I 

108TH CONGRESS 

1ST SESSION H. R. 2498

To amend title XVIII of the Social Security Act to provide a prescription 

benefit program for all Medicare beneficiaries. 

IN THE HOUSE OF REPRESENTATIVES 

JUNE 17, 2003

Mr. SANDERS (for himself, Mr. KUCINICH, Ms. LEE, Mr. HINCHEY, Mr. 

FRANK of Massachusetts, Mr. DEFAZIO, Mr. PAYNE, Mr. SERRANO, Mr. 

WEINER, Mr. OLVER, Mr. FILNER, Mr. CONYERS, Mr. NADLER, Ms. 

CORRINE BROWN of Florida, Ms. WATSON, Ms. BALDWIN, Ms. WOOLSEY, and Mr. DAVIS of Illinois) introduced the following bill; which was 

referred to the Committee on Energy and Commerce, and in addition to 

the Committee on Ways and Means, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions 

as fall within the jurisdiction of the committee concerned 

A BILL

To amend title XVIII of the Social Security Act to provide 

a prescription benefit program for all Medicare beneficiaries.

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 TITLE; TABLE OF CONTENTS. 

4 (a) SHORT TITLE.—This Act may be cited as the 

5 ‘‘Medicare Extension of Drugs to Seniors (MEDS) Act of 

6 2003’’. 
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1 (b) TABLE OF CONTENTS.—The table of contents for 

2 this Act is as follows:

Sec. 1. Short title; table of contents. 

Sec. 2. Findings. 

Sec. 3. Prescription medicine benefit program. 

‘‘PART D—PRESCRIPTION MEDICINE BENEFIT FOR THE AGED AND

DISABLED

‘‘Sec. 1860. Establishment of prescription medicine benefit program for 

the aged and disabled. 

‘‘Sec. 1860A. Scope of benefits. 

‘‘Sec. 1860B. Payment of benefits; benefit limits. 

‘‘Sec. 1860C. Eligibility and enrollment. 

‘‘Sec. 1860D. Premiums. 

‘‘Sec. 1860E. Special eligibility, enrollment, and copayment rules for lowincome individuals. 

‘‘Sec. 1860F. Prescription Medicine Insurance Account. 

‘‘Sec. 1860G. Administration of benefits. 

‘‘Sec. 1860H. Employer Incentive Program for employment-based retiree 

medicine coverage. 

‘‘Sec. 1860I. Promotion of pharmaceutical research on break-through medicines while providing program cost containment. 

‘‘Sec. 1860J. Appropriations to cover Government contributions. 

‘‘Sec. 1860K. Prescription medicine defined. 

Sec. 4. Substantial reductions in the price of prescription drugs for medicare 

beneficiaries. 

Sec. 5. Amendments to program for importation of certain prescription drugs 

by pharmacists and wholesalers. 

Sec. 6. Reasonable price agreement for federally funded research. 

Sec. 7. GAO ongoing studies and reports on program; miscellaneous reports. 

Sec. 8. Medigap transition provisions.

3 SEC. 2. FINDINGS. 

4 Congress makes the following findings: 

5 (1) Prescription medicine coverage was not a 

6 standard part of health insurance when the medicare 

7 program under title XVIII of the Social Security Act 

8 was enacted in 1965. Since 1965, however, medicine 

9 coverage has become a key component of most pri10 vate and public health insurance coverage, except for 

11 the medicare program. 
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(2) At least 2 1 ⁄3 of medicare beneficiaries have 

2 unreliable, inadequate, or no medicine coverage at 

3 all. 

4 (3) Seniors who do not have medicine coverage 

5 typically pay, at a minimum, 15 percent more than 

6 people with coverage. 

7 (4) Medicare beneficiaries at all income levels 

8 lack prescription medicine coverage, with more than 

1 9 ⁄2 of such beneficiaries having incomes greater than 

10 150 percent of the poverty line. 

11 (5) The number of private firms offering retiree 

12 health coverage is declining. 

13 (6) Medigap premiums for medicines are too ex14 pensive for most beneficiaries and are highest for 

15 older senior citizens, who need prescription medicine 

16 coverage the most and typically have the lowest in17 comes. 

18 (7) All medicare beneficiaries should have ac19 cess to a voluntary, reliable, affordable, and defined 

20 outpatient medicine benefit as part of the medicare 

21 program that assists with the high cost of prescrip22 tion medicines and protects them against excessive 

23 out-of-pocket costs. 
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1 SEC. 3. PRESCRIPTION MEDICINE BENEFIT PROGRAM. 

2 (a) IN GENERAL.—Title XVIII of the Social Security 

3 Act (42 U.S.C. 1395 et seq.) is amended—

4 (1) by redesignating part D as part E; and 

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

6 part: 

7 ‘‘PART D—PRESCRIPTION MEDICINE BENEFIT 

8 FOR THE AGED AND DISABLED 

9 ‘‘ESTABLISHMENT OF PRESCRIPTION MEDICINE BENEFIT

10 PROGRAM FOR THE AGED AND DISABLED

11 ‘‘SEC. 1860. There is established a voluntary insur12 ance program to provide prescription medicine benefits, 

13 including pharmacy services, in accordance with the provi14 sions of this part for individuals who are aged or disabled 

15 or have end-stage renal disease and who elect to enroll 

16 under such program, to be financed from premium pay17 ments by enrollees together with contributions from funds 

18 appropriated by the Federal Government. 

19 ‘‘SCOPE OF BENEFITS

20 ‘‘SEC. 1860A. (a) IN GENERAL.—The benefits pro21 vided to an individual enrolled in the insurance program 

22 under this part shall consist of—

23 ‘‘(1) payments made, in accordance with the 

24 provisions of this part, for covered prescription 

25 medicines (as specified in subsection (b)) dispensed 

26 by any pharmacy participating in the program under 
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1 this part (and, in circumstances designated by the 

2 Secretary, by a nonparticipating pharmacy), includ3 ing any specifically named medicine prescribed for 

4 the individual by a qualified health care professional 

5 regardless of whether the medicine is included in any 

6 formulary established under this part if such medi7 cine is certified as medically necessary by such 

8 health care professional (except that the Secretary 

9 shall encourage to the maximum extent possible the 

10 substitution and use of lower-cost generics), up to 

11 the benefit limits specified in section 1860B; and 

12 ‘‘(2) charging by pharmacies of the negotiated 

13 price—

14 ‘‘(A) for all covered prescription medicines, 

15 without regard to such benefit limit; and 

16 ‘‘(B) established with respect to any drugs 

17 or classes of drugs described in subparagraphs 

18 (A), (B), (D), (E), or (F) of section 1927(d)(2) 

19 that are available to individuals receiving bene20 fits under this title. 

21 ‘‘(b) COVERED PRESCRIPTION MEDICINES.—

22 ‘‘(1) IN GENERAL.—Covered prescription medi23 cines, for purposes of this part, include all prescrip24 tion medicines (as defined in section 1860K(1)), in-
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1 cluding smoking cessation agents, except as other2 wise provided in this subsection. 

3 ‘‘(2) EXCLUSIONS FROM COVERAGE.—Covered 

4 prescription medicines shall not include drugs or 

5 classes of drugs described in subparagraphs (A) 

6 through (D) and (F) through (H) of section 

7 1927(d)(2) unless—

8 ‘‘(A) specifically provided otherwise by the 

9 Secretary with respect to a drug in any of such 

10 classes; or 

11 ‘‘(B) a drug in any of such classes is cer12 tified to be medically necessary by a health care 

13 professional. 

14 ‘‘(3) EXCLUSION OF PRESCRIPTION MEDICINES

15 TO THE EXTENT COVERED UNDER PART A OR B.—

16 A medicine prescribed for an individual that would 

17 otherwise be a covered prescription medicine under 

18 this part shall not be so considered to the extent 

19 that payment for such medicine is available under 

20 part A or B, including all injectable drugs and 

21 biologicals for which payment was made or should 

22 have been made by a carrier under section 

23 1861(s)(2) (A) or (B) as of the date of enactment 

24 of the Medicare Extension of Drugs to Seniors 

25 (MEDS) Act of 2003. Medicines otherwise covered 
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1 under part A or B shall be covered under this part 

2 to the extent that benefits under part A or B are ex3 hausted. 

4 ‘‘(4) STUDY ON INCLUSION OF HOME INFUSION

5 THERAPY SERVICES.—Not later than one year after 

6 the date of the enactment of the Medicare Extension 

7 of Drugs to Seniors (MEDS) Act of 2003, the Sec8 retary shall submit to Congress a legislative proposal 

9 for the delivery of home infusion therapy services 

10 under this title and for a system of payment for 

11 such a benefit that coordinates items and services 

12 furnished under part B and under this part. 

13 ‘‘PAYMENT OF BENEFITS; BENEFIT LIMITS

14 ‘‘SEC. 1860B. (a) PAYMENT OF BENEFITS.—

15 ‘‘(1) IN GENERAL.—There shall be paid from 

16 the Prescription Medicine Insurance Account within 

17 the Supplementary Medical Insurance Trust Fund, 

18 in the case of each individual who is enrolled in the 

19 insurance program under this part and who pur20 chases covered prescription medicines in a calendar 

21 year—

22 ‘‘(A) with respect to costs incurred for cov23 ered prescription medicine furnished during a 

24 year, before the individual has incurred out-of25 pocket expenses under this subsection equal to 

26 the catastrophic out-of-pocket limit specified in 
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1 subsection (b), an amount equal to the applica2 ble percentage (specified in paragraph (2)) of 

3 the negotiated price for each such covered pre4 scription medicine or such higher percentage as 

5 is proposed under section 1860G(b)(7); and 

6 ‘‘(B) with respect to costs incurred for cov7 ered prescription medicine furnished during a 

8 year, after the individual has incurred out-of9 pocket expenses under this subsection equal to 

10 the catastrophic out-of-pocket limit specified in 

11 subsection (b), an amount equal to 100 percent 

12 of the negotiated price for each such covered 

13 prescription medicine. 

14 ‘‘(2) APPLICABLE PERCENTAGE.—The applica15 ble percentage specified in this paragraph is 80 per16 cent or such higher percentage as is proposed under 

17 section 1860G(b)(7), if the Secretary finds that such 

18 higher percentage will not increase aggregate costs 

19 to the Prescription Medicine Insurance Account. 

20 ‘‘(b) CATASTROPHIC LIMIT ON OUT-OF-POCKET EX21 PENSES.—

22 ‘‘(1) IN GENERAL.—The catastrophic limit on 

23 out-of-pocket expenses specified in this subsection 

24 for—
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1 ‘‘(A) for each of calendar years 2005 and 

2 2006, $2,000; and 

3 ‘‘(B) subject to paragraph (2), for calendar 

4 year 2007 and each subsequent calendar year is 

5 equal the limit for the preceding year under this 

6 paragraph adjusted by the sustainable growth 

7 rate percentage (determined under section 

8 1861I(b)) for the year involved. 

9 ‘‘(2) ROUNDING.—Any amount determined 

10 under paragraph (1)(E) that is not a multiple of 

11 $10 shall be rounded to the nearest multiple of $10. 

12 ‘‘ELIGIBILITY AND ENROLLMENT

13 ‘‘SEC. 1860C. (a) ELIGIBILITY.—Every individual 

14 who, in or after 2005, is entitled to hospital insurance ben15 efits under part A or enrolled in the medical insurance 

16 program under part B is eligible to enroll, in accordance 

17 with the provisions of this section, in the insurance pro18 gram under this part, during an enrollment period pre19 scribed in or under this section, in such manner and form 

20 as may be prescribed by regulations. 

21 ‘‘(b) ENROLLMENT.—

22 ‘‘(1) IN GENERAL.—Each individual who satis23 fies subsection (a) shall be enrolled (or eligible to en24 roll) in the program under this part in accordance 

25 with the provisions of section 1837, as if that section 
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1 applied to this part, except as otherwise explicitly 

2 provided in this part. 

3 ‘‘(2) SINGLE ENROLLMENT PERIOD.—Except as 

4 provided in section 1837(i) (as such section applies 

5 to this part), 1860E, or 1860H(e), or as otherwise 

6 explicitly provided, no individual shall be entitled to 

7 enroll in the program under this part at any time 

8 after the initial enrollment period without penalty, 

9 and in the case of all other late enrollments, the Sec10 retary shall develop a late enrollment penalty for the 

11 individual that fully recovers the additional actuarial 

12 risk involved providing coverage for the individual. 

13 ‘‘(3) SPECIAL ENROLLMENT PERIOD FOR

14 2005.—

15 ‘‘(A) IN GENERAL.—An individual who 

16 first satisfies subsection (a) in 2005 may, at 

17 any time on or before December 31, 2005—

18 ‘‘(i) enroll in the program under this 

19 part; and 

20 ‘‘(ii) enroll or reenroll in such pro21 gram after having previously declined or 

22 terminated enrollment in such program. 

23 ‘‘(B) EFFECTIVE DATE OF COVERAGE.—

24 An individual who enrolls under the program 

25 under this part pursuant to subparagraph (A) 
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1 shall be entitled to benefits under this part be2 ginning on the first day of the month following 

3 the month in which such enrollment occurs. 

4 ‘‘(c) PERIOD OF COVERAGE.—

5 ‘‘(1) IN GENERAL.—Except as otherwise pro6 vided in this part, an individual’s coverage under the 

7 program under this part shall be effective for the pe8 riod provided in section 1838, as if that section ap9 plied to the program under this part. 

10 ‘‘(2) PART D COVERAGE TERMINATED BY TER11 MINATION OF COVERAGE UNDER PARTS A AND B.—

12 In addition to the causes of termination specified in 

13 section 1838, an individual’s coverage under this 

14 part shall be terminated when the individual retains 

15 coverage under neither the program under part A 

16 nor the program under part B, effective on the effec17 tive date of termination of coverage under part A or 

18 (if later) under part B. 

19 ‘‘PREMIUMS

20 ‘‘SEC. 1860D. (a) ANNUAL ESTABLISHMENT OF

21 MONTHLY PREMIUM RATES.—

22 ‘‘(1) IN GENERAL.—The Secretary shall, during 

23 September of 2004 and of each succeeding year, de24 termine and promulgate a monthly premium rate for 

25 the succeeding year in accordance with the provi26 sions of this subsection. 
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1 ‘‘(2) INITIAL PREMIUMS.—For months in 2005, 

2 the monthly premium rate under this subsection 

3 shall be—

4 ‘‘(A) $24, in the case of premiums paid by 

5 an individual enrolled in the program under this 

6 part; and 

7 ‘‘(B) $32, in the case of premiums paid for 

8 such an individual by a former employer (as de9 fined in section 1860H(f)(2)). 

10 ‘‘(3) SUBSEQUENT YEARS.—

11 ‘‘(A) IN GENERAL.—For months in a year 

12 after 2005, the monthly premium under this 

13 subsection shall be (subject to subparagraph 

14 (B)) the monthly premium (computed under 

15 this subsection without regard to subparagraph 

16 (B)) for the previous year increased by the an17 nual percentage increase in average per capita 

18 aggregate expenditures for covered outpatient 

19 medicines in the United States for medicare 

20 beneficiaries, as estimated and published by the 

21 Secretary in September before the year and for 

22 the year involved. 

23 ‘‘(B) ROUNDING.—The monthly premium 

24 determined under subparagraph (A) shall be 
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1 rounded to the nearest multiple of 10 cents if 

2 it is not a multiple of 10 cents. 

3 ‘‘(C) PUBLICATION OF ASSUMPTIONS.—

4 The Secretary shall publish, together with the 

5 promulgation of the monthly premium rates 

6 under this paragraph, a statement setting forth 

7 the actuarial assumptions and bases employed 

8 in arriving at the monthly premium under sub9 paragraph (A). 

10 ‘‘(b) PAYMENT OF PREMIUMS.—

11 ‘‘(1) PAYMENTS BY DEDUCTION FROM SOCIAL

12 SECURITY, RAILROAD RETIREMENT BENEFITS, OR

13 BENEFITS ADMINISTERED BY OPM.—

14 ‘‘(A) DEDUCTION FROM BENEFITS.—In 

15 the case of an individual who is entitled to or 

16 receiving benefits as described in subsection (a), 

17 (b), or (d) of section 1840, premiums payable 

18 under this part shall be collected by deduction 

19 from such benefits at the same time and in the 

20 same manner as premiums payable under part 

21 B are collected pursuant to section 1840. 

22 ‘‘(B) TRANSFERS TO PRESCRIPTION MEDI23 CINE INSURANCE ACCOUNT.—The Secretary of 

24 the Treasury shall, from time to time, but not 

25 less often than quarterly, transfer premiums 
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1 collected pursuant to subparagraph (A) to the 

2 Prescription Medicine Insurance Account from 

3 the appropriate funds and accounts described in 

4 subsections (a)(2), (b)(2), and (d)(2) of section 

5 1840, on the basis of the certifications de6 scribed in such subsections. The amounts of 

7 such transfers shall be appropriately adjusted 

8 to the extent that prior transfers were too great 

9 or too small. 

10 ‘‘(2) DIRECT PAYMENTS TO SECRETARY.—

11 ‘‘(A) ADDITIONAL PAYMENT BY EN12 ROLLEE.—An individual to whom paragraph 

13 (1) applies (other than an individual receiving 

14 benefits as described in section 1840(d)) and 

15 who estimates that the amount that will be 

16 available for deduction under such paragraph 

17 for any premium payment period will be less 

18 than the amount of the monthly premiums for 

19 such period may (under regulations) pay to the 

20 Secretary the estimated balance, or such great21 er portion of the monthly premium as the indi22 vidual chooses. 

23 ‘‘(B) PAYMENTS BY OTHER ENROLLEES.—

24 An individual enrolled in the insurance program 

25 under this part with respect to whom none of 
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1 the preceding provisions of this subsection ap2 plies (or to whom section 1840(c) applies) shall 

3 pay premiums to the Secretary at such times 

4 and in such manner as the Secretary shall by 

5 regulations prescribe. 

6 ‘‘(C) DEPOSIT OF PREMIUMS.—Amounts 

7 paid to the Secretary under this paragraph 

8 shall be deposited in the Treasury to the credit 

9 of the Prescription Medicine Insurance Account 

10 in the Supplementary Medical Insurance Trust 

11 Fund. 

12 ‘‘(c) CERTAIN LOW-INCOME INDIVIDUALS.—For 

13 rules concerning premiums for certain low-income individ14 uals, see section 1860E. 

15 ‘‘SPECIAL ELIGIBILITY, ENROLLMENT, AND COPAYMENT

16 RULES FOR LOW-INCOME INDIVIDUALS

17 ‘‘SEC. 1860E. (a) STATE AGREEMENTS FOR COV18 ERAGE.—

19 ‘‘(1) IN GENERAL.—The Secretary shall, at the 

20 request of a State, enter into an agreement with the 

21 State under which all individuals described in para22 graph (2) are enrolled in the program under this 

23 part, without regard to whether any such individual 

24 has previously declined the opportunity to enroll in 

25 such program. 
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1 ‘‘(2) ELIGIBILITY GROUPS.—The individuals de2 scribed in this paragraph, for purposes of paragraph 

3 (1), are individuals who satisfy section 1860C(a) 

4 and who are—

5 ‘‘(A)(i) eligible individuals within the 

6 meaning of section 1843; and 

7 ‘‘(ii) in a coverage group or groups per8 mitted under section 1843 (as selected by the 

9 State and specified in the agreement); or 

10 ‘‘(B) qualified medicare medicine bene11 ficiaries (as defined in subsection (e)(1)). 

12 ‘‘(3) COVERAGE PERIOD.—The period of cov13 erage under this part of an individual enrolled under 

14 an agreement under this subsection shall be as fol15 lows: 

16 ‘‘(A) INDIVIDUALS ELIGIBLE (AT STATE

17 OPTION) FOR PART B BUY-IN.—In the case of 

18 an individual described in subsection (a)(2)(A), 

19 the coverage period shall be the same period 

20 that applies (or would apply) pursuant to sec21 tion 1843(d). 

22 ‘‘(B) QUALIFIED MEDICARE MEDICINE

23 BENEFICIARIES.—In the case of an individual 

24 described in subsection (a)(2)(B)—
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1 ‘‘(i) the coverage period shall begin on 

2 the latest of—

3 ‘‘(I) January 1, 2005; 

4 ‘‘(II) the first day of the third 

5 month following the month in which 

6 the State agreement is entered into; 

7 or 

8 ‘‘(III) the first day of the first 

9 month following the month in which 

10 the individual satisfies section 

11 1860C(a); and 

12 ‘‘(ii) the coverage period shall end on 

13 the last day of the month in which the in14 dividual is determined by the State to have 

15 become ineligible for medicare medicine 

16 cost-sharing. 

17 ‘‘(4) ALTERNATIVE ENROLLMENT METHODS.—

18 In the process of enrolling low-income individuals 

19 under this part, the Secretary shall use the system 

20 provided under section 154 of the Social Security 

21 Act Amendments of 1994 for newly eligible medicare 

22 beneficiaries and shall apply a similar system for 

23 other medicare beneficiaries. Such system shall use 

24 existing Federal government databases to identify 

25 eligibility. Such system shall not require that bene-
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1 ficiaries apply for, or enroll through, State medicaid 

2 systems in order to obtain low-income assistance de3 scribed in this section. 

4 ‘‘(b) SPECIAL PART D ENROLLMENT OPPORTUNITY

5 FOR INDIVIDUALS LOSING MEDICAID ELIGIBILITY.—In 

6 the case of an individual who—

7 ‘‘(1) satisfies section 1860C(a); and 

8 ‘‘(2) loses eligibility for benefits under the State 

9 plan under title XIX after having been enrolled 

10 under such plan or having been determined eligible 

11 for such benefits; 

12 the Secretary shall provide an opportunity for enrollment 

13 under the program under this part during the period that 

14 begins on the date that such individual loses such eligi15 bility and ends on the date specified by the Secretary. 

16 ‘‘(c) STATE OPTION TO BUY-IN DUALLY ELIGIBLE

17 INDIVIDUALS.—

18 ‘‘(1) COVERAGE OF PREMIUMS AS MEDICAL AS19 SISTANCE.—For purposes of applying the second 

20 sentence of section 1905(a), any reference to pre21 miums under part B shall be considered to include 

22 a reference to premiums under this part. 

23 ‘‘(2) STATE COMMITMENT TO CONTINUE PAR24 TICIPATION IN PART D AFTER BENEFIT LIMIT

25 REACHED.—As a condition of additional funding to 
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1 a State under subsection (d), the State, in its State 

2 plan under title XIX, shall provide that in the case 

3 of any individual whose eligibility for medical assist4 ance under title XIX is not limited to medicare cost5 sharing and for whom the State elects to pay pre6 miums under this part pursuant to this section, the 

7 State will purchase all prescription medicines for 

8 such individual in accordance with the provisions of 

9 this part without regard to whether the benefit limit 

10 for such individual under section 1860B(b) has been 

11 reached. 

12 ‘‘(3) MEDICARE COST-SHARING REQUIRED FOR

13 QUALIFIED MEDICARE BENEFICIARIES.—In applying 

14 title XIX, the term ‘medicare cost-sharing’ (as de15 fined in section 1905(p)(3)) is deemed to include—

16 ‘‘(A) premiums under section 1860D; and 

17 ‘‘(B) the difference between the amount 

18 that is paid under section 1860B and the 

19 amount that would be paid under such section 

20 if any reference to ‘80 percent’ in subsection 

21 (a)(2) of such section were deemed a reference 

22 to ‘100 percent’ (or, if the Secretary approves 

23 a higher percentage under such section, if such 

24 percentage were deemed to be 100 percent). 
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1 ‘‘(d) PAYMENT TO STATES FOR COVERAGE OF CER2 TAIN MEDICARE COST-SHARING.—

3 ‘‘(1) IN GENERAL.—The Secretary shall provide 

4 for payment under this subsection to each State that 

5 provides for—

6 ‘‘(A) medicare cost-sharing described in 

7 section 1905(p)(3)(A)(ii) for individuals who 

8 would be qualified medicare beneficiaries de9 scribed in section 1905(p)(1) but for the fact 

10 that their income exceeds the income level es11 tablished by the State under section 1905(p)(2) 

12 and is at least 120 percent, but less than 135 

13 percent, of the official poverty line (referred to 

14 in such section) for a family of the size involved 

15 and who are not otherwise eligible for medical 

16 assistance under the State plan; and 

17 ‘‘(B) medicare medicine cost-sharing (as 

18 defined in subsection (e)(2)) for qualified medi19 care medicine beneficiaries described in sub20 section (e)(1). 

21 ‘‘(2) AMOUNT OF PAYMENT.—The amount of 

22 payment under paragraph (1) shall equal 100 per23 cent of the cost-sharing described in such paragraph, 

24 except that, in the case of an individual whose eligi25 bility for medical assistance under title XIX is not 
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1 limited to medicare cost-sharing or medicare medi2 cine cost-sharing, the amount of payment under 

3 paragraph (1)(B) shall be equal to the Federal med4 ical assistance percentage described in section 

5 1905(b)) of amounts as expended for such cost-shar6 ing. 

7 ‘‘(3) METHOD OF PAYMENT; RELATION TO

8 OTHER PAYMENTS.—Amounts shall be paid to 

9 States under this subsection in a manner similar to 

10 that provided under section 1903(d). Payments 

11 under this subsection shall be made in lieu of any 

12 payments that otherwise may be made for medical 

13 assistance provided under section 

14 1902(a)(10)(E)(iv). 

15 ‘‘(4) TREATMENT OF TERRITORIES.—

16 ‘‘(A) IN GENERAL.—Subject to subpara17 graph (B), this subsection shall not apply to 

18 States other than the 50 States and the Dis19 trict of Columbia. 

20 ‘‘(B) PAYMENTS.—In the case of a State 

21 (other than the 50 States and the District of 

22 Columbia) that develops and implements a plan 

23 of assistance for pharmaceuticals provided to 

24 low-income medicare beneficiaries, the Secretary 

25 shall provide for payment to the State in an 
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1 amount that is reasonable in relation to the 

2 payment levels provided to other States under 

3 paragraph (2). 

4 ‘‘(e) DEFINITIONS; SPECIAL RULES.—For purposes 

5 of this section: 

6 ‘‘(1) QUALIFIED MEDICARE MEDICINE BENE7 FICIARY.—The term ‘qualified medicare medicine 

8 beneficiary’ means an individual—

9 ‘‘(A) who is entitled to hospital insurance 

10 benefits under part A (including an individual 

11 entitled to such benefits pursuant to an enroll12 ment under section 1818, but not including an 

13 individual entitled to such benefits only pursu14 ant to an enrollment under section 1818A); 

15 ‘‘(B) whose income (as determined under 

16 section 1612 for purposes of the supplemental 

17 security income program, except as provided in 

18 section 1905(p)(2)(D)) is above 100 percent 

19 but below 150 percent of the official poverty 

20 line (as defined by the Office of Management 

21 and Budget, and revised annually in accordance 

22 with section 673(2) of the Omnibus Budget 

23 Reconciliation Act of 1981) applicable to a fam24 ily of the size involved; and 
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1 ‘‘(C) whose resources (as determined under 

2 section 1613 for purposes of the supplemental 

3 security income program) do not exceed twice 

4 the maximum amount of resources that an indi5 vidual may have and obtain benefits under that 

6 program. 

7 ‘‘(2) MEDICARE MEDICINE COST-SHARING.—

8 The term ‘medicare medicine cost-sharing’ means 

9 the following costs incurred with respect to a quali10 fied medicare medicine beneficiary, without regard to 

11 whether the costs incurred were for items and serv12 ices for which medical assistance is otherwise avail13 able under a State plan under title XIX: 

14 ‘‘(A) In the case of a qualified medicare 

15 medicine beneficiary whose income (as deter16 mined under paragraph (1)) is less than 135 

17 percent of the official poverty line—

18 ‘‘(i) premiums under section 1860D; 

19 and 

20 ‘‘(ii) the difference between the 

21 amount that is paid under section 1860B 

22 and the amount that would be paid under 

23 such section if any reference to ‘50 per24 cent’ therein were deemed a reference to 

25 ‘100 percent’ (or, if the Secretary approves 
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1 a higher percentage under such section, if 

2 such percentage were deemed to be 100 

3 percent). 

4 ‘‘(B) In the case of a qualified medicare 

5 medicine beneficiary whose income (as deter6 mined under paragraph (1)) is at least 135 per7 cent but less than 150 percent of the official 

8 poverty line, a percentage of premiums under 

9 section 1860D, determined on a linear sliding 

10 scale ranging from 100 percent for individuals 

11 with incomes at 135 percent of such line to 0 

12 percent for individuals with incomes at 150 per13 cent of such line. 

14 ‘‘(3) STATE.—The term ‘State’ has the mean15 ing given such term under section 1101(a) for pur16 poses of title XIX. 

17 ‘‘(4) TREATMENT OF DRUGS PURCHASED.—The 

18 provisions of section 1927 shall not apply to pre19 scription drugs purchased under this part pursuant 

20 to an agreement with the Secretary under this sec21 tion (including any drugs so purchased after the 

22 limit under section 1860B(b) has been exceeded). 

23 ‘‘PRESCRIPTION MEDICINE INSURANCE ACCOUNT

24 ‘‘SEC. 1860F. (a) ESTABLISHMENT.—There is cre25 ated within the Federal Supplemental Medical Insurance 

26 Trust Fund established by section 1841 an account to be 
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1 known as the ‘Prescription Medicine Insurance Account’ 

2 (in this section referred to as the ‘Account’). 

3 ‘‘(b) AMOUNTS IN ACCOUNT.—

4 ‘‘(1) IN GENERAL.—The Account shall consist 

5 of—

6 ‘‘(A) such amounts as may be deposited in, 

7 or appropriated to, such fund as provided in 

8 this part; and 

9 ‘‘(B) such gifts and bequests as may be 

10 made as provided in section 201(i)(1). 

11 ‘‘(2) SEPARATION OF FUNDS.—Funds provided 

12 under this part to the Account shall be kept sepa13 rate from all other funds within the Federal Supple14 mental Medical Insurance Trust Fund. 

15 ‘‘(c) PAYMENTS FROM ACCOUNT.—The Managing 

16 Trustee shall pay from time to time from the Account such 

17 amounts as the Secretary certifies are necessary to make 

18 the payments provided for by this part, and the payments 

19 with respect to administrative expenses in accordance with 

20 section 201(g). 

21 ‘‘ADMINISTRATION OF BENEFITS

22 ‘‘SEC. 1860G. (a) THROUGH CMS.—The Secretary 

23 shall provide for administration of the benefits under this 

24 part through the Centers for Medicare & Medicaid Serv25 ices in accordance with the provisions of this section. The 

26 Administrator of such Centers may enter into contracts 
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1 with carriers to administer this part in the same manner 

2 as the Administrator enters into such contracts to admin3 ister part B. Any such contract shall be separate from any 

4 contract under section 1842. 

5 ‘‘(b) ADMINISTRATION FUNCTIONS.—In carrying out 

6 this part, the Administrator (or a carrier under a contract 

7 with the Administrator) shall (or in the case of the func8 tion described in paragraph (9), may) perform the fol9 lowing functions: 

10 ‘‘(1) PARTICIPATION AGREEMENTS, PRICES, 

11 AND FEES.—

12 ‘‘(A) NEGOTIATED PRICES.—Establish, 

13 through negotiations with medicine manufactur14 ers and wholesalers and pharmacies, a schedule 

15 of prices for covered prescription medicines. 

16 ‘‘(B) AGREEMENTS WITH PHARMACIES.—

17 Enter into participation agreements under sub18 section (c) with pharmacies, that include terms 

19 that—

20 ‘‘(i) secure the participation of suffi21 cient numbers of pharmacies to ensure 

22 convenient access (including adequate 

23 emergency access); 

24 ‘‘(ii) permit the participation of any 

25 pharmacy in the service area that meets 
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•HR 2498 IH 

1 the participation requirements described in 

2 subsection (c); and 

3 ‘‘(iii) allow for reasonable dispensing 

4 and consultation fees for pharmacies. 

5 ‘‘(C) LISTS OF PRICES AND PARTICIPATING

6 PHARMACIES.—Ensure that the negotiated 

7 prices established under subparagraph (A) and 

8 the list of pharmacies with agreements under 

9 subsection (c) are regularly updated and readily 

10 available to health care professionals authorized 

11 to prescribe medicines, participating phar12 macies, and enrolled individuals. 

13 ‘‘(2) TRACKING OF COVERED ENROLLED INDI14 VIDUALS.—Maintain accurate, updated records of all 

15 enrolled individuals (other than individuals enrolled 

16 in a plan under part C). 

17 ‘‘(3) PAYMENT AND COORDINATION OF BENE18 FITS.—

19 ‘‘(A) PAYMENT.—

20 ‘‘(i) Administer claims for payment of 

21 benefits under this part and encourage, to 

22 the maximum extent possible, use of elec23 tronic means for the submissions of claims. 

24 ‘‘(ii) Determine amounts of benefit 

25 payments to be made. 
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1 ‘‘(iii) Receive, disburse, and account 

2 for funds used in making such payments, 

3 including through the activities specified in 

4 the provisions of this paragraph. 

5 ‘‘(B) COORDINATION.—Coordinate with 

6 other private benefit providers, pharmacies, and 

7 other relevant entities as necessary to ensure 

8 appropriate coordination of benefits with re9 spect to enrolled individuals, including coordina10 tion of access to and payment for covered pre11 scription medicines according to an individual’s 

12 in-service area plan provisions, when such indi13 vidual is traveling outside the home service 

14 area, and under such other circumstances as 

15 the Secretary may specify. 

16 ‘‘(C) EXPLANATION OF BENEFITS.—Fur17 nish to enrolled individuals an explanation of 

18 benefits in accordance with section 1806(a), 

19 and a notice of the balance of benefits remain20 ing for the current year, whenever prescription 

21 medicine benefits are provided under this part 

22 (except that such notice need not be provided 

23 more often than monthly). 

24 ‘‘(4) RULES RELATING TO PROVISION OF BENE25 FITS.—
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1 ‘‘(A) IN GENERAL.—In providing benefits 

2 under this part, the Secretary (directly or 

3 through contracts) shall employ mechanisms to 

4 provide benefits economically, including the use 

5 of—

6 ‘‘(i) formularies (consistent with sub7 paragraph (B)); 

8 ‘‘(ii) automatic generic medicine sub9 stitution (unless the physician specifies 

10 otherwise, in which case a 30-day prescrip11 tion may be dispensed pending a consulta12 tion with the physician on whether a ge13 neric substitute can be dispensed in the fu14 ture); 

15 ‘‘(iii) tiered copayments (which may 

16 include copayments at a rate lower than 20 

17 percent) to encourage the use of the lowest 

18 cost, on-formulary product in cases where 

19 there is no restrictive prescription (de20 scribed in subparagraph (D)(i)); and 

21 ‘‘(iv) therapeutic interchange. 

22 ‘‘(B) REQUIREMENTS WITH RESPECT TO

23 FORMULARIES.—If a formulary is used to con24 tain costs under this part—
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1 ‘‘(i) use an advisory committee (or a 

2 therapeutics committee) comprised of li3 censed practicing physicians, pharmacists, 

4 and other health care practitioners to de5 velop and manage the formulary; 

6 ‘‘(ii) include in the formulary at least 

7 1 medicine from each therapeutic class 

8 and, if available, a generic equivalent 

9 thereof; and 

10 ‘‘(iii) disclose to current and prospec11 tive enrollees and to participating providers 

12 and pharmacies, the nature of the for13 mulary restrictions, including information 

14 regarding the medicines included in the 

15 formulary and any difference in cost-shar16 ing amounts. 

17 ‘‘(C) CONSTRUCTION.—Nothing in this 

18 subsection shall be construed to prevent the 

19 Secretary (directly or through contracts) from 

20 using incentives (including a lower beneficiary 

21 coinsurance) to encourage enrollees to select ge22 neric or other cost-effective medicines, so long 

23 as—

24 ‘‘(i) such incentives are designed not 

25 to result in any increase in the aggregate 
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•HR 2498 IH 

1 expenditures under the Federal Medicare 

2 Prescription Medicine Trust Fund; 

3 ‘‘(ii) the average coinsurance charged 

4 to all beneficiaries by the Secretary (di5 rectly or through contractors) shall seek to 

6 approximate (but in no case exceed) 20 

7 percent for on-formulary medicines; 

8 ‘‘(iii) a beneficiary’s coinsurance shall 

9 be no greater than 20 percent if the pre10 scription is a restrictive prescription; and 

11 ‘‘(iv) the reimbursement for a pre12 scribed nonformulary medicine without a 

13 restrictive prescription in no case shall be 

14 more than the lowest reimbursement for a 

15 formulary medicine in the therapeutic class 

16 of the prescribed medicine. 

17 ‘‘(D) RESTRICTIVE PRESCRIPTION.—For 

18 purposes of this section: 

19 ‘‘(i) WRITTEN PRESCRIPTIONS.—In 

20 the case of a written prescription for a 

21 medicine, it is a restrictive prescription 

22 only if the prescription indicates, in the 

23 writing of the physician or other qualified 

24 person prescribing the medicine and with 

25 an appropriate phrase (such as ‘brand 
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•HR 2498 IH 

1 medically necessary’) recognized by the 

2 Secretary, that a particular medicine prod3 uct must be dispensed based upon a belief 

4 by the physician or person prescribing the 

5 medicine that the particular medicine will 

6 provide even marginally superior thera7 peutic benefits to the individual for whom 

8 the medicine is prescribed or would have 

9 marginally fewer adverse reactions with re10 spect to such individual. 

11 ‘‘(ii) TELEPHONE PRESCRIPTIONS.—

12 In the case of a prescription issued by tele13 phone for a medicine, it is a restrictive 

14 prescription only if the prescription cannot 

15 be longer than 30 days and the physician 

16 or other qualified person prescribing the 

17 medicine (through use of such an appro18 priate phrase) states that a particular 

19 medicine product must be dispensed, and 

20 the physician or other qualified person sub21 mits to the pharmacy involved, within 30 

22 days after the date of the telephone pre23 scription, a written confirmation from the 

24 physician or other qualified person pre25 scribing the medicine and which indicates 
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•HR 2498 IH 

1 with such appropriate phrase that the par2 ticular medicine product was required to 

3 have been dispensed based upon a belief by 

4 the physician or person prescribing the 

5 medicine that the particular medicine will 

6 provide even marginally superior thera7 peutic benefits to the individual for whom 

8 the medicine is prescribed or would have 

9 marginally fewer adverse reactions with re10 spect to such individual. Such written con11 firmation is required to refill the prescrip12 tion. 

13 ‘‘(iii) REVIEW OF RESTRICTIVE PRE14 SCRIPTIONS.—The advisory committee (es15 tablished under subparagraph (B)(i)) may 

16 decide to review a restrictive prescription 

17 and, if so, it may approve or disapprove 

18 such restrictive prescription. It may not 

19 disapprove such restrictive prescription un20 less it finds that there is no literature ap21 proved by the Food and Drug Administra22 tion that supports a determination that the 

23 particular medicine provides even margin24 ally superior therapeutic benefits to the in25 dividual for whom the medicine is pre-
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•HR 2498 IH 

1 scribed or would have marginally fewer ad2 verse reactions with respect to such indi3 vidual. If it disapproves, upon request of 

4 the prescribing physician or the enrollee, 

5 the committee must provide for a review by 

6 an independent contractor of such decision 

7 within 48 hours of the time of submission 

8 of the prescription, to determine whether 

9 the prescription is an eligible benefit under 

10 this part. The Secretary shall ensure that 

11 independent contractors so used are com12 pletely independent of the contractor or its 

13 advisory committee. 

14 ‘‘(5) COST AND UTILIZATION MANAGEMENT; 

15 QUALITY ASSURANCE.—Have in place effective cost 

16 and utilization management, drug utilization review, 

17 quality assurance measures, and systems to reduce 

18 medical errors, including at least the following, to19 gether with such additional measures as the Admin20 istrator may specify: 

21 ‘‘(A) DRUG UTILIZATION REVIEW.—A drug 

22 utilization review program conforming to the 

23 standards provided in section 1927(g)(2) (with 

24 such modifications as the Administrator finds 

25 appropriate). 
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•HR 2498 IH 

1 ‘‘(B) FRAUD AND ABUSE CONTROL.—Ac2 tivities to control fraud, abuse, and waste, in3 cluding prevention of diversion of pharma4 ceuticals to the illegal market. 

5 ‘‘(C) MEDICATION THERAPY MANAGE6 MENT.—

7 ‘‘(i) IN GENERAL.—A program of 

8 medicine therapy management and medica9 tion administration that is designed to as10 sure that covered outpatient medicines are 

11 appropriately used to achieve therapeutic 

12 goals and reduce the risk of adverse 

13 events, including adverse drug interactions. 

14 ‘‘(ii) ELEMENTS.—Such program may 

15 include—

16 ‘‘(I) enhanced beneficiary under17 standing of such appropriate use 

18 through beneficiary education, coun19 seling, and other appropriate means; 

20 and 

21 ‘‘(II) increased beneficiary adher22 ence with prescription medication 

23 regimens through medication refill re24 minders, special packaging, and other 

25 appropriate means. 
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1 ‘‘(iii) DEVELOPMENT OF PROGRAM IN

2 COOPERATION WITH LICENSED PHAR3 MACISTS.—The program shall be developed 

4 in cooperation with licensed pharmacists 

5 and physicians. 

6 ‘‘(iv) CONSIDERATIONS IN PHARMACY

7 FEES.—There shall be taken into account, 

8 in establishing fees for pharmacists and 

9 others providing services under the medica10 tion therapy management program, the re11 sources and time used in implementing the 

12 program. 

13 ‘‘(6) EDUCATION AND INFORMATION ACTIVI14 TIES.—Have in place mechanisms for disseminating 

15 educational and informational materials to enrolled 

16 individuals and health care providers designed to en17 courage effective and cost-effective use of prescrip18 tion medicine benefits and to ensure that enrolled in19 dividuals understand their rights and obligations 

20 under the program. 

21 ‘‘(7) BENEFICIARY PROTECTIONS.—

22 ‘‘(A) CONFIDENTIALITY OF HEALTH IN23 FORMATION.—Have in effect systems to safe24 guard the confidentiality of health care infor25 mation on enrolled individuals, which comply 
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•HR 2498 IH 

1 with section 1106 and with section 552a of title 

2 5, United States Code, and meet such addi3 tional standards as the Administrator may pre4 scribe. 

5 ‘‘(B) GRIEVANCE AND APPEAL PROCE6 DURES.—Have in place such procedures as the 

7 Administrator may specify for hearing and re8 solving grievances and appeals, including expe9 dited appeals, brought by enrolled individuals 

10 against the Administrator or a pharmacy con11 cerning benefits under this part, which shall in12 clude procedures equivalent to those specified in 

13 subsections (f) and (g) of section 1852. 

14 ‘‘(8) RECORDS, REPORTS, AND AUDITS.—

15 ‘‘(A) RECORDS AND AUDITS.—Maintain 

16 adequate records, and afford the Administrator 

17 access to such records (including for audit pur18 poses). 

19 ‘‘(B) REPORTS.—Make such reports and 

20 submissions of financial and utilization data as 

21 the Administrator may require taking into ac22 count standard commercial practices. 

23 ‘‘(9) PROPOSAL FOR ALTERNATIVE COINSUR24 ANCE AMOUNT.—
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•HR 2498 IH 

1 ‘‘(A) SUBMISSION.—The Administrator 

2 may provide for increased Government cost3 sharing for generic prescription medicines, pre4 scription medicines on a formulary, or prescrip5 tion medicines obtained through mail order 

6 pharmacies. 

7 ‘‘(B) CONTENTS.—The proposal submitted 

8 under subparagraph (A) shall contain evidence 

9 that such increased cost-sharing would not re10 sult in an increase in aggregate costs to the Ac11 count, including an analysis of differences in 

12 projected drug utilization patterns by bene13 ficiaries whose cost-sharing would be reduced 

14 under the proposal and those making the cost15 sharing payments that would otherwise apply. 

16 ‘‘(10) OTHER REQUIREMENTS.—Meet such 

17 other requirements as the Secretary may specify. 

18 The Administrator shall negotiate a schedule of prices 

19 under paragraph (1)(A), except that nothing in this sen20 tence shall prevent a carrier under a contract with the Ad21 ministrator from negotiating a lower schedule of prices for 

22 covered prescription medicines. 

23 ‘‘(c) PHARMACY PARTICIPATION AGREEMENTS.—

24 ‘‘(1) IN GENERAL.—A pharmacy that meets the 

25 requirements of this subsection shall be eligible to 
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1 enter an agreement with the Administrator to fur2 nish covered prescription medicines and pharmacists’ 

3 services to enrolled individuals. 

4 ‘‘(2) TERMS OF AGREEMENT.—An agreement 

5 under this subsection shall include the following 

6 terms and requirements: 

7 ‘‘(A) LICENSING.—The pharmacy and 

8 pharmacists shall meet (and throughout the 

9 contract period will continue to meet) all appli10 cable State and local licensing requirements. 

11 ‘‘(B) LIMITATION ON CHARGES.—Phar12 macies participating under this part shall not 

13 charge an enrolled individual more than the ne14 gotiated price for an individual medicine as es15 tablished under subsection (b)(1), regardless of 

16 whether such individual has attained the benefit 

17 limit under section 1860B(b), and shall not 

18 charge an enrolled individual more than the in19 dividual’s share of the negotiated price as deter20 mined under the provisions of this part. 

21 ‘‘(C) PERFORMANCE STANDARDS.—The 

22 pharmacy and the pharmacist shall comply with 

23 performance standards relating to—

24 ‘‘(i) measures for quality assurance, 

25 reduction of medical errors, and participa-
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•HR 2498 IH 

1 tion in the drug utilization review program 

2 described in subsection (b)(3)(A); 

3 ‘‘(ii) systems to ensure compliance 

4 with the confidentiality standards applica5 ble under subsection (b)(5)(A); and 

6 ‘‘(iii) other requirements as the Sec7 retary may impose to ensure integrity, effi8 ciency, and the quality of the program. 

9 ‘‘(D) DISCLOSURE OF PRICE OF GENERIC

10 MEDICINE.—A pharmacy participating under 

11 this part shall inform an enrollee of the dif12 ference in price between generic and non-ge13 neric equivalents. 

14 ‘‘(d) SPECIAL ATTENTION TO RURAL AND HARD-TO15 SERVE AREAS.—

16 ‘‘(1) IN GENERAL.—The Secretary shall ensure 

17 that all beneficiaries have access to the full range of 

18 pharmaceuticals under this part, and shall give spe19 cial attention to access, pharmacist counseling, and 

20 delivery in rural and hard-to-serve areas (as the Sec21 retary may define by regulation). 

22 ‘‘(2) SPECIAL ATTENTION DEFINED.—For pur23 poses of paragraph (1), the term ‘special attention’ 

24 may include bonus payments to retail pharmacists in 

25 rural areas and any other actions the Secretary de-
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1 termines are necessary to ensure full access to rural 

2 and hard-to-serve beneficiaries. 

3 ‘‘(3) GAO REPORT.—Not later than 2 years 

4 after the implementation of this part the Comp5 troller General of the United States shall submit to 

6 Congress a report on the access of medicare bene7 ficiaries to pharmaceuticals and pharmacists’ serv8 ices in rural and hard-to-serve areas under this part 

9 together with any recommendations of the Comp10 troller General regarding any additional steps the 

11 Secretary may need to take to ensure the access of 

12 medicare beneficiaries to pharmaceuticals and phar13 macists’ services in such areas under this part. 

14 ‘‘(e) INCENTIVES FOR COST AND UTILIZATION MAN15 AGEMENT AND QUALITY IMPROVEMENT.—The Secretary 

16 is authorized to include in a contract awarded under sub17 section (b) with a carrier such incentives for cost and utili18 zation management and quality improvement as the Sec19 retary may deem appropriate, including—

20 ‘‘(1) bonus and penalty incentives to encourage 

21 administrative efficiency; 

22 ‘‘(2) incentives under which carriers share in 

23 any benefit savings achieved; 

24 ‘‘(3) risk-sharing arrangements related to ini25 tiatives to encourage savings in benefit payments; 
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1 ‘‘(4) financial incentives under which savings 

2 derived from the substitution of generic medicines in 

3 lieu of non-generic medicines are made available to 

4 carriers, pharmacies, and the Prescription Medicine 

5 Insurance Account; and 

6 ‘‘(5) any other incentive that the Secretary 

7 deems appropriate and likely to be effective in man8 aging costs or utilization. 

9 ‘‘EMPLOYER INCENTIVE PROGRAM FOR EMPLOYMENT10 BASED RETIREE MEDICINE COVERAGE

11 ‘‘SEC. 1860H. (a) PROGRAM AUTHORITY.—The Sec12 retary shall develop and implement a program under this 

13 section called the ‘Employer Incentive Program’ that en14 courages employers and other sponsors of employment15 based health care coverage to provide adequate prescrip16 tion medicine benefits to retired individuals and to main17 tain such existing benefit programs, by subsidizing, in 

18 part, the sponsor’s cost of providing coverage under quali19 fying plans. 

20 ‘‘(b) SPONSOR REQUIREMENTS.—In order to be eligi21 ble to receive an incentive payment under this section with 

22 respect to coverage of an individual under a qualified re23 tiree prescription medicine plan (as defined in subsection 

24 (f)(3)), a sponsor shall meet the following requirements: 

25 ‘‘(1) ASSURANCES.—The sponsor shall—
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•HR 2498 IH 

1 ‘‘(A) annually attest, and provide such as2 surances as the Secretary may require, that the 

3 coverage offered by the sponsor is a qualified 

4 retiree prescription medicine plan, and will re5 main such a plan for the duration of the spon6 sor’s participation in the program under this 

7 section; and 

8 ‘‘(B) guarantee that it will give notice to 

9 the Secretary and covered retirees—

10 ‘‘(i) at least 120 days before termi11 nating its plan; and 

12 ‘‘(ii) immediately upon determining 

13 that the actuarial value of the prescription 

14 medicine benefit under the plan falls below 

15 the actuarial value of the insurance benefit 

16 under this part. 

17 ‘‘(2) OTHER REQUIREMENTS.—The sponsor 

18 shall provide such information, and comply with 

19 such requirements, including information require20 ments to ensure the integrity of the program, as the 

21 Secretary may find necessary to administer the pro22 gram under this section. 

23 ‘‘(c) INCENTIVE PAYMENT.—

24 ‘‘(1) IN GENERAL.—A sponsor that meets the 

25 requirements of subsection (b) with respect to a 
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•HR 2498 IH 

1 quarter in a calendar year shall have payment made 

2 by the Secretary on a quarterly basis (to the sponsor 

3 or, at the sponsor’s direction, to the appropriate em4 ployment-based health plan) of an incentive pay5 ment, in the amount determined as described in 

6 paragraph (2), for each retired individual (or 

7 spouse) who—

8 ‘‘(A) was covered under the sponsor’s 

9 qualified retiree prescription medicine plan dur10 ing such quarter; and 

11 ‘‘(B) was eligible for but was not enrolled 

12 in the insurance program under this part. 

13 ‘‘(2) AMOUNT OF INCENTIVE.—The payment 

14 under this section with respect to each individual de15 scribed in paragraph (1) for a month shall be equal 

to 2 16 ⁄3 of the monthly premium amount payable from 

17 the Prescription Medicine Insurance Account for an 

18 enrolled individual, as set for the calendar year pur19 suant to section 1860D(a)(2). 

20 ‘‘(3) PAYMENT DATE.—The incentive under 

21 this section with respect to a calendar quarter shall 

22 be payable as of the end of the next succeeding cal23 endar quarter. 

24 ‘‘(d) CIVIL MONEY PENALTIES.—A sponsor, health 

25 plan, or other entity that the Secretary determines has, 
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•HR 2498 IH 

1 directly or through its agent, provided information in con2 nection with a request for an incentive payment under this 

3 section that the entity knew or should have known to be 

4 false shall be subject to a civil monetary penalty in an 

5 amount equal to $2,000 for each false representation plus 

6 an amount not to exceed 3 times the total incentive 

7 amounts under subsection (c) that were paid (or would 

8 have been payable) on the basis of such information. 

9 ‘‘(e) PART D ENROLLMENT FOR CERTAIN INDIVID10 UALS COVERED BY EMPLOYMENT-BASED RETIREE

11 HEALTH COVERAGE PLANS.—

12 ‘‘(1) ELIGIBLE INDIVIDUALS.—An individual 

13 shall be given the opportunity to enroll in the pro14 gram under this part during the period specified in 

15 paragraph (2) if—

16 ‘‘(A) the individual declined enrollment in 

17 the program under this part at the time the in18 dividual first satisfied section 1860C(a); 

19 ‘‘(B) at that time, the individual was cov20 ered under a qualified retiree prescription medi21 cine plan for which an incentive payment was 

22 paid under this section; and 

23 ‘‘(C)(i) the sponsor subsequently ceased to 

24 offer such plan; or 
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1 ‘‘(ii) the value of prescription medicine cov2 erage under such plan is reduced below the 

3 value of the coverage provided at the time the 

4 individual first became eligible to participate in 

5 the program under this part. 

6 ‘‘(2) SPECIAL ENROLLMENT PERIOD.—An indi7 vidual described in paragraph (1) shall be eligible to 

8 enroll in the program under this part during the 6-

9 month period beginning on the first day of the 

10 month in which—

11 ‘‘(A) the individual receives a notice that 

12 coverage under such plan has terminated (in 

13 the circumstance described in paragraph 

14 (1)(C)(i)) or notice that a claim has been de15 nied because of such a termination; or 

16 ‘‘(B) the individual received notice of the 

17 change in benefits (in the circumstance de18 scribed in paragraph (1)(C)(ii)). 

19 ‘‘(f) DEFINITIONS.—In this section: 

20 ‘‘(1) EMPLOYMENT-BASED RETIREE HEALTH

21 COVERAGE.—The term ‘employment-based retiree 

22 health coverage’ means health insurance or other 

23 coverage of health care costs for retired individuals 

24 (or for such individuals and their spouses and de-
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•HR 2498 IH 

1 pendents) based on their status as former employees 

2 or labor union members. 

3 ‘‘(2) EMPLOYER.—The term ‘employer’ has the 

4 meaning given to such term by section 3(5) of the 

5 Employee Retirement Income Security Act of 1974 

6 (except that such term shall include only employers 

7 of 2 or more employees). 

8 ‘‘(3) QUALIFIED RETIREE PRESCRIPTION MEDI9 CINE PLAN.—The term ‘qualified retiree prescription 

10 medicine plan’ means health insurance coverage in11 cluded in employment-based retiree health coverage 

12 that—

13 ‘‘(A) provides coverage of the cost of pre14 scription medicines whose actuarial value to 

15 each retired beneficiary equals or exceeds the 

16 actuarial value of the benefits provided to an in17 dividual enrolled in the program under this 

18 part; and 

19 ‘‘(B) does not deny, limit, or condition the 

20 coverage or provision of prescription medicine 

21 benefits for retired individuals based on age or 

22 any health status-related factor described in 

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

24 Act. 
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1 ‘‘(4) SPONSOR.—The term ‘sponsor’ has the 

2 meaning given the term ‘plan sponsor’ by section 

3 3(16)(B) of the Employee Retirement Income Secu4 rity Act of 1974. 

5 ‘‘PROMOTION OF PHARMACEUTICAL RESEARCH ON

6 BREAK-THROUGH MEDICINES WHILE PROVIDING

7 PROGRAM COST CONTAINMENT

8 ‘‘SEC. 1860I. (a) MONITORING EXPENDITURES.—

9 The Secretary shall monitor expenditures under this part. 

10 On October 1, 2005, Secretary shall estimate total expend11 itures under this part for 2005. 

12 ‘‘(b) ESTABLISHMENT OF SUSTAINABLE GROWTH

13 RATE.—

14 ‘‘(1) IN GENERAL.—The Secretary shall estab15 lish a sustainable growth rate prescription medicine 

16 target system for expenditures under this part for 

17 each year after 2005. 

18 ‘‘(2) INITIAL COMPUTATION.—Such target shall 

19 equal the amount of total expenditures estimated for 

20 2005 adjusted by the Secretary’s estimate of a sus21 tainable growth rate (in this section referred to as 

22 an ‘SGR’) percentage between 2005 and 2006. Such 

23 SGR shall be estimated based on the following: 

24 ‘‘(A) Reasonable changes in the cost of 

25 production or price of covered pharmaceuticals, 

26 but in no event more than the rate of increase 
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1 in the consumer price index for all urban con2 sumers for the period involved. 

3 ‘‘(B) Population enrolled in this part, both 

4 in numbers and in average age and severity of 

5 chronic and acute illnesses. 

6 ‘‘(C) Appropriate changes in utilization of 

7 pharmaceuticals, as determined by the Drug 

8 Review Board (established under subsection 

9 (c)(3)) and based on best estimates of utiliza10 tion change if there were no direct-to-consumer 

11 advertising or promotions to providers. 

12 ‘‘(D) Productivity index of manufacturers 

13 and distributors. 

14 ‘‘(E) Percentage of products with patent 

15 and market exclusivity protection versus prod16 ucts without patent protection and changes in 

17 the availability of generic substitutes. 

18 ‘‘(F) Such other factors as the Secretary 

19 may determine are appropriate. 

20 In no event may the sustainable growth rate exceed 

21 120 percent of the estimated per capita growth in 

22 total spending under this title. 

23 ‘‘(3) COMPUTATION FOR SUBSEQUENT

24 YEARS.—In October of 2006 and each year there25 after, for purposes of setting the SGRs for the suc-
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1 ceeding year, the Secretary shall adjust each current 

2 year’s estimated expenditures by the estimated SGR 

3 for the succeeding year, further adjusted for correc4 tions in earlier estimates and the receipt of addi5 tional data on previous years spending as follows: 

6 ‘‘(A) ERROR ESTIMATES.—An adjustment 

7 (up or down) for errors in the estimate of total 

8 expenditures under this part for the previous 

9 year. 

10 ‘‘(B) COSTS.—An adjustment (up or 

11 down) for corrections in the cost of production 

12 of prescriptions covered under this part between 

13 the current calendar year and the previous year. 

14 ‘‘(C) TARGET.—An adjustment for any 

15 amount (over or under) that expenditures in the 

16 current year under this part are estimated to 

17 differ from the target amount set for the year. 

18 If expenditures in the current year are esti19 mated to be—

20 ‘‘(i) less than the target amount, fu21 ture target amounts will be adjusted down22 ward; or 

23 ‘‘(ii) more than the target amount, 

24 the Secretary shall notify all pharma25 ceutical manufacturers with sales of phar-
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1 maceutical prescription medicine products 

2 to medicare beneficiaries under this part, 

3 of a rebate requirement (except as pro4 vided in this subparagraph) to be deposited 

5 in the Federal Medicare Prescription Medi6 cine Trust Fund. 

7 ‘‘(D) REBATE DETERMINATION.—The 

8 amount of the rebate described in subparagraph 

9 (C)(ii) may vary among manufacturers and 

10 shall be based on the manufacturer’s estimated 

11 contribution to the expenditure above the target 

12 amount, taking into consideration such factors 

13 as—

14 ‘‘(i) above average increases in the 

15 cost of the manufacturer’s product; 

16 ‘‘(ii) increases in utilization due to 

17 promotion activities of the manufacturer, 

18 wholesaler, or retailer; 

19 ‘‘(iii) launch prices of new drugs at 

20 the same or higher prices as similar drugs 

21 already in the marketplace (so-called ‘me 

22 too’ or ‘copy-cat’ drugs); 

23 ‘‘(iv) the role of the manufacturer in 

24 delaying the entry of generic products into 

25 the market; and 
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1 ‘‘(v) such other actions by the manu2 facturer that the Secretary may determine 

3 has contributed to the failure to meet the 

4 SGR target. 

5 The rebates shall be established under such 

6 subparagraph so that the total amount of the 

7 rebates is estimated to ensure that the amount 

8 the target for the current year is estimated to 

9 be exceeded is recovered in lower spending in 

10 the subsequent year; except that, no rebate 

11 shall be made in any manufacturer’s product 

12 which the Food and Drug Administration has 

13 determined is a breakthrough medicine (as de14 termined under subsection (c)) or an orphan 

15 medicine. 

16 ‘‘(c) BREAKTHROUGH MEDICINES.—

17 ‘‘(1) DETERMINATION.—For purposes of this 

18 section, a medicine is a ‘breakthrough medicine’ if 

19 the Drug Review Board (established under para20 graph (3)) determines—

21 ‘‘(A) it is a new product that will make a 

22 significant and major improvement by reducing 

23 physical or mental illness, reducing mortality, 

24 or reducing disability; and 
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1 ‘‘(B) that no other product is available to 

2 beneficiaries that achieves similar results for 

3 the same condition at a lower cost. 

4 ‘‘(2) CONDITION.—An exemption from rebates 

5 under subsection (b)(3) for a breakthrough medicine 

6 shall continue as long as the medicine is certified as 

7 a breakthrough medicine but shall be limited to 7 

8 calendar years from 2003 or 7 calendar years from 

9 the date of the initial determination under para10 graph (1), whichever is later. 

11 ‘‘(3) DRUG REVIEW BOARD.—The Drug Review 

12 Board under this paragraph shall consist of the 

13 Commissioner of Food and Drugs, the Directors of 

14 the National Institutes of Health, the Director of 

15 the National Science Foundation, and 10 experts in 

16 pharmaceuticals, medical research, and clinical care, 

17 selected by the Commissioner of Food and Drugs 

18 from the faculty of academic medical centers, except 

19 that no person who has (or who has an immediate 

20 family member that has) any conflict of interest with 

21 any pharmaceutical manufacturer shall serve on the 

22 Board. 

23 ‘‘(d) NO REVIEW.—The Secretary’s determination of 

24 the rebate amounts under this section, and the Drug Re-
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1 view Board’s determination of what is a breakthrough 

2 drug, are not subject to administrative or judicial review. 

3 ‘‘APPROPRIATIONS TO COVER GOVERNMENT

4 CONTRIBUTIONS

5 ‘‘SEC. 1860J. (a) IN GENERAL.—There are author6 ized to be appropriated from time to time, out of any mon7 eys in the Treasury not otherwise appropriated, to the 

8 Prescription Medicine Insurance Account, a Government 

9 contribution equal to—

10 ‘‘(1) the aggregate premiums payable for a 

11 month pursuant to section 1860D(a)(2) by individ12 uals enrolled in the program under this part; plus 

13 ‘‘(2) one-half the aggregate premiums payable 

14 for a month pursuant to such section for such indi15 viduals by former employers; plus 

16 ‘‘(3) the benefits payable by reason of the appli17 cation of paragraph (2) of section 1860B(a) (relat18 ing to catastrophic benefits). 

19 ‘‘(b) APPROPRIATIONS TO COVER INCENTIVES FOR

20 EMPLOYMENT-BASED RETIREE MEDICINE COVERAGE.—

21 There are authorized to be appropriated to the Prescrip22 tion Medicine Insurance Account from time to time, out 

23 of any moneys in the Treasury not otherwise appropriated 

24 such sums as may be necessary for payment of incentive 

25 payments under section 1860H(c). 
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1 ‘‘PRESCRIPTION MEDICINE DEFINED

2 ‘‘SEC. 1860K. As used in this part, the term ‘pre3 scription medicine’ means—

4 ‘‘(1) a drug that may be dispensed only upon 

5 a prescription, and that is described in subpara6 graph (A)(i), (A)(ii), or (B) of section 1927(k)(2); 

7 and 

8 ‘‘(2) insulin certified under section 506 of the 

9 Federal Food, Drug, and Cosmetic Act, and needles, 

10 syringes, and disposable pumps for the administra11 tion of such insulin.’’. 

12 (b) CONFORMING AMENDMENTS.—

13 (1) AMENDMENTS TO FEDERAL SUPPLE14 MENTARY HEALTH INSURANCE TRUST FUND.—Sec15 tion 1841 of the Social Security Act (42 U.S.C. 

16 1395t) is amended—

17 (A) in the last sentence of subsection (a)—

18 (i) by striking ‘‘and’’ after ‘‘section 

19 201(i)(1)’’; and 

20 (ii) by inserting before the period the 

21 following: ‘‘, and such amounts as may be 

22 deposited in, or appropriated to, the Pre23 scription Medicine Insurance Account es24 tablished by section 1860F’’; 
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•HR 2498 IH 

1 (B) in subsection (g), by inserting after 

2 ‘‘by this part,’’ the following: ‘‘the payments 

3 provided for under part D (in which case the 

4 payments shall come from the Prescription 

5 Medicine Insurance Account in the Supple6 mentary Medical Insurance Trust Fund),’’; 

7 (C) in the first sentence of subsection (h), 

8 by inserting before the period the following: 

9 ‘‘and section 1860D(b)(4) (in which case the 

10 payments shall come from the Prescription 

11 Medicine Insurance Account in the Supple12 mentary Medical Insurance Trust Fund)’’; and 

13 (D) in the first sentence of subsection 

14 (i)—

15 (i) by striking ‘‘and’’ after ‘‘section 

16 1840(b)(1)’’; and 

17 (ii) by inserting before the period the 

18 following: ‘‘, section 1860D(b)(2) (in which 

19 case the payments shall come from the 

20 Prescription Medicine Insurance Account 

21 in the Supplementary Medical Insurance 

22 Trust Fund)’’. 

23 (2) PRESCRIPTION MEDICINE OPTION UNDER

24 MEDICARE+CHOICE PLANS.—
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•HR 2498 IH 

1 (A) ELIGIBILITY, ELECTION, AND ENROLL2 MENT.—Section 1851 of the Social Security Act 

3 (42 U.S.C. 1395w–21) is amended—

4 (i) in subsection (a)(1)(A), by striking 

5 ‘‘parts A and B’’ inserting ‘‘parts A, B, 

6 and D’’; and 

7 (ii) in subsection (i)(1), by striking 

8 ‘‘parts A and B’’ and inserting ‘‘parts A, 

9 B, and D’’. 

10 (B) VOLUNTARY BENEFICIARY ENROLL11 MENT FOR MEDICINE COVERAGE.—Section 

12 1852(a)(1)(A) of such Act (42 U.S.C. 1395w–

13 22(a)(1)(A)) is amended by inserting ‘‘(and 

14 under part D to individuals also enrolled under 

15 that part)’’ after ‘‘parts A and B’’. 

16 (C) ACCESS TO SERVICES.—Section 

17 1852(d)(1) of such Act (42 U.S.C. 1395w–

18 22(d)(1)) is amended—

19 (i) in subparagraph (D), by striking 

20 ‘‘and’’ at the end; 

21 (ii) in subparagraph (E), by striking 

22 the period at the end and inserting ‘‘; 

23 and’’; and 

24 (iii) by adding at the end the fol25 lowing new subparagraph: 
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•HR 2498 IH 

1 ‘‘(F) the plan for prescription medicine 

2 benefits under part D guarantees coverage of 

3 any specifically named covered prescription 

4 medicine for an enrollee, when prescribed by a 

5 physician in accordance with the provisions of 

6 such part, regardless of whether such medicine 

7 would otherwise be covered under an applicable 

8 formulary or discount arrangement.’’. 

9 (D) PAYMENTS TO ORGANIZATIONS.—Sec10 tion 1853(a)(1)(A) of such Act (42 U.S.C. 

11 1395w–23(a)(1)(A)) is amended—

12 (i) by inserting ‘‘determined sepa13 rately for benefits under parts A and B 

14 and under part D (for individuals enrolled 

15 under that part)’’ after ‘‘as calculated 

16 under subsection (c)’’; 

17 (ii) by striking ‘‘that area, adjusted 

18 for such risk factors’’ and inserting ‘‘that 

19 area. In the case of payment for benefits 

20 under parts A and B, such payment shall 

21 be adjusted for such risk factors as’’; and 

22 (iii) by inserting before the last sen23 tence the following: ‘‘In the case of the 

24 payments for benefits under part D, such 

25 payment shall initially be adjusted for the 
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1 risk factors of each enrollee as the Sec2 retary determines to be feasible and appro3 priate. By 2008, the adjustments would be 

4 for the same risk factors applicable for 

5 benefits under parts A and B.’’. 

6 (E) CALCULATION OF ANNUAL MEDICARE

7 +CHOICE CAPITATION RATES.—Section 1853(c) 

8 of such Act (42 U.S.C. 1395w–23(c)) is amend9 ed—

10 (i) in paragraph (1), in the matter 

11 preceding subparagraph (A), by inserting 

12 ‘‘for benefits under parts A and B’’ after 

13 ‘‘capitation rate’’; 

14 (ii) in paragraph (6)(A), by striking 

15 ‘‘rate of growth in expenditures under this 

16 title’’ and inserting ‘‘rate of growth in ex17 penditures for benefits available under 

18 parts A and B’’; and 

19 (iii) by adding at the end the fol20 lowing new paragraph: 

21 ‘‘(8) PAYMENT FOR PRESCRIPTION MEDI22 CINES.—The Secretary shall determine a capitation 

23 rate for prescription medicines—

24 ‘‘(A) dispensed in 2005, which is based on 

25 the projected national per capita costs for pre-
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1 scription medicine benefits under part D and 

2 associated claims processing costs for bene3 ficiaries under the original medicare fee-for4 service program; and 

5 ‘‘(B) dispensed in each subsequent year, 

6 which shall be equal to the rate for the previous 

7 year updated by the Secretary’s estimate of the 

8 projected per capita rate of growth in expendi9 tures under this title for an individual enrolled 

10 under part D.’’. 

11 (F) LIMITATION ON ENROLLEE LIABIL12 ITY.—Section 1854(e) of such Act (42 U.S.C. 

13 1395w–24(e)) is amended by adding at the end 

14 the following new paragraph: 

15 ‘‘(5) SPECIAL RULE FOR PROVISION OF PART D

16 BENEFITS.—In no event may a Medicare+Choice or17 ganization include as part of a plan for prescription 

18 medicine benefits under part D a requirement that 

19 an enrollee pay a deductible, or a coinsurance per20 centage that exceeds 20 percent.’’. 

21 (G) REQUIREMENT FOR ADDITIONAL BEN22 EFITS.—Section 1854(f)(1) of such Act (42 

23 U.S.C. 1395w–24(f)(1)) is amended by adding 

24 at the end the following new sentence: ‘‘Such 

25 determination shall be made separately for ben-
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1 efits under parts A and B and for prescription 

2 medicine benefits under part D.’’. 

3 (3) EXCLUSIONS FROM COVERAGE.—

4 (A) APPLICATION TO PART D.—Section 

5 1862(a) of the Social Security Act (42 U.S.C. 

6 1395y(a)) is amended in the matter preceding 

7 paragraph (1) by striking ‘‘part A or part B’’ 

8 and inserting ‘‘part A, B, or D’’. 

9 (B) PRESCRIPTION MEDICINES NOT EX10 CLUDED FROM COVERAGE IF APPROPRIATELY

11 PRESCRIBED.—Section 1862(a)(1) of such Act 

12 (42 U.S.C. 1395y(a)(1)) is amended—

13 (i) in subparagraph (H), by striking 

14 ‘‘and’’ at the end; 

15 (ii) in subparagraph (I), by striking 

16 the semicolon at the end and inserting ‘‘, 

17 and’’; and 

18 (iii) by adding at the end the fol19 lowing new subparagraph: 

20 ‘‘(J) in the case of prescription medicines 

21 covered under part D, which are not prescribed 

22 in accordance with such part;’’. 
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1 SEC. 4. SUBSTANTIAL REDUCTIONS IN THE PRICE OF PRE2 SCRIPTION DRUGS FOR MEDICARE BENE3 FICIARIES. 

4 (a) PARTICIPATING MANUFACTURERS.—

5 (1) IN GENERAL.—Each participating manufac6 turer of a covered outpatient drug shall make avail7 able for purchase by each pharmacy such covered 

8 outpatient drug in the amount described in para9 graph (2) at the price described in paragraph (3). 

10 (2) DESCRIPTION OF AMOUNT OF DRUGS.—The 

11 amount of a covered outpatient drug that a partici12 pating manufacturer shall make available for pur13 chase by a pharmacy is an amount equal to the ag14 gregate amount of the covered outpatient drug sold 

15 or distributed by the pharmacy to medicare bene16 ficiaries. 

17 (3) DESCRIPTION OF PRICE.—The price at 

18 which a participating manufacturer shall make a 

19 covered outpatient drug available for purchase by a 

20 pharmacy is the price equal to the lowest of the fol21 lowing: 

22 (A) The lowest price paid for the covered 

23 outpatient drug by any agency or department of 

24 the United States. 

25 (B) The manufacturer’s best price for the 

26 covered outpatient drug, as defined in section 
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•HR 2498 IH 

1 1927(c)(1)(C) of the Social Security Act (42 

2 U.S.C. 1396r–8(c)(1)(C)). 

3 (C) The lowest price at which the drug is 

4 available (as determined by the Secretary) 

5 through importation consistent with the provi6 sions of section 804 of the Federal Food, Drug, 

7 and Cosmetic Act. 

8 (b) SPECIAL PROVISION WITH RESPECT TO HOSPICE

9 PROGRAMS.—For purposes of determining the amount of 

10 a covered outpatient drug that a participating manufac11 turer shall make available for purchase by a pharmacy 

12 under subsection (a), there shall be included in the cal13 culation of such amount the amount of the covered out14 patient drug sold or distributed by a pharmacy to a hos15 pice program. In calculating such amount, only amounts 

16 of the covered outpatient drug furnished to a medicare 

17 beneficiary enrolled in the hospice program shall be in18 cluded. 

19 (c) ADMINISTRATION.—The Secretary shall issue 

20 such regulations as may be necessary to implement this 

21 section. 

22 (d) REPORTS TO CONGRESS REGARDING EFFECTIVE23 NESS OF SECTION.—

24 (1) IN GENERAL.—Not later than 2 years after 

25 the date of the enactment of this Act, and annually 
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1 thereafter, the Secretary shall report to the Con2 gress regarding the effectiveness of this section in—

3 (A) protecting medicare beneficiaries from 

4 discriminatory pricing by drug manufacturers; 

5 and 

6 (B) making prescription drugs available to 

7 medicare beneficiaries at substantially reduced 

8 prices. 

9 (2) CONSULTATION.—In preparing such re10 ports, the Secretary shall consult with public health 

11 experts, affected industries, organizations rep12 resenting consumers and older Americans, and other 

13 interested persons. 

14 (3) RECOMMENDATIONS.—The Secretary shall 

15 include in such reports any recommendations they 

16 consider appropriate for changes in this section to 

17 further reduce the cost of covered outpatient drugs 

18 to medicare beneficiaries. 

19 (f) DEFINITIONS.—For purposes of this section: 

20 (1) PARTICIPATING MANUFACTURER.—The 

21 term ‘‘participating manufacturer’’ means any man22 ufacturer of drugs or biologicals that, on or after the 

23 date of the enactment of this Act, enters into a con24 tract or agreement with the United States for the 
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1 sale or distribution of covered outpatient drugs to 

2 the United States. 

3 (2) COVERED OUTPATIENT DRUG.—The term 

4 ‘‘covered outpatient drug’’ has the meaning given 

5 that term in section 1927(k)(2) of the Social Secu6 rity Act (42 U.S.C. 1396r–8(k)(2)). 

7 (3) MEDICARE BENEFICIARY.—The term 

8 ‘‘medicare beneficiary’’ means an individual entitled 

9 to benefits under part A of title XVIII of the Social 

10 Security Act or enrolled under part B of such title, 

11 or both. 

12 (4) HOSPICE PROGRAM.—The term ‘‘hospice 

13 program’’ has the meaning given that term under 

14 section 1861(dd)(2) of the Social Security Act (42 

15 U.S.C. 1395x(dd)(2)). 

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

17 the Secretary of Health and Human Services. 

18 (f) EFFECTIVE DATE.—The Secretary shall imple19 ment this section as expeditiously as practicable and in 

20 a manner consistent with the obligations of the United 

21 States. 
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1 SEC. 5. AMENDMENTS TO PROGRAM FOR IMPORTATION OF 

2 CERTAIN PRESCRIPTION DRUGS BY PHAR3 MACISTS AND WHOLESALERS. 

4 Section 804 of the Federal Food, Drug, and Cosmetic 

5 Act (as added by section 745(c)(2) of Public Law 106–

6 387) is amended—

7 (1) by striking subsections (e) and (f) and in8 serting the following subsections: 

9 ‘‘(e) TESTING; APPROVED LABELING.—

10 ‘‘(1) TESTING.—Regulations under subsection 

11 (a)—

12 ‘‘(A) shall require that testing referred to 

13 in paragraphs (6) through (8) of subsection (d) 

14 be conducted by the importer of the covered 

15 product pursuant to subsection (a), or the man16 ufacturer of the product; 

17 ‘‘(B) shall require that, if such tests are 

18 conducted by the importer, information needed 

19 to authenticate the product being tested be sup20 plied by the manufacturer of such product to 

21 the importer; and 

22 ‘‘(C) shall provide for the protection of any 

23 information supplied by the manufacturer 

24 under subparagraph (B) that is a trade secret 

25 or commercial or financial information that is 

26 privileged or confidential. 
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1 ‘‘(2) APPROVED LABELING.—For purposes of 

2 importing a covered product pursuant to subsection 

3 (a), the importer involved may use the labeling ap4 proved for the product under section 505, notwith5 standing any other provision of law. 

6 ‘‘(f) DISCRETION OF SECRETARY REGARDING TEST7 ING.—The Secretary may waive or modify testing require8 ments described in subsection (d) if, with respect to spe9 cific countries or specific distribution chains, the Secretary 

10 has entered into agreements or otherwise approved ar11 rangements that the Secretary determines ensure that the 

12 covered products involved are not adulterated or in viola13 tion of section 505.’’; 

14 (2) by striking subsections (h) and (i) and in15 serting the following subsections: 

16 ‘‘(h) PROHIBITED AGREEMENTS; NONDISCRIMINA17 TION.—

18 ‘‘(1) PROHIBITED AGREEMENTS.—No manufac19 turer of a covered product may enter into a contract 

20 or agreement that includes a provision to prevent 

21 the sale or distribution of covered products imported 

22 pursuant to subsection (a). 

23 ‘‘(2) NONDISCRIMINATION.—No manufacturer 

24 of a covered product may take actions that discrimi25 nate against, or cause other persons to discriminate 
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1 against, United States pharmacists, wholesalers, or 

2 consumers regarding the sale or distribution of cov3 ered products. 

4 ‘‘(i) STUDY AND REPORT.—

5 ‘‘(1) STUDY.—The Comptroller General of the 

6 United States shall conduct a study on the imports 

7 permitted under this section, taking into consider8 ation the information received under subsection (a). 

9 In conducting such study, the Comptroller General 

10 shall—

11 ‘‘(A) evaluate importers’ compliance with 

12 regulations, determine the number of ship13 ments, if any, permitted under this section that 

14 have been determined to be counterfeit, mis15 branded, or adulterated; and 

16 ‘‘(B) consult with the United States Trade 

17 Representative and United States Patent and 

18 Trademark Office to evaluate the effect of im19 portations permitted under this section on trade 

20 and patent rights under Federal law. 

21 ‘‘(2) REPORT.—Not later than 5 years after the 

22 effective date of final regulations issued pursuant to 

23 this section, the Comptroller General of the United 

24 States shall prepare and submit to Congress a re-
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•HR 2498 IH 

1 port containing the study described in paragraph 

2 (1).’’; 

3 (3) in subsection (k)(2)—

4 (A) by redesignating subparagraphs (A) 

5 through (E) as subparagraphs (B) through (F), 

6 respectively; and 

7 (B) by inserting before subparagraph (B) 

8 (as so redesignated) the following subpara9 graph: 

10 ‘‘(A) The term ‘discrimination’ includes a 

11 contract provision, a limitation on supply, or 

12 other measure which has the effect of providing 

13 United States pharmacists, wholesalers, or con14 sumers access to covered products on terms or 

15 conditions that are less favorable than the 

16 terms or conditions provided to any foreign pur17 chaser of such products.’’; 

18 (4) by striking subsection (m); and 

19 (5) by inserting after subsection (l) the fol20 lowing subsection: 

21 ‘‘(m) FUNDING.—For the purpose of carrying out 

22 this section, there are authorized to be appropriated such 

23 sums as may be necessary for fiscal year 2004 and each 

24 subsequent fiscal year.’’. 
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1 SEC. 6. REASONABLE PRICE AGREEMENT FOR FEDERALLY 

2 FUNDED RESEARCH. 

3 (a) IN GENERAL.—If any Federal agency or any non4 profit entity undertakes federally funded health care re5 search and development and is to convey or provide a pat6 ent or other exclusive right to use such research and devel7 opment for a drug or other health care technology, such 

8 agency or entity shall not make such conveyance or pro9 vide such patent or other right until the person who will 

10 receive such conveyance or patent or other right first 

11 agrees to a reasonable pricing agreement with the Sec12 retary of Health and Human Services or the Secretary 

13 makes a determination that the public interest is served 

14 by a waiver of the reasonable pricing agreement provided 

15 in accordance with subsection (c). 

16 (b) CONSIDERATION OF COMPETITIVE BIDDING.—In 

17 cases where the Federal Government conveys or licenses 

18 exclusive rights to federally funded research under sub19 section (a), consideration shall be given to mechanisms for 

20 determining reasonable prices which are based upon a 

21 competitive bidding process. When appropriate, the mech22 anisms should be considered where—

23 (1) qualified bidders compete on the basis of 

24 the lowest prices that will be charged to consumers; 

25 (2) qualified bidders compete on the basis of 

26 the least sales revenues before prices are adjusted in 
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1 accordance with a cost based reasonable pricing for2 mula; 

3 (3) qualified bidders compete on the basis of 

4 the least period of time before prices are adjusted in 

5 accordance with a cost based reasonable pricing for6 mula; 

7 (4) qualified bidders compete on the basis of 

8 the shortest period of exclusivity; or 

9 (5) qualified bidders compete under other com10 petitive bidding systems. 

11 Such competitive bidding process may incorporate require12 ments for minimum levels of expenditures on research, 

13 marketing, maximum price, or other factors. 

14 (c) WAIVER.—No waiver shall take effect under sub15 section (a) before the public is given notice of the proposed 

16 waiver and provided a reasonable opportunity to comment 

17 on the proposed waiver. A decision to grant a waiver shall 

18 set out the Secretary’s finding that such a waiver is in 

19 the public interest. 

20 SEC. 7. GAO ONGOING STUDIES AND REPORTS ON PRO21 GRAM; MISCELLANEOUS REPORTS. 

22 (a) ONGOING STUDY.—The Comptroller General of 

23 the United States shall conduct an ongoing study and 

24 analysis of the prescription medicine benefit program 

25 under part D of the medicare program under title XVIII 
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1 of the Social Security Act (as added by section 3 of this 

2 Act), including an analysis of each of the following: 

3 (1) The extent to which the administering enti4 ties have achieved volume-based discounts similar to 

5 the favored price paid by other large purchasers. 

6 (2) Whether access to the benefits under such 

7 program are in fact available to all beneficiaries, 

8 with special attention given to access for bene9 ficiaries living in rural and hard-to-serve areas. 

10 (3) The success of such program in reducing 

11 medication error and adverse medicine reactions and 

12 improving quality of care, and whether it is probable 

13 that the program has resulted in savings through re14 duced hospitalizations and morbidity due to medica15 tion errors and adverse medicine reactions. 

16 (4) Whether patient medical record confiden17 tiality is being maintained and safe-guarded. 

18 (5) Such other issues as the Comptroller Gen19 eral may consider. 

20 (b) REPORTS.—The Comptroller General shall issue 

21 such reports on the results of the ongoing study described 

22 in (a) as the Comptroller General shall deem appropriate 

23 and shall notify Congress on a timely basis of significant 

24 problems in the operation of the part D prescription medi-
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1 cine program and the need for legislative adjustments and 

2 improvements. 

3 (c) MISCELLANEOUS STUDIES AND REPORTS.—

4 (1) STUDY ON METHODS TO ENCOURAGE ADDI5 TIONAL RESEARCH ON BREAKTHROUGH PHARMA6 CEUTICALS.—

7 (A) IN GENERAL.—The Secretary of 

8 Health and Human Services shall seek the ad9 vice of the Secretary of the Treasury on pos10 sible tax and trade law changes to encourage 

11 increased original research on new pharma12 ceutical breakthrough products designed to ad13 dress disease and illness. 

14 (B) REPORT.—Not later than January 1, 

15 2005, the Secretary shall submit to Congress a 

16 report on such study. The report shall include 

17 recommended methods to encourage the phar18 maceutical industry to devote more resources to 

19 research and development of new covered prod20 ucts than it devotes to overhead expenses. 

21 (2) STUDY ON PHARMACEUTICAL SALES PRAC22 TICES AND IMPACT ON COSTS AND QUALITY OF

23 CARE.—

24 (A) IN GENERAL.—The Secretary of 

25 Health and Human Services shall conduct a 
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1 study on the methods used by the pharma2 ceutical industry to advertise and sell to con3 sumers and educate and sell to providers. 

4 (B) REPORT.—Not later than January 1, 

5 2005, the Secretary shall submit to Congress a 

6 report on such study. The report shall include 

7 the estimated direct and indirect costs of the 

8 sales methods used, the quality of the informa9 tion conveyed, and whether such sales efforts 

10 leads (or could lead) to inappropriate pre11 scribing. Such report may include legislative 

12 and regulatory recommendations to encourage 

13 more appropriate education and prescribing 

14 practices. 

15 (3) STUDY ON COST OF PHARMACEUTICAL RE16 SEARCH.—

17 (A) IN GENERAL.—The Secretary of 

18 Health and Human Services shall conduct a 

19 study on the costs of, and needs for, the phar20 maceutical research and the role that the tax21 payer provides in encouraging such research. 

22 (B) REPORT.—Not later than January 1, 

23 2005, the Secretary shall submit to Congress a 

24 report on such study. The report shall include 

25 a description of the full-range of taxpayer-as-
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1 sisted programs impacting pharmaceutical re2 search, including tax, trade, government re3 search, and regulatory assistance. The report 

4 may also include legislative and regulatory rec5 ommendations that are designed to ensure that 

6 the taxpayer’s investment in pharmaceutical re7 search results in the availability of pharma8 ceuticals at reasonable prices. 

9 (4) REPORT ON PHARMACEUTICAL PRICES IN

10 MAJOR FOREIGN NATIONS.—Not later than January 

11 1, 2005, the Secretary of Health and Human Serv12 ices shall submit to Congress a report on the retail 

13 price of major pharmaceutical products in various 

14 developed nations, compared to prices for the same 

15 or similar products in the United States. The report 

16 shall include a description of the principal reasons 

17 for any price differences that may exist. 

18 SEC. 8. MEDIGAP TRANSITION PROVISIONS. 

19 (a) IN GENERAL.—Notwithstanding any other provi20 sion of law, no new medicare supplemental policy that pro21 vides coverage of expenses for prescription drugs may be 

22 issued under section 1882 of the Social Security Act on 

23 or after January 1, 2005, to an individual unless it re24 places a medicare supplemental policy that was issued to 
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1 that individual and that provided some coverage of ex2 penses for prescription drugs. 

3 (b) ISSUANCE OF SUBSTITUTE POLICIES IF OBTAIN4 ING PRESCRIPTION DRUG COVERAGE THROUGH MEDI5 CARE.—

6 (1) IN GENERAL.—The issuer of a medicare 

7 supplemental policy—

8 (A) may not deny or condition the issuance 

9 or effectiveness of a medicare supplemental pol10 icy that has a benefit package classified as ‘‘A’’, 

11 ‘‘B’’, ‘‘C’’, ‘‘D’’, ‘‘E’’, ‘‘F’’, or ‘‘G’’ (under the 

12 standards established under subsection (p)(2) of 

13 section 1882 of the Social Security Act, 42 

14 U.S.C. 1395ss) and that is offered and is avail15 able for issuance to new enrollees by such 

16 issuer; 

17 (B) may not discriminate in the pricing of 

18 such policy, because of health status, claims ex19 perience, receipt of health care, or medical con20 dition; and 

21 (C) may not impose an exclusion of bene22 fits based on a pre-existing condition under 

23 such policy, 

24 in the case of an individual described in paragraph 

25 (2) who seeks to enroll under the policy not later 
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1 than 63 days after the date of the termination of en2 rollment described in such paragraph and who sub3 mits evidence of the date of termination or 

4 disenrollment along with the application for such 

5 medicare supplemental policy. 

6 (2) INDIVIDUAL COVERED.—An individual de7 scribed in this paragraph is an individual who—

8 (A) enrolls in a prescription drug plan 

9 under part D of title XVIII of the Social Secu10 rity Act; and 

11 (B) at the time of such enrollment was en12 rolled and terminates enrollment in a medicare 

13 supplemental policy which has a benefit pack14 age classified as ‘‘H’’, ‘‘I’’, or ‘‘J’’ under the 

15 standards referred to in paragraph (1)(A) or 

16 terminates enrollment in a policy to which such 

17 standards do not apply but which provides ben18 efits for prescription drugs. 

19 (3) ENFORCEMENT.—The provisions of para20 graph (1) shall be enforced as though they were in21 cluded in section 1882(s) of the Social Security Act 

22 (42 U.S.C. 1395ss(s)). 

23 (4) DEFINITIONS.—For purposes of this sub24 section, the term ‘‘medicare supplemental policy’’ 
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•HR 2498 IH 

1 has the meaning given such term in section 1882(g) 

2 of the Social Security Act (42 U.S.C. 1395ss(g)).

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