physician consistent with confiden3 tiality requirements imposed on the organiza4 tion under such part B.’’. 

5 (2) EFFECTIVE DATE.—The amendments made 

6 by paragraph (1) shall apply to terminations of par7 ticipation initiated on or after the date of the enact8 ment of this Act.

9 (d) MODIFICATION OF REQUIRMENT FOR MEDICAL

10 SCREENING EXAMINATIONS FOR PATIENTS NOT RE11 QUESTING EMERGENCY DEPARTMENT SERVICES.—

12 (1) IN GENERAL.—Section 1867(a) (42 U.S.C. 

13 1395dd(a)) is amended—

14 (A) by designating all that follows ‘‘(a) 

15 MEDICAL SCREENING REQUIREMENT.—’’ as 

16 paragraph (1) with the heading ‘‘IN GEN17 ERAL.—’’; 

18 (B) by aligning such paragraph with the 

19 paragraph added by paragraph (3); and 

20 (C) by adding at the end the following new 

21 paragraph: 

22 ‘‘(2) EXCEPTION FOR CERTAIN CASES.—The re23 quirement for an appropriate medical screening ex24 amination under paragraph (1) shall not apply in 

25 the case of an individual who comes to the emer-
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1 gency department and neither the individual, nor an2 other person on the individual’s behalf, requests ex3 amination or treatment for an emergency medical 

4 condition (such as a request solely for preventive 

5 services, such as blood pressure screening or non6 emergency laboratory and diagnostic tests).’’. 

7 (2) EFFECTIVE DATE.—The amendments made 

8 by paragraph (1) shall apply to terminations of par9 ticipation initiated on or after the date of the enact10 ment of this Act. 

11 SEC. 945. EMERGENCY MEDICAL TREATMENT AND ACTIVE 

12 LABOR ACT (EMTALA) TECHNICAL ADVISORY 

13 GROUP. 

14 (a) ESTABLISHMENT.—The Secretary shall establish 

15 a Technical Advisory Group (in this section referred to 

16 as the ‘‘Advisory Group’’) to review issues related to the 

17 Emergency Medical Treatment and Labor Act 

18 (EMTALA) and its implementation. In this section, the 

19 term ‘‘EMTALA’’ refers to the provisions of section 1867 

20 of the Social Security Act (42 U.S.C. 1395dd). 

21 (b) MEMBERSHIP.—The Advisory Group shall be 

22 composed of 19 members, including the Administrator of 

23 the Centers for Medicare & Medicaid Services and the In24 spector General of the Department of Health and Human 

25 Services and of which—
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1 (1) 4 shall be representatives of hospitals, in2 cluding at least one public hospital, that have experi3 ence with the application of EMTALA and at least 

4 2 of which have not been cited for EMTALA viola5 tions; 

6 (2) 7 shall be practicing physicians drawn from 

7 the fields of emergency medicine, cardiology or 

8 cardiothoracic surgery, orthopedic surgery, neuro9 surgery, pediatrics or a pediatric subspecialty, ob10 stetrics-gynecology, and psychiatry, with not more 

11 than one physician from any particular field; 

12 (3) 2 shall represent patients; 

13 (4) 2 shall be staff involved in EMTALA inves14 tigations from different regional offices of the Cen15 ters for Medicare & Medicaid Services; and 

16 (5) 1 shall be from a State survey office in17 volved in EMTALA investigations and 1 shall be 

18 from a peer review organization, both of whom shall 

19 be from areas other than the regions represented 

20 under paragraph (4). 

21 In selecting members described in paragraphs (1) through 

22 (3), the Secretary shall consider qualified individuals nom23 inated by organizations representing providers and pa24 tients. 
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1 (c) GENERAL RESPONSIBILITIES.—The Advisory 

2 Group—

3 (1) shall review EMTALA regulations; 

4 (2) may provide advice and recommendations to 

5 the Secretary with respect to those regulations and 

6 their application to hospitals and physicians; 

7 (3) shall solicit comments and recommendations 

8 from hospitals, physicians, and the public regarding 

9 the implementation of such regulations; and 

10 (4) may disseminate information on the applica11 tion of such regulations to hospitals, physicians, and 

12 the public. 

13 (d) ADMINISTRATIVE MATTERS.—

14 (1) CHAIRPERSON.—The members of the Advi15 sory Group shall elect a member to serve as chair16 person of the Advisory Group for the life of the Ad17 visory Group. 

18 (2) MEETINGS.—The Advisory Group shall first 

19 meet at the direction of the Secretary. The Advisory 

20 Group shall then meet twice per year and at such 

21 other times as the Advisory Group may provide. 

22 (e) TERMINATION.—The Advisory Group shall termi23 nate 30 months after the date of its first meeting. 

24 (f) WAIVER OF ADMINISTRATIVE LIMITATION.—The 

25 Secretary shall establish the Advisory Group notwith-
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1 standing any limitation that may apply to the number of 

2 advisory committees that may be established (within the 

3 Department of Health and Human Services or otherwise). 

4 SEC. 946. AUTHORIZING USE OF ARRANGEMENTS TO PRO5 VIDE CORE HOSPICE SERVICES IN CERTAIN 

6 CIRCUMSTANCES. 

7 (a) IN GENERAL.—Section 1861(dd)(5) (42 U.S.C. 

8 1395x(dd)(5)) is amended by adding at the end the fol9 lowing: 

10 ‘‘(D) In extraordinary, exigent, or other non-routine 

11 circumstances, such as unanticipated periods of high pa12 tient loads, staffing shortages due to illness or other 

13 events, or temporary travel of a patient outside a hospice 

14 program’s service area, a hospice program may enter into 

15 arrangements with another hospice program for the provi16 sion by that other program of services described in para17 graph (2)(A)(ii)(I). The provisions of paragraph 

18 (2)(A)(ii)(II) shall apply with respect to the services pro19 vided under such arrangements. 

20 ‘‘(E) A hospice program may provide services de21 scribed in paragraph (1)(A) other than directly by the pro22 gram if the services are highly specialized services of a 

23 registered professional nurse and are provided non-rou24 tinely and so infrequently so that the provision of such 
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1 services directly would be impracticable and prohibitively 

2 expensive.’’. 

3 (b) CONFORMING PAYMENT PROVISION.—Section 

4 1814(i) (42 U.S.C. 1395f(i)) is amended by adding at the 

5 end the following new paragraph: 

6 ‘‘(4) In the case of hospice care provided by a hospice 

7 program under arrangements under section 

8 1861(dd)(5)(D) made by another hospice program, the 

9 hospice program that made the arrangements shall bill 

10 and be paid for the hospice care.’’. 

11 (c) EFFECTIVE DATE.—The amendments made by 

12 this section shall apply to hospice care provided on or after 

13 the date of the enactment of this Act. 

14 SEC. 947. APPLICATION OF OSHA BLOODBORNE PATHO15 GENS STANDARD TO CERTAIN HOSPITALS. 

16 (a) IN GENERAL.—Section 1866 (42 U.S.C. 1395cc) 

17 is amended—

18 (1) in subsection (a)(1)—

19 (A) in subparagraph (R), by striking 

20 ‘‘and’’ at the end; 

21 (B) in subparagraph (S), by striking the 

22 period at the end and inserting ‘‘, and’’; and 

23 (C) by inserting after subparagraph (S) 

24 the following new subparagraph: 
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1 ‘‘(T) in the case of hospitals that are not other2 wise subject to the Occupational Safety and Health 

3 Act of 1970, to comply with the Bloodborne Patho4 gens standard under section 1910.1030 of title 29 of 

5 the Code of Federal Regulations (or as subsequently 

6 redesignated).’’; and 

7 (2) by adding at the end of subsection (b) the 

8 following new paragraph: 

9 ‘‘(4)(A) A hospital that fails to comply with the re10 quirement of subsection (a)(1)(T) (relating to the 

11 Bloodborne Pathogens standard) is subject to a civil 

12 money penalty in an amount described in subparagraph 

13 (B), but is not subject to termination of an agreement 

14 under this section. 

15 ‘‘(B) The amount referred to in subparagraph (A) is 

16 an amount that is similar to the amount of civil penalties 

17 that may be imposed under section 17 of the Occupational 

18 Safety and Health Act of 1970 for a violation of the 

19 Bloodborne Pathogens standard referred to in subsection 

20 (a)(1)(T) by a hospital that is subject to the provisions 

21 of such Act. 

22 ‘‘(C) A civil money penalty under this paragraph shall 

23 be imposed and collected in the same manner as civil 

24 money penalties under subsection (a) of section 1128A are 

25 imposed and collected under that section.’’. 
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1 (b) EFFECTIVE DATE.—The amendments made by 

2 this subsection (a) shall apply to hospitals as of July 1, 

3 2004. 

4 SEC. 948. BIPA-RELATED TECHNICAL AMENDMENTS AND 

5 CORRECTIONS. 

6 (a) TECHNICAL AMENDMENTS RELATING TO ADVI7 SORY COMMITTEE UNDER BIPA SECTION 522.—(1) Sub8 section (i) of section 1114 (42 U.S.C. 1314)—

9 (A) is transferred to section 1862 and added at 

10 the end of such section; and 

11 (B) is redesignated as subsection (j). 

12 (2) Section 1862 (42 U.S.C. 1395y) is amended—

13 (A) in the last sentence of subsection (a), by 

14 striking ‘‘established under section 1114(f)’’; and 

15 (B) in subsection (j), as so transferred and re16 designated—

17 (i) by striking ‘‘under subsection (f)’’; and 

18 (ii) by striking ‘‘section 1862(a)(1)’’ and 

19 inserting ‘‘subsection (a)(1)’’. 

20 (b) TERMINOLOGY CORRECTIONS.—(1) Section 

21 1869(c)(3)(I)(ii) (42 U.S.C. 1395ff(c)(3)(I)(ii)), as 

22 amended by section 521 of BIPA, is amended—

23 (A) in subclause (III), by striking ‘‘policy’’ and 

24 inserting ‘‘determination’’; and 
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1 (B) in subclause (IV), by striking ‘‘medical re2 view policies’’ and inserting ‘‘coverage determina3 tions’’. 

4 (2) Section 1852(a)(2)(C) (42 U.S.C. 1395w–

5 22(a)(2)(C)) is amended by striking ‘‘policy’’ and ‘‘POL6 ICY’’ and inserting ‘‘determination’’ each place it appears 

7 and ‘‘DETERMINATION’’, respectively. 

8 (c) REFERENCE CORRECTIONS.—Section 1869(f)(4) 

9 (42 U.S.C. 1395ff(f)(4)), as added by section 522 of 

10 BIPA, is amended—

11 (1) in subparagraph (A)(iv), by striking ‘‘sub12 clause (I), (II), or (III)’’ and inserting ‘‘clause (i), 

13 (ii), or (iii)’’; 

14 (2) in subparagraph (B), by striking ‘‘clause 

15 (i)(IV)’’ and ‘‘clause (i)(III)’’ and inserting ‘‘sub16 paragraph (A)(iv)’’ and ‘‘subparagraph (A)(iii)’’, re17 spectively; and 

18 (3) in subparagraph (C), by striking ‘‘clause 

19 (i)’’, ‘‘subclause (IV)’’ and ‘‘subparagraph (A)’’ and 

20 inserting ‘‘subparagraph (A)’’, ‘‘clause (iv)’’ and 

21 ‘‘paragraph (1)(A)’’, respectively each place it ap22 pears. 

23 (d) OTHER CORRECTIONS.—Effective as if included 

24 in the enactment of section 521(c) of BIPA, section 
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1 1154(e) (42 U.S.C. 1320c–3(e)) is amended by striking 

2 paragraph (5). 

3 (e) EFFECTIVE DATE.—Except as otherwise pro4 vided, the amendments made by this section shall be effec5 tive as if included in the enactment of BIPA. 

6 SEC. 949. CONFORMING AUTHORITY TO WAIVE A PROGRAM 

7 EXCLUSION. 

8 The first sentence of section 1128(c)(3)(B) (42 

9 U.S.C. 1320a–7(c)(3)(B)) is amended to read as follows: 

10 ‘‘Subject to subparagraph (G), in the case of an exclusion 

11 under subsection (a), the minimum period of exclusion 

12 shall be not less than five years, except that, upon the 

13 request of the administrator of a Federal health care pro14 gram (as defined in section 1128B(f)) who determines 

15 that the exclusion would impose a hardship on individuals 

16 entitled to benefits under part A of title XVIII or enrolled 

17 under part B of such title, or both, the Secretary may 

18 waive the exclusion under subsection (a)(1), (a)(3), or 

19 (a)(4) with respect to that program in the case of an indi20 vidual or entity that is the sole community physician or 

21 sole source of essential specialized services in a commu22 nity.’’. 
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1 SEC. 950. TREATMENT OF CERTAIN DENTAL CLAIMS. 

2 (a) IN GENERAL.—Section 1862 (42 U.S.C. 1395y) 

3 is amended by adding after subsection (g) the following 

4 new subsection: 

5 ‘‘(h)(1) Subject to paragraph (2), a group health plan 

6 (as defined in subsection (a)(1)(A)(v)) providing supple7 mental or secondary coverage to individuals also entitled 

8 to services under this title shall not require a medicare 

9 claims determination under this title for dental benefits 

10 specifically excluded under subsection (a)(12) as a condi11 tion of making a claims determination for such benefits 

12 under the group health plan. 

13 ‘‘(2) A group health plan may require a claims deter14 mination under this title in cases involving or appearing 

15 to involve inpatient dental hospital services or dental serv16 ices expressly covered under this title pursuant to actions 

17 taken by the Secretary.’’. 

18 (b) EFFECTIVE DATE.—The amendment made by 

19 subsection (a) shall take effect on the date that is 60 days 

20 after the date of the enactment of this Act. 

21 SEC. 951. FURNISHING HOSPITALS WITH INFORMATION TO 

22 COMPUTE DSH FORMULA. 

23 Beginning not later than 1 year after the date of the 

24 enactment of this Act, the Secretary shall arrange to fur25 nish to subsection (d) hospitals (as defined in section 

26 1886(d)(1)(B) of the Social Security Act, 42 U.S.C. 
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1 1395ww(d)(1)(B)) the data necessary for such hospitals 

2 to compute the number of patient days used in computing 

3 the disproportionate patient percentage under such section 

4 for that hospital for the current cost reporting year. Such 

5 data shall also be furnished to other hospitals which would 

6 qualify for additional payments under part A of title 

7 XVIII of the Social Security Act on the basis of such data. 

8 SEC. 952. REVISIONS TO REASSIGNMENT PROVISIONS. 

9 (a) IN GENERAL.—Section 1842(b)(6)(A) (42 U.S.C. 

10 1395u(b)(6)(A)) is amended by striking ‘‘or (ii) (where 

11 the service was provided in a hospital, critical access hos12 pital, clinic, or other facility) to the facility in which the 

13 service was provided if there is a contractual arrangement 

14 between such physician or other person and such facility 

15 under which such facility submits the bill for such serv16 ice,’’ and inserting ‘‘or (ii) where the service was provided 

17 under a contractual arrangement between such physician 

18 or other person and an entity (as defined by the Sec19 retary), to the entity if, under the contractual arrange20 ment, the entity submits the bill for the service and the 

21 contractual arrangement meets such other program integ22 rity and other safeguards as the Secretary may determine 

23 to be appropriate,’’. 

24 (b) CONFORMING AMENDMENT.—The second sen25 tence of section 1842(b)(6) (42 U.S.C. 1395u(b)(6)) is 
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1 amended by striking ‘‘except to an employer or facility’’ 

2 and inserting ‘‘except to an employer, entity, or other per3 son’’. 

4 (c) EFFECTIVE DATE.—The amendments made by 

5 section shall apply to payments made on or after the date 

6 of the enactment of this Act. 

7 SEC. 953. OTHER PROVISIONS. 

8 (a) GAO REPORTS ON THE PHYSICIAN COMPENSA9 TION.—

10 (1) SUSTAINABLE GROWTH RATE AND UP11 DATES.—Not later than 6 months after the date of 

12 the enactment of this Act, the Comptroller General 

13 of the United States shall submit to Congress a re14 port on the appropriateness of the updates in the 

15 conversion factor under subsection (d)(3) of section 

16 1848 of the Social Security Act (42 U.S.C. 1395w–

17 4), including the appropriateness of the sustainable 

18 growth rate formula under subsection (f) of such 

19 section for 2002 and succeeding years. Such report 

20 shall examine the stability and predictability of such 

21 updates and rate and alternatives for the use of such 

22 rate in the updates. 

23 (2) PHYSICIAN COMPENSATION GENERALLY.—

24 Not later than 12 months after the date of the en25 actment of this Act, the Comptroller General shall 
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1 submit to Congress a report on all aspects of physi2 cian compensation for services furnished under title 

3 XVIII of the Social Security Act, and how those as4 pects interact and the effect on appropriate com5 pensation for physician services. Such report shall 

6 review alternatives for the physician fee schedule 

7 under section 1848 of such title (42 U.S.C. 1395w–

8 4). 

9 (b) ANNUAL PUBLICATION OF LIST OF NATIONAL

10 COVERAGE DETERMINATIONS.—The Secretary shall pro11 vide, in an appropriate annual publication available to the 

12 public, a list of national coverage determinations made 

13 under title XVIII of the Social Security Act in the pre14 vious year and information on how to get more informa15 tion with respect to such determinations. 

16 (c) GAO REPORT ON FLEXIBILITY IN APPLYING

17 HOME HEALTH CONDITIONS OF PARTICIPATION TO PA18 TIENTS WHO ARE NOT MEDICARE BENEFICIARIES.—Not 

19 later than 6 months after the date of the enactment of 

20 this Act, the Comptroller General of the United States 

21 shall submit to Congress a report on the implications if 

22 there were flexibility in the application of the medicare 

23 conditions of participation for home health agencies with 

24 respect to groups or types of patients who are not medi25 care beneficiaries. The report shall include an analysis of 
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1 the potential impact of such flexible application on clinical 

2 operations and the recipients of such services and an anal3 ysis of methods for monitoring the quality of care provided 

4 to such recipients. 

5 (d) OIG REPORT ON NOTICES RELATING TO USE OF

6 HOSPITAL LIFETIME RESERVE DAYS.—Not later than 1 

7 year after the date of the enactment of this Act, the In8 spector General of the Department of Health and Human 

9 Services shall submit a report to Congress on—

10 (1) the extent to which hospitals provide notice 

11 to medicare beneficiaries in accordance with applica12 ble requirements before they use the 60 lifetime re13 serve days described in section 1812(a)(1) of the So14 cial Security Act (42 U.S.C. 1395d(a)(1)); and 

15 (2) the appropriateness and feasibility of hos16 pitals providing a notice to such beneficiaries before 

17 they completely exhaust such lifetime reserve days. 

18 SEC. 954. TEMPORARY SUSPENSION OF OASIS REQUIRE19 MENT FOR COLLECTION OF DATA ON NON20 MEDICARE AND NON-MEDICAID PATIENTS. 

21 (a) IN GENERAL.—During the period described in 

22 subsection (b), the Secretary may not require, under sec23 tion 4602(e) of the Balanced Budget Act of 1997 or other24 wise under OASIS, a home health agency to gather or sub25 mit information that relates to an individual who is not 
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1 eligible for benefits under either title XVIII or title XIX 

2 of the Social Security Act (such information in this section 

3 referred to as ‘‘non-medicare/medicaid OASIS informa4 tion’’). 

5 (b) PERIOD OF SUSPENSION.—The period described 

6 in this subsection—

7 (1) begins on the date of the enactment of this 

8 Act; and 

9 (2) ends on the last day of the 2nd month be10 ginning after the date as of which the Secretary has 

11 published final regulations regarding the collection 

12 and use by the Centers for Medicare & Medicaid 

13 Services of non-medicare/medicaid OASIS informa14 tion following the submission of the report required 

15 under subsection (c). 

16 (c) REPORT.—

17 (1) STUDY.—The Secretary shall conduct a 

18 study on how non-medicare/medicaid OASIS infor19 mation is and can be used by large home health 

20 agencies. Such study shall examine—

21 (A) whether there are unique benefits from 

22 the analysis of such information that cannot be 

23 derived from other information available to, or 

24 collected by, such agencies; and 
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1 (B) the value of collecting such informa2 tion by small home health agencies compared to 

3 the administrative burden related to such collec4 tion. 

5 In conducting the study the Secretary shall obtain 

6 recommendations from quality assessment experts in 

7 the use of such information and the necessity of 

8 small, as well as large, home health agencies col9 lecting such information. 

10 (2) REPORT.—The Secretary shall submit to 

11 Congress a report on the study conducted under 

12 paragraph (1) by not later than 18 months after the 

13 date of the enactment of this Act. 

14 (d) CONSTRUCTION.—Nothing in this section shall be 

15 construed as preventing home health agencies from col16 lecting non-medicare/medicaid OASIS information for 

17 their own use. 

18 TITLE X—MEDICAID 

19 SEC. 1001. MEDICAID DISPROPORTIONATE SHARE HOS20 PITAL (DSH) PAYMENTS. 

21 Section 1923(f)(3) (42 U.S.C. 1396r–4(f)(3)) is 

22 amended—

23 (1) in subparagraph (A), by striking ‘‘subpara24 graph (B)’’ and inserting ‘‘subparagraphs (B) and 

25 (C)’’; and 
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1 (2) by adding at the end the following new sub2 paragraphs: 

3 ‘‘(C) SPECIAL, TEMPORARY INCREASE IN

4 ALLOTMENTS ON A ONE-TIME, NON-CUMU5 LATIVE BASIS.—The DSH allotment for any 

6 State—

7 ‘‘(i) for fiscal year 2004 is equal to 

8 120 percent of the DSH allotment for the 

9 State for fiscal year 2003 under this para10 graph, notwithstanding subparagraph (B); 

11 and 

12 ‘‘(ii) for each succeeding fiscal year is 

13 equal to the DSH allotment for the State 

14 for fiscal year 2004 or, in the case of fiscal 

15 years beginning with the fiscal year speci16 fied in subparagraph (D) for that State, 

17 the percentage change in the consumer 

18 price index for all urban consumers (all 

19 items; U.S. city average), for the previous 

20 fiscal year. 

21 ‘‘(D) FISCAL YEAR SPECIFIED.—For pur22 poses of subparagraph (C)(ii), the fiscal year 

23 specified in this subparagraph for a State is the 

24 first fiscal year for which the Secretary esti25 mates that the DSH allotment for that State 
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1 will equal (or no longer exceed) the DSH allot2 ment for that State under the law as in effect 

3 before the date of the enactment of this sub4 paragraph.’’. 

5 SEC. 1002. CLARIFICATION OF INCLUSION OF INPATIENT 

6 DRUG PRICES CHARGED TO CERTAIN PUBLIC 

7 HOSPITALS IN THE BEST PRICE EXEMPTIONS 

8 FOR THE MEDICAID DRUG REBATE PRO9 GRAM. 

10 (a) IN GENERAL.—Section 1927(c)(1)(C)(i)(I) (42 

11 U.S.C. 1396r–8(c)(1)(C)(i)(I)) is amended by inserting 

12 before the semicolon the following: ‘‘(including inpatient 

13 prices charged to hospitals described in section 

14 340B(a)(4)(L) of the Public Health Service Act)’’. 

15 (b) ANTI-DIVERSION PROTECTION.—Section 

16 1927(c)(1)(C) (42 U.S.C. 1396r–8(c)(1)(C)) is amended 

17 by adding at the end the following: 

18 ‘‘(iii) APPLICATION OF AUDITING AND

19 RECORDKEEPING REQUIREMENTS.—With 

20 respect to a covered entity described in 

21 section 340B(a)(4)(L) of the Public Health 

22 Service Act, any drug purchased for inpa23 tient use shall be subject to the auditing 

24 and recordkeeping requirements described 
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1 in section 340B(a)(5)(C) of the Public 

2 Health Service Act.’’.

3 TITLE XI—ACCESS TO AFFORD4 ABLE PHARMACEUTICALS 

5 Subtitle A—Access to Affordable 

6 Pharmaceuticals 

7 SEC. 1101. 30-MONTH STAY-OF-EFFECTIVENESS PERIOD. 

8 (a) ABBREVIATED NEW DRUG APPLICATIONS.—Sec9 tion 505(j) of the Federal Food, Drug, and Cosmetic Act 

10 (21 U.S.C. 355(j)) is amended— 

11 (1) in paragraph (2)—

12 (A) by striking subparagraph (B) and in13 serting the following: 

14 ‘‘(B) NOTICE OF OPINION THAT PATENT IS INVALID

15 OR WILL NOT BE INFRINGED.—

16 ‘‘(i) AGREEMENT TO GIVE NOTICE.—An appli17 cant that makes a certification described in subpara18 graph (A)(vii)(IV) shall include in the application a 

19 statement that the applicant will give notice as re20 quired by this subparagraph. 

21 ‘‘(ii) TIMING OF NOTICE.—An applicant that 

22 makes a certification described in subparagraph 

23 (A)(vii)(IV) shall give notice as required under this 

24 subparagraph—
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1 ‘‘(I) if the certification is in the applica2 tion, not later than 20 days after the date of 

3 the postmark on the notice with which the Sec4 retary informs the applicant that the applica5 tion has been filed; or 

6 ‘‘(II) if the certification is in an amend7 ment or supplement to the application, at the 

8 time at which the applicant submits the amend9 ment or supplement, regardless of whether the 

10 applicant has already given notice with respect 

11 to another such certification contained in the 

12 application or in an amendment or supplement 

13 to the application. 

14 ‘‘(iii) RECIPIENTS OF NOTICE.—An applicant 

15 required under this subparagraph to give notice shall 

16 give notice to—

17 ‘‘(I) each owner of the patent that is the 

18 subject of the certification (or a representative 

19 of the owner designated to receive such a no20 tice); and 

21 ‘‘(II) the holder of the approved applica22 tion under subsection (b) for the drug that is 

23 claimed by the patent or a use of which is 

24 claimed by the patent (or a representative of 

25 the holder designated to receive such a notice). 
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1 ‘‘(iv) CONTENTS OF NOTICE.—A notice required 

2 under this subparagraph shall—

3 ‘‘(I) state that an application that contains 

4 data from bioavailability or bioequivalence stud5 ies has been submitted under this subsection for 

6 the drug with respect to which the certification 

7 is made to obtain approval to engage in the 

8 commercial manufacture, use, or sale of the 

9 drug before the expiration of the patent re10 ferred to in the certification; and 

11 ‘‘(II) include a detailed statement of the 

12 factual and legal basis of the opinion of the ap13 plicant that the patent is invalid or will not be 

14 infringed.’’; and 

15 (B) by adding at the end the following sub16 paragraph: 

17 ‘‘(D)(i) An applicant may not amend or supplement 

18 an application to seek approval of a drug referring to a 

19 different listed drug from the listed drug identified in the 

20 application as submitted to the Secretary. 

21 ‘‘(ii) With respect to the drug for which an applica22 tion is submitted, nothing in this subsection prohibits an 

23 applicant from amending or supplementing the application 

24 to seek approval of a different strength.’’; and 

25 (2) in paragraph (5)—
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1 (A) in subparagraph (B)—

2 (i) by striking ‘‘under the following’’ 

3 and inserting ‘‘by applying the following to 

4 each certification made under paragraph 

5 (2)(A)(vii)’’; and 

6 (ii) in clause (iii)—

7 (I) in the first sentence, by strik8 ing ‘‘unless’’ and all that follows and 

9 inserting ‘‘unless, before the expira10 tion of 45 days after the date on 

11 which the notice described in para12 graph (2)(B) is received, an action is 

13 brought for infringement of the patent 

14 that is the subject of the certification 

15 and for which information was sub16 mitted to the Secretary under sub17 section (b)(1) or (c)(2) before the date 

18 on which the application (excluding an 

19 amendment or supplement to the ap20 plication), which the Secretary later 

21 determines to be substantially com22 plete, was submitted.’’; and 

23 (II) in the second sentence—

24 (aa) by striking subclause 

25 (I) and inserting the following: 
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1 ‘‘(I) if before the expiration of such period 

2 the district court decides that the patent is in3 valid or not infringed (including any substantive 

4 determination that there is no cause of action 

5 for patent infringement or invalidity), the ap6 proval shall be made effective on—

7 ‘‘(aa) the date on which the court en8 ters judgment reflecting the decision; or 

9 ‘‘(bb) the date of a settlement order 

10 or consent decree signed and entered by 

11 the court stating that the patent that is 

12 the subject of the certification is invalid or 

13 not infringed;’’; 

14 (bb) by striking subclause 

15 (II) and inserting the following: 

16 ‘‘(II) if before the expiration of such period 

17 the district court decides that the patent has 

18 been infringed—

19 ‘‘(aa) if the judgment of the district 

20 court is appealed, the approval shall be 

21 made effective on—

22 ‘‘(AA) the date on which the 

23 court of appeals decides that the pat24 ent is invalid or not infringed (includ25 ing any substantive determination 
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1 that there is no cause of action for 

2 patent infringement or invalidity); or 

3 ‘‘(BB) the date of a settlement 

4 order or consent decree signed and 

5 entered by the court of appeals stat6 ing that the patent that is the subject 

7 of the certification is invalid or not in8 fringed; or 

9 ‘‘(bb) if the judgment of the district 

10 court is not appealed or is affirmed, the 

11 approval shall be made effective on the 

12 date specified by the district court in a 

13 court order under section 271(e)(4)(A) of 

14 title 35, United States Code;’’; 

15 (cc) in subclause (III), by 

16 striking ‘‘on the date of such 

17 court decision.’’ and inserting ‘‘as 

18 provided in subclause (I); or’’; 

19 (dd) by inserting after sub20 clause (III) the following: 

21 ‘‘(IV) if before the expiration of such pe22 riod the court grants a preliminary injunction 

23 prohibiting the applicant from engaging in the 

24 commercial manufacture or sale of the drug 

25 until the court decides the issues of patent va-
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1 lidity and infringement and if the court decides 

2 that such patent has been infringed, the ap3 proval shall be made effective as provided in 

4 subclause (II).’’; and 

5 (ee) in the matter after and 

6 below subclause (IV) (as added 

7 by item (dd)), by striking ‘‘Until 

8 the expiration’’ and all that fol9 lows; 

10 (B) by redesignating subparagraphs (C) 

11 and (D) as subparagraphs (E) and (F), respec12 tively; and 

13 (C) by inserting after subparagraph (B) 

14 the following: 

15 ‘‘(C) CIVIL ACTION TO OBTAIN PATENT

16 CERTAINTY.—

17 ‘‘(i) DECLARATORY JUDGMENT AB18 SENT INFRINGEMENT ACTION.—

19 ‘‘(I) IN GENERAL.—No action 

20 may be brought under section 2201 of 

21 title 28, United States Code, by an 

22 applicant under paragraph (2) for a 

23 declaratory judgment with respect to 

24 a patent which is the subject of the 

25 certification referred to in subpara-
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1 graph (B)(iii) unless the forty-five day 

2 period referred to in such subpara3 graph has expired, and unless, if the 

4 notice provided under paragraph 

5 (2)(B) relates to noninfringement, the 

6 notice was accompanied by a docu7 ment described in subclause (II). Any 

8 such action shall be brought in the ju9 dicial district where the defendant has 

10 its principal place of business or a 

11 regular and established place of busi12 ness. 

13 ‘‘(II) RIGHT OF CONFIDENTIAL

14 ACCESS TO APPLICATION.—For pur15 poses of subclause (I), the document 

16 described in this subclause is a docu17 ment providing a right of confidential 

18 access to the application of the appli19 cant under paragraph (2) for the pur20 pose of determining whether an action 

21 referred to in subparagraph (B)(iii) 

22 should be brought. The document pro23 viding the right of confidential access 

24 shall contain such restrictions as to 

25 persons entitled to access, and on the 
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1 use and disposition of any information 

2 accessed, as would apply had a protec3 tive order been entered for the pur4 pose of protecting trade secrets and 

5 other confidential business informa6 tion. Any person provided a right of 

7 confidential access shall review the ap8 plication for the sole and limited pur9 pose of evaluating possible infringe10 ment of the patent that is the subject 

11 of the certification under paragraph 

12 (2)(A)(vii)(IV) and for no other pur13 pose, and may not disclose informa14 tion of no relevance to any issue of 

15 patent infringement to any person 

16 other than a person provided a right 

17 of confidential access. Further, the 

18 application may be redacted by the 

19 applicant to remove any information 

20 of no relevance to any issue of patent 

21 infringement. 

22 ‘‘(ii) COUNTERCLAIM TO INFRINGE23 MENT ACTION.—

24 ‘‘(I) IN GENERAL.—If an owner 

25 of the patent or the holder of the ap-
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1 proved application under subsection 

2 (b) for the drug that is claimed by the 

3 patent or a use of which is claimed by 

4 the patent brings a patent infringe5 ment action against the applicant, the 

6 applicant may assert a counterclaim 

7 seeking an order requiring the holder 

8 to correct or delete the patent infor9 mation submitted by the holder under 

10 subsection (b) or (c) on the ground 

11 that the patent does not claim ei12 ther—

13 ‘‘(aa) the drug for which the 

14 application was approved; or 

15 ‘‘(bb) an approved method 

16 of using the drug. 

17 ‘‘(II) NO INDEPENDENT CAUSE

18 OF ACTION.—Subclause (I) does not 

19 authorize the assertion of a claim de20 scribed in subclause (I) in any civil 

21 action or proceeding other than a 

22 counterclaim described in subclause 

23 (I). 

24 ‘‘(iii) NO DAMAGES.—An applicant 

25 shall not be entitled to damages in a civil 
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1 action under subparagraph (i) or a coun2 terclaim under subparagraph (ii).’’. 

3 (b) APPLICATIONS GENERALLY.—Section 505 of the 

4 Federal Food, Drug, and Cosmetic Act (21 U.S.C. 355) 

5 is amended—

6 (1) in subsection (b)—

7 (A) by striking paragraph (3) and insert8 ing the following: 

9 ‘‘(3) NOTICE OF OPINION THAT PATENT IS INVALID

10 OR WILL NOT BE INFRINGED.—

11 ‘‘(A) AGREEMENT TO GIVE NOTICE.—An appli12 cant that makes a certification described in para13 graph (2)(A)(iv) shall include in the application a 

14 statement that the applicant will give notice as re15 quired by this paragraph. 

16 ‘‘(B) TIMING OF NOTICE.—An applicant that 

17 makes a certification described in paragraph 

18 (2)(A)(iv) shall give notice as required under this 

19 paragraph—

20 ‘‘(i) if the certification is in the applica21 tion, not later than 20 days after the date of 

22 the postmark on the notice with which the Sec23 retary informs the applicant that the applica24 tion has been filed; or 
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1 ‘‘(ii) if the certification is in an amend2 ment or supplement to the application, at the 

3 time at which the applicant submits the amend4 ment or supplement, regardless of whether the 

5 applicant has already given notice with respect 

6 to another such certification contained in the 

7 application or in an amendment or supplement 

8 to the application. 

9 ‘‘(C) RECIPIENTS OF NOTICE.—An applicant 

10 required under this paragraph to give notice shall 

11 give notice to—

12 ‘‘(i) each owner of the patent that is the 

13 subject of the certification (or a representative 

14 of the owner designated to receive such a no15 tice); and 

16 ‘‘(ii) the holder of the approved application 

17 under this subsection for the drug that is 

18 claimed by the patent or a use of which is 

19 claimed by the patent (or a representative of 

20 the holder designated to receive such a notice). 

21 ‘‘(D) CONTENTS OF NOTICE.—A notice re22 quired under this paragraph shall—

23 ‘‘(i) state that an application that contains 

24 data from bioavailability or bioequivalence stud25 ies has been submitted under this subsection for 
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1 the drug with respect to which the certification 

2 is made to obtain approval to engage in the 

3 commercial manufacture, use, or sale of the 

4 drug before the expiration of the patent re5 ferred to in the certification; and 

6 ‘‘(ii) include a detailed statement of the 

7 factual and legal basis of the opinion of the ap8 plicant that the patent is invalid or will not be 

9 infringed.’’; and 

10 (B)(i) by redesignating paragraph (4) as 

11 paragraph (5); and 

12 (ii) by inserting after paragraph (3) the 

13 following paragraph: 

14 ‘‘(4)(A) An applicant may not amend or supplement 

15 an application referred to in paragraph (2) to seek ap16 proval of a drug that is a different drug than the drug 

17 identified in the application as submitted to the Secretary. 

18 ‘‘(B) With respect to the drug for which such an ap19 plication is submitted, nothing in this subsection or sub20 section (c)(3) prohibits an applicant from amending or 

21 supplementing the application to seek approval of a dif22 ferent strength.’’; and 

23 (2) in subsection (c)(3)—

24 (A) in the first sentence, by striking 

25 ‘‘under the following’’ and inserting ‘‘by apply-
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1 ing the following to each certification made 

2 under subsection (b)(2)(A)(iv)’’; 

3 (B) in subparagraph (C)—

4 (i) in the first sentence, by striking 

5 ‘‘unless’’ and all that follows and inserting 

6 ‘‘unless, before the expiration of 45 days 

7 after the date on which the notice de8 scribed in subsection (b)(3) is received, an 

9 action is brought for infringement of the 

10 patent that is the subject of the certifi11 cation and for which information was sub12 mitted to the Secretary under paragraph 

13 (2) or subsection (b)(1) before the date on 

14 which the application (excluding an amend15 ment or supplement to the application) was 

16 submitted.’’; 

17 (ii) in the second sentence—

18 (I) by striking ‘‘paragraph 

19 (3)(B)’’ and inserting ‘‘subsection 

20 (b)(3)’’; 

21 (II) by striking clause (i) and in22 serting the following: 

23 ‘‘(i) if before the expiration of such period 

24 the district court decides that the patent is in25 valid or not infringed (including any substantive 
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1 determination that there is no cause of action 

2 for patent infringement or invalidity), the ap3 proval shall be made effective on—

4 ‘‘(I) the date on which the court en5 ters judgment reflecting the decision; or 

6 ‘‘(II) the date of a settlement order or 

7 consent decree signed and entered by the 

8 court stating that the patent that is the 

9 subject of the certification is invalid or not 

10 infringed;’’; 

11 (III) by striking clause (ii) and 

12 inserting the following: 

13 ‘‘(ii) if before the expiration of such period 

14 the district court decides that the patent has 

15 been infringed—

16 ‘‘(I) if the judgment of the district 

17 court is appealed, the approval shall be 

18 made effective on—

19 ‘‘(aa) the date on which the court 

20 of appeals decides that the patent is 

21 invalid or not infringed (including any 

22 substantive determination that there 

23 is no cause of action for patent in24 fringement or invalidity); or 
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1 ‘‘(bb) the date of a settlement 

2 order or consent decree signed and 

3 entered by the court of appeals stat4 ing that the patent that is the subject 

5 of the certification is invalid or not in6 fringed; or 

7 ‘‘(II) if the judgment of the district 

8 court is not appealed or is affirmed, the 

9 approval shall be made effective on the 

10 date specified by the district court in a 

11 court order under section 271(e)(4)(A) of 

12 title 35, United States Code;’’; 

13 (IV) in clause (iii), by striking 

14 ‘‘on the date of such court decision.’’ 

15 and inserting ‘‘as provided in clause 

16 (i); or’’; 

17 (V) by inserting after clause (iii), 

18 the following: 

19 ‘‘(iv) if before the expiration of such period 

20 the court grants a preliminary injunction pro21 hibiting the applicant from engaging in the 

22 commercial manufacture or sale of the drug 

23 until the court decides the issues of patent va24 lidity and infringement and if the court decides 

25 that such patent has been infringed, the ap-
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1 proval shall be made effective as provided in 

2 clause (ii).’’; and 

3 (VI) in the matter after and 

4 below clause (iv) (as added by sub5 clause (V)), by striking ‘‘Until the ex6 piration’’ and all that follows; and 

7 (iii) in the third sentence, by striking 

8 ‘‘paragraph (3)(B)’’ and inserting ‘‘sub9 section (b)(3)’’; 

10 (C) by redesignating subparagraph (D) as 

11 subparagraph (E); and 

12 (D) by inserting after subparagraph (C) 

13 the following: 

14 ‘‘(D) CIVIL ACTION TO OBTAIN PATENT

15 CERTAINTY.—

16 ‘‘(i) DECLARATORY JUDGMENT AB17 SENT INFRINGEMENT ACTION.—

18 ‘‘(I) IN GENERAL.—No action 

19 may be brought under section 2201 of 

20 title 28, United States Code, by an 

21 applicant referred to in subsection 

22 (b)(2) for a declaratory judgment with 

23 respect to a patent which is the sub24 ject of the certification referred to in 

25 subparagraph (C) unless the forty-five 
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1 day period referred to in such sub2 paragraph has expired, and unless, if 

3 the notice the applicant provided 

4 under subsection (b)(3) relates to 

5 noninfringement, the notice was ac6 companied by a document described in 

7 subclause (II). Any such action shall 

8 be brought in the judicial district 

9 where the defendant has its principal 

10 place of business or a regular and es11 tablished place of business. 

12 ‘‘(II) RIGHT OF CONFIDENTIAL

13 ACCESS TO APPLICATION.—For pur14 poses of subclause (I), the document 

15 described in this subclause is a docu16 ment providing a right of confidential 

17 access to the application of the appli18 cant referred to in subsection (b)(2) 

19 for the purpose of determining wheth20 er an action referred to in subpara21 graph (C) should be brought. The 

22 document providing the right of con23 fidential access shall contain such re24 strictions as to persons entitled to ac25 cess, and on the use and disposition of 
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1 any information accessed, as would 

2 apply had a protective order been en3 tered for the purpose of protecting 

4 trade secrets and other confidential 

5 business information. Any person pro6 vided a right of confidential access 

7 shall review the application for the 

8 sole and limited purpose of evaluating 

9 possible infringement of the patent 

10 that is the subject of the certification 

11 under subsection (b)(2)(A)(iv) and for 

12 no other purpose, and may not dis13 close information of no relevance to 

14 any issue of patent infringement to 

15 any person other than a person pro16 vided a right of confidential access. 

17 Further, the application may be re18 dacted by the applicant to remove any 

19 information of no relevance to any 

20 issue of patent infringement. 

21 ‘‘(ii) COUNTERCLAIM TO INFRINGE22 MENT ACTION.—

23 ‘‘(I) IN GENERAL.—If an owner 

24 of the patent or the holder of the ap25 proved application under subsection 
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1 (b) for the drug that is claimed by the 

2 patent or a use of which is claimed by 

3 the patent brings a patent infringe4 ment action against the applicant, the 

5 applicant may assert a counterclaim 

6 seeking an order requiring the holder 

7 to correct or delete the patent infor8 mation submitted by the holder under 

9 subsection (b) or this subsection on 

10 the ground that the patent does not 

11 claim either—

12 ‘‘(aa) the drug for which the 

13 application was approved; or 

14 ‘‘(bb) an approved method 

15 of using the drug. 

16 ‘‘(II) NO INDEPENDENT CAUSE

17 OF ACTION.—Subclause (I) does not 

18 authorize the assertion of a claim de19 scribed in subclause (I) in any civil 

20 action or proceeding other than a 

21 counterclaim described in subclause 

22 (I). 

23 ‘‘(iii) NO DAMAGES.—An applicant 

24 shall not be entitled to damages in a civil 
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1 action under clause (i) or a counterclaim 

2 under clause (ii).’’. 

3 (c) APPLICABILITY.—

4 (1) IN GENERAL.—Except as provided in para5 graphs (2) and (3), the amendments made by sub6 sections (a), (b), and (c) apply to any proceeding 

7 under section 505 of the Federal Food, Drug, and 

8 Cosmetic Act (21 U.S.C. 355) that is pending on or 

9 after the date of enactment of this Act regardless of 

10 the date on which the proceeding was commenced or 

11 is commenced. 

12 (2) NOTICE OF OPINION THAT PATENT IS IN13 VALID OR WILL NOT BE INFRINGED.—The amend14 ments made by subsections (a)(1) and (b)(1) apply 

15 with respect to any certification under subsection 

16 (b)(2)(A)(iv) or (j)(2)(A)(vii)(IV) of section 505 of 

17 the Federal Food, Drug, and Cosmetic Act (21 

18 U.S.C. 355) after the date of enactment of this Act 

19 in an application filed under subsection (b)(2) or (j) 

20 of that section or in an amendment or supplement 

21 to an application filed under subsection (b)(2) or (j) 

22 of that section. 

23 (3) EFFECTIVE DATE OF APPROVAL.—The 

24 amendments made by subsections (a)(2)(A)(ii)(I) 

25 and (b)(2)(B)(i) apply with respect to any patent in-
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1 formation submitted under subsection (b)(1) or 

2 (c)(2) of section 505 of the Federal Food, Drug, and 

3 Cosmetic Act (21 U.S.C. 355) made after the date 

4 of enactment of this Act. 

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

6 (a) IN GENERAL.—Section 505(j)(5) of the Federal 

7 Food, Drug, and Cosmetic Act (21 U.S.C. 355(j)(5)) (as 

8 amended by section 1101) is amended—

9 (1) in subparagraph (B), by striking clause (iv) 

10 and inserting the following: 

11 ‘‘(iv) 180-DAY EXCLUSIVITY PERIOD.—

12 ‘‘(I) DEFINITIONS.—In this paragraph: 

13 ‘‘(aa) 180-DAY EXCLUSIVITY PE14 RIOD.—The term ‘180-day exclusivity pe15 riod’ means the 180-day period ending on 

16 the day before the date on which an appli17 cation submitted by an applicant other 

18 than a first applicant could become effec19 tive under this clause. 

20 ‘‘(bb) FIRST APPLICANT.—As used in 

21 this subsection, the term ‘first applicant’ 

22 means an applicant that, on the first day 

23 on which a substantially complete applica24 tion containing a certification described in 

25 paragraph (2)(A)(vii)(IV) is submitted for 
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1 approval of a drug, submits a substantially 

2 complete application containing a certifi3 cation described in paragraph 

4 (2)(A)(vii)(IV) for the drug. 

5 ‘‘(cc) SUBSTANTIALLY COMPLETE AP6 PLICATION.—As used in this subsection, 

7 the term ‘substantially complete applica8 tion’ means an application under this sub9 section that on its face is sufficiently com10 plete to permit a substantive review and 

11 contains all the information required by 

12 paragraph (2)(A). 

13 ‘‘(dd) TENTATIVE APPROVAL.—

14 ‘‘(AA) IN GENERAL.—The term 

15 ‘tentative approval’ means notification 

16 to an applicant by the Secretary that 

17 an application under this subsection 

18 meets the requirements of paragraph 

19 (2)(A), but cannot receive effective 

20 approval because the application does 

21 not meet the requirements of this sub22 paragraph, there is a period of exclu23 sivity for the listed drug under sub24 paragraph (E) or section 505A, or 
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1 there is a 7-year period of exclusivity 

2 for the listed drug under section 527. 

3 ‘‘(BB) LIMITATION.—A drug 

4 that is granted tentative approval by 

5 the Secretary is not an approved drug 

6 and shall not have an effective ap7 proval until the Secretary issues an 

8 approval after any necessary addi9 tional review of the application. 

10 ‘‘(II) EFFECTIVENESS OF APPLICATION.—

11 Subject to subparagraph (D), if the application 

12 contains a certification described in paragraph 

13 (2)(A)(vii)(IV) and is for a drug for which a 

14 first applicant has submitted an application 

15 containing such a certification, the application 

16 shall be made effective on the date that is 180 

17 days after the date of the first commercial mar18 keting of the drug (including the commercial 

19 marketing of the listed drug) by any first appli20 cant.’’; and 

21 (2) by inserting after subparagraph (C) the fol22 lowing: 

23 ‘‘(D) FORFEITURE OF 180-DAY EXCLU24 SIVITY PERIOD.—
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1 ‘‘(i) DEFINITION OF FORFEITURE

2 EVENT.—In this subparagraph, the term 

3 ‘forfeiture event’, with respect to an appli4 cation under this subsection, means the oc5 currence of any of the following: 

6 ‘‘(I) FAILURE TO MARKET.—The 

7 first applicant fails to market the 

8 drug by the later of—

9 ‘‘(aa) the earlier of the date 

10 that is— 

11 ‘‘(AA) 75 days after the 

12 date on which the approval 

13 of the application of the first 

14 applicant is made effective 

15 under subparagraph (B)(iii); 

16 or 

17 ‘‘(BB) 30 months after 

18 the date of submission of 

19 the application of the first 

20 applicant; or 

21 ‘‘(bb) with respect to the 

22 first applicant or any other appli23 cant (which other applicant has 

24 received tentative approval), the 

25 date that is 75 days after the 
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1 date as of which, as to each of 

2 the patents with respect to which 

3 the first applicant submitted a 

4 certification qualifying the first 

5 applicant for the 180-day exclu6 sivity period under subparagraph 

7 (B)(iv), at least 1 of the fol8 lowing has occurred: 

9 ‘‘(AA) In an infringe10 ment action brought against 

11 that applicant with respect 

12 to the patent or in a declar13 atory judgment action 

14 brought by that applicant 

15 with respect to the patent, a 

16 court enters a final decision 

17 from which no appeal (other 

18 than a petition to the Su19 preme Court for a writ of 

20 certiorari) has been or can 

21 be taken that the patent is 

22 invalid or not infringed. 

23 ‘‘(BB) In an infringe24 ment action or a declaratory 

25 judgment action described in 
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1 subitem (AA), a court signs 

2 a settlement order or con3 sent decree that enters a 

4 final judgment that includes 

5 a finding that the patent is 

6 invalid or not infringed. 

7 ‘‘(CC) The patent ex8 pires. 

9 ‘‘(DD) The patent is 

10 withdrawn by the holder of 

11 the application approved 

12 under subsection (b). 

13 ‘‘(II) WITHDRAWAL OF APPLICA14 TION.—The first applicant withdraws 

15 the application or the Secretary con16 siders the application to have been 

17 withdrawn as a result of a determina18 tion by the Secretary that the applica19 tion does not meet the requirements 

20 for approval under paragraph (4). 

21 ‘‘(III) AMENDMENT OF CERTIFI22 CATION.—The first applicant amends 

23 or withdraws the certification for all 

24 of the patents with respect to which 

25 that applicant submitted a certifi-
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1 cation qualifying the applicant for the 

2 180-day exclusivity period. 

3 ‘‘(IV) FAILURE TO OBTAIN TEN4 TATIVE APPROVAL.—The first appli5 cant fails to obtain tentative approval 

6 of the application within 30 months 

7 after the date on which the applica8 tion is filed, unless the failure is 

9 caused by a change in or a review of 

10 the requirements for approval of the 

11 application imposed after the date on 

12 which the application is filed. 

13 ‘‘(V) AGREEMENT WITH AN14 OTHER APPLICANT, THE LISTED DRUG

15 APPLICATION HOLDER, OR A PATENT

16 OWNER.—The first applicant enters 

17 into an agreement with another appli18 cant under this subsection for the 

19 drug, the holder of the application for 

20 the listed drug, or an owner of the 

21 patent that is the subject of the cer22 tification under paragraph 

23 (2)(A)(vii)(IV), the Federal Trade 

24 Commission or the Attorney General 

25 files a complaint, and there is a final 
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1 decision of the Federal Trade Com2 mission or the court with regard to 

3 the complaint from which no appeal 

4 (other than a petition to the Supreme 

5 Court for a writ of certiorari) has 

6 been or can be taken that the agree7 ment has violated the antitrust laws 

8 (as defined in section 1 of the Clayton 

9 Act (15 U.S.C. 12), except that the 

10 term includes section 5 of the Federal 

11 Trade Commission Act (15 U.S.C. 45) 

12 to the extent that that section applies 

13 to unfair methods of competition). 

14 ‘‘(VI) EXPIRATION OF ALL PAT15 ENTS.—All of the patents as to which 

16 the applicant submitted a certification 

17 qualifying it for the 180-day exclu18 sivity period have expired. 

19 ‘‘(ii) FORFEITURE.—The 180-day ex20 clusivity period described in subparagraph 

21 (B)(iv) shall be forfeited by a first appli22 cant if a forfeiture event occurs with re23 spect to that first applicant. 
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1 ‘‘(iii) SUBSEQUENT APPLICANT.—If 

2 all first applicants forfeit the 180-day ex3 clusivity period under clause (ii)—

4 ‘‘(I) approval of any application 

5 containing a certification described in 

6 paragraph (2)(A)(vii)(IV) shall be 

7 made effective in accordance with sub8 paragraph (B)(iii); and 

9 ‘‘(II) no applicant shall be eligi10 ble for a 180-day exclusivity period.’’. 

11 (b) EFFECTIVE DATE.—

12 (1) IN GENERAL.—Except as provided in para13 graph (2), the amendment made by subsection (a) 

14 shall be effective only with respect to an application 

15 filed under section 505(j) of the Federal Food, 

16 Drug, and Cosmetic Act (21 U.S.C. 355(j)) after the 

17 date of enactment of this Act for a listed drug for 

18 which no certification under section 

19 505(j)(2)(A)(vii)(IV) of that Act was made before 

20 the date of enactment of this Act. 

21 (2) COLLUSIVE AGREEMENTS.—If a forfeiture 

22 event described in section 505(j)(5)(D)(i)(V) of that 

23 Act occurs in the case of an applicant, the applicant 

24 shall forfeit the 180-day period under section 

25 505(j)(5)(B)(iv) of that Act without regard to when 
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1 the first certification under section 

2 505(j)(2)(A)(vii)(IV) of that Act for the listed drug 

3 was made. 

4 (3) DECISION OF A COURT WHEN THE 180-DAY

5 EXCLUSIVITY PERIOD HAS NOT BEEN TRIGGERED.—

6 With respect to an application filed before, on, or 

7 after the date of enactment of this Act for a listed 

8 drug for which a certification under section 

9 505(j)(2)(A)(vii)(IV) of that Act was made before 

10 the date of enactment of this Act and for which nei11 ther of the events described in subclause (I) or (II) 

12 of section 505(j)(5)(B)(iv) of that Act (as in effect 

13 on the day before the date of enactment of this Act) 

14 has occurred on or before the date of enactment of 

15 this Act, the term ‘‘decision of a court’’ as used in 

16 clause (iv) of section 505(j)(5)(B) of that Act means 

17 a final decision of a court from which no appeal 

18 (other than a petition to the Supreme Court for a 

19 writ of certiorari) has been or can be taken. 

20 SEC. 1103. BIOAVAILABILITY AND BIOEQUIVALENCE. 

21 (a) IN GENERAL.—Section 505(j)(8) of the Federal 

22 Food, Drug, and Cosmetic Act (21 U.S.C. 355(j)(8)) is 

23 amended—

24 (1) by striking subparagraph (A) and inserting 

25 the following: 
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1 ‘‘(A)(i) The term ‘bioavailability’ means the 

2 rate and extent to which the active ingredient or 

3 therapeutic ingredient is absorbed from a drug and 

4 becomes available at the site of drug action. 

5 ‘‘(ii) For a drug that is not intended to be ab6 sorbed into the bloodstream, the Secretary may as7 sess bioavailability by scientifically valid measure8 ments intended to reflect the rate and extent to 

9 which the active ingredient or therapeutic ingredient 

10 becomes available at the site of drug action.’’; and 

11 (2) by adding at the end the following: 

12 ‘‘(C) For a drug that is not intended to be ab13 sorbed into the bloodstream, the Secretary may es14 tablish alternative, scientifically valid methods to 

15 show bioequivalence if the alternative methods are 

16 expected to detect a significant difference between 

17 the drug and the listed drug in safety and thera18 peutic effect.’’. 

19 (b) EFFECT OF AMENDMENT.—The amendment 

20 made by subsection (a) does not alter the standards for 

21 approval of drugs under section 505(j) of the Federal 

22 Food, Drug, and Cosmetic Act (21 U.S.C. 355(j)). 

23 SEC. 1104. CONFORMING AMENDMENTS. 

24 Section 505A of the Federal Food, Drug, and Cos25 metic Act (21 U.S.C. 355a) is amended—
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1 (1) in subsections (b)(1)(A)(i) and (c)(1)(A)(i), 

2 by striking ‘‘(j)(5)(D)(ii)’’ each place it appears and 

3 inserting ‘‘(j)(5)(F)(ii)’’; 

4 (2) in subsections (b)(1)(A)(ii) and 

5 (c)(1)(A)(ii), by striking ‘‘(j)(5)(D)’’ each place it 

6 appears and inserting ‘‘(j)(5)(F)’’; and 

7 (3) in subsections (e) and (l), by striking 

8 ‘‘505(j)(5)(D)’’ each place it appears and inserting 

9 ‘‘505(j)(5)(F)’’. 

10 Subtitle B—Federal Trade 

11 Commission Review 

12 SEC. 1111. DEFINITIONS. 

13 In this subtitle: 

14 (1) ANDA.—The term ‘‘ANDA’’ means an ab15 breviated drug application, as defined under section 

16 201(aa) of the Federal Food, Drug, and Cosmetic 

17 Act. 

18 (2) BRAND NAME DRUG.—The term ‘‘brand 

19 name drug’’ means a drug for which an application 

20 is approved under section 505(c) of the Federal 

21 Food, Drug, and Cosmetic Act, including an applica22 tion referred to in section 505(b)(2) of such Act. 

23 (3) BRAND NAME DRUG COMPANY.—The term 

24 ‘‘brand name drug company’’ means the party that 

25 holds the approved application referred to in para-
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1 graph (2) for a brand name drug that is a listed 

2 drug in an ANDA, or a party that is the owner of 

3 a patent for which information is submitted for such 

4 drug under subsection (b) or (c) of section 505 of 

5 the Federal Food, Drug, and Cosmetic Act. 

6 (4) COMMISSION.—The term ‘‘Commission’’ 

7 means the Federal Trade Commission. 

8 (5) GENERIC DRUG.—The term ‘‘generic drug’’ 

9 means a drug for which an application under section 

10 505(j) of the Federal Food, Drug, and Cosmetic Act 

11 is approved. 

12 (6) GENERIC DRUG APPLICANT.—The term 

13 ‘‘generic drug applicant’’ means a person who has 

14 filed or received approval for an ANDA under sec15 tion 505(j) of the Federal Food, Drug, and Cosmetic 

16 Act. 

17 (7) LISTED DRUG.—The term ‘‘listed drug’’ 

18 means a brand name drug that is listed under sec19 tion 505(j)(7) of the Federal Food, Drug, and Cos20 metic Act. 

21 SEC. 1112. NOTIFICATION OF AGREEMENTS. 

22 (a) AGREEMENT WITH BRAND NAME DRUG COM23 PANY.—

24 (1) REQUIREMENT.—A generic drug applicant 

25 that has submitted an ANDA containing a certifi-
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1 cation under section 505(j)(2)(A)(vii)(IV) of the 

2 Federal Food, Drug, and Cosmetic Act and a brand 

3 name drug company that enter into an agreement 

4 described in paragraph (2) shall each file the agree5 ment in accordance with subsection (c). The agree6 ment shall be filed prior to the date of the first com7 mercial marketing of the generic drug that is the 

8 subject of the ANDA. 

9 (2) SUBJECT MATTER OF AGREEMENT.—An 

10 agreement described in this paragraph between a ge11 neric drug applicant and a brand name drug com12 pany is an agreement regarding—

13 (A) the manufacture, marketing or sale of 

14 the brand name drug that is the listed drug in 

15 the ANDA involved; 

16 (B) the manufacture, marketing, or sale of 

17 the generic drug for which the ANDA was sub18 mitted; or 

19 (C) the 180-day period referred to in sec20 tion 505(j)(5)(B)(iv) of the Federal Food, 

21 Drug, and Cosmetic Act as it applies to such 

22 ANDA or to any other ANDA based on the 

23 same brand name drug. 

24 (b) AGREEMENT WITH ANOTHER GENERIC DRUG

25 APPLICANT.—
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1 (1) REQUIREMENT.—A generic drug applicant 

2 that has submitted an ANDA containing a certifi3 cation under section 505(j)(2)(A)(vii)(IV) of the 

4 Federal Food, Drug, and Cosmetic Act with respect 

5 to a listed drug and another generic drug applicant 

6 that has submitted an ANDA containing such a cer7 tification for the same listed drug shall each file the 

8 agreement in accordance with subsection (c). The 

9 agreement shall be filed prior to the date of the first 

10 commercial marketing of either of the generic drugs 

11 for which such ANDAs were submitted. 

12 (2) SUBJECT MATTER OF AGREEMENT.—An 

13 agreement described in this paragraph between two 

14 generic drug applicants is an agreement regarding 

15 the 180-day period referred to in section 

16 505(j)(5)(B)(iv) of the Federal Food, Drug, and 

17 Cosmetic Act as it applies to the ANDAs with which 

18 the agreement is concerned. 

19 (c) FILING.—

20 (1) AGREEMENT.—The parties that are re21 quired in subsection (a) or (b) to file an agreement 

22 in accordance with this subsection shall file with the 

23 Commission the text of any such agreement, except 

24 that such parties are not required to file an agree25 ment that solely concerns—
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1 (A) purchase orders for raw material sup2 plies; 

3 (B) equipment and facility contracts; 

4 (C) employment or consulting contracts; or 

5 (D) packaging and labeling contracts. 

6 (2) OTHER AGREEMENTS.—The parties that 

7 are required in subsection (a) or (b) to file an agree8 ment in accordance with this subsection shall file 

9 with the Commission the text of any agreements be10 tween the parties that are not described in such sub11 sections and are contingent upon, provide a contin12 gent condition for, or are otherwise related to an 

13 agreement that is required in subsection (a) or (b) 

14 to be filed in accordance with this subsection. 

15 (3) DESCRIPTION.—In the event that any 

16 agreement required in subsection (a) or (b) to be 

17 filed in accordance with this subsection has not been 

18 reduced to text, each of the parties involved shall file 

19 written descriptions of such agreement that are suf20 ficient to disclose all the terms and conditions of the 

21 agreement. 

22 SEC. 1113. FILING DEADLINES. 

23 Any filing required under section 1112 shall be filed 

24 with the Commission not later than 10 business days after 

25 the date the agreements are executed. 
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1 SEC. 1114. DISCLOSURE EXEMPTION. 

2 Any information or documentary material filed with 

3 the Commission pursuant to this subtitle shall be exempt 

4 from disclosure under section 552 of title 5, United States 

5 Code, and no such information or documentary material 

6 may be made public, except as may be relevant to any 

7 administrative or judicial action or proceeding. Nothing in 

8 this section is intended to prevent disclosure to either body 

9 of Congress or to any duly authorized committee or sub10 committee of the Congress. 

11 SEC. 1115. ENFORCEMENT. 

12 (a) CIVIL PENALTY.—Any brand name drug com13 pany or generic drug applicant which fails to comply with 

14 any provision of this subtitle shall be liable for a civil pen15 alty of not more than $11,000, for each day during which 

16 such entity is in violation of this subtitle. Such penalty 

17 may be recovered in a civil action brought by the United 

18 States, or brought by the Commission in accordance with 

19 the procedures established in section 16(a)(1) of the Fed20 eral Trade Commission Act (15 U.S.C. 56(a)). 

21 (b) COMPLIANCE AND EQUITABLE RELIEF.—If any 

22 brand name drug company or generic drug applicant fails 

23 to comply with any provision of this subtitle, the United 

24 States district court may order compliance, and may grant 

25 such other equitable relief as the court in its discretion 
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1 determines necessary or appropriate, upon application of 

2 the Commission. 

3 SEC. 1116. RULEMAKING. 

4 The Commission, by rule in accordance with section 

5 553 of title 5, United States Code, consistent with the pur6 poses of this subtitle—

7 (1) may define the terms used in this subtitle; 

8 (2) may exempt classes of persons or agree9 ments from the requirements of this subtitle; and 

10 (3) may prescribe such other rules as may be 

11 necessary and appropriate to carry out the purposes 

12 of this subtitle. 

13 SEC. 1117. SAVINGS CLAUSE. 

14 Any action taken by the Commission, or any failure 

15 of the Commission to take action, under this subtitle shall 

16 not at any time bar any proceeding or any action with 

17 respect to any agreement between a brand name drug 

18 company and a generic drug applicant, or any agreement 

19 between generic drug applicants, under any other provi20 sion of law, nor shall any filing under this subtitle con21 stitute or create a presumption of any violation of any 

22 competition laws. 

23 SEC. 1118. EFFECTIVE DATE. 

24 This subtitle shall—
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1 (1) take effect 30 days after the date of enact2 ment of this Act; and 

3 (2) shall apply to agreements described in sec4 tion 1112 that are entered into 30 days after the 

5 date of enactment of this Act. 

6 Subtitle C—Importation of 

7 Prescription Drugs 

8 SEC. 1121. IMPORTATION OF PRESCRIPTION DRUGS. 

9 (a) IN GENERAL.—Chapter VIII of the Federal 

10 Food, Drug, and Cosmetic Act (21 U.S.C. 381 et seq.) 

11 is amended by striking section 804 and inserting the fol12 lowing: 

13 ‘‘SEC. 804. IMPORTATION OF PRESCRIPTION DRUGS. 

14 ‘‘(a) DEFINITIONS.—In this section: 

15 ‘‘(1) IMPORTER.—The term ‘importer’ means a 

16 pharmacist or wholesaler. 

17 ‘‘(2) PHARMACIST.—The term ‘pharmacist’ 

18 means a person licensed by a State to practice phar19 macy, including the dispensing and selling of pre20 scription drugs. 

21 ‘‘(3) PRESCRIPTION DRUG.—The term ‘pre22 scription drug’ means a drug subject to section 

23 503(b), other than—
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1 ‘‘(A) a controlled substance (as defined in 

2 section 102 of the Controlled Substances Act 

3 (21 U.S.C. 802)); 

4 ‘‘(B) a biological product (as defined in 

5 section 351 of the Public Health Service Act 

6 (42 U.S.C. 262)); 

7 ‘‘(C) an infused drug (including a peri8 toneal dialysis solution); 

9 ‘‘(D) an intravenously injected drug; 

10 ‘‘(E) a drug that is inhaled during surgery; 

11 or 

12 ‘‘(F) a drug which is a parenteral drug, 

13 the importation of which pursuant to subsection 

14 (b) is determined by the Secretary to pose a 

15 threat to the public health, in which case sec16 tion 801(d)(1) shall continue to apply. 

17 ‘‘(4) QUALIFYING LABORATORY.—The term 

18 ‘qualifying laboratory’ means a laboratory in the 

19 United States that has been approved by the Sec20 retary for the purposes of this section. 

21 ‘‘(5) WHOLESALER.—

22 ‘‘(A) IN GENERAL.—The term ‘wholesaler’ 

23 means a person licensed as a wholesaler or dis24 tributor of prescription drugs in the United 

25 States under section 503(e)(2)(A). 
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1 ‘‘(B) EXCLUSION.—The term ‘wholesaler’ 

2 does not include a person authorized to import 

3 drugs under section 801(d)(1). 

4 ‘‘(b) REGULATIONS.—The Secretary shall promul5 gate regulations permitting pharmacists and wholesalers 

6 to import prescription drugs from Canada into the United 

7 States. 

8 ‘‘(c) LIMITATION.—The regulations under subsection 

9 (b) shall—

10 ‘‘(1) require that each prescription drug im11 ported under the regulations complies with section 

12 505 (including with respect to being safe and effec13 tive for the intended use of the prescription drug), 

14 with sections 501 and 502, and with all other appli15 cable requirements of this Act; 

16 ‘‘(2) require that an importer of a prescription 

17 drug under the regulations comply with subsections 

18 (d)(1) and (e); 

19 ‘‘(3) require that any prescription drug from 

20 Canada imported by a domestic pharmacist or 

21 wholesaler under this section be contained in pack22 aging which the Secretary has determined to be rea23 sonably certain to be tamper-resistant and not capa24 ble of counterfeiting; 
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1 ‘‘(4) require that all prescription drugs from 

2 Canada imported by a domestic pharmacist or a 

3 wholesaler under this section contain a statement 

4 designed to inform the end-user of such drug that 

5 such drug has been imported from a foreign seller 

6 other than a manufacturer; 

7 ‘‘(5) require that only prescription drugs which 

8 have not left the possession of the first Canadian re9 cipient of such prescription drugs after receipt from 

10 the manufacturer of such prescription drugs be eligi11 ble for importation into the United States under this 

12 section; 

13 ‘‘(6) require, if determined appropriate by the 

14 Secretary, that all prescription drugs imported from 

15 Canada under this section by domestic pharmacists 

16 and wholesalers enter the United States through 

17 ports of entry designated by the Secretary for pur18 poses of this section; 

19 ‘‘(7) contain any additional provisions deter20 mined by the Secretary to be appropriate to protect 

21 the public health; and 

22 ‘‘(8) contain any additional provisions deter23 mined by the Secretary to be appropriate to facili24 tate the importation of prescription drugs that do 

25 not jeopardize the public health. 
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1 ‘‘(d) INFORMATION AND RECORDS.—

2 ‘‘(1) IN GENERAL.—The regulations under sub3 section (b) shall require an importer of a prescrip4 tion drug under subsection (b) to submit to the Sec5 retary the following information and documentation: 

6 ‘‘(A) The name and quantity of the active 

7 ingredient of the prescription drug. 

8 ‘‘(B) A description of the dosage form of 

9 the prescription drug. 

10 ‘‘(C) The date on which the prescription 

11 drug is shipped. 

12 ‘‘(D) The quantity of the prescription drug 

13 that is shipped. 

14 ‘‘(E) The point of origin and destination of 

15 the prescription drug. 

16 ‘‘(F) The price paid and the price charged 

17 by the importer for the prescription drug. 

18 ‘‘(G) Documentation from the foreign sell19 er specifying—

20 ‘‘(i) the original source of the pre21 scription drug; and 

22 ‘‘(ii) the quantity of each lot of the 

23 prescription drug originally received by the 

24 seller from that source. 
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1 ‘‘(H) The lot or control number assigned 

2 to the prescription drug by the manufacturer of 

3 the prescription drug. 

4 ‘‘(I) The name, address, telephone number, 

5 and professional license number (if any) of the 

6 importer. 

7 ‘‘(J)(i) Documentation demonstrating that 

8 the prescription drug was received by the recipi9 ent from the manufacturer and subsequently 

10 shipped by the first foreign recipient to the im11 porter. 

12 ‘‘(ii) Documentation of the quantity of 

13 each lot of the prescription drug received by the 

14 first foreign recipient demonstrating that the 

15 quantity being imported into the United States 

16 is not more than the quantity that was received 

17 by the first foreign recipient. 

18 ‘‘(iii) In the case of an initial imported 

19 shipment, documentation demonstrating that 

20 each batch of the prescription drug in the ship21 ment was statistically sampled and tested for 

22 authenticity and degradation. 

23 ‘‘(K) Certification from the importer or 

24 manufacturer of the prescription drug that the 

25 prescription drug—
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1 ‘‘(i) is approved for marketing in the 

2 United States and is not adulterated or 

3 misbranded; and 

4 ‘‘(ii) meets all labeling requirements 

5 under this Act. 

6 ‘‘(L) Laboratory records, including com7 plete data derived from all tests necessary to 

8 ensure that the prescription drug is in compli9 ance with established specifications and stand10 ards. 

11 ‘‘(M) Documentation demonstrating that 

12 the testing required by subparagraphs (J) and 

13 (L) was conducted at a qualifying laboratory. 

14 ‘‘(N) Any other information that the Sec15 retary determines is necessary to ensure the 

16 protection of the public health. 

17 ‘‘(2) MAINTENANCE BY THE SECRETARY.—The 

18 Secretary shall maintain information and docu19 mentation submitted under paragraph (1) for such 

20 period of time as the Secretary determines to be nec21 essary. 

22 ‘‘(e) TESTING.—The regulations under subsection (b) 

23 shall require—

24 ‘‘(1) that testing described in subparagraphs 

25 (J) and (L) of subsection (d)(1) be conducted by the 
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1 importer or by the manufacturer of the prescription 

2 drug at a qualified laboratory; 

3 ‘‘(2) if the tests are conducted by the im4 porter—

5 ‘‘(A) that information needed to—

6 ‘‘(i) authenticate the prescription drug 

7 being tested; and 

8 ‘‘(ii) confirm that the labeling of the 

9 prescription drug complies with labeling re10 quirements under this Act; 

11 be supplied by the manufacturer of the pre12 scription drug to the pharmacist or wholesaler; 

13 and 

14 ‘‘(B) that the information supplied under 

15 subparagraph (A) be kept in strict confidence 

16 and used only for purposes of testing under this 

17 section; and 

18 ‘‘(3) may include such additional provisions as 

19 the Secretary determines to be appropriate to pro20 vide for the protection of trade secrets and commer21 cial or financial information that is privileged or 

22 confidential. 

23 ‘‘(f) REGISTRATION OF FOREIGN SELLERS.—Any es24 tablishment within Canada engaged in the distribution of 

25 a prescription drug that is imported or offered for impor-
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1 tation into the United States shall register with the Sec2 retary the name and place of business of the establishment 

3 and the name of the United States agent for the establish4 ment. 

5 ‘‘(g) SUSPENSION OF IMPORTATION.—The Secretary 

6 shall require that importations of a specific prescription 

7 drug or importations by a specific importer under sub8 section (b) be immediately suspended on discovery of a 

9 pattern of importation of that specific prescription drug 

10 or by that specific importer of drugs that are counterfeit 

11 or in violation of any requirement under this section, until 

12 an investigation is completed and the Secretary deter13 mines that the public is adequately protected from coun14 terfeit and violative prescription drugs being imported 

15 under subsection (b). 

16 ‘‘(h) APPROVED LABELING.—The manufacturer of a 

17 prescription drug shall provide an importer written au18 thorization for the importer to use, at no cost, the ap19 proved labeling for the prescription drug. 

20 ‘‘(i) CHARITABLE CONTRIBUTIONS.—Notwith21 standing any other provision of this section, section 

22 801(d)(1) continues to apply to a prescription drug that 

23 is donated or otherwise supplied at no charge by the man24 ufacturer of the drug to a charitable or humanitarian or-
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1 ganization (including the United Nations and affiliates) 

2 or to a government of a foreign country. 

3 ‘‘(j) WAIVER AUTHORITY FOR IMPORTATION BY IN4 DIVIDUALS.—The Secretary may, for drugs being im5 ported from a licensed Canadian pharmacy, grant to indi6 viduals, by regulation or on a case-by-case basis, a waiver 

7 of the prohibition of importation of a prescription drug 

8 or device or class of prescription drugs or devices, under 

9 such conditions as the Secretary determines to be appro10 priate. Such conditions shall include conditions that such 

11 drug or device be—

12 ‘‘(1) in the possession of an individual when the 

13 individual enters the United States; 

14 ‘‘(2) imported by such individual from a li15 censed pharmacy for personal use by the individual, 

16 not for resale, in quantities that do not exceed a 90-

17 day supply, which individual will use the drug or de18 vice (or for a family member of such individual); 

19 ‘‘(3) accompanied by a copy of a valid prescrip20 tion; 

21 ‘‘(4) imported from Canada, from a seller reg22 istered with the Secretary; 

23 ‘‘(5) a prescription drug approved by the Sec24 retary under chapter V that is not adulterated or 

25 misbranded; 
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1 ‘‘(6) in the form of a final finished dosage that 

2 was manufactured in an establishment registered 

3 under section 510; and 

4 ‘‘(7) imported under such other conditions as 

5 the Secretary determines to be necessary to ensure 

6 public safety. 

7 ‘‘(k) STUDIES; REPORTS.—

8 ‘‘(1) BY THE INSTITUTE OF MEDICINE OF THE

9 NATIONAL ACADEMY OF SCIENCES.—

10 ‘‘(A) STUDY.—

11 ‘‘(i) IN GENERAL.—The Secretary 

12 shall request that the Institute of Medicine 

13 of the National Academy of Sciences con14 duct a study of—

15 ‘‘(I) importations of prescription 

16 drugs made under the regulations 

17 under subsection (b); and 

18 ‘‘(II) information and docu19 mentation submitted under subsection 

20 (d). 

21 ‘‘(ii) REQUIREMENTS.—In conducting 

22 the study, the Institute of Medicine shall—

23 ‘‘(I) evaluate the compliance of 

24 importers with the regulations under 

25 subsection (b); 
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1 ‘‘(II) compare the number of 

2 shipments under the regulations 

3 under subsection (b) during the study 

4 period that are determined to be 

5 counterfeit, misbranded, or adulter6 ated, and compare that number with 

7 the number of shipments made during 

8 the study period within the United 

9 States that are determined to be 

10 counterfeit, misbranded, or adulter11 ated; and 

12 ‘‘(III) consult with the Secretary 

13 to evaluate the effect of importations 

14 under the regulations under sub15 section (b) on trade and patent rights 

16 under Federal law. 

17 ‘‘(B) REPORT.—Not later than 2 years 

18 after the effective date of the regulations under 

19 subsection (b), the Institute of Medicine shall 

20 submit to Congress a report describing the find21 ings of the study under subparagraph (A). 

22 ‘‘(2) BY THE COMPTROLLER GENERAL.—

23 ‘‘(A) STUDY.—The Comptroller General of 

24 the United States shall conduct a study to de-
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1 termine the effect of this section on the price of 

2 prescription drugs sold to consumers at retail. 

3 ‘‘(B) REPORT.—Not later than 18 months 

4 after the effective date of the regulations under 

5 subsection (b), the Comptroller General of the 

6 United States shall submit to Congress a report 

7 describing the findings of the study under sub8 paragraph (A). 

9 ‘‘(l) CONSTRUCTION.—Nothing in this section limits 

10 the authority of the Secretary relating to the importation 

11 of prescription drugs, other than with respect to section 

12 801(d)(1) as provided in this section. 

13 ‘‘(m) AUTHORIZATION OF APPROPRIATIONS.—There 

14 are authorized to be appropriated such sums as are nec15 essary to carry out this section. 

16 ‘‘(n) CONDITIONS.—This section shall become effec17 tive only if the Secretary demonstrates to the Congress 

18 that the implementation of this section will—

19 ‘‘(1) pose no additional risk to the public’s 

20 health and safety; and 

21 ‘‘(2) result in a significant reduction in the cost 

22 of prescription drugs to the American consumer.’’. 

23 (b) CONFORMING AMENDMENTS.—The Federal 

24 Food, Drug, and Cosmetic Act is amended—
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1 (1) in section 301(aa) (21 U.S.C. 331(aa)), by 

2 striking ‘‘covered product in violation of section 

3 804’’ and inserting ‘‘prescription drug in violation of 

4 section 804’’; and 

5 (2) in section 303(a)(6) (21 U.S.C. 333(a)(6), 

6 by striking ‘‘covered product pursuant to section 

7 804(a)’’ and inserting ‘‘prescription drug under sec8 tion 804(b)’’. 

9 DIVISION B—HEALTH SAVINGS 

10 AND AFFORDABILITY ACT OF 

11 2003

12 TITLE XII—HEALTH SAVINGS SE13 CURITY ACCOUNTS AND 

14 HEALTH SAVINGS ACCOUNTS 

15 SEC. 1201. SHORT TITLE. 

16 This division may be cited as the ‘‘Health Savings 

17 and Affordability Act of 2003’’. 

18 SEC. 1202. HEALTH SAVINGS SECURITY ACCOUNTS AND 

19 HEALTH SAVINGS ACCOUNTS. 

20 (a) IN GENERAL.—Part VII of subchapter B of chap21 ter 1 of the Internal Revenue Code of 1986 (relating to 

22 additional itemized deductions for individuals) is amended 

23 by redesignating section 223 as section 225 and by insert24 ing after section 222 the following new sections: 
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1 ‘‘SEC. 223. HEALTH SAVINGS SECURITY ACCOUNTS. 

2 ‘‘(a) DEDUCTION ALLOWED.—In the case of an indi3 vidual who is an eligible individual for any month during 

4 the taxable year, there shall be allowed as a deduction for 

5 the taxable year an amount equal to the aggregate amount 

6 paid in cash during such taxable year by such individual 

7 to a health savings security account of such individual. 

8 ‘‘(b) LIMITATIONS.—

9 ‘‘(1) IN GENERAL.—The amount allowable as a 

10 deduction under subsection (a) to an individual for 

11 the taxable year shall not exceed the sum of the 

12 monthly limitations for months during such taxable 

13 year that the individual is an eligible individual. 

14 ‘‘(2) MONTHLY LIMITATION.—The monthly limitation for any month is 1 15 ⁄12 of—

16 ‘‘(A) $2,000, in the case of an eligible indi17 vidual who—

18 ‘‘(i) has self-only coverage under a 

19 minimum deductible plan as of the first 

20 day of such month, or 

21 ‘‘(ii) is uninsured as of the first day 

22 of such month and is not described in sub23 paragraph (B)(ii) with respect to the tax24 able year which includes such month, 

25 ‘‘(B) $4,000, in the case of an eligible indi26 vidual who—
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1 ‘‘(i) has family coverage under a min2 imum deductible plan as of the first day of 

3 such month, or 

4 ‘‘(ii) is uninsured as of the first day 

5 of such month and, with respect to the tax6 able year which includes such month— 

7 ‘‘(I) is entitled to a deduction for 

8 a dependent under section 151(c) (or 

9 would be so entitled but for paragraph 

10 (2) or (4) of section 152(e)), or 

11 ‘‘(II) files a joint return, and 

12 ‘‘(C) zero in any other case. 

13 ‘‘(3) ADDITIONAL CONTRIBUTIONS FOR INDI14 VIDUALS 55 OR OLDER.—

15 ‘‘(A) IN GENERAL.—In the case of an indi16 vidual who has attained the age of 55 before 

17 the close of the taxable year, paragraph (2) 

18 shall be applied by increasing the $2,000 

19 amount in paragraph (2)(A) and the $4,000 

20 amount in paragraph (2)(B) by the additional 

21 contribution amount. 

22 ‘‘(B) ADDITIONAL CONTRIBUTION

23 AMOUNT.—For purposes of this section, the ad24 ditional contribution amount is the amount de25 termined in accordance with the following table:
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‘‘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.

1 ‘‘(4) LIMITATION BASED ON ADJUSTED GROSS

2 INCOME.—

3 ‘‘(A) SELF-ONLY COVERAGE.—The dollar 

4 amount in paragraph (2)(A) (as increased 

5 under paragraph (3)) shall be reduced (but not 

6 below zero) by an amount which bears the same 

7 ratio to such dollar amount as—

8 ‘‘(i) the amount (if any) by which the 

9 taxpayer’s adjusted gross income for such 

10 taxable year exceeds $75,000 ($150,000 in 

11 the case of a joint return), bears to 

12 ‘‘(ii) $10,000 ($20,000 in the case of 

13 a joint return). 

14 ‘‘(B) FAMILY COVERAGE.—The dollar 

15 amount in paragraph (2)(B) (as increased 

16 under paragraph (3)) shall be reduced (but not 

17 below zero) by an amount which bears the same 

18 ratio to such dollar amount as—

19 ‘‘(i) the amount (if any) by which the 

20 taxpayer’s adjusted gross income for such 

21 taxable year exceeds $150,000, bears to 
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1 ‘‘(ii) $20,000. 

2 ‘‘(C) NO REDUCTION BELOW $200 UNTIL

3 COMPLETE PHASE-OUT.—No dollar amount 

4 shall be reduced below $200 under subpara5 graph (A) or (B) unless (without regard to this 

6 subparagraph) such limitation is reduced to 

7 zero. 

8 ‘‘(D) ROUNDING.—Any amount deter9 mined under this paragraph which is not a mul10 tiple of $10 shall be rounded to the next lowest 

11 $10. 

12 ‘‘(E) ADJUSTED GROSS INCOME.—For pur13 poses of this paragraph, adjusted gross income 

14 shall be determined—

15 ‘‘(i) without regard to this section or 

16 section 911, and 

17 ‘‘(ii) after application of sections 86, 

18 135, 137, 219, 221, 222, and 469. 

19 ‘‘(5) COORDINATION WITH OTHER CONTRIBU20 TIONS.—The limitation which would (but for this 

21 paragraph) apply under this subsection to the tax22 payer for any taxable year shall be reduced (but not 

23 below zero) by the sum of— 
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1 ‘‘(A) the aggregate amount paid during 

2 such taxable year to Archer MSAs of such indi3 vidual, 

4 ‘‘(B) the aggregate amount paid during 

5 such taxable year to health savings accounts of 

6 such individual, and 

7 ‘‘(C) the aggregate amount paid during 

8 such taxable year to health savings security ac9 counts of such individual by persons other than 

10 such individual. 

11 ‘‘(6) SPECIAL RULES FOR MARRIED INDIVID12 UALS, DEPENDENTS, AND MEDICARE ELIGIBLE INDI13 VIDUALS.—Rules similar to the rules of paragraphs 

14 (3), (6), and (7) of section 220(b) shall apply for 

15 purposes of this section. 

16 ‘‘(c) DEFINITIONS.—For purposes of this section— 

17 ‘‘(1) ELIGIBLE INDIVIDUAL.— 

18 ‘‘(A) IN GENERAL.—The term ‘eligible in19 dividual’ means, with respect to any month, any 

20 individual unless such individual is covered, as 

21 of the first day of such month, under any 

22 health plan which is not a minimum deductible 

23 plan. 
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1 ‘‘(B) CERTAIN COVERAGE DIS2 REGARDED.—Subparagraph (A) shall be ap3 plied without regard to— 

4 ‘‘(i) coverage for any benefit provided 

5 by permitted insurance, and 

6 ‘‘(ii) coverage (whether through insur7 ance or otherwise) for accidents, disability, 

8 dental care, vision care, or long-term care. 

9 ‘‘(2) MINIMUM DEDUCTIBLE PLAN.—

10 ‘‘(A) IN GENERAL.—The term ‘minimum 

11 deductible plan’ means a health plan— 

12 ‘‘(i) in the case of self-only coverage, 

13 which has an annual deductible which is 

14 not less than $500, and 

15 ‘‘(ii) in the case of family coverage, 

16 which has an annual deductible which is 

17 not less than twice the dollar amount in 

18 clause (i) (as increased under subpara19 graph (B)). 

20 ‘‘(B) COST-OF-LIVING ADJUSTMENT FOR

21 ANNUAL DEDUCTIBLES.—

22 ‘‘(i) IN GENERAL.—In the case of any 

23 taxable year beginning in a calendar year 

24 after 2004, the $500 amount in subpara-
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1 graph (A)(i) shall be increased by an 

2 amount equal to—

3 ‘‘(I) such dollar amount, multi4 plied by 

5 ‘‘(II) the cost-of-living adjust6 ment determined under section 1(f)(3) 

7 for the calendar year in which such 

8 taxable year begins by substituting 

9 ‘calendar year 2003’ for ‘calendar 

10 year 1992’ in subparagraph (B) there11 of. 

12 ‘‘(ii) ROUNDING.—If any increase 

13 under clause (i) is not a multiple of $50, 

14 such increase shall be rounded to the near15 est multiple of $50. 

16 ‘‘(C) SPECIAL RULES.— 

17 ‘‘(i) EXCLUSION OF CERTAIN

18 PLANS.—Such term does not include a 

19 health plan if substantially all of its cov20 erage is coverage described in paragraph 

21 (1)(B). 

22 ‘‘(ii) SAFE HARBOR FOR ABSENCE OF

23 PREVENTIVE CARE DEDUCTIBLE.—A plan 

24 shall not fail to be treated as a minimum 
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1 deductible plan by reason of failing to have 

2 a deductible for preventive care. 

3 ‘‘(3) UNINSURED.—An individual shall be treat4 ed as uninsured if such individual is not covered by 

5 insurance which constitutes medical care. The pre6 ceding sentence shall be applied without regard to 

7 the coverage described in paragraph (1)(B). 

8 ‘‘(4) PERMITTED INSURANCE.—The term ‘per9 mitted insurance’ has the meaning given such term 

10 in section 220(c)(3). 

11 ‘‘(5) FAMILY COVERAGE.—The term ‘family 

12 coverage’ has the meaning given such term in sec13 tion 220(c)(5). 

14 ‘‘(6) ARCHER MSA.—The term ‘Archer MSA’ 

15 has the meaning given such term in section 220(d). 

16 ‘‘(7) HEALTH SAVINGS ACCOUNT.—The term 

17 ‘health savings account’ has the meaning given such 

18 term in section 224(d). 

19 ‘‘(d) HEALTH SAVINGS SECURITY ACCOUNT.—For 

20 purposes of this section—

21 ‘‘(1) IN GENERAL.—The term ‘health savings 

22 security account’ means a trust created or organized 

23 in the United States as a health savings security ac24 count exclusively for the purpose of paying the quali25 fied medical expenses of the account beneficiary, but 
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1 only if the written governing instrument creating the 

2 trust meets the following requirements: 

3 ‘‘(A) Except in the case of a rollover con4 tribution from an Archer MSA, or a health sav5 ings security account, which is not includible in 

6 gross income, no contribution will be accepted— 

7 ‘‘(i) unless it is in cash and is contrib8 uted by—

9 ‘‘(I) the account beneficiary, 

10 ‘‘(II) a member of the family of 

11 the account beneficiary, or 

12 ‘‘(III) an employer of the account 

13 beneficiary, and 

14 ‘‘(ii) to the extent such contribution, 

15 when added to previous contributions to 

16 the trust for the calendar year, exceeds the 

17 highest annual limitation which could 

18 apply to an individual under subsection (b) 

19 for a taxable year beginning in such cal20 endar year. 

21 ‘‘(B) The trustee is a bank (as defined in 

22 section 408(n)), an insurance company (as de23 fined in section 816), or another person who 

24 demonstrates to the satisfaction of the Sec25 retary that the manner in which such person 
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1 will administer the trust will be consistent with 

2 the requirements of this section. 

3 ‘‘(C) No part of the trust assets will be in4 vested in life insurance contracts. 

5 ‘‘(D) The assets of the trust will not be 

6 commingled with other property except in a 

7 common trust fund or common investment 

8 fund. 

9 ‘‘(E) The interest of an individual in the 

10 balance in his account is nonforfeitable. 

11 ‘‘(2) MEMBER OF THE FAMILY.—The term 

12 ‘member of the family’ has the meaning given such 

13 term in section 2032A(e)(2). 

14 ‘‘(3) QUALIFIED MEDICAL EXPENSES.—The 

15 term ‘qualified medical expenses’ has the meaning 

16 given such term in section 220(d)(2), except that—

17 ‘‘(A) subparagraph (B)(i) thereof shall not 

18 apply to—

19 ‘‘(i) insurance which constitutes a 

20 minimum deductible plan if no portion of 

21 the cost of such insurance is paid by an 

22 employer or former employer of the ac23 count beneficiary or the spouse of such 

24 beneficiary, and 
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1 ‘‘(ii) any health insurance (other than 

2 health insurance substantially all of its 

3 coverage is coverage described in sub4 section (c)(1)(B)) if the account bene5 ficiary has attained age 65, and 

6 ‘‘(B) subparagraph (C) thereof shall not 

7 apply for purposes of this section. 

8 ‘‘(4) ACCOUNT BENEFICIARY.—The term ‘ac9 count beneficiary’ means the individual on whose be10 half the health savings security account was estab11 lished. 

12 ‘‘(5) CERTAIN RULES TO APPLY.—Rules similar 

13 to the following rules shall apply for purposes of this 

14 section: 

15 ‘‘(A) Section 219(d)(2) (relating to no de16 duction for rollovers). 

17 ‘‘(B) Section 219(f)(3) (relating to time 

18 when contributions deemed made). 

19 ‘‘(C) Except as provided in section 106(d), 

20 section 219(f)(5) (relating to employer pay21 ments). 

22 ‘‘(D) Section 408(g) (relating to commu23 nity property laws). 

24 ‘‘(E) Section 408(h) (relating to custodial 

25 accounts). 
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1 ‘‘(6) CONTRIBUTIONS FROM FLEXIBLE SPEND2 ING ACCOUNTS TREATED AS MADE BY THE EM3 PLOYER.—Any contribution from a flexible spending 

4 account to a health savings security account which 

5 is not includible in the gross income of the employee 

6 by reason of section 125(h) shall be treated as a 

7 contribution made by the employer for purposes of 

8 this section. 

9 ‘‘(e) TAX TREATMENT OF ACCOUNTS.—

10 ‘‘(1) IN GENERAL.—A health savings security 

11 account is exempt from taxation under this subtitle 

12 unless such account has ceased to be a health sav13 ings security account. Notwithstanding the preceding 

14 sentence, any such account is subject to the taxes 

15 imposed by section 511 (relating to imposition of tax 

16 on unrelated business income of charitable, etc. or17 ganizations). 

18 ‘‘(2) ACCOUNT TERMINATIONS.—Rules similar 

19 to the rules of paragraphs (2) and (4) of section 

20 408(e) shall apply to health savings security ac21 counts, and any amount treated as distributed under 

22 such similar rules shall be treated as not used to pay 

23 qualified medical expenses. 

24 ‘‘(f) TAX TREATMENT OF DISTRIBUTIONS.—
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1 ‘‘(1) AMOUNTS USED FOR QUALIFIED MEDICAL

2 EXPENSES.—Any amount paid or distributed out of 

3 a health savings security account which is used ex4 clusively to pay qualified medical expenses of any ac5 count beneficiary shall not be includible in gross in6 come. 

7 ‘‘(2) INCLUSION OF AMOUNTS NOT USED FOR

8 QUALIFIED MEDICAL EXPENSES.—

9 ‘‘(A) IN GENERAL.—Any amount paid or 

10 distributed out of a health savings security ac11 count which is not used exclusively to pay the 

12 qualified medical expenses of the account bene13 ficiary shall be included in the gross income of 

14 such beneficiary in the manner provided under 

15 section 72. 

16 ‘‘(B) SPECIAL RULES FOR APPLYING SEC17 TION 72.—For purposes of applying section 72 

18 to any amount described in subparagraph (A)—

19 ‘‘(i) all health savings security ac20 counts shall be treated as 1 contract, 

21 ‘‘(ii) all distributions during any tax22 able year shall be treated as 1 distribution, 

23 ‘‘(iii) the value of the contract, income 

24 on the contract, and investment in the con25 tract shall be computed as of the close of 
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1 the calendar year in which the taxable year 

2 begins, and 

3 ‘‘(iv) such distributions shall be treat4 ed as made from contributions from mem5 bers of the family of the account bene6 ficiary to the extent that such distribution, 

7 when added to all previous distributions 

8 from the health savings security account 

9 taken into account under this clause, do 

10 not exceed the aggregate contributions 

11 from members of such family. 

12 ‘‘(3) EXCESS CONTRIBUTIONS RETURNED BE13 FORE DUE DATE OF RETURN.— 

14 ‘‘(A) IN GENERAL.—If any excess con15 tribution is contributed for a taxable year to 

16 any health savings security account of an indi17 vidual, paragraph (2) shall not apply to dis18 tributions from the health savings security ac19 counts of such individual (to the extent such 

20 distributions do not exceed the aggregate excess 

21 contributions to all such accounts of such indi22 vidual for such year) if—

23 ‘‘(i) such distribution is made on or 

24 before the last day prescribed by law (in25 cluding extensions of time) for filing the 
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1 account beneficiary’s return for such tax2 able year, 

3 ‘‘(ii) no deduction is allowed under 

4 this section with respect to such contribu5 tion, 

6 ‘‘(iii) such distribution is accompanied 

7 by the amount of net income attributable 

8 to such excess contribution, and 

9 ‘‘(iv) such distribution satisfies the re10 quirements of subparagraph (B). 

11 ‘‘(B) RULES RELATED TO ORDERING.—

12 ‘‘(i) DISTRIBUTIONS LIMITED TO CON13 TRIBUTIONS.—Subparagraph (A) shall 

14 apply to distributions to a person only to 

15 the extent of the contributions of such per16 son to such accounts during such taxable 

17 year. 

18 ‘‘(ii) CLASSES OF CONTRIBUTORS.—

19 Subparagraph (A) shall apply only to dis20 tributions of such contributions which are 

21 made in the following order: 

22 ‘‘(I) first, to members of the fam23 ily of the account beneficiary, 

24 ‘‘(II) second, to the account ben25 eficiary, 
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1 ‘‘(III) third, to employers of the 

2 account beneficiary with respect to 

3 contributions under section 125(h), 

4 and 

5 ‘‘(IV) fourth, to employers of the 

6 account beneficiary with respect to 

7 contributions under section 106(d). 

8 ‘‘(iii) LAST-IN FIRST-OUT.—If dis9 tributions could be made to more than one 

10 person under any subclause of clause (ii), 

11 subparagraph (A) shall not apply to any 

12 such distribution unless such distribution 

13 is of the most recent excess contribution 

14 which has not been distributed to the con15 tributor. 

16 ‘‘(C) TREATMENT OF NET INCOME.—Any 

17 net income described in subparagraph (A)(iii) 

18 shall be included in the gross income of the per19 son receiving the distribution for the taxable 

20 year in which received. 

21 ‘‘(D) EXCESS CONTRIBUTION.—For pur22 poses of subparagraph (A), the term ‘excess 

23 contribution’ means any contribution (other 

24 than a rollover contribution from another health 

25 savings security account, or from an Archer 
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HR 1 RDS 

1 MSA, which is not includible in gross income) 

2 to the extent such contribution results in the 

3 aggregate contributions to health savings secu4 rity accounts of the account beneficiary for the 

5 taxable year to be in excess of the limitation 

6 under subsection (b) (determined without re7 gard to paragraph (5)(C) thereof) which applies 

8 to such beneficiary for such year. 

9 ‘‘(4) ADDITIONAL TAX ON DISTRIBUTIONS NOT

10 USED FOR QUALIFIED MEDICAL EXPENSES.— 

11 ‘‘(A) IN GENERAL.—The tax imposed by 

12 this chapter on the account beneficiary for any 

13 taxable year in which there is a payment or dis14 tribution from a health savings security account 

15 of such beneficiary which is includible in gross 

16 income under paragraph (2) shall be increased 

17 by 15 percent of the amount which is so includ18 ible. 

19 ‘‘(B) EXCEPTION FOR DISABILITY OR

20 DEATH.—Subparagraph (A) shall not apply if 

21 the payment or distribution is made after the 

22 account beneficiary becomes disabled within the 

23 meaning of section 72(m)(7) or dies. 

24 ‘‘(C) EXCEPTION FOR DISTRIBUTIONS

25 AFTER MEDICARE ELIGIBILITY.—Subparagraph 
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1 (A) shall not apply to any payment or distribu2 tion after the date on which the account bene3 ficiary attains the age specified in section 1811 

4 of the Social Security Act. 

5 ‘‘(5) ROLLOVER CONTRIBUTION.—

6 ‘‘(A) IN GENERAL.—Paragraph (2) shall 

7 not apply to any amount paid or distributed 

8 from a health savings security account to the 

9 account beneficiary to the extent the amount 

10 received is paid into a health savings security 

11 account, or a health savings account, for the 

12 benefit of such beneficiary not later than the 

13 60th day after the day on which the beneficiary 

14 receives the payment or distribution. 

15 ‘‘(B) LIMITATION.—This paragraph shall 

16 not apply to any amount described in subpara17 graph (A) received by an individual from a 

18 health savings security account if, at any time 

19 during the 1-year period ending on the day of 

20 such receipt, such individual received any other 

21 amount described in subparagraph (A) from a 

22 health savings security account which was not 

23 includible in the individual’s gross income be24 cause of the application of this paragraph. 
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1 ‘‘(6) SPECIAL RULES.—Rules similar to the 

2 rules of paragraphs (6), (7), and (8) of section 

3 220(f) shall apply for purposes of this section. 

4 ‘‘(g) REPORTS.—The Secretary may require the 

5 trustee of a health savings security account to make such 

6 reports regarding such account to the Secretary and to 

7 the account beneficiary with respect to contributions, dis8 tributions, and such other matters as the Secretary deter9 mines appropriate. The reports required by this subsection 

10 shall be filed at such time and in such manner and fur11 nished to such individuals at such time and in such man12 ner as may be required by the Secretary. 

13 ‘‘(h) REGULATIONS.—The Secretary may issue regu14 lations to carry out the purposes of this section, including 

15 regulations regarding the proper treatment of distribu16 tions described in subsection (f)(3) and nondeductible con17 tributions by members of the family of the account bene18 ficiary. 

19 ‘‘SEC. 224. HEALTH SAVINGS ACCOUNTS. 

20 ‘‘(a) DEDUCTION ALLOWED.—In the case of an indi21 vidual who is an eligible individual for any month during 

22 the taxable year, there shall be allowed as a deduction for 

23 the taxable year an amount equal to the aggregate amount 

24 paid in cash during such taxable year by such individual 

25 to a health savings account of such individual. 
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1 ‘‘(b) LIMITATIONS.—

2 ‘‘(1) IN GENERAL.—The amount allowable as a 

3 deduction under subsection (a) to an individual for 

4 the taxable year shall not exceed the sum of the 

5 monthly limitations for months during such taxable 

6 year that the individual is an eligible individual. 

7 ‘‘(2) MONTHLY LIMITATION.—The monthly limitation for any month is the amount equal to 1 8 ⁄12 of 

9 the annual deductible (as of the first day of such 

10 month) of the individual’s coverage under the high 

11 deductible health plan. 

12 ‘‘(3) COORDINATION WITH OTHER CONTRIBU13 TIONS.—The limitation which would (but for this 

14 paragraph) apply under this subsection to the tax15 payer for any taxable year shall be reduced (but not 

16 below zero) by the sum of—

17 ‘‘(A) the aggregate amount paid during 

18 such taxable year to Archer MSAs of such indi19 vidual, 

20 ‘‘(B) the aggregate amount paid during 

21 such taxable year to health savings security ac22 counts of such individual, and 

23 ‘‘(C) the aggregate amount paid during 

24 such taxable year to health savings accounts of 
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1 such individual by persons other than such indi2 vidual. 

3 ‘‘(4) SPECIAL RULES FOR MARRIED INDIVID4 UALS, DEPENDENTS, AND MEDICARE ELIGIBLE INDI5 VIDUALS.—Rules similar to the rules of paragraphs 

6 (3), (6), and (7) of section 220(b) shall apply for 

7 purposes of this section. 

8 ‘‘(c) DEFINITIONS.—For purposes of this section— 

9 ‘‘(1) ELIGIBLE INDIVIDUAL.— 

10 ‘‘(A) IN GENERAL.—The term ‘eligible in11 dividual’ means, with respect to any month, any 

12 individual if—

13 ‘‘(i) such individual is covered under a 

14 high deductible health plan as of the 1st 

15 day of such month, and 

16 ‘‘(ii) such individual is not, while cov17 ered under a high deductible health plan, 

18 covered under any health plan—

19 ‘‘(I) which is not a high deduct20 ible health plan, and 

21 ‘‘(II) which provides coverage for 

22 any benefit which is covered under the 

23 high deductible health plan. 
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1 ‘‘(B) CERTAIN COVERAGE DIS2 REGARDED.—Subparagraph (A)(ii) shall be ap3 plied without regard to— 

4 ‘‘(i) coverage for any benefit provided 

5 by permitted insurance, and 

6 ‘‘(ii) coverage (whether through insur7 ance or otherwise) for accidents, disability, 

8 dental care, vision care, or long-term care. 

9 ‘‘(2) HIGH DEDUCTIBLE HEALTH PLAN.—

10 ‘‘(A) IN GENERAL.—The term ‘high de11 ductible health plan’ means a health plan— 

12 ‘‘(i) in the case of self-only coverage, 

13 which has an annual deductible which is 

14 not less than $1,000 and not more than 

15 $2,250, 

16 ‘‘(ii) in the case of family coverage, 

17 which has an annual deductible which is 

18 not less than $2,000 and not more than 

19 $4,500, and 

20 ‘‘(iii) the annual out-of-pocket ex21 penses required to be paid under the plan 

22 (other than for premiums) for covered ben23 efits does not exceed— 

24 ‘‘(I) $3,000 for self-only cov25 erage, and 
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1 ‘‘(II) $5,500 for family coverage. 

2 ‘‘(B) COST-OF-LIVING ADJUSTMENT.—

3 ‘‘(i) IN GENERAL.—In the case of any 

4 taxable year beginning in a calendar year 

5 after 1998, each dollar amount in subpara6 graph (A) shall be increased by an amount 

7 equal to—

8 ‘‘(I) such dollar amount, multi9 plied by 

10 ‘‘(II) the cost-of-living adjust11 ment determined under section 1(f)(3) 

12 for the calendar year in which such 

13 taxable year begins by substituting 

14 ‘calendar year 1997’ for ‘calendar 

15 year 1992’ in subparagraph (B) there16 of. 

17 ‘‘(ii) SPECIAL RULES.—In the case of 

18 the $1,000 amount in subparagraph (A)(i) 

19 and the $2,000 amount in subparagraph 

20 (A)(ii), subclause (i)(II) shall be applied by 

21 substituting ‘calendar year 2002’ for ‘cal22 endar year 1997’. 

23 ‘‘(iii) ROUNDING.—If any increase 

24 under clause (i) or (ii) is not a multiple of 
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1 $50, such increase shall be rounded to the 

2 nearest multiple of $50. 

3 ‘‘(C) SPECIAL RULES.— 

4 ‘‘(i) EXCLUSION OF CERTAIN

5 PLANS.—Such term does not include a 

6 health plan if substantially all of its cov7 erage is coverage described in paragraph 

8 (1)(B). 

9 ‘‘(ii) SAFE HARBOR FOR ABSENCE OF

10 PREVENTIVE CARE DEDUCTIBLE.— A plan 

11 shall not fail to be treated as a high de12 ductible health plan by reason of failing to 

13 have a deductible for preventive care. 

14 ‘‘(D) TREATMENT OF NETWORK SERV15 ICES.—

16 ‘‘(i) IN GENERAL.—In the case of a 

17 health plan which is a preferred provider 

18 organization plan and which would (with19 out regard to services provided outside 

20 such organization’s network of providers 

21 described in clause (iii)(I)) be a high de22 ductible health plan, such plan shall not 

23 fail to be a high deductible health plan be24 cause—
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1 ‘‘(I) the annual deductible for 

2 services provided outside such network 

3 exceeds the applicable maximum dol4 lar amount in clause (i) or (ii) of sub5 paragraph (A), or 

6 ‘‘(II) the annual out-of-pocket ex7 penses required to be paid for services 

8 provided outside such network exceeds 

9 the applicable dollar amount in sub10 paragraph (A)(iii). 

11 ‘‘(ii) ANNUAL DEDUCTIBLE.—The an12 nual deductible taken into account under 

13 subsection (b)(2) with respect to a plan 

14 which is a high deductible health plan by 

15 reason of clause (i) shall be the annual de16 ductible for services provided within such 

17 network. 

18 ‘‘(iii) PREFERRED PROVIDER ORGANI19 ZATION PLAN DEFINED.—In this subpara20 graph, the term ‘preferred provider organi21 zation plan’ means a health plan that—

22 ‘‘(I) has a network of providers 

23 that have agreed to a contractually 

24 specified reimbursement for covered 
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1 benefits with the organization offering 

2 the plan, 

3 ‘‘(II) provides for reimbursement 

4 for all covered benefits regardless of 

5 whether such benefits are provided 

6 within such network of providers, and 

7 ‘‘(III) is offered by an organiza8 tion that is not licensed or organized 

9 under State law as a health mainte10 nance organization. 

11 ‘‘(3) PERMITTED INSURANCE.—The term ‘per12 mitted insurance’ has the meaning given such term 

13 in section 220(c)(3). 

14 ‘‘(4) FAMILY COVERAGE.—The term ‘family 

15 coverage’ has the meaning given such term in sec16 tion 220(c)(5). 

17 ‘‘(5) ARCHER MSA.—The term ‘Archer MSA’ 

18 has the meaning given such term in section 220(d). 

19 ‘‘(6) HEALTH SAVINGS SECURITY ACCOUNT.—

20 The term ‘health savings security account’ has the 

21 meaning given such term in section 223(d). 

22 ‘‘(d) HEALTH SAVINGS ACCOUNT.—For purposes of 

23 this section—

24 ‘‘(1) IN GENERAL.—The term ‘health savings 

25 account’ means a trust created or organized in the 
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1 United States as a health savings account exclusively 

2 for the purpose of paying the qualified medical ex3 penses of the account beneficiary, but only if the 

4 written governing instrument creating the trust 

5 meets the following requirements: 

6 ‘‘(A) Except in the case of a rollover con7 tribution from an Archer MSA, a health savings 

8 security account, or a health savings account, 

9 which is not includible in gross income, no con10 tribution will be accepted— 

11 ‘‘(i) unless it is in cash and is contrib12 uted by—

13 ‘‘(I) the account beneficiary, or 

14 ‘‘(II) an employer of the account 

15 beneficiary, and 

16 ‘‘(ii) to the extent such contribution, 

17 when added to previous contributions to 

18 the trust for the calendar year, exceeds the 

19 highest annual limitation which could 

20 apply to an individual under subsection (b) 

21 for a taxable year beginning in such cal22 endar year. 

23 ‘‘(B) The trustee is a bank (as defined in 

24 section 408(n)), an insurance company (as de25 fined in section 816), or another person who 
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1 demonstrates to the satisfaction of the Sec2 retary that the manner in which such person 

3 will administer the trust will be consistent with 

4 the requirements of this section. 

5 ‘‘(C) No part of the trust assets will be in6 vested in life insurance contracts. 

7 ‘‘(D) The assets of the trust will not be 

8 commingled with other property except in a 

9 common trust fund or common investment 

10 fund. 

11 ‘‘(E) The interest of an individual in the 

12 balance in his account is nonforfeitable. 

13 ‘‘(2) QUALIFIED MEDICAL EXPENSES.—The 

14 term ‘qualified medical expenses’ has the meaning 

15 given such term in section 220(d)(2). 

16 ‘‘(3) ACCOUNT BENEFICIARY.—The term ‘ac17 count beneficiary’ means the individual on whose be18 half the health savings account was established. 

19 ‘‘(4) CERTAIN RULES TO APPLY.—Rules similar 

20 to the following rules shall apply for purposes of this 

21 section: 

22 ‘‘(A) Section 219(d)(2) (relating to no de23 duction for rollovers). 

24 ‘‘(B) Section 219(f)(3) (relating to time 

25 when contributions deemed made). 
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1 ‘‘(C) Except as provided in section 106(d), 

2 section 219(f)(5) (relating to employer pay3 ments). 

4 ‘‘(D) Section 408(g) (relating to commu5 nity property laws). 

6 ‘‘(E) Section 408(h) (relating to custodial 

7 accounts). 

8 ‘‘(6) CONTRIBUTIONS FROM FLEXIBLE SPEND9 ING ACCOUNTS TREATED AS MADE BY THE EM10 PLOYER.—Any contribution from a flexible spending 

11 account to a health savings account which is not in12 cludible in the gross income of the employee by rea13 son of section 125(h) shall be treated as a contribu14 tion made by the employer for purposes of this sec15 tion. 

16 ‘‘(e) TAX TREATMENT OF ACCOUNTS.—

17 ‘‘(1) IN GENERAL.—A health savings account is 

18 exempt from taxation under this subtitle unless such 

19 account has ceased to be a health savings account. 

20 Notwithstanding the preceding sentence, any such 

21 account is subject to the taxes imposed by section 

22 511 (relating to imposition of tax on unrelated busi23 ness income of charitable, etc. organizations). 

24 ‘‘(2) ACCOUNT TERMINATIONS.—Rules similar 

25 to the rules of paragraphs (2) and (4) of section 
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HR 1 RDS 

1 408(e) shall apply to health savings accounts, and 

2 any amount treated as distributed under such rules 

3 shall be treated as not used to pay qualified medical 

4 expenses. 

5 ‘‘(f) TAX TREATMENT OF DISTRIBUTIONS.—

6 ‘‘(1) AMOUNTS USED FOR QUALIFIED MEDICAL

7 EXPENSES.—Any amount paid or distributed out of 

8 a health savings account which is used exclusively to 

9 pay qualified medical expenses of any account bene10 ficiary shall not be includible in gross income. 

11 ‘‘(2) INCLUSION OF AMOUNTS NOT USED FOR

12 QUALIFIED MEDICAL EXPENSES.—Any amount paid 

13 or distributed out of a health savings account which 

14 is not used exclusively to pay the qualified medical 

15 expenses of the account beneficiary shall be included 

16 in the gross income of such beneficiary. 

17 ‘‘(3) EXCESS CONTRIBUTIONS RETURNED BE18 FORE DUE DATE OF RETURN.— 

19 ‘‘(A) IN GENERAL.—If any excess con20 tribution is contributed for a taxable year to 

21 any health savings account of an individual, 

22 paragraph (2) shall not apply to distributions 

23 from the health savings accounts of such indi24 vidual (to the extent such distributions do not 

25 exceed the aggregate excess contributions to all 
724

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1 such accounts of such individual for such year) 

2 if— 

3 ‘‘(i) such distribution is made on or 

4 before the last day prescribed by law (in5 cluding extensions of time) for filing the 

6 account beneficiary’s return for such tax7 able year, 

8 ‘‘(ii) no deduction is allowed under 

9 this section with respect to such contribu10 tion, 

11 ‘‘(iii) such distribution is accompanied 

12 by the amount of net income attributable 

13 to such excess contribution, and 

14 ‘‘(iv) such distribution satisfies the re15 quirements of subparagraph (B). 

16 ‘‘(B) RULES RELATED TO ORDERING.—

17 ‘‘(i) DISTRIBUTIONS LIMITED TO CON18 TRIBUTIONS.—Subparagraph (A) shall 

19 apply to distributions to a person only to 

20 the extent of the contributions of such per21 son to such accounts during such taxable 

22 year. 

23 ‘‘(ii) CLASSES OF CONTRIBUTORS.—

24 Subparagraph (A) shall apply only to dis-
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1 tributions of such contributions which are 

2 made in the following order: 

3 ‘‘(I) first, to the account bene4 ficiary, 

5 ‘‘(II) second, to employers of the 

6 account beneficiary with respect to 

7 contributions under section 125(h), 

8 and 

9 ‘‘(III) third, to employers of the 

10 account beneficiary with respect to 

11 contributions under section 106(d). 

12 ‘‘(iii) LAST-IN FIRST-OUT.—If dis13 tributions could be made to more than one 

14 person under any subclause of clause (ii), 

15 subparagraph (A) shall not apply to any 

16 such distribution unless such distribution 

17 is of the most recent excess contribution 

18 which has not been distributed to the con19 tributor. 

20 ‘‘(C) TREATMENT OF NET INCOME.—Any 

21 net income described in subparagraph (A)(iii) 

22 shall be included in the gross income of the per23 son receiving the distribution for the taxable 

24 year in which received. 
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1 ‘‘(D) EXCESS CONTRIBUTION.—For pur2 poses of subparagraph (A), the term ‘excess 

3 contribution’ means any contribution (other 

4 than a rollover contribution from another health 

5 savings account, from a health savings security 

6 account, or from an Archer MSA, which is not 

7 includible in gross income) to the extent such 

8 contribution results in the aggregate contribu9 tions to health savings accounts of the account 

10 beneficiary for the taxable year to be in excess 

11 of the limitation under subsection (b) (deter12 mined without regard to paragraph (3)(C) 

13 thereof) which applies to such beneficiary for 

14 such year. 

15 ‘‘(4) ADDITIONAL TAX ON DISTRIBUTIONS NOT

16 USED FOR QUALIFIED MEDICAL EXPENSES.— 

17 ‘‘(A) IN GENERAL.—The tax imposed by 

18 this chapter on the account beneficiary for any 

19 taxable year in which there is a payment or dis20 tribution from a health savings account of such 

21 beneficiary which is includible in gross income 

22 under paragraph (2) shall be increased by 15 

23 percent of the amount which is so includible. 

24 ‘‘(B) EXCEPTION FOR DISABILITY OR

25 DEATH.—Subparagraph (A) shall not apply if 
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1 the payment or distribution is made after the 

2 account beneficiary becomes disabled within the 

3 meaning of section 72(m)(7) or dies. 

4 ‘‘(C) EXCEPTION FOR DISTRIBUTIONS

5 AFTER MEDICARE ELIGIBILITY.—Subparagraph 

6 (A) shall not apply to any payment or distribu7 tion after the date on which the account bene8 ficiary attains the age specified in section 1811 

9 of the Social Security Act. 

10 ‘‘(5) ROLLOVER CONTRIBUTION.—

11 ‘‘(A) IN GENERAL.—Paragraph (2) shall 

12 not apply to any amount paid or distributed 

13 from a health savings account to the account 

14 beneficiary to the extent the amount received is 

15 paid into a health savings account for the ben16 efit of such beneficiary not later than the 60th 

17 day after the day on which the beneficiary re18 ceives the payment or distribution. 

19 ‘‘(B) LIMITATION.—This paragraph shall 

20 not apply to any amount described in subpara21 graph (A) received by an individual from a 

22 health savings account if, at any time during 

23 the 1-year period ending on the day of such re24 ceipt, such individual received any other amount 

25 described in subparagraph (A) from a health 
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1 savings account which was not includible in the 

2 individual’s gross income because of the appli3 cation of this paragraph. 

4 ‘‘(6) SPECIAL RULES.—Rules similar to the 

5 rules of paragraphs (6), (7), and (8) of section 

6 220(f) shall apply for purposes of this section. 

7 ‘‘(g) REPORTS.—The Secretary may require the 

8 trustee of a health savings account to make such reports 

9 regarding such account to the Secretary and to the ac10 count beneficiary with respect to contributions, distribu11 tions, and such other matters as the Secretary determines 

12 appropriate. The reports required by this subsection shall 

13 be filed at such time and in such manner and furnished 

14 to such individuals at such time and in such manner as 

15 may be required by the Secretary.’’. 

16 (b) DEDUCTION ALLOWED WHETHER OR NOT INDI17 VIDUAL ITEMIZES OTHER DEDUCTIONS.—Subsection (a) 

18 of section 62 of such Code is amended by inserting after 

19 paragraph (18) the following new paragraphs: 

20 ‘‘(19) HEALTH SAVINGS SECURITY AC21 COUNTS.—The deduction allowed by section 223. 

22 ‘‘(20) HEALTH SAVINGS ACCOUNTS.—The de23 duction allowed by section 224.’’. 

24 (c) COORDINATION WITH ARCHER MSAS.—
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1 (1) ROLLOVERS FROM ARCHER MSAS PER2 MITTED.—Subparagraph (A) of section 220(f)(5) of 

3 such Code (relating to rollover contribution) is 

4 amended by inserting ‘‘, a health savings security 

5 account (as defined in section 223(d)), or a health 

6 savings account (as defined in section 224(d)),’’ 

7 after ‘‘paid into an Archer MSA’’. 

8 (2) REDUCTION IN ARCHER MSA LIMITATION

9 FOR CONTRIBUTIONS TO HEALTH SAVINGS SECURITY

10 ACCOUNTS AND HEALTH SAVINGS ACCOUNTS.—Sub11 section (b) of section 220 of such Code (relating to 

12 limitations) is amended by adding at the end the fol13 lowing new paragraph: 

14 ‘‘(8) COORDINATION WITH HEALTH SAVINGS

15 SECURITY ACCOUNTS AND HEALTH SAVINGS AC16 COUNTS.—The limitation which would (but for this 

17 paragraph) apply under this subsection to the tax18 payer for any taxable year shall be reduced (but not 

19 below zero) by the sum of—

20 ‘‘(A) the aggregate amount paid during 

21 such taxable year to health savings security ac22 counts of such individual, and 

23 ‘‘(B) the aggregate amount paid during 

24 such taxable year to health savings accounts of 

25 such individual.’’. 
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1 (d) EXCLUSIONS FOR EMPLOYER CONTRIBUTIONS TO

2 HEALTH SAVINGS SECURITY ACCOUNTS AND HEALTH

3 SAVINGS ACCOUNTS.—

4 (1) EXCLUSION FROM INCOME TAX.—Section 

5 106 of such Code (relating to contributions by em6 ployer to accident and health plans) is amended by 

7 adding at the end the following new subsections: 

8 ‘‘(d) CONTRIBUTIONS TO HEALTH SAVINGS SECU9 RITY ACCOUNTS.— 

10 ‘‘(1) IN GENERAL.—In the case of an employee 

11 who is an eligible individual, amounts contributed by 

12 such employee’s employer to any health savings se13 curity account of such employee shall be treated as 

14 employer-provided coverage for medical expenses 

15 under an accident or health plan to the extent such 

16 amounts do not exceed the limitation under section 

17 223(b) (determined without regard to this sub18 section) which is applicable to such employee for 

19 such taxable year. 

20 ‘‘(2) SPECIAL RULES.—Rules similar to the 

21 rules of paragraphs (2), (3), (4), and (5) of sub22 section (b) shall apply for purposes of this sub23 section. 

24 ‘‘(3) DEFINITIONS.—For purposes of this sub25 section, the terms ‘eligible individual’ and ‘health 
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1 savings security account’ have the respective mean2 ings given to such terms by section 223. 

3 ‘‘(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.

4 ‘‘(e) CONTRIBUTIONS TO HEALTH SAVINGS AC5 COUNTS.— 

6 ‘‘(1) IN GENERAL.—In the case of an employee 

7 who is an eligible individual, amounts contributed by 

8 such employee’s employer to any health savings ac9 count of such employee shall be treated as employer10 provided coverage for medical expenses under an ac11 cident or health plan to the extent such amounts do 

12 not exceed the limitation under section 224(b) (de13 termined without regard to this subsection) which is 

14 applicable to such employee for such taxable year. 

15 ‘‘(2) SPECIAL RULES.—Rules similar to the 

16 rules of paragraphs (2), (3), (4), and (5) of sub17 section (b) shall apply for purposes of this sub18 section. 

19 ‘‘(3) DEFINITIONS.—For purposes of this sub20 section, the terms ‘eligible individual’ and ‘health 

21 savings account’ have the respective meanings given 

22 to such terms by section 224. 
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1 ‘‘(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 (2) EXCLUSION FROM EMPLOYMENT TAXES.—

3 (A) RAILROAD RETIREMENT TAX.—Sub4 section (e) of section 3231 of such Code is 

5 amended by adding at the end the following 

6 new paragraph: 

7 ‘‘(11) HEALTH SAVINGS SECURITY ACCOUNT

8 AND HEALTH SAVINGS ACCOUNT CONTRIBUTIONS.—

9 The term ‘compensation’ shall not include any pay10 ment made to or for the benefit of an employee if 

11 at the time of such payment it is reasonable to be12 lieve that the employee will be able to exclude such 

13 payment from income under subsection (d) or (e) of 

14 section 106.’’. 

15 (B) UNEMPLOYMENT TAX.—Subsection (b) 

16 of section 3306 of such Code is amended by 

17 striking ‘‘or’’ at the end of paragraph (16), by 

18 striking the period at the end of paragraph (17) 

19 and inserting ‘‘; or’’, and by inserting after 

20 paragraph (17) the following new paragraph: 

21 ‘‘(18) any payment made to or for the benefit 

22 of an employee if at the time of such payment it is 

23 reasonable to believe that the employee will be able 
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1 to exclude such payment from income under sub2 section (d) or (e) of section 106.’’. 

3 (C) WITHHOLDING TAX.—Subsection (a) 

4 of section 3401 of such Code is amended by 

5 striking ‘‘or’’ at the end of paragraph (20), by 

6 striking the period at the end of paragraph (21) 

7 and inserting ‘‘; or’’, and by inserting after 

8 paragraph (21) the following new paragraph: 

9 ‘‘(22) any payment made to or for the benefit 

10 of an employee if at the time of such payment it is 

11 reasonable to believe that the employee will be able 

12 to exclude such payment from income under sub13 section (d) or (e) of section 106.’’. 

14 (3) EMPLOYER CONTRIBUTIONS REQUIRED TO

15 BE SHOWN ON W–2.—Subsection (a) of section 6051 

16 of such Code is amended by striking ‘‘and’’ at the 

17 end of paragraph (10), by striking the period at the 

18 end of paragraph (11) and inserting a comma, and 

19 by inserting after paragraph (11) the following new 

20 paragraphs: 

21 ‘‘(12) the amount contributed to any health 

22 savings security account (as defined in section 

23 223(d)) of such employee or such employee’s spouse, 

24 and 
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1 ‘‘(13) the amount contributed to any health 

2 savings account (as defined in section 224(d)) of 

3 such employee or such employee’s spouse.’’. 

4 (4) PENALTY FOR FAILURE OF EMPLOYER TO

5 MAKE COMPARABLE HEALTH SAVINGS ACCOUNT

6 CONTRIBUTIONS.—

7 (A) IN GENERAL.—Chapter 43 of such 

8 Code is amended by adding after section 4980F 

9 the following new section: 

10 ‘‘SEC. 4980G. FAILURE OF EMPLOYER TO MAKE COM11 PARABLE HEALTH SAVINGS ACCOUNT CON12 TRIBUTIONS. 

13 ‘‘(a) GENERAL RULE.—In the case of an employer 

14 who makes a contribution to the health savings security 

15 account or the health savings account of any employee 

16 during a calendar year, there is hereby imposed a tax on 

17 the failure of such employer to meet the requirements of 

18 subsection (b) for such calendar year. 

19 ‘‘(b) RULES AND REQUIREMENTS.—Rules and re20 quirements similar to the rules and requirements of sec21 tion 4980E shall apply for purposes of this section. 

22 ‘‘(c) REGULATIONS.—The Secretary shall issue regu23 lations to carry out the purposes of this section, including 

24 regulations providing special rules for employers who 
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1 make contributions to more than one of the following types 

2 of accounts during the calendar year: 

3 ‘‘(1) An Archer MSA. 

4 ‘‘(2) A health savings security account. 

5 ‘‘(3) A health savings account.’’. 

6 (B) CLERICAL AMENDMENT.—The table of 

7 sections for chapter 43 of such Code is amend8 ed by adding after the item relating to section 

9 4980F the following new item:

‘‘Sec. 4980G. Failure of employer to make comparable health savings account 

contributions.’’.

10 (e) TAX ON EXCESS CONTRIBUTIONS.—Section 4973 

11 of such Code (relating to tax on excess contributions to 

12 certain tax-favored accounts and annuities) is amended—

13 (1) by striking ‘‘or’’ at the end of paragraph 

14 (3) of subsection (a), 

15 (2) by inserting after paragraph (4) of sub16 section (a) the following new paragraphs: 

17 ‘‘(5) a health savings security account (within 

18 the meaning of section 223(d)), or 

19 ‘‘(6) a health savings account (within the mean20 ing of section 224(d))’’, and 

21 (4) by adding at the end the following new sub22 sections: 

23 ‘‘(g) EXCESS CONTRIBUTIONS TO HEALTH SAVINGS

24 SECURITY ACCOUNTS.—For purposes of this section, in 
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1 the case of health savings security accounts (within the 

2 meaning of section 223(d)), the term ‘excess contribu3 tions’ means the sum of—

4 ‘‘(1) the aggregate amount contributed for the 

5 taxable year to the accounts (other than a rollover 

6 contribution from another health savings security ac7 count, or from an Archer MSA, which is not includ8 ible in gross income) which is in excess of the limita9 tion under section 223(b) (determined without re10 gard to paragraph (5)(C) thereof), and 

11 ‘‘(2) the amount determined under this sub12 section for the preceding taxable year, reduced by 

13 the sum of—

14 ‘‘(A) the distributions out of the accounts 

15 which were included in gross income under sec16 tion 223(f)(2), and 

17 ‘‘(B) the excess (if any) of—

18 ‘‘(i) the sum of limitations described 

19 in paragraph (1), over 

20 ‘‘(ii) the amount contributed to the 

21 accounts for the taxable year. 

22 For purposes of this subsection, any contribution which 

23 is distributed out of the health savings security account 

24 in a distribution to which section 223(f)(3) applies shall 

25 be treated as an amount not contributed. 
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1 ‘‘(h) EXCESS CONTRIBUTIONS TO HEALTH SAVINGS

2 ACCOUNTS.—For purposes of this section, in the case of 

3 health savings accounts (within the meaning of section 

4 224(d)), the term ‘excess contributions’ means the sum 

5 of—

6 ‘‘(1) the aggregate amount contributed for the 

7 taxable year to the accounts (other than a rollover 

8 contribution from another health savings account, a 

9 health savings security account, or from an Archer 

10 MSA, which is not includible in gross income) which 

11 is in excess of the limitation under section 224(b) 

12 (determined without regard to paragraph (3)(C) 

13 thereof), and 

14 ‘‘(2) the amount determined under this sub15 section for the preceding taxable year, reduced by 

16 the sum of—

17 ‘‘(A) the distributions out of the accounts 

18 which were included in gross income under sec19 tion 224(f)(2), and 

20 ‘‘(B) the excess (if any) of—

21 ‘‘(i) the sum of limitations described 

22 in paragraph (1), over 

23 ‘‘(ii) the amount contributed to the 

24 accounts for the taxable year. 
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1 For purposes of this subsection, any contribution which 

2 is distributed out of the health savings account in a dis3 tribution to which section 224(f)(3) applies shall be treat4 ed as an amount not contributed.’’. 

5 (f) TAX ON PROHIBITED TRANSACTIONS.—

6 (1) Section 4975 of such Code (relating to tax 

7 on prohibited transactions) is amended by adding at 

8 the end of subsection (c) the following new para9 graphs: 

10 ‘‘(6) SPECIAL RULE FOR HEALTH SAVINGS SE11 CURITY ACCOUNTS.—An individual for whose benefit 

12 a health savings security account (within the mean13 ing of section 223(d)) is established shall be exempt 

14 from the tax imposed by this section with respect to 

15 any transaction concerning such account (which 

16 would otherwise be taxable under this section) if, 

17 with respect to such transaction, the account ceases 

18 to be a health savings security account by reason of 

19 the application of section 223(e)(2) to such account. 

20 ‘‘(7) SPECIAL RULE FOR HEALTH SAVINGS AC21 COUNTS.—An individual for whose benefit a health 

22 savings account (within the meaning of section 

23 224(d)) is established shall be exempt from the tax 

24 imposed by this section with respect to any trans25 action concerning such account (which would other-
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1 wise be taxable under this section) if, with respect 

2 to such transaction, the account ceases to be a 

3 health savings account by reason of the application 

4 of section 224(e)(2) to such account.’’. 

5 (2) Paragraph (1) of section 4975(e) of such 

6 Code is amended by redesignating subparagraphs 

7 (E) and (F) as subparagraphs (G) and (H), respec8 tively, and by inserting after subparagraph (D) the 

9 following new subparagraphs: 

10 ‘‘(E) a health savings security account de11 scribed in section 223(d), 

12 ‘‘(F) a health savings account described in 

13 section 224(d),’’. 

14 (g) FAILURE TO PROVIDE REPORTS ON HEALTH

15 SAVINGS ACCOUNTS.—Paragraph (2) of section 6693(a) 

16 of such Code (relating to reports) is amended by redesig17 nating subparagraphs (C) and (D) as subparagraphs (E) 

18 and (F), respectively, and by inserting after subparagraph 

19 (B) the following new subparagraphs: 

20 ‘‘(C) section 223(g) (relating to health sav21 ings security accounts), 

22 ‘‘(D) section 224(g) (relating to health 

23 savings accounts),’’. 

24 (h) EXCEPTION FROM CAPITALIZATION OF POLICY

25 ACQUISITION EXPENSES.—Subparagraph (B) of section 
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1 848(e)(1) of such Code (defining specified insurance con2 tract) is amended by striking ‘‘and’’ at the end of clause 

3 (iii), by striking the period at the end of clause (iv) and 

4 inserting a comma, and by adding at the end the following 

5 new clauses: 

6 ‘‘(v) any contract which is a health 

7 savings security account (as defined in sec8 tion 223(d)), and’’. 

9 ‘‘(vi) any contract which is a health 

10 savings account (as defined in section 

11 224(d)).’’. 

12 (i) HEALTH SAVINGS SECURITY ACCOUNTS AND

13 HEALTH SAVINGS ACCOUNTS MAY BE OFFERED UNDER

14 CAFETERIA PLANS.—Paragraph (2) of section 125(d) (re15 lating to cafeteria plan defined) is amended by adding at 

16 the end the following new subparagraph: 

17 ‘‘(D) EXCEPTION FOR HEALTH SAVINGS

18 ACCOUNTS.—Subparagraph (A) shall not apply 

19 to a plan to the extent of amounts which a cov20 ered employee may elect to have the employer 

21 pay as contributions to a health savings secu22 rity account, or a health savings account, estab23 lished on behalf of the employee.’’. 

24 (j) INFORMATION REPORTING BY PROVIDERS OF

25 HEALTH INSURANCE.—Subpart B of part III of sub-
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1 chapter A of chapter 61 of such Code is amended by add2 ing at the end the following new section: 

3 ‘‘SEC. 6050U. RETURNS RELATING TO PROVIDERS OF 

4 HEALTH INSURANCE. 

5 ‘‘(a) REQUIREMENT OF REPORTING.—Under regula6 tions prescribed by the Secretary, every person who pro7 vides any individual with coverage under a plan which con8 stitutes medical care shall, at such time as the Secretary 

9 may prescribe, make the return described in subsection (b) 

10 with respect to such individual. 

11 ‘‘(b) FORM AND MANNER OF RETURNS.—A return 

12 is described in this subsection if such return—

13 ‘‘(1) is in such form as the Secretary may pre14 scribe, and 

15 ‘‘(2) contains such information as the Secretary 

16 prescribes. 

17 ‘‘(c) STATEMENTS TO BE FURNISHED TO INDIVID18 UALS WITH RESPECT TO WHOM INFORMATION IS RE19 QUIRED.—Every person required to make a return under 

20 subsection (a) shall furnish to each individual whose name 

21 is required to be set forth in such return a written state22 ment showing— 

23 ‘‘(1) the name and address of the person re24 quired to make such return and the phone number 

25 of the information contact for such person, and 
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1 ‘‘(2) the information required to be shown on 

2 the return with respect to such individual. 

3 The written statement required under the preceding sen4 tence shall be furnished on or before January 31 of the 

5 year following the calendar year for which the return 

6 under subsection (a) is required to be made.’’. 

7 (k) CONFORMING AMENDMENTS.—

8 (1) The table of sections for part VII of sub9 chapter B of chapter 1 of such Code is amended by 

10 striking the last item and inserting the following:

‘‘Sec. 223. Health savings security accounts. 

‘‘Sec. 224. Health savings accounts. 

‘‘Sec. 225. Cross reference.’’.

11 (2)(A) Sections 86(b)(2)(A), 135(c)(4)(A), 

12 137(b)(3)(A), 219(g)(3)(A)(ii), and 221(b)(2)(C)(i) 

13 are each amended by inserting ‘‘223,’’ after ‘‘222,’’. 

14 (B) Section 222(b)(2)(C)(i) is amended by in15 serting ‘‘223,’’ before ‘‘911’’. 

16 (C) Section 469(i)(3)(F)(iii) is amended by 

17 striking ‘‘and 222’’ and inserting ‘‘222, and 223’’. 

18 (l) EFFECTIVE DATE.—The amendments made by 

19 this section shall apply to taxable years beginning after 

20 December 31, 2003. 
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1 SEC. 1203. DISPOSITION OF UNUSED HEALTH BENEFITS IN 

2 CAFETERIA PLANS AND FLEXIBLE SPENDING 

3 ARRANGEMENTS. 

4 (a) IN GENERAL.—Section 125 of the Internal Rev5 enue Code of 1986 (relating to cafeteria plans) is amended 

6 by redesignating subsections (h) and (i) as subsections (i) 

7 and (j), respectively, and by inserting after subsection (g) 

8 the following: 

9 ‘‘(h) CONTRIBUTIONS OF CERTAIN UNUSED HEALTH

10 BENEFITS.—

11 ‘‘(1) IN GENERAL.—For purposes of this title, 

12 a plan or other arrangement shall not fail to be 

13 treated as a cafeteria plan solely because qualified 

14 benefits under such plan include a health flexible 

15 spending arrangement under which not more than 

16 $500 of unused health benefits may be—

17 ‘‘(A) carried forward to the succeeding 

18 plan year of such health flexible spending ar19 rangement, 

20 ‘‘(B) to the extent permitted by sections 

21 223 and 224, contributed on behalf of the em22 ployee to a health savings security account (as 

23 defined in section 223(d)), or a health savings 

24 account (as defined in section 224(d)), main25 tained for the benefit of such employee, or 
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1 ‘‘(C) contributed to a qualified retirement 

2 plan (as defined in section 4974(c)), or an eligi3 ble deferred compensation plan (as defined in 

4 section 457(b)) of an eligible employer de5 scribed in section 457(e)(1)(A), but only to the 

6 extent such amount would not be allowed as a 

7 deduction under—

8 ‘‘(i) section 223 if made directly by 

9 the employee to a health savings security 

10 account of the employee (determined with11 out regard to any other contributions made 

12 by the employee), and 

13 ‘‘(ii) section 224 if made directly by 

14 the employee to a health savings account 

15 of the employee (determined without re16 gard to any other contributions made by 

17 the employee). 

18 ‘‘(2) SPECIAL RULES FOR TREATMENT OF CON19 TRIBUTIONS TO RETIREMENT PLANS.—For purposes 

20 of this title, contributions under paragraph (1)(C)—

21 ‘‘(A) shall be treated as elective deferrals 

22 (as defined in section 402(g)(3)) in the case of 

23 contributions to a qualified cash or deferred ar24 rangement (as defined in section 401(k)) or to 

25 an annuity contract described in section 403(b), 
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1 ‘‘(B) shall be treated as employer contribu2 tions to which the employee has a nonforfeitable 

3 right in the case of a plan (other than a plan 

4 described in subparagraph (A)) which is de5 scribed in section 401(a) which includes a trust 

6 exempt from tax under section 501(a), 

7 ‘‘(C) shall be treated as deferred com8 pensation in the case of contributions to an eli9 gible deferred compensation plan (as defined in 

10 section 457(b)), and 

11 ‘‘(D) shall be treated in the manner des12 ignated for purposes of section 408 or 408A in 

13 the case of contributions to an individual retire14 ment plan. 

15 ‘‘(3) HEALTH FLEXIBLE SPENDING ARRANGE16 MENT.—For purposes of this subsection, the term 

17 ‘health flexible spending arrangement’ means a flexi18 ble spending arrangement (as defined in section 

19 106(c)) that is a qualified benefit and only permits 

20 reimbursement for expenses for medical care (as de21 fined in section 213(d)(1) (without regard to sub22 paragraphs (C) and (D) thereof). 

23 ‘‘(4) UNUSED HEALTH BENEFITS.—For pur24 poses of this subsection, with respect to an em-
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1 ployee, the term ‘unused health benefits’ means the 

2 excess of—

3 ‘‘(A) the maximum amount of reimburse4 ment allowable to the employee during a plan 

5 year under a health flexible spending arrange6 ment, taking into account any election by the 

7 employee, over 

8 ‘‘(B) the actual amount of reimbursement 

9 during such year under such arrangement.’’. 

10 (b) EFFECTIVE DATE.—The amendment made by 

11 subsection (a) shall apply to taxable years beginning after 

12 December 31, 2003. 

13 SEC. 1204. EXCEPTION TO INFORMATION REPORTING RE14 QUIREMENTS RELATED TO CERTAIN HEALTH 

15 ARRANGEMENTS. 

16 (a) IN GENERAL.—Section 6041 (relating to infor17 mation at source) is amended by adding at the end the 

18 following new subsection: 

19 ‘‘(f) SECTION DOES NOT APPLY TO CERTAIN

20 HEALTH ARRANGEMENTS.—This section shall not apply 

21 to any payment for medical care (as defined in section 

22 213(d)) made under—

23 ‘‘(1) a flexible spending arrangement (as de24 fined in section 106(c)(2)), or 
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1 ‘‘(2) a health reimbursement arrangement 

2 which is treated as employer-provided coverage 

3 under an accident or health plan for purposes of sec4 tion 106.’’. 

5 (b) EFFECTIVE DATE.—The amendment made by 

6 this section shall apply to payments made after December 

7 31, 2002.

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

Attest: JEFF TRANDAHL, 

Clerk.