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[Congressional Bills 108th Congress]
[From the U.S. Government Publishing Office]
[H.R. 2514 Introduced in House (IH)]

108th CONGRESS
  1st Session
                                H. R. 2514

 To freeze and repeal portions of the tax cut enacted in the Economic 
 Growth and Tax Relief Reconciliation Act of 2001 and to apply savings 
  therefrom to a comprehensive Medicare outpatient prescription drug 
                                benefit.

_______________________________________________________________________

                    IN THE HOUSE OF REPRESENTATIVES

                             June 18, 2003

Mr. Wexler (for himself, Mr. Stark, Mr. Waxman, Mr. Brown of Ohio, Mr. 
  Frank of Massachusetts, Mr. Nadler, Mr. Conyers, and Mr. Grijalva) 
 introduced the following bill; which was referred to the Committee on 
    Ways and Means, and in addition to the Committee on Energy and 
Commerce, 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 freeze and repeal portions of the tax cut enacted in the Economic 
 Growth and Tax Relief Reconciliation Act of 2001 and to apply savings 
  therefrom to a comprehensive Medicare outpatient prescription drug 
                                benefit.

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

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Honor Thy Parents Act of 2003''.

                        TITLE I--TAX PROVISIONS

SEC. 101. FREEZE AND REPEAL OF PORTIONS OF THE TAX CUT ENACTED IN THE 
              ECONOMIC GROWTH AND TAX RELIEF RECONCILIATION ACT OF 
              2001.

    Notwithstanding any provision of or amendment to the Internal 
Revenue Code of 1986 made by the Economic Growth and Tax Relief 
Reconciliation Act of 2001--
            (1) any reduction in any rate of tax made by any amendment 
        made by such Act which is scheduled to take effect for a year 
        after 2003, and
            (2) any increase in any deduction, limitation, or credit 
        made by any amendment made by such Act which is scheduled to 
        take effect for a year after 2003,
is hereby suspended. For any year for which the suspension is in effect 
under subsection (a), the Internal Revenue Code of 1986 and the 
Employee Retirement Income Security Act of 1974 shall be applied and 
administered as such Code and Act were in effect for years beginning in 
2003.

             TITLE II--MEDICARE PRESCRIPTION DRUG BENEFITS

SEC. 201. VOLUNTARY MEDICARE OUTPATIENT PRESCRIPTION MEDICINE PROGRAM.

    (a) In General.--Title XVIII (42 U.S.C. 1395 et seq.) is amended--
            (1) by redesignating section 1859 and part D as section 
        1858 and part E, respectively; and
            (2) by inserting after part C the following new part:

  ``Part D--Voluntary Prescription Medicine Benefit for the Aged and 
                                Disabled

          ``medicare outpatient prescription medicine benefit

    ``Sec. 1859. Subject to the succeeding provisions of this part, the 
voluntary prescription medicine benefit program under this part 
provides the following:
            ``(1) Premium.--The monthly premium is $25.
            ``(2) Deductible.--The annual deductible is $100.
            ``(3) Coinsurance.--The coinsurance is 20 percent.
            ``(4) Out-of-pocket limit.--The annual limit on out-of-
        pocket spending on covered medicines is $2,000.

      ``negotiating fair prices with pharmaceutical manufacturers

    ``Sec. 1859A. (a) Authority To Negotiate Prices With 
Manufacturers.--The Secretary shall, consistent with the requirements 
of this part and the goals of providing quality care and containing 
costs under this part, negotiate contracts with manufacturers of 
covered outpatient prescription medicines that provide for the maximum 
prices that may be charged to individuals enrolled under this part by 
participating pharmacies for dispensing such medicines to such 
individuals.
    ``(b) Promotion of Breakthrough Medicines.--In conducting 
negotiations with manufacturers under this part, the Secretary shall 
take into account the goal of promoting the development of breakthrough 
medicines (as defined in section 1859H(b)).

                          ``contract authority

    ``Sec. 1859B. (a) Contract Authority.--
            ``(1) In general.--The Secretary is responsible for the 
        administration of this part and shall enter into contracts with 
        appropriate pharmacy contractors on a national or regional 
        basis to administer the benefits under this part.
            ``(2) Procedures.--The Secretary shall establish procedures 
        under which the Secretary--
                    ``(A) accepts bids submitted by entities to serve 
                as pharmacy contractors under this part in a region or 
                on a national basis;
                    ``(B) awards contracts to such contractors to 
                administer benefits under this part to eligible 
                beneficiaries in the region or on a national basis; and
                    ``(C) provides for the termination (and nonrenewal) 
                of a contract in the case of a contractor's failure to 
                meet the requirements of the contract and this part.
            ``(3) Competitive procedures.--Competitive procedures (as 
        defined in section 4(5) of the Office of Federal Procurement 
        Policy Act (41 U.S.C. 403(5))) shall be used to enter into 
        contracts under this part.
            ``(4) Terms and conditions.--Such contracts shall have such 
        terms and conditions as the Secretary shall specify and shall 
        be for such terms (of at least 2 years, but not to exceed 5 
        years) as the Secretary shall specify consistent with this 
        part.
            ``(5) Use of pharmacy contractors in price negotiations.--
        Such contracts shall require the contractor involved to 
        negotiate contracts with manufacturers that provide for maximum 
        prices for covered outpatient prescription medicines that are 
        lower than the maximum prices negotiated under section 
        1859A(a), if applicable. The price reductions shall be passed 
        on to eligible beneficiaries and the Secretary shall hold the 
        contractor accountable for meeting performance requirements 
        with respect to price reductions and limiting price increases.
            ``(6) Area for contracts.--
                    ``(A) Regional basis.--
                            ``(i) In general.--Except as provided in 
                        clause (ii) and subject to subparagraph (B), 
                        the contract entered into between the Secretary 
                        and a pharmacy contractor shall require the 
                        contractor to administer the benefits under 
                        this part in a region determined by the 
                        Secretary under subparagraph (B) or on a 
                        national basis.
                            ``(ii) Partial regional basis.--
                                    ``(I) In general.--If determined 
                                appropriate by the Secretary, the 
                                Secretary may permit the benefits to be 
                                administered in a partial region 
                                determined appropriate by the 
                                Secretary.
                                    ``(II) Requirements.--If the 
                                Secretary permits administration 
                                pursuant to subclause (I), the 
                                Secretary shall ensure that the partial 
                                region in which administration is 
                                effected is no smaller than a State and 
                                is at least the size of the commercial 
                                service area of the contractor for that 
                                area.
                    ``(B) Determination.--
                            ``(i) In general.--In determining regions 
                        for contracts under this part, the Secretary 
                        shall--
                                    ``(I) take into account the number 
                                of individuals enrolled under this part 
                                in an area in order to encourage 
                                participation by pharmacy contractors; 
                                and
                                    ``(II) ensure that there are at 
                                least 10 different regions in the 
                                United States.
                            ``(ii) No administrative or judicial 
                        review.--The determination of administrative 
                        areas under this paragraph shall not be subject 
                        to administrative or judicial review.
            ``(7) Submission of bids.--
                    ``(A) Submission.--
                            ``(i) In general.--Subject to subparagraph 
                        (B), each entity desiring to serve as a 
                        pharmacy contractor under this part in an area 
                        shall submit a bid with respect to such area to 
                        the Secretary at such time, in such manner, and 
                        accompanied by such information as the 
                        Secretary may reasonably require.
                            ``(ii) Bid that covers multiple areas.--The 
                        Secretary shall permit an entity to submit a 
                        single bid for multiple areas if the bid is 
                        applicable to all such areas.
                    ``(B) Required information.--The bids described in 
                subparagraph (A) shall include--
                            ``(i) a proposal for the estimated prices 
                        of covered outpatient prescription medicines 
                        and the projected annual increases in such 
                        prices, including the additional reduction in 
                        price negotiated below the Secretary's maximum 
                        price and differentials between preferred and 
                        nonpreferred prices, if applicable;
                            ``(ii) a statement regarding the amount 
                        that the entity will charge the Secretary for 
                        administering the benefits under the contract;
                            ``(iii) a statement regarding whether the 
                        entity will reduce the applicable coinsurance 
                        percentage pursuant to section 
                        1859E(a)(1)(A)(ii) and if so, the amount of 
                        such reduction and how such reduction is tied 
                        to the performance requirements described in 
                        subsection (c)(4)(A)(ii);
                            ``(iv) a detailed description of the 
                        performance requirements for which the 
                        administrative fee of the entity will be 
                        subject to risk pursuant to subsection 
                        (c)(4)(A)(ii);
                            ``(v) a detailed description of access to 
                        pharmacy services provided by the entity, 
                        including information regarding whether the 
                        pharmacy contractor will use a preferred 
                        pharmacy network, and, if so, how the pharmacy 
                        contractor will ensure access to pharmacies 
                        that choose to be outside of that network, and 
                        whether there will be increased cost-sharing 
                        for beneficiaries if they obtain medicines at 
                        such pharmacies;
                            ``(vi) a detailed description of the 
                        procedures and standards the entity will use 
                        for--
                                    ``(I) selecting preferred 
                                prescription medicines; and
                                    ``(II) determining when and how 
                                often the list of preferred 
                                prescription medicines should be 
                                modified;
                            ``(vii) a detailed description of any 
                        ownership or shared financial interests with 
                        pharmaceutical manufacturers, pharmacies, and 
                        other entities involved in the administration 
                        or delivery of benefits under this part as 
                        proposed in the bid;
                            ``(viii) a detailed description of the 
                        entity's estimated marketing and advertising 
                        expenditures related to enrolling and retaining 
                        eligible beneficiaries; and
                            ``(ix) such other information that the 
                        Secretary determines is necessary in order to 
                        carry out this part, including information 
                        relating to the bidding process under this 
                        part.
                The procedures under clause (vi) shall include the use 
                of a pharmaceutical and therapeutics committee the 
                members of which include practicing pharmacists.
            ``(8) Awarding of contracts.--
                    ``(A) Number of contracts.--The Secretary shall, 
                consistent with the requirements of this part and the 
                goals of providing quality care and of containing costs 
                under this part, award in a competitive manner at least 
                2 contracts to administer benefits under this part in 
                each area specified under paragraph (6), unless only 1 
                pharmacy contractor submitting a bid meets the minimum 
                standards specified under this part and by the 
                Secretary.
                    ``(B) Determination.--In determining which of the 
                pharmacy contractors that submitted bids that meet the 
                minimum standards specified under this part and by the 
                Secretary to award a contract, the Secretary shall 
                consider the comparative merits of each bid, as 
                determined on the basis of relevant factors, with 
                respect to--
                            ``(i) how well the contractor meets such 
                        minimum standards;
                            ``(ii) the amount that the contractor will 
                        charge the Secretary for administering the 
                        benefits under the contract;
                            ``(iii) the performance standards 
                        established under subsection (c)(2) and 
                        performance requirements for which the 
                        administrative fee of the entity will be 
                        subject to risk pursuant to subsection 
                        (c)(4)(A)(ii);
                            ``(iv) the proposed negotiated prices of 
                        covered outpatient medicines and annual 
                        increases in such prices;
                            ``(v) factors relating to benefits, quality 
                        and performance, beneficiary cost-sharing, and 
                        consumer satisfaction;
                            ``(vi) past performance and prior 
                        experience of the contractor in administering a 
                        prescription medicine benefit program;
                            ``(vii) effectiveness of the contractor in 
                        containing costs through pricing incentives and 
                        utilization management; and
                            ``(viii) such other factors as the 
                        Secretary deems necessary to evaluate the 
                        merits of each bid.
                    ``(C) Exception to conflict of interest rules.--In 
                awarding contracts with pharmacy contractors under this 
                part, the Secretary may waive conflict of interest laws 
                generally applicable to Federal acquisitions (subject 
                to such safeguards as the Secretary may find necessary 
                to impose) in circumstances where the Secretary finds 
                that such waiver--
                            ``(i) is not inconsistent with the--
                                    ``(I) purposes of the programs 
                                under this part; or
                                    ``(II) best interests of 
                                beneficiaries enrolled under this part; 
                                and
                            ``(ii) permits a sufficient level of 
                        competition for such contracts, promotes 
                        efficiency of benefits administration, or 
                        otherwise serves the objectives of the program 
                        under this part.
                    ``(D) No administrative or judicial review.--The 
                determination of the Secretary to award or not award a 
                contract to a pharmacy contractor under this part shall 
                not be subject to administrative or judicial review.
            ``(9) Access to benefits in certain areas.--
                    ``(A) Areas not covered by contracts.--The 
                Secretary shall develop procedures for the provision of 
                covered outpatient prescription medicines under this 
                part to each eligible beneficiary enrolled under this 
                part that resides in an area that is not covered by any 
                contract under this part.
                    ``(B) Beneficiaries residing in different 
                locations.--The Secretary shall develop procedures to 
                ensure that each eligible beneficiary enrolled under 
                this part that resides in different areas in a year is 
                provided the benefits under this part throughout the 
                entire year.
    ``(b) Quality, Financial, and Other Standards and Programs.--In 
consultation with appropriate pharmacy contractors, pharmacists, and 
health care professionals with expertise in prescribing, dispensing, 
and the appropriate use of prescription medicines, the Secretary shall 
establish standards and programs for the administration of this part to 
ensure appropriate prescribing, dispensing, and utilization of 
outpatient medicines under this part, to avoid adverse medicine 
reactions, and to continually reduce errors in the delivery of 
medically appropriate covered benefits. The Secretary shall not award a 
contract to a pharmacy contractor under this part unless the Secretary 
finds that the contractor agrees to comply with such standards and 
programs and other terms and conditions as the Secretary shall specify. 
The standards and programs under this subsection shall be applied to 
any administrative agreements described in subsection (a) the Secretary 
enters into. Such standards and programs shall include the following:
            ``(1) Access.--
                    ``(A) In general.--The pharmacy contractor shall 
                ensure that covered outpatient prescription medicines 
                are accessible and convenient to eligible beneficiaries 
                enrolled under this part for whom benefits are 
                administered by the pharmacy contractor, including by 
                offering the services 24 hours a day and 7 days a week 
                for emergencies.
                    ``(B) On-line review.--The pharmacy contractor 
                shall provide for on-line prospective review available 
                24 hours a day and 7 days a week in order to evaluate 
                each prescription for medicine therapy problems due to 
                duplication, interaction, or incorrect dosage or 
                duration of therapy.
                    ``(C) Guaranteed access to medicines in rural and 
                hard-to-serve areas.--The Secretary shall ensure that 
                all beneficiaries have guaranteed access to the full 
                range of pharmaceuticals under this part, and shall 
                give special attention to access, pharmacist 
                counseling, and delivery in rural and hard-to-serve 
                areas, including through the use of incentives such as 
                bonus payments to retail pharmacists in rural areas and 
                extra payments to the pharmacy contractor for the cost 
                of rapid delivery of pharmaceuticals and any other 
                actions necessary.
                    ``(D) Preferred pharmacy networks.--
                            ``(i) In general.--If a pharmacy contractor 
                        uses a preferred pharmacy network to deliver 
                        benefits under this part, such network shall 
                        meet minimum access standards established by 
                        the Secretary.
                            ``(ii) Standards.--In establishing 
                        standards under clause (i), the Secretary shall 
                        take into account reasonable distances to 
                        pharmacy services in both urban and rural 
                        areas.
                    ``(E) Adherence to negotiated prices.--The pharmacy 
                contractor shall have in place procedures to assure 
                compliance of pharmacies with the requirements of 
                subsection (d)(3)(C) (relating to adherence to 
                negotiated prices).
                    ``(F) Continuity of care.--
                            ``(i) In general.--The pharmacy contractor 
                        shall ensure that, in the case of an eligible 
                        beneficiary who loses coverage under this part 
                        with such entity under circumstances that would 
                        permit a special election period (as 
                        established by the Secretary under section 
                        1859C(b)(3)), the contractor will continue to 
                        provide coverage under this part to such 
                        beneficiary until the beneficiary enrolls and 
                        receives such coverage with another pharmacy 
                        contractor under this part or, if eligible, 
                        with a Medicare+Choice organization.
                            ``(ii) Limited period.--In no event shall a 
                        pharmacy contractor be required to provide the 
                        extended coverage required under clause (i) 
                        beyond the date which is 30 days after the 
                        coverage with such contractor would have 
                        terminated but for this subparagraph.
            ``(2) Enrollee guidelines.--The pharmacy contractor shall, 
        consistent with State law, apply guidelines for counseling 
        enrollees regarding--
                    ``(A) the proper use of covered outpatient 
                prescription medicine: and
                    ``(B) interactions and contra-indications.
            ``(3) Education.--The pharmacy contractor shall apply 
        methods to identify and educate providers, pharmacists, and 
        enrollees regarding--
                    ``(A) instances or patterns concerning the 
                unnecessary or inappropriate prescribing or dispensing 
                of covered outpatient prescription medicines;
                    ``(B) instances or patterns of substandard care;
                    ``(C) potential adverse reactions to covered 
                outpatient prescription medicines;
                    ``(D) inappropriate use of antibiotics;
                    ``(E) appropriate use of generic products; and
                    ``(F) the importance of using covered outpatient 
                prescription medicines in accordance with the 
                instruction of prescribing providers.
            ``(4) Coordination.--The pharmacy contractor shall 
        coordinate with State prescription medicine programs, other 
        pharmacy contractors, pharmacies, and other relevant entities 
        as necessary to ensure appropriate coordination of benefits 
        with respect to enrolled individuals when such individual is 
        traveling outside the home service area, and under such other 
        circumstances as the Secretary may specify.
            ``(5) Cost data.--
                    ``(A) The pharmacy contractor shall make data on 
                prescription medicine negotiated prices (including data 
                on discounts) available to the Secretary.
                    ``(B) The Secretary shall require, either directly 
                or through a pharmacy contractor, that participating 
                pharmacists, physicians, and manufacturers--
                            ``(i) maintain their prescription medicine 
                        cost data (including data on discounts) in a 
                        form and manner specified by the Secretary;
                            ``(ii) make such prescription medicine cost 
                        data available for review and audit by the 
                        Secretary; and
                            ``(iii) certify that the prescription 
                        medicine cost data are current, accurate, and 
complete, and reflect all discounts obtained by the pharmacist or 
physician in the purchasing of covered outpatient prescription 
medicines.
        Discounts referred to in subparagraphs (A) and (B) shall 
        include all volume discounts, manufacturer rebates, prompt 
        payment discounts, free goods, in-kind services, or any other 
        thing of financial value provided explicitly or implicitly in 
        exchange for the purchase of a covered outpatient prescription 
        medicine.
            ``(6) Reporting.--The pharmacy contractor shall provide the 
        Secretary with periodic reports on--
                    ``(A) the contractor's costs of administering this 
                part;
                    ``(B) utilization of benefits under this part;
                    ``(C) marketing and advertising expenditures 
                related to enrolling and retaining individuals under 
                this part; and
                    ``(D) grievances and appeals.
            ``(7) Records and audits.--The pharmacy contractor shall 
        maintain adequate records related to the administration of 
        benefits under this part and afford the Secretary access to 
        such records for auditing purposes.
            ``(8) Approval of marketing material and application 
        forms.--The pharmacy contractor shall comply with requirements 
        of section 1851(h) (relating to marketing material and 
        application forms) with respect to this part in the same manner 
        as such requirements apply under part C, except that the 
        provisions of paragraph (4)(A) of such section shall not apply 
        with respect to discounts or rebates provided in accordance 
        with this part.
    ``(c) Incentives for Cost and Utilization Management and Quality 
Improvement.--
            ``(1) In general.--The Secretary shall include in a 
        contract awarded under subsection (b) with a pharmacy 
        contractor such incentives for cost and utilization management 
        and quality improvement as the Secretary may deem appropriate. 
        The contract may provide financial or other incentives to 
        encourage greater savings to the program under this part.
            ``(2) Performance standards.--The Secretary shall provide 
        for performance standards (which may include monetary bonuses 
        if the standards are met and penalties if the standards are not 
        met), including standards relating to the time taken to answer 
        member and pharmacy inquiries (written or by telephone), the 
        accuracy of responses, claims processing accuracy, online 
        system availability, appeal procedure turnaround time, system 
        availability, the accuracy and timeliness of reports, and level 
        of beneficiary satisfaction.
            ``(3) Other incentives.--Such incentives under this 
        subsection may also include--
                    ``(A) financial incentives under which savings 
                derived from the substitution of generic and other 
                preferred multi-source medicines in lieu of nongeneric 
                and nonpreferred medicines are made available to 
                pharmacy contractors, pharmacies, beneficiaries, and 
                the Federal Medicare Prescription Medicine Trust Fund; 
                and
                    ``(B) any other incentive that the Secretary deems 
                appropriate and likely to be effective in managing 
                costs or utilization or improving quality that does not 
                reduce the access of beneficiaries to medically 
                necessary covered outpatient medicines.
            ``(4) Requirements for procedures.--
                    ``(A) In general.--The Secretary shall establish 
                procedures for making payments to each pharmacy 
                contractor with a contract under this part for the 
                administration of the benefits under this part. The 
                procedures shall provide for the following:
                            ``(i) Administrative payment.--Payment of 
                        administrative fees for such administration.
                            ``(ii) Risk requirement.--An adjustment of 
                        a percentage (determined under subparagraph 
                        (B)) of the administrative fee payments made to 
                        a pharmacy contractor to ensure that the 
                        contractor, in administering the benefits under 
                        this part, pursues performance requirements 
                        established by the Secretary, including the 
                        following:
                                    ``(I) Quality service.--The 
                                contractor provides eligible 
                                beneficiaries for whom it administers 
                                benefits with quality services, as 
                                measured by such factors as sustained 
                                pharmacy network access, timeliness and 
                                accuracy of service delivery in claims 
                                processing and card production, 
                                pharmacy and member service support 
                                access, and timely action with regard 
                                to appeals and current beneficiary 
                                service surveys.
                                    ``(II) Quality clinical care.--The 
                                contractor provides such beneficiaries 
                                with quality clinical care, as measured 
                                by such factors as providing 
                                notification to such beneficiaries and 
                                to providers in order to prevent 
                                adverse drug reactions and reduce 
                                medication errors and specific clinical 
                                suggestions to improve health and 
                                patient and prescriber education as 
                                appropriate.
                                    ``(III) Control of medicare 
                                costs.--The contractor contains costs 
                                under this part to the Federal Medicare 
                                Prescription Medicine Trust Fund and 
                                enrollees, as measured by generic 
                                substitution rates, price discounts, 
                                and other factors determined 
                                appropriate by the Secretary that do 
                                not reduce the access of beneficiaries 
                                to medically necessary covered 
                                outpatient prescription medicines.
                    ``(B) Percentage of payment tied to risk.--
                            ``(i) In general.--Subject to clause (ii), 
                        the Secretary shall determine the percentage of 
                        the administrative payments to a pharmacy 
                        contractor that will be tied to the performance 
                        requirements described in subparagraph (A)(ii).
                            ``(ii) Limitation on risk to ensure program 
                        stability.--In order to provide for program 
                        stability, the Secretary may not establish a 
                        percentage to be adjusted under this paragraph 
                        at a level that jeopardizes the ability of a 
                        pharmacy contractor to administer the benefits 
                        under this part or administer such benefits in 
                        a quality manner.
                    ``(C) Risk adjustment of payments based on 
                enrollees in plan.--To the extent that a pharmacy 
                contractor is at risk under this paragraph, the 
                procedures established under this paragraph may include 
                a methodology for risk adjusting the payments made to 
                such contractor based on the differences in actuarial 
                risk of different enrollees being served if the 
                Secretary determines such adjustments to be necessary 
                and appropriate.
    ``(d) Authority Relating to Pharmacy Participation.--
            ``(1) In general.--Subject to the succeeding provisions of 
        this subsection, a pharmacy contractor may establish consistent 
        with this part conditions for the participation of pharmacies, 
        including conditions relating to quality (including reduction 
        of medical errors) and technology.
            ``(2) Agreements with pharmacies.--Each pharmacy contractor 
        shall enter into a participation agreement with any pharmacy 
        that meets the requirements of this subsection and section 
        1859E to furnish covered outpatient prescription medicines to 
        individuals enrolled under this part.
            ``(3) Terms of agreement.--An agreement under this 
        subsection shall include the following terms and conditions:
                    ``(A) Applicable requirements.--The pharmacy shall 
                meet (and throughout the contract period continue to 
                meet) all applicable Federal requirements and State and 
                local licensing requirements.
                    ``(B) Access and quality standards.--The pharmacy 
                shall comply with such standards as the Secretary (and 
                such a pharmacy contractor) shall establish concerning 
                the quality of, and enrolled individuals' access to, 
                pharmacy services under this part. Such standards shall 
                require the pharmacy--
                            ``(i) not to refuse to dispense covered 
                        outpatient prescription medicines to any 
                        individual enrolled under this part;
                            ``(ii) to keep patient records (including 
                        records on expenses) for all covered outpatient 
                        prescription medicines dispensed to such 
                        enrolled individuals;
                            ``(iii) to submit information (in a manner 
                        specified by the Secretary to be necessary to 
                        administer this part) on all purchases of such 
                        medicines dispensed to such enrolled 
                        individuals; and
                            ``(iv) to comply with periodic audits to 
                        assure compliance with the requirements of this 
                        part and the accuracy of information submitted.
                    ``(C) Adherence to negotiated prices.--(i) The 
                total charge for each medicine dispensed by the 
                pharmacy to an enrolled individual under this part, 
                without regard to whether the individual is financially 
                responsible for any or all of such charge, shall not 
                exceed the price negotiated under section 1859A(a) or, 
                if lower, negotiated under subsection (a)(5) (or, if 
                less, the retail price for the medicine involved) with 
                respect to such medicine plus a reasonable dispensing 
                fee determined contractually with the pharmacy 
                contractor.
                    ``(ii) The pharmacy does not charge (or collect 
                from) an enrolled individual an amount that exceeds the 
                individual's obligation (as determined in accordance 
                with the provisions of this part) of the applicable 
                price described in clause (i).
                    ``(D) Additional requirements.--The pharmacy shall 
                meet such additional contract requirements as the 
                applicable pharmacy contractor specifies under this 
                section.
            ``(4) Applicability of fraud and abuse provisions.--The 
        provisions of section 1128 through 1128C (relating to fraud and 
        abuse) apply to pharmacies participating in the program under 
        this part.

             ``eligibility; voluntary enrollment; coverage

    ``Sec. 1859C. (a) Eligibility.--Each individual who is entitled to 
hospital insurance benefits under part A or is eligible to be enrolled 
in the medical insurance program under part B is eligible to enroll in 
accordance with this section for outpatient prescription medicine 
benefits under this part.
    ``(b) Voluntary Enrollment.--
            ``(1) In general.--An individual may enroll under this part 
        only in such manner and form as may be prescribed by 
        regulations, and only during an enrollment period prescribed in 
        or under this subsection.
            ``(2) Initial enrollment period.--
                    ``(A) Individuals currently covered.--In the case 
                of an individual who satisfies subsection (a) as of 
                November 1, 2005, the initial general enrollment period 
                shall begin on August 1, 2005, and shall end on March 
                1, 2006.
                    ``(B) Individual covered in future.--In the case of 
                an individual who first satisfies subsection (a) on or 
                after November 1, 2005, the individual's initial 
                enrollment period shall begin on the first day of the 
                third month before the month in which such individual 
first satisfies such paragraph and shall end seven months later. The 
Secretary shall apply rules similar to the rule described in the second 
sentence of section 1837(d).
            ``(3) Special enrollment periods (without premium 
        penalty).--
                    ``(A) Employer coverage at time of initial general 
                enrollment period.--In the case of an individual who--
                            ``(i) at the time the individual first 
                        satisfies subsection (a) is enrolled in a group 
                        health plan (including continuation coverage) 
                        that provides outpatient prescription medicine 
                        coverage by reason of the individual's (or the 
                        individual's spouse's) current (or, in the case 
                        of continuation coverage, former) employment 
                        status, and
                            ``(ii) has elected not to enroll (or to be 
                        deemed enrolled) under this subsection during 
                        the individual's initial enrollment period,
                there shall be a special enrollment period of 6 months 
                beginning with the first month that includes the date 
                of the individual's (or individual's spouse's) 
                retirement from or termination of current employment 
                status with the employer that sponsors the plan, or, in 
                the case of continuation coverage, that includes the 
                date of termination of such coverage, or that includes 
                the date the plan substantially terminates outpatient 
                prescription medicine coverage.
                    ``(B) Dropping of retiree prescription medicine 
                coverage.--In the case of an individual who--
                            ``(i) at the time the individual first 
                        satisfies subsection (a) is enrolled in a group 
                        health plan that provides outpatient 
                        prescription medicine coverage other than by 
                        reason of the individual's (or the individual's 
                        spouse's) current employment; and
                            ``(ii) has elected not to enroll (or to be 
                        deemed enrolled) under this subsection during 
                        the individual's initial enrollment period,
                there shall be a special enrollment period of 6 months 
                beginning with the first month that includes the date 
                that the plan substantially terminates outpatient 
                prescription medicine coverage and ending 6 months 
                later.
                    ``(C) Loss of medicare+choice prescription medicine 
                coverage.--In the case of an individual who is enrolled 
                under part C in a Medicare+Choice plan that provides 
                prescription medicine benefits, if such enrollment is 
                terminated because of the termination or reduction in 
                service area of the plan, there shall be a special 
                enrollment period of 6 months beginning with the first 
                month that includes the date that such plan is 
                terminated or such reduction occurs and ending 6 months 
                later.
                    ``(D) Loss of medicaid prescription medicine 
                coverage.--In the case of an individual who--
                            ``(i) satisfies subsection (a);
                            ``(ii) loses eligibility for benefits (that 
                        include benefits for prescription medicine) 
                        under a State plan after having been enrolled 
                        (or determined to be eligible) for such 
                        benefits under such plan; and
                            ``(iii) is not otherwise enrolled under 
                        this subsection at the time of such loss of 
                        eligibility,
                there shall be a special enrollment period specified by 
                the Secretary of not less than 6 months beginning with 
                the first month that includes the date that the 
                individual loses such eligibility.
            ``(4) Late enrollment with premium penalty.--The Secretary 
        shall permit an individual who satisfies subsection (a) to 
        enroll other than during the initial enrollment period under 
        paragraph (2) or a special enrollment period under paragraph 
        (3). But, in the case of such an enrollment, the amount of the 
        monthly premium of the individual is subject to an increase 
        under section 1859C(e)(1).
            ``(5) Information.--
                    ``(A) In general.--The Secretary shall broadly 
                distribute information to individuals who satisfy 
                subsection (a) on the benefits provided under this 
                part. The Secretary shall periodically make available 
                information on the cost differentials to enrollees for 
                the use of generic medicines and other medicines.
                    ``(B) Toll-free hotline.--The Secretary shall 
                maintain a toll-free telephone hotline (which may be a 
                hotline already used by the Secretary under this title) 
                for purposes of providing assistance to beneficiaries 
                in the program under this part, including responding to 
                questions concerning coverage, enrollment, benefits, 
                grievances and appeals procedures, and other aspects of 
                such program.
            ``(6) Enrollee defined.--For purposes of this part, the 
        term `enrollee' means an individual enrolled for benefits under 
        this part.
    ``(c) Coverage Period.--
            ``(1) In general.--The period during which an individual is 
        entitled to benefits under this part (in this subsection 
        referred to as the individual's `coverage period') shall begin 
        on such a date as the Secretary shall establish consistent with 
        the type of coverage rules described in subsections (a) and (e) 
        of section 1838, except that in no case shall a coverage period 
        begin before January 1, 2006. No payments may be made under 
        this part with respect to the expenses of an individual unless 
        such expenses were incurred by such individual during a period 
        which, with respect to the individual, is a coverage period.
            ``(2) Termination.--The Secretary shall provide for the 
        application of provisions under this subsection similar to the 
        provisions in section 1838(b).
    ``(d) Provision of Benefits to Medicare+Choice Enrollees.--In the 
case of an individual who is enrolled under this part and is enrolled 
in a Medicare+Choice plan under part C, the individual shall be 
provided the benefits under this part through such plan and not through 
payment under this part.
    ``(e) Late Enrollment Penalties; Payment of Premiums.--
            ``(1) Late enrollment penalty.--
                    ``(A) In general.--In the case of a late enrollment 
                described in subsection (b)(4), subject to the 
                succeeding provisions of this paragraph, the Secretary 
                shall establish procedures for increasing the amount of 
                the monthly premium under this part applicable to such 
                enrollee by an amount that the Secretary determines is 
                actuarially sound for each such period.
                    ``(B) Periods taken into account.--For purposes of 
                calculating any 12-month period under subparagraph (A), 
                there shall be taken into account months of lapsed 
                coverage in a manner comparable to that applicable 
                under the second sentence of section 1839(b).
                    ``(C) Periods not taken into account.--
                            ``(i) In general.--For purposes of 
                        calculating any 12-month period under 
                        subparagraph (A), subject to clause (ii), there 
                        shall not be taken into account months for 
                        which the enrollee can demonstrate that the 
                        enrollee was covered under a group health plan 
                        that provides coverage of the cost of 
                        prescription medicines whose actuarial value 
                        (as defined by the Secretary) to the enrollee 
                        equals or exceeds the actuarial value of the 
                        benefits provided to an individual enrolled in 
                        the outpatient prescription medicine benefit 
                        program under this part.
                            ``(ii) Application.--This subparagraph 
                        shall only apply with respect to a coverage 
                        period the enrollment for which occurs before 
                        the end of the 60-day period that begins on the 
                        first day of the month which includes the date 
                        on which the plan terminates or reduces its 
                        service area (in a manner that results in 
                        termination of enrollment), ceases to provide, 
                        or reduces the value of the prescription 
                        medicine coverage under such plan to below the 
                        value of the coverage provided under the 
                        program under this part.
            ``(2) Incorporation of premium payment and government 
        contributions provisions.--The provisions of sections 1840 and 
        1844(a)(1) shall apply to enrollees under this part in the same 
        manner as they apply to individuals 65 years of age or older 
        enrolled under part B. For purposes of this subsection, any 
        reference in a section referred to in a previous subsection to 
        the Federal Supplementary Medical Insurance Trust Fund is 
        deemed a reference to the Federal Medicare Prescription 
        Medicine Trust Fund.
    ``(f) Election of Pharmacy Contractor To Administer Benefits.--The 
Secretary shall establish a process whereby each individual enrolled 
under this part and residing in a region may elect the pharmacy 
contractor that will administer the benefits under this part with 
respect to the individual. Such process shall permit the individual to 
make an initial election and to change such an election on at least an 
annual basis and under such other circumstances as the Secretary shall 
specify.

              ``provision of, and entitlement to, benefits

    ``Sec. 1859D. (a) Benefits.--Subject to the succeeding provisions 
of this section, the benefits provided to an enrollee by the program 
under this part shall consist of the following:
            ``(1) Covered outpatient prescription medicine benefits.--
        Entitlement to have payment made on the individual's behalf for 
        covered outpatient prescription medicines.
            ``(2) Limitation on cost-sharing for part b outpatient 
        prescription medicines.--
                    ``(A) In general.--Once an enrollee has incurred 
                aggregate countable cost-sharing (as defined in 
                subparagraph (B)) equal to the stop-loss limit 
                specified in subsection (c)(4) for expenses in a year, 
                entitlement to the elimination of cost-sharing 
                otherwise applicable under part B for additional 
                expenses incurred in the year for outpatient 
                prescription medicines or biologicals for which payment 
                is made under part B.
                    ``(B) Countable cost-sharing defined.--For purposes 
                of this part, the term `countable cost-sharing' means--
                            ``(i) out-of-pocket expenses for outpatient 
                        prescription medicines with respect to which 
                        benefits are payable under part B, and
                            ``(ii) cost-sharing under subsections 
                        (c)(3)(B) and (c)(3)(C)(i).
    ``(b) Covered Outpatient Prescription Medicine Defined.--
            ``(1) In general.--Except as provided in paragraph (2), for 
        purposes of this part the term `covered outpatient prescription 
        medicine' means any of the following products:
                    ``(A) A medicine which may be dispensed only upon 
                prescription, and--
                            ``(i) which is approved for safety and 
                        effectiveness as a prescription medicine under 
                        section 505 of the Federal Food, Drug, and 
                        Cosmetic Act;
                            ``(ii)(I) which was commercially used or 
                        sold in the United States before the date of 
                        enactment of the Drug Amendments of 1962 or 
                        which is identical, similar, or related (within 
                        the meaning of section 310.6(b)(1) of title 21 
                        of the Code of Federal Regulations) to such a 
                        medicine, and
                            (II) which has not been the subject of a 
                        final determination by the Secretary that it is 
                        a `new drug' (within the meaning of section 
                        201(p) of the Federal Food, Drug, and Cosmetic 
Act) or an action brought by the Secretary under section 301, 302(a), 
or 304(a) of such Act to enforce section 502(f) or 505(a) of such Act; 
or
                            ``(iii)(I) which is described in section 
                        107(c)(3) of the Drug Amendments of 1962 and 
                        for which the Secretary has determined there is 
                        a compelling justification for its medical 
                        need, or is identical, similar, or related 
                        (within the meaning of section 310.6(b)(1) of 
                        title 21 of the Code of Federal Regulations) to 
                        such a medicine, and
                            (II) for which the Secretary has not issued 
                        a notice of an opportunity for a hearing under 
                        section 505(e) of the Federal Food, Drug, and 
                        Cosmetic Act on a proposed order of the 
                        Secretary to withdraw approval of an 
                        application for such medicine under such 
                        section because the Secretary has determined 
                        that the medicine is less than effective for 
                        all conditions of use prescribed, recommended, 
                        or suggested in its labeling.
                    ``(B) A biological product which--
                            ``(i) may only be dispensed upon 
                        prescription;
                            ``(ii) is licensed under section 351 of the 
                        Public Health Service Act; and
                            ``(iii) is produced at an establishment 
                        licensed under such section to produce such 
                        product.
                    ``(C) Insulin approved under appropriate Federal 
                law, and needles, syringes, and disposable pumps for 
                the administration of such insulin.
                    ``(D) A prescribed medicine or biological product 
                that would meet the requirements of subparagraph (A) or 
                (B) but that is available over-the-counter in addition 
                to being available upon prescription, but only if the 
                particular dosage form or strength prescribed and 
                required for the individual is not available over-the-
                counter.
                    ``(E) Smoking cessation agents (as specified by the 
                Secretary).
            ``(2) Exclusion.--The term `covered outpatient prescription 
        medicine' does not include--
                    ``(A) medicines or classes of medicines, or their 
                medical uses, which may be excluded from coverage or 
                otherwise restricted under section 1927(d)(2), other 
                than subparagraph (E) thereof (relating to smoking 
                cessation agents), as the Secretary may specify and 
                does not include such other medicines, classes, and 
                uses as the Secretary may specify consistent with the 
                goals of providing quality care and containing costs 
                under this part;
                    ``(B) except as provided in paragraphs (1)(D) and 
                (1)(E), any product which may be distributed to 
                individuals without a prescription;
                    ``(C) any product when furnished as part of, or as 
                incident to, a diagnostic service or any other item or 
                service for which payment may be made under this title; 
                or
                    ``(D) any product that is covered under part B of 
                this title.
    ``(c) Payment of Benefits.--
            ``(1) Covered outpatient prescription medicines.--There 
        shall be paid from the Federal Medicare Prescription Medicine 
        Trust Fund, in the case of each enrollee who incurs expenses 
        for medicines with respect to which benefits are payable under 
        this part under subsection (a)(1), amounts equal to the sum 
        of--
                    ``(A) the price for which the medicine is made 
                available under this part (consistent with sections 
                1859A and 1859B), reduced by any applicable cost-
                sharing under paragraphs (2) and (3); and
                    ``(B) a reasonable dispensing fee.
        The price under subparagraph (A) shall in no case exceed the 
        retail price for the medicine involved.
            ``(2) Deductible.--The amount of payment under paragraph 
        (1) for expenses incurred in a year, beginning with 2006, shall 
        be reduced by an annual deductible equal to the amount 
        specified in section 1859(2) (subject to adjustment under 
        paragraph (8)). Only expenses for countable cost-sharing (as 
        defined in subsection (a)(2)(B)) shall be taken into account in 
        applying this paragraph.
            ``(3) Coinsurance.--
                    ``(A) In general.--The amount of payment under 
                paragraph (1) for expenses incurred in a year shall be 
                further reduced (subject to the stop-loss limit under 
                paragraph (4)) by coinsurance as provided under this 
                paragraph.
                    ``(B) Preferred medicines.--The coinsurance under 
                this paragraph in the case of a preferred medicine 
                (including a medicine treated as a preferred medicine 
                under paragraph (5)), is equal to 20 percent of the 
                price applicable under paragraph (1)(A) (or such lower 
                percentage as may be provided for under section 
                1859E(a)(1)(A)(ii)). In this part, the term `preferred 
                medicine' means, with respect to medicines classified 
                within a therapeutic class, those medicines which have 
                been designated as a preferred medicine by the 
                Secretary or the pharmacy contractor involved with 
                respect to that class and (in the case of a nongeneric 
                medicine) with respect to which a contract has been 
                negotiated under this part.
                    ``(C) Nonpreferred medicines.--The coinsurance 
                under this paragraph in the case of a nonpreferred 
                medicine that is not treated as a preferred medicine 
                under paragraph (5) is equal to the sum of--
                            ``(i) 20 percent of the price for lowest 
                        price preferred medicine that is within the 
                        same therapeutic class; and
                            ``(ii) the amount by which--
                                    ``(I) the price at which the 
                                nonpreferred medicine is made available 
                                to the enrollee; exceeds
                                    ``(II) the price of such lowest 
                                price preferred medicine.
            ``(4) No coinsurance once out-of-pocket expenditures equal 
        stop-loss limit.--Once an enrollee has incurred aggregate 
        countable cost-sharing under paragraph (3) (including cost-
        sharing under part B attributable to outpatient prescription 
        drugs or biologicals) equal to the amount specified in section 
        1859(4) (subject to adjustment under paragraph (8)) for 
        expenses in a year--
                    ``(A) there shall be no coinsurance under paragraph 
                (3) for additional expenses incurred in the year 
                involved; and
                    ``(B) there shall be no coinsurance under part B 
                for additional expenses incurred in the year involved 
                for outpatient prescription drugs and biologicals.
            ``(5) Appeals rights relating to coverage of nonpreferred 
        medicines.--
                    ``(A) Procedures regarding the determination of 
                medicines that are medically necessary.--Each pharmacy 
                contractor shall have in place procedures on a case-by-
                case basis to treat a nonpreferred medicine as a 
                preferred medicine under this part if the preferred 
                medicine is determined to be not as effective for the 
                enrollee or to have significant adverse effect on the 
                enrollee. Such procedures shall require that such 
                determinations are based on professional medical 
                judgment, the medical condition of the enrollee, and 
                other medical evidence.
                    ``(B) Procedures regarding denials of care.--Such 
                contractor shall have in place procedures to ensure--
                            ``(i) a timely internal review for 
                        resolution of denials of coverage (in whole or 
                        in part and including those regarding the 
                        coverage of nonpreferred medicines) in 
                        accordance with the medical exigencies of the 
                        case and a timely resolution of complaints, by 
                        enrollees in the plan, or by providers, 
                        pharmacists, and other individuals acting on 
                        behalf of each such enrollee (with the 
                        enrollee's consent) in accordance with 
                        requirements (as established by the Secretary) 
                        that are comparable to such requirements for 
                        Medicare+Choice organizations under part C;
                            ``(ii) that the entity complies in a timely 
                        manner with requirements established by the 
                        Secretary that (I) provide for an external 
                        review by an independent entity selected by the 
                        Secretary of denials of coverage described in 
                        clause (i) not resolved in the favor of the 
                        beneficiary (or other complainant) under the 
                        process described in such clause and (II) are 
                        comparable to the external review requirements 
                        established for Medicare+Choice organizations 
                        under part C; and
                            ``(iii) that enrollees are provided with 
                        information regarding the appeals procedures 
                        under this part at the time of enrollment with 
                        a pharmacy contractor under this part and upon 
                        request thereafter.
            ``(6) Transfer of funds to cover costs of part b 
        prescription medicine catastrophic benefit.--With respect to 
        benefits described in subsection (a)(2), there shall 
        transferred from the Federal Medicare Prescription Medicine 
        Trust Fund to the Federal Supplementary Medical Insurance Trust 
        Fund amounts equivalent to the elimination of cost-sharing 
        described in such subsection.
            ``(7) Permitting application under part b of negotiated 
        prices.--For purposes of making payment under part B for 
        medicines that would be covered outpatient prescription 
        medicines but for the exclusion under subparagraph (B) or (C) 
        of subsection (b)(2), the Secretary may elect to apply the 
        payment basis used for payment of covered outpatient 
        prescription medicines under this part instead of the payment 
        basis otherwise used under such part, if it results in a lower 
        cost to the program.
            ``(8) Inflation adjustment.--
                    ``(A) In general.--With respect to expenses 
                incurred in a year after 2006--
                            ``(i) the deductible under paragraph (2) is 
                        equal to the deductible determined under such 
                        paragraph (or this subparagraph) for the 
                        previous year increased by the percentage 
                        increase in per capita program expenditures (as 
                        estimated in advance for the year involved 
                        under subparagraph (B)); and
                            ``(ii) the stop-loss limit under paragraph 
                        (3) is equal to the stop-loss limit determined 
                        under such paragraph (or this subparagraph) for 
                        the previous year increased by such percentage 
                        increase.
                The Secretary shall adjust such percentage increase in 
                subsequent years to take into account misestimations 
                made of the per capita program expenditures under 
                clauses (i) and (ii) in previous years. Any increase 
                under this subparagraph that is not a multiple of $10 
                shall be rounded to the nearest multiple of $10.
                    ``(B) Estimation of increase in per capita program 
                expenditures.--The Secretary shall before the beginning 
                of each year (beginning with 2007) estimate the 
                percentage increase in average per capita aggregate 
                expenditures from the Federal Medicare Prescription 
                Medicine Trust Fund for the year involved compared to 
                the previous year.
                    ``(C) Reconciliation.--The Secretary shall also 
                compute (beginning with 2008) the actual percentage 
                increase in such aggregate expenditures in order to 
                provide for reconciliation of deductibles, stop-loss 
                limits, and premiums under the second sentence of 
                subparagraph (A) and under section 1859D(d)(2).
    ``(d) Amount of Premiums.--
            ``(1) Monthly premium rate in 2006.--The monthly premium 
        rate in 2006 for prescription medicine benefits under this part 
        is the amount specified in section 1859(1).
            ``(2) Inflation adjustment for subsequent years.--The 
        monthly premium rate for a year after 2006 for prescription 
        medicine benefits under this part is equal to the monthly 
        premium rate for the previous year under this subsection 
        increased by the percentage increase in per capita program 
        expenditures (as estimated in advance for the year involved 
        under subsection (c)(8)(B)). The Secretary shall adjust such 
        percentage in subsequent years to take into account 
        misestimations made of the per capita program expenditures 
        under the previous sentence in previous years. Any increase 
        under this paragraph that is not a multiple of $1 shall be 
        rounded to the nearest multiple of $1.

                  ``administration; quality assurance

    ``Sec. 1859E. (a) Rules Relating to Provision of Benefits.--
            ``(1) Provision of benefits.--
                    ``(A) In general.--In providing benefits under this 
                part, the Secretary (directly or through the contracts 
                with pharmacy contractors) shall employ mechanisms to 
                provide benefits appropriately and efficiently, and 
                those mechanisms may include--
                            ``(i) the use of--
                                    ``(I) price negotiations 
                                (consistent with subsection (b));
                                    ``(II) reduced coinsurance (below 
                                20 percent) to encourage the 
                                utilization of appropriate preferred 
                                medicines; and
                                    ``(III) methods to reduce 
                                medication errors and encourage 
                                appropriate use of medications; and
                            ``(ii) permitting pharmacy contractors, as 
                        approved by the Secretary, to make exceptions 
                        to section 1859D(c)(3)(C) (relating to cost-
                        sharing for non-preferred medicines) to secure 
                        best prices for enrollees so long as the 
                        payment amount under section 1859D(c)(1) does 
                        not equal zero.
                    ``(B) Construction.--Nothing in this subsection 
                shall be construed to prevent the Secretary (directly 
                or through the contracts with pharmacy contractors) 
                from using incentives to encourage enrollees to select 
                generic or other cost-effective medicines, so long as--
                            ``(i) such incentives are designed not to 
                        result in any increase in the aggregate 
                        expenditures under the Federal Medicare 
                        Prescription Medicine Trust Fund; and
                            ``(ii) a beneficiary's coinsurance shall be 
                        no greater than 20 percent in the case of a 
                        preferred medicine (including a nonpreferred 
                        medicine treated as a preferred medicine under 
                        section 1859D(c)(5)).
            ``(2) Construction.--Nothing in this part shall preclude 
        the Secretary or a pharmacy contractor from--
                    ``(A) educating prescribing providers, pharmacists, 
                and enrollees about medical and cost benefits of 
                preferred medicines;
                    ``(B) requesting prescribing providers to consider 
                a preferred medicine prior to dispensing of a 
                nonpreferred medicine, as long as such request does not 
                unduly delay the provision of the medicine;
                    ``(C) using mechanisms to encourage enrollees under 
                this part to select cost-effective medicines or less 
                costly means of receiving or administering medicines, 
                including the use of therapeutic interchange programs, 
                disease management programs, and notification to the 
                beneficiary that a more affordable generic medicine 
                equivalent was not selected by the prescribing provider 
                and a statement of the lost cost savings to the 
                beneficiary;
                    ``(D) using price negotiations to achieve reduced 
                prices on covered outpatient prescription medicines, 
                including new medicines, medicines for which there are 
                few therapeutic alternatives, and medicines of 
                particular clinical importance to individuals enrolled 
                under this part; and
                    ``(E) utilizing information on medicine prices of 
                OECD countries and of other payors in the United States 
                in the negotiation of prices under this part.
    ``(b) Price Negotiations Process.--
            ``(1) Requirements with respect to preferred medicines.--
        Negotiations of contracts with manufacturers with respect to 
        covered outpatient prescription medicines under this part shall 
be conducted in a manner so that--
                    ``(A) there is at least a contract for a medicine 
                within each therapeutic class (as defined by the 
                Secretary in consultation with such Medicare 
                Prescription Medicine Advisory Committee);
                    ``(B) if there is more than 1 medicine available in 
                a therapeutic class, there are contracts for at least 2 
                medicines within such class unless determined 
                clinically inappropriate in accordance with standards 
                established by the Secretary; and
                    ``(C) if there are more than 2 medicines available 
                in a therapeutic class, there is a contract for at 
                least 2 medicines within such class and a contract for 
                generic medicine substitute if available unless 
                determined clinically inappropriate in accordance with 
                standards established by the Secretary.
            ``(2) Establishment of therapeutic classes.--The Secretary, 
        in consultation with the Medicare Prescription Medicine 
        Advisory Committee (established under section 1859H), shall 
        establish for purposes of this part therapeutic classes and 
        assign to such classes covered outpatient prescription 
        medicines.
            ``(3) Disclosure concerning preferred medicines.--The 
        Secretary shall provide, through pharmacy contractors or 
        otherwise, for--
                    ``(A) disclosure to current and prospective 
                enrollees and to participating providers and pharmacies 
                in each service area a list of the preferred medicines 
                and differences in applicable cost-sharing between such 
                medicines and nonpreferred medicines; and
                    ``(B) advance disclosure to current enrollees and 
                to participating providers and pharmacies in each 
                service area of changes to any such list of preferred 
                medicines and differences in applicable cost-sharing.
            ``(4) No review.--The Secretary's establishment of 
        therapeutic classes and the assignment of medicines to such 
        classes and the Secretary's determination of what is a 
        breakthrough medicine are not subject to administrative or 
        judicial review.
    ``(c) Confidentiality.--The Secretary shall ensure that the 
confidentiality of individually identifiable health information 
relating to the provision of benefits under this part is protected, 
consistent with the standards for the privacy of such information 
promulgated by the Secretary under the Health Insurance Portability and 
Accountability Act of 1996, or any subsequent comprehensive and more 
protective set of confidentiality standards enacted into law or 
promulgated by the Secretary. Nothing in this subsection shall be 
construed as preventing the coordination of data with a State 
prescription medicine program so long as such program has in place 
confidentiality standards that are equal to or exceed the standards 
used by the Secretary.
    ``(d) Fraud and Abuse Safeguards.--The Secretary, through the 
Office of the Inspector General, is authorized and directed to issue 
regulations establishing appropriate safeguards to prevent fraud and 
abuse under this part. Such safeguards, at a minimum, should include 
compliance programs, certification data, audits, and recordkeeping 
practices. In developing such regulations, the Secretary shall consult 
with the Attorney General and other law enforcement and regulatory 
agencies.

          ``federal medicare prescription medicine trust fund

    ``Sec. 1859F. (a) Establishment.--There is hereby created on the 
books of the Treasury of the United States a trust fund to be known as 
the `Federal Medicare Prescription Medicine Trust Fund' (in this 
section referred to as the `Trust Fund'). The Trust Fund shall consist 
of the following:
            ``(1) Amounts estimated by the Secretary of the Treasury 
        that would have been paid from the general fund of the Treasury 
        but for the amendments and repeals made by section 101 of the 
        Honor Thy Parents Act of 2003.
            ``(2) Such gifts and bequests as may be made as provided in 
        section 201(i)(1).
            ``(3) Such amounts as may be deposited in, or appropriated 
        to, such fund as provided in this part.
    ``(b) Application of SMI Trust Fund Provisions.--The provisions of 
subsections (b) through (i) of section 1841 shall apply to this part 
and the Trust Fund in the same manner as they apply to part B and the 
Federal Supplementary Medical Insurance Trust Fund, respectively.

      ``compensation for employers covering retiree medicine costs

    ``Sec. 1859G. (a) In General.--In the case of an individual who is 
eligible to be enrolled under this part and is a participant or 
beneficiary under a group health plan that provides outpatient 
prescription medicine coverage to retirees the actuarial value of which 
is not less than the actuarial value of the coverage provided under 
this part, the Secretary shall make payments to such plan subject to 
the provisions of this section. Such payments shall be treated as 
payments under this part for purposes of sections 1859F and 
1859C(e)(2). In applying the previous sentence with respect to section 
1859C(e)(2), the amount of the Government contribution referred to in 
section 1844(a)(1)(A) is deemed to be equal to the aggregate amount of 
the payments made under this section.
    ``(b) Requirements.--To receive payment under this section, a group 
health plan shall comply with the following requirements:
            ``(1) Compliance with requirements.--The group health plan 
        shall comply with the requirements of this Act and other 
        reasonable, necessary, and related requirements that are needed 
        to administer this section, as determined by the Secretary.
            ``(2) Annual assurances and notice before termination.--The 
        sponsor of the plan shall--
                    ``(A) annually attest, and provide such assurances 
                as the Secretary may require, that the coverage offered 
                under the group health plan meets the requirements of 
                this section and will continue to meet such 
                requirements for the duration of the sponsor's 
                participation in the program under this section; and
                    ``(B) guarantee that it will give notice to the 
                Secretary and covered enrollees--
                            ``(i) at least 120 days before terminating 
                        its plan, and
                            ``(ii) immediately upon determining that 
                        the actuarial value of the prescription 
                        medicine benefit under the plan falls below the 
                        actuarial value required under subsection (a).
            ``(3) Beneficiary information.--The sponsor of the plan 
        shall report to the Secretary, for each calendar quarter for 
        which it seeks a payment under this section, the names and 
        social security numbers of all enrollees described in 
        subsection (a) covered under such plan during such quarter and 
        the dates (if less than the full quarter) during which each 
        such individual was covered.
            ``(4) Audits.--The sponsor or plan seeking payment under 
        this section shall agree to maintain, and to afford the 
        Secretary access to, such records as the Secretary may require 
        for purposes of audits and other oversight activities necessary 
        to ensure the adequacy of prescription medicine coverage, the 
        accuracy of payments made, and such other matters as may be 
        appropriate.
    ``(c) Payment.--
            ``(1) In general.--The sponsor of a group health plan that 
        meets the requirements of subsection (b) with respect to a 
        quarter in a calendar year shall be entitled to have payment 
        made on a quarterly basis of the amount specified in paragraph 
        (2) for each individual described in subsection (a) who during 
        the quarter is covered under the plan and was not enrolled in 
        the insurance program under this part.
            ``(2) Amount of payment.--
                    ``(A) In general.--The amount of the payment for a 
                quarter shall approximate, for each such covered 
                individual, \2/3\ of the sum of the monthly Government 
                contribution amounts (computed under subparagraph (B)) 
                for each of the 3 months in the quarter.
                    ``(B) Computation of monthly government 
                contribution amount.--For purposes of subparagraph (A), 
                the monthly Government contribution amount for a month 
                in a year is equal to the amount by which--
                            ``(i) \1/12\ of the average per capita 
                        aggregate expenditures, as estimated under 
                        section 1859D(c)(8) for the year involved; 
                        exceeds
                            ``(ii) the monthly premium rate under 
                        section 1859D(d) for the month involved.

          ``medicare prescription medicine advisory committee

    ``Sec. 1859H. (a) Establishment of Committee.--There is established 
a Medicare Prescription Medicine Advisory Committee (in this section 
referred to as the `Committee').
    ``(b) Functions of Committee.--The Committee shall advise the 
Secretary on policies related to--
            ``(1) the development of guidelines for the implementation 
        and administration of the outpatient prescription medicine 
        benefit program under this part; and
            ``(2) the development of--
                    ``(A) standards required of pharmacy contractors 
                under section 1859D(c)(5) for determining if a medicine 
                is as effective for an enrollee or has a significant 
                adverse effect on an enrollee under this part;
                    ``(B) standards for--
                            ``(i) defining therapeutic classes;
                            ``(ii) adding new therapeutic classes;
                            ``(iii) assigning to such classes covered 
                        outpatient prescription medicines; and
                            ``(iv) identifying breakthrough medicines;
                    ``(C) procedures to evaluate the bids submitted by 
                pharmacy contractors under this part;
                    ``(D) procedures for negotiations, and standards 
                for entering into contracts, with manufacturers, 
                including identifying medicines or classes of medicines 
                where Secretarial negotiation is most likely to yield 
                savings under this part significantly above those that 
                which could be achieved by a pharmacy contractor; and
                    ``(E) procedures to ensure that pharmacy 
                contractors with a contract under this part are in 
                compliance with the requirements under this part.
For purposes of this part, a medicine is a `breakthrough medicine' if 
the Secretary, in consultation with the Committee, determines it is a 
new product that will make a significant and major improvement by 
reducing physical or mental illness, reducing mortality, or reducing 
disability, and that no other product is available to beneficiaries 
that achieves similar results for the same condition. The Committee may 
consider cost-effectiveness in establishing standards for defining 
therapeutic classes and assigning drugs to such classes under 
subparagraph (B).
    ``(c) Structure and Membership of the Committee.--
            ``(1) Structure.--The Committee shall be composed of 19 
        members who shall be appointed by the Secretary.
            ``(2) Membership.--
                    ``(A) In general.--The members of the Committee 
                shall be chosen on the basis of their integrity, 
                impartiality, and good judgment, and shall be 
                individuals who are, by reason of their education, 
                experience, and attainments, exceptionally qualified to 
                perform the duties of members of the Committee.
                    ``(B) Specific members.--Of the members appointed 
                under paragraph (1)--
                            ``(i) 5 shall be chosen to represent 
                        practicing physicians, 2 of whom shall be 
                        gerontologists;
                            ``(ii) 2 shall be chosen to represent 
                        practicing nurse practitioners;
                            ``(iii) 4 shall be chosen to represent 
                        practicing pharmacists;
                            ``(iv) 1 shall be chosen to represent the 
                        Centers for Medicare & Medicaid Services;
                            ``(v) 4 shall be chosen to represent 
                        actuaries, pharmacoeconomists, researchers, and 
                        other appropriate experts;
                            ``(vi) 1 shall be chosen to represent 
                        emerging medicine technologies;
                            ``(vii) 1 shall be chosen to represent the 
                        Food and Drug Administration; and
                            ``(viii) 1 shall be chosen to represent 
                        individuals enrolled under this part.
    ``(d) Terms of Appointment.--Each member of the Committee shall 
serve for a term determined appropriate by the Secretary. The terms of 
service of the members initially appointed shall begin on January 1, 
2005.
    ``(e) Chairperson.--The Secretary shall designate a member of the 
Committee as Chairperson. The term as Chairperson shall be for a 1-year 
period.
    ``(f) Committee Personnel Matters.--
            ``(1) Members.--
                    ``(A) Compensation.--Each member of the Committee 
                who is not an officer or employee of the Federal 
                Government shall be compensated at a rate equal to the 
                daily equivalent of the annual rate of basic pay 
                prescribed for level IV of the Executive Schedule under 
                section 5315 of title 5, United States Code, for each 
                day (including travel time) during which such member is 
                engaged in the performance of the duties of the 
                Committee. All members of the Committee who are 
                officers or employees of the United States shall serve 
                without compensation in addition to that received for 
                their services as officers or employees of the United 
                States.
                    ``(B) Travel expenses.--The members of the 
                Committee shall be allowed travel expenses, including 
                per diem in lieu of subsistence, at rates authorized 
                for employees of agencies under subchapter I of chapter 
                57 of title 5, United States Code, while away from 
                their homes or regular places of business in the 
                performance of services for the Committee.
            ``(2) Staff.--The Committee may appoint such personnel as 
        the Committee considers appropriate.
    ``(g) Operation of the Committee.--
            ``(1) Meetings.--The Committee shall meet at the call of 
        the Chairperson (after consultation with the other members of 
        the Committee) not less often than quarterly to consider a 
        specific agenda of issues, as determined by the Chairperson 
        after such consultation.
            ``(2) Quorum.--Ten members of the Committee shall 
        constitute a quorum for purposes of conducting business.
    ``(h) Federal Advisory Committee Act.--Section 14 of the Federal 
Advisory Committee Act (5 U.S.C. App.) shall not apply to the 
Committee.
    ``(i) Transfer of Personnel, Resources, and Assets.--For purposes 
of carrying out its duties, the Secretary and the Committee may provide 
for the transfer to the Committee of such civil service personnel in 
the employ of the Department of Health and Human Services (including 
the Centers for Medicare & Medicaid Services), and such resources and 
assets of the Department used in carrying out this title, as the 
Committee requires.
    ``(j) Authorization of Appropriations.--There are authorized to be 
appropriated such sums as may be necessary to carry out the purposes of 
this section.''.
    (b) Application of General Exclusions From Coverage.--
            (1) Application to part d.--Section 1862(a) (42 U.S.C. 
        1395y(a)) is amended in the matter preceding paragraph (1) by 
        striking ``part A or part B'' and inserting ``part A, B, or 
        D''.
            (2) Prescription medicines not excluded from coverage if 
        appropriately prescribed.--Section 1862(a)(1) (42 U.S.C. 
        1395y(a)(1)) is amended--
                    (A) in subparagraph (H), by striking ``and'' at the 
                end;
                    (B) in subparagraph (I), by striking the semicolon 
                at the end and inserting ``, and''; and
                    (C) by adding at the end the following new 
                subparagraph:
                    ``(J) in the case of prescription medicines covered 
                under part D, which are not prescribed in accordance 
                with such part;''.
    (c) Conforming Amendments.--(1) Part C of title XVIII is amended--
            (A) in section 1851(a)(2)(B) (42 U.S.C. 1395w-21(a)(2)(B)), 
        by striking ``1859(b)(3)'' and inserting ``1858(b)(3)'';
            (B) in section 1851(a)(2)(C) (42 U.S.C. 1395w-21(a)(2)(C)), 
        by striking ``1859(b)(2)'' and inserting ``1858(b)(2)'';
            (C) in section 1852(a)(1) (42 U.S.C. 1395w-22(a)(1)), by 
        striking ``1859(b)(3)'' and inserting ``1858(b)(3)'';
            (D) in section 1852(a)(3)(B)(ii) (42 U.S.C. 1395w-
        22(a)(3)(B)(ii)), by striking ``1859(b)(2)(B)'' and inserting 
        ``1858(b)(2)(B)'';
            (E) in section 1853(a)(1)(A) (42 U.S.C. 1395w-23(a)(1)(A)), 
        by striking ``1859(e)(4)'' and inserting ``1858(e)(4)''; and
            (F) in section 1853(a)(3)(D) (42 U.S.C. 1395w-23(a)(3)(D)), 
        by striking ``1859(e)(4)'' and inserting ``1858(e)(4)''.
    (2) Section 1171(a)(5)(D) (42 U.S.C. 1320d(a)(5)(D)) is amended by 
striking ``or (C)'' and inserting ``(C), or (D)''.

SEC. 202. PROVISION OF MEDICARE OUTPATIENT PRESCRIPTION MEDICINE 
              COVERAGE UNDER THE MEDICARE+CHOICE PROGRAM.

    (a) Requiring Availability of an Actuarially Equivalent 
Prescription Medicine Benefit.--Section 1851 (42 U.S.C. 1395w-21) is 
amended by adding at the end the following new subsection:
    ``(j) Availability of Prescription Medicine Benefits.--
            ``(1) In general.--Notwithstanding any other provision of 
        this part, each Medicare+Choice organization that makes 
        available a Medicare+Choice plan described in section 
        1851(a)(2)(A) shall make available such a plan that offers 
        coverage of covered outpatient prescription medicines that is 
        at least actuarially equivalent to the benefits provided under 
        part D. Information respecting such benefits shall be made 
        available in the same manner as information on other benefits 
        provided under this part is made available. Nothing in this 
        paragraph shall be construed as requiring the offering of such 
        coverage separate from coverage that includes benefits under 
        parts A and B.
            ``(2) Treatment of prescription medicine enrollees.--In the 
        case of a Medicare+Choice eligible individual who is enrolled 
        under part D, the benefits described in paragraph (1) shall be 
        treated in the same manner as benefits described in part B for 
        purposes of coverage and payment and any reference in this part 
        to the Federal Supplementary Medical Insurance Trust Fund shall 
        be deemed, with respect to such benefits, to be a reference to 
        the Federal Medicare Prescription Medicine Trust Fund.''.
    (b) Application of Quality Standards.--Section 1852(e)(2)(A) (42 
U.S.C. 1395w-22(e)(2)(A)) is amended--
            (1) by striking ``and'' at the end of clause (xi);
            (2) by striking the period at the end of clause (xii) and 
        inserting ``, and''; and
            (3) by adding at the end the following new clause:
                            ``(xiii) comply with the standards, and 
                        apply the programs, under section 1859B(b) for 
                        covered outpatient prescription medicines under 
                        the plan.''.
    (c) Payment Separate From Payment for Part A and B Benefits.--
Section 1853 (42 U.S.C. 1395w-23) is amended--
            (1) in subsection (a)(1)(A), by striking ``and (i)'' and 
        inserting ``(i), and (j)''; and
            (2) by adding at the end the following new subsection:
    ``(j) Payment for Prescription Medicine Coverage Option.--
            ``(1) In general.--In the case of a Medicare+Choice plan 
        that provides prescription medicine benefits described in 
        section 1851(j)(1), the amount of payment otherwise made to the 
        Medicare+Choice organization offering the plan shall be 
        increased by the amount described in paragraph (2). Such 
        payments shall be made in the same manner and time as the 
        amount otherwise paid, but such amount shall be payable from 
        the Federal Medicare Prescription Medicine Trust Fund.
            ``(2) Amount.--The amount described in this paragraph is 
        the monthly Government contribution amount computed under 
        section 1859G(c)(2)(B), but subject to adjustment under 
        paragraph (3). Such amount shall be uniform geographically and 
        shall not vary based on the Medicare+Choice payment area 
        involved.
            ``(3) Risk adjustment.--The Secretary shall establish a 
        methodology for the adjustment of the payment amount under this 
        subsection in a manner that takes into account the relative 
        risks for use of outpatient prescription medicines by 
        Medicare+Choice enrollees. Such methodology shall be designed 
        in a manner so that the total payments under this title 
        (including part D) are not changed as a result of the 
        application of such methodology.''.
    (d) Separate Application of Adjusted Community Rate (ACR).--Section 
1854 (42 U.S.C. 1395w-24) is amended by adding at the end the 
following:
    ``(i) Application to Prescription Medicine Coverage.--The Secretary 
shall apply the previous provisions of this section (including the 
computation of the adjusted community rate) separately with respect to 
prescription medicine benefits described in section 1851(j)(1).''.
    (e) Conforming Amendments.--
            (1) Section 1851 (42 U.S.C. 1395w-21) is amended--
                    (A) in subsection (a)(1)(A), by striking ``parts A 
                and B'' and inserting ``parts A, B, and D''; and
                    (B) in subsection (i) by inserting ``(and, if 
                applicable, part D)'' after ``parts A and B''.
            (2) Section 1852(a)(1)(A) (42 U.S.C. 1395w-22(a)(1)(A)) is 
        amended by inserting ``(and under part D to individuals also 
        enrolled under such part)'' after ``parts A and B''.
            (3) Section 1852(d)(1) (42 U.S.C. 1395w-22(d)(1)) is 
        amended--
                    (A) by striking ``and'' at the end of subparagraph 
                (D);
                    (B) by striking the period at the end of 
                subparagraph (E) and inserting ``; and''; and
                    (C) by adding at the end the following:
                    ``(F) the plan for part D benefits guarantees 
                coverage of any specifically named prescription 
                medicine for an enrollee to the extent that it would be 
                required to be covered under part D.
        In carrying out subparagraph (F), a Medicare+Choice 
        organization has the same authority to enter into contracts 
        with respect to coverage of preferred medicines as the 
        Secretary has under part D, but subject to an independent 
        contractor appeal or other appeal process that would be 
        applicable to determinations by such a pharmacy contractor 
        consistent with section 1859D(c)(5).''.
    (f) Limitation on Cost-Sharing.--Section 1854(e) (42 U.S.C. 1395w-
24(e)) is amended by adding at the end the following new paragraph:
             ``(5) Limitation on cost-sharing.--In no event may a 
        Medicare+Choice organization include a requirement that an 
        enrollee pay cost-sharing in excess of the cost-sharing 
        otherwise permitted under part D.''.

SEC. 203. MEDIGAP REVISIONS.

    (a) Required Coverage of Covered Outpatient Prescription 
Medicines.--Section 1882(p)(2)(B) (42 U.S.C. 1395ss(p)(2)(B)) is 
amended by inserting before ``and'' at the end the following: 
``including a requirement that an appropriate number of policies 
provide coverage of medicines which complements but does not duplicate 
the medicine benefits that beneficiaries are otherwise eligible for 
benefits under part D of this title (with the Secretary and the 
National Association of Insurance Commissioners determining the 
appropriate level of medicine benefits that each benefit package must 
provide and ensuring that policies providing such coverage are 
affordable for beneficiaries;''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
take effect on January 1, 2006.
    (c) Transition Provisions.--
            (1) In general.--If the Secretary of Health and Human 
        Services identifies a State as requiring a change to its 
        statutes or regulations to conform its regulatory program to 
        the amendments made by this section, the State regulatory 
        program shall not be considered to be out of compliance with 
        the requirements of section 1882 of the Social Security Act due 
        solely to failure to make such change until the date specified 
        in paragraph (4).
            (2) NAIC standards.--If, within 9 months after the date of 
        enactment of this Act, the National Association of Insurance 
        Commissioners (in this subsection referred to as the ``NAIC'') 
        modifies its NAIC Model Regulation relating to section 1882 of 
        the Social Security Act (referred to in such section as the 
        1991 NAIC Model Regulation, as subsequently modified) to 
        conform to the amendments made by this section, such revised 
        regulation incorporating the modifications shall be considered 
        to be the applicable NAIC model regulation (including the 
        revised NAIC model regulation and the 1991 NAIC Model 
        Regulation) for the purposes of such section.
            (3) Secretary standards.--If the NAIC does not make the 
        modifications described in paragraph (2) within the period 
        specified in such paragraph, the Secretary of Health and Human 
        Services shall make the modifications described in such 
        paragraph and such revised regulation incorporating the 
        modifications shall be considered to be the appropriate 
        regulation for the purposes of such section.
            (4) Date specified.--
                    (A) In general.--Subject to subparagraph (B), the 
                date specified in this paragraph for a State is the 
                earlier of--
                            (i) the date the State changes its statutes 
                        or regulations to conform its regulatory 
                        program to the changes made by this section; or
                            (ii) 1 year after the date the NAIC or the 
                        Secretary first makes the modifications under 
                        paragraph (2) or (3), respectively.
                    (B) Additional legislative action required.--In the 
                case of a State which the Secretary identifies as--
                            (i) requiring State legislation (other than 
                        legislation appropriating funds) to conform its 
                        regulatory program to the changes made in this 
                        section; but
                            (ii) having a legislature which is not 
                        scheduled to meet in 2004 in a legislative 
                        session in which such legislation may be 
                        considered;
                the date specified in this paragraph is the first day 
                of the first calendar quarter beginning after the close 
                of the first legislative session of the State 
                legislature that begins on or after January 1, 2004. 
                For purposes of the previous sentence, in the case of a 
                State that has a 2-year legislative session, each year 
                of such session shall be deemed to be a separate 
                regular session of the State legislature.

SEC. 204. TRANSITIONAL ASSISTANCE FOR LOW INCOME BENEFICIARIES.

    (a) QMB Coverage of Premiums and Cost-Sharing.--Section 1905(p)(3) 
(42 U.S.C. 1396d(p)(3)) is amended--
            (1) in subparagraph (A)--
                    (A) by striking ``and'' at the end of clause (i),
                    (B) by adding ``and'' at the end of clause (ii), 
                and
                    (C) by adding at the end the following new clause:
            ``(iii) premiums under section 1859D(d).'';
            (2) in subparagraph (B), by inserting ``and section 
        1859D(c)(3)(B) and 1859D(c)(3)(C)(i)'' after ``1813''; and
            (3) in subparagraph (C), by striking ``and section 
        1833(b)'' and inserting ``, section 1833(b), and section 
        1859D(c)(2)''.
    (b) Expanded SLMB Eligibility.--Section 1902(a)(10)(E) (42 U.S.C. 
1396a(a)(10)(E)) is amended--
            (1) by striking ``and'' at the end of clause (iii);
            (2) by adding ``and'' at the end of clause (iv); and
            (3) by adding at the end the following new clause:
                    ``(v)(I) for making medical assistance available 
                for medicare cost-sharing described in section 
                1905(p)(3)(A)(iii) and medicare cost-sharing described 
                in section 1905(p)(3)(B) and section 1905(p)(3)(C) but 
                only insofar as it relates to benefits provided under 
                part D of title XVIII, subject to section 1905(p)(4), 
                for individuals (other than qualified medicare 
                beneficiaries) who are enrolled under part D of title 
                XVIII and are described in section 1905(p)(1)(B) or 
                would be so described but for the fact that their 
                income exceeds 100 percent, but is less than 150 
                percent, of the official poverty line (referred to in 
                such section) for a family of the size involved;
                    ``(II) subject to section 1905(p)(4), for 
                individuals (other than qualified medicare 
                beneficiaries and individuals described in subclause 
                (I)) who are enrolled under part D of title XVIII and 
                would be described in section 1905(p)(1)(B) but for the 
                fact that their income exceeds 150 percent, but is less 
                than 175 percent, of the official poverty line 
                (referred to in such section) for a family of the size 
involved, for making medical assistance available for medicare cost-
sharing described in section 1905(p)(3)(A)(iii) and medicare cost-
sharing described in section 1905(p)(3)(B) and section 1905(p)(3)(C) 
but only insofar as it relates to benefits provided under part D of 
title XVIII, and the assistance for medicare cost-sharing described in 
section 1905(p)(3)(A)(iii) is reduced (on a sliding scale based on 
income) from 100 percent to 0 percent as the income increases from 150 
percent to 175 percent of such poverty line;''.
    (c) Federal Financing.--The third sentence of section 1905(b) (42 
U.S.C. 1396d(b)) is amended by inserting before the period at the end 
the following: ``and with respect to amounts expended that are 
attributable to section 1902(a)(10)(E)(v) (other than for individuals 
described in section 1905(p)(1)(B))''.
    (d) Treatment of Territories.--
            (1) In general.--Section 1905(p) (42 U.S.C. 1396d(p)) is 
        amended--
                    (A) by redesignating paragraphs (5) and (6) as 
                paragraphs (6) and (7), respectively; and
                    (B) by inserting after paragraph (4) the following 
                new paragraph:
    ``(5)(A) In the case of a State, other than the 50 States and the 
District of Columbia--
            ``(i) the provisions of paragraph (3) insofar as they 
        relate to section 1859D and the provisions of section 
        1902(a)(10)(E)(v) shall not apply to residents of such State; 
        and
            ``(ii) if the State establishes a plan described in 
        subparagraph (B) (for providing medical assistance with respect 
        to the provision of prescription medicines to medicare 
        beneficiaries), the amount otherwise determined under section 
        1108(f) (as increased under section 1108(g)) for the State 
        shall be increased by the amount specified in subparagraph (C).
    ``(B) The plan described in this subparagraph is a plan that--
            ``(i) provides medical assistance with respect to the 
        provision of covered outpatient medicines (as defined in 
        section 1859D(b)) to low-income medicare beneficiaries; and
            ``(ii) assures that additional amounts received by the 
        State that are attributable to the operation of this paragraph 
        are used only for such assistance.
    ``(C)(i) The amount specified in this subparagraph for a State for 
a year is equal to the product of--
            ``(I) the aggregate amount specified in clause (ii); and
            ``(II) the amount specified in section 1108(g)(1) for that 
        State, divided by the sum of the amounts specified in such 
        section for all such States.
    ``(ii) The aggregate amount specified in this clause for--
            ``(I) 2006, is equal to $25,000,000; or
            ``(II) a subsequent year, is equal to the aggregate amount 
        specified in this clause for the previous year increased by 
        annual percentage increase specified in section 1859D(c)(8)(B) 
        for the year involved.
    ``(D) The Secretary shall submit to Congress a report on the 
application of this paragraph and may include in the report such 
recommendations as the Secretary deems appropriate.''.
            (2) Conforming amendment.--Section 1108(f) (42 U.S.C. 
        1308(f)) is amended by inserting ``and section 
        1905(p)(5)(A)(ii)'' after ``Subject to subsection (g)''.
    (e) Application of Cost-Sharing.--Section 1902(n)(2) (42 U.S.C. 
1396a(n)(2)) is amended by adding at the end the following: ``The 
previous sentence shall not apply to medicare cost-sharing relating to 
benefits under part D of title XVIII.''.
    (f) Effective Date.--The amendments made by this section apply to 
medical assistance for premiums and cost-sharing incurred on or after 
January 1, 2006, with regard to whether regulations to implement such 
amendments are promulgated by such date.
                                 <all>
```