IB 

Union Calendar No. 115

108TH CONGRESS 

1ST SESSION H. R. 2473

[Report No. 108–178, Parts I and II] 

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

program for prescription drug coverage under the Medicare Program, 

to modernize the Medicare Program, and for other purposes. 

IN THE HOUSE OF REPRESENTATIVES 

JUNE 16, 2003

Mr. THOMAS (for himself and Mr. TAUZIN) introduced the following bill; 

which was referred jointly to the Committees on Energy and Commerce, 

and Ways and Means, in each case for consideration of such provisions 

as fall within the jurisdiction of the committee concerned 

JUNE 25, 2003

Reported from the Committee on Energy and Commerce with an amendment 

[Strike out all after the enacting clause and insert the part printed in italic] 

JULY 15, 2003

Reported from the Committee on Ways and Means with an amendment, committed to the Committee of the Whole House on the State of the Union, 

and ordered to be printed 

[Strike out all after the enacting clause and insert the part printed in boldface roman] 

[For text of introduced bill, see copy of bill as introduced on June 16, 2003] 

A BILL

To amend title XVIII of the Social Security Act to provide 

for a voluntary program for prescription drug coverage 
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under the Medicare Program, to modernize the Medicare 

Program, and for other purposes.

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

3 SECTION 1. SHORT TITLE; AMENDMENTS TO SOCIAL SECU4 RITY ACT; REFERENCES TO BIPA AND SEC5 RETARY; TABLE OF CONTENTS. 

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

7 ‘‘Medicare Prescription Drug and Modernization Act of 

8 2003’’. 

9 (b) AMENDMENTS TO SOCIAL SECURITY ACT.—Except 

10 as otherwise specifically provided, whenever in this Act an 

11 amendment is expressed in terms of an amendment to or 

12 repeal of a section or other provision, the reference shall 

13 be considered to be made to that section or other provision 

14 of the Social Security Act. 

15 (c) BIPA; SECRETARY.—In this Act: 

16 (1) BIPA.—The term ‘‘BIPA’’ means the Medi17 care, Medicaid, and SCHIP Benefits Improvement 

18 and Protection Act of 2000, as enacted into law by 

19 section 1(a)(6) of Public Law 106–554. 

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

21 the Secretary of Health and Human Services. 

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

23 this Act is as follows:
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Sec. 1. Short title; amendments to Social Security Act; references to BIPA and 

Secretary; table of contents. 

TITLE I—MEDICARE PRESCRIPTION DRUG BENEFIT 

Sec. 101. Establishment of a medicare prescription drug benefit. 

‘‘PART D—VOLUNTARY PRESCRIPTION DRUG BENEFIT PROGRAM

‘‘Sec. 1860D–1. Benefits; eligibility; enrollment; and coverage period. 

‘‘Sec. 1860D–2. Requirements for qualified prescription drug coverage. 

‘‘Sec. 1860D–3. Beneficiary protections for qualified prescription drug coverage. 

‘‘Sec. 1860D–4. Requirements for and contracts with prescription drug plan 

(PDP) sponsors. 

‘‘Sec. 1860D–5. Process for beneficiaries to select qualified prescription drug 

coverage. 

‘‘Sec. 1860D–6. Submission of bids and premiums. 

‘‘Sec. 1860D–7. Premium and cost-sharing subsidies for low-income individuals. 

‘‘Sec. 1860D–8. Subsidies for all medicare beneficiaries for qualified prescription drug coverage. 

‘‘Sec. 1860D–9. Medicare Prescription Drug Trust Fund. 

‘‘Sec. 1860D–10. Definitions; application to medicare advantage and EFFS 

programs; treatment of references to provisions in part C. 

Sec. 102. Offering of qualified prescription drug coverage under Medicare Advantage and enhanced fee-for-service (EFFS) program. 

Sec. 103. Medicaid amendments. 

‘‘Sec. 1935. Special provisions relating to medicare prescription drug benefit. 

Sec. 104. Medigap transition. 

Sec. 105. Medicare prescription drug discount card and assistance program. 

Sec. 106. Disclosure of return information for purposes of carrying out medicare 

catastrophic prescription drug program. 

Sec. 107. State pharmaceutical assistance transition commission. 

TITLE II—MEDICARE ENHANCED FEE-FOR-SERVICE AND MEDICARE 

ADVANTAGE PROGRAMS; MEDICARE COMPETITION 

Sec. 200. Medicare modernization and revitalization. 

Subtitle A—Medicare Enhanced Fee-for-Service Program 

Sec. 201. Establishment of enhanced fee-for-service (EFFS) program under medicare. 

‘‘PART E—ENHANCED FEE-FOR-SERVICE PROGRAM

‘‘Sec. 1860E–1. Offering of enhanced fee-for-service plans throughout the 

United States. 

‘‘Sec. 1860E–2. Offering of enhanced fee-for-service (EFFS) plans. 

‘‘Sec. 1860E–3. Submission of bids; beneficiary savings; payment of plans. 

‘‘Sec. 1860E–4. Premiums; organizational and financial requirements; establishment of standards; contracts with EFFS organizations. 
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Subtitle B—Medicare Advantage Program 

CHAPTER 1—IMPLEMENTATION OF PROGRAM

Sec. 211. Implementation of medicare advantage program. 

Sec. 212. Medicare advantage improvements. 

CHAPTER 2—IMPLEMENTATION OF COMPETITION PROGRAM

Sec. 221. Competition program beginning in 2006. 

CHAPTER 3—ADDITIONAL REFORMS

Sec. 231. Making permanent change in medicare advantage reporting deadlines 

and annual, coordinated election period. 

Sec. 232. Avoiding duplicative State regulation. 

Sec. 233. Specialized medicare advantage plans for special needs beneficiaries. 

Sec. 234. Medicare MSAs. 

Sec. 235. Extension of reasonable cost contracts. 

Subtitle C—Application of FEHBP-Style Competitive Reforms 

Sec. 241. Application of FEHBP-style competitive reform beginning in 2010. 

TITLE III—COMBATTING WASTE, FRAUD, AND ABUSE 

Sec. 301. Medicare secondary payor (MSP) provisions. 

Sec. 302. Competitive acquisition of certain items and services. 

Sec. 303. Competitive acquisition of covered outpatient drugs and biologicals. 

Sec. 304. Demonstration project for use of recovery audit contractors. 

TITLE IV—RURAL HEALTH CARE IMPROVEMENTS 

Sec. 401. Enhanced disproportionate share hospital (DSH) treatment for rural 

hospitals and urban hospitals with fewer than 100 beds. 

Sec. 402. Immediate establishment of uniform standardized amount in rural and 

small urban areas. 

Sec. 403. Establishment of essential rural hospital classification. 

Sec. 404. More frequent update in weights used in hospital market basket. 

Sec. 405. Improvements to critical access hospital program. 

Sec. 406. Redistribution of unused resident positions. 

Sec. 407. Two-year extension of hold harmless provisions for small rural hospitals 

and sole community hospitals under prospective payment system 

for hospital outpatient department services. 

Sec. 408. Exclusion of certain rural health clinic and federally qualified health 

center services from the prospective payment system for skilled 

nursing facilities. 

Sec. 409. Recognition of attending nurse practitioners as attending physicians to 

serve hospice patients. 

Sec. 410. Improvement in payments to retain emergency capacity for ambulance 

services in rural areas. 

Sec. 411. Providing safe harbor for certain collaborative efforts that benefit medically underserved populations. 

Sec. 412. GAO study of geographic differences in payments for physicians’ services. 

Sec. 413. Treatment of missing cost reporting periods for sole community hospitals. 

Sec. 414. Extension of telemedicine demonstration project. 
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Sec. 415. Two-year increase for home health services furnished in a rural area. 

TITLE V—PROVISIONS RELATING TO PART A 

Subtitle A—Inpatient Hospital Services 

Sec. 501. Revision of acute care hospital payment updates. 

Sec. 502. Recognition of new medical technologies under inpatient hospital PPS. 

Sec. 503. Increase in Federal rate for hospitals in Puerto Rico. 

Sec. 504. Wage index adjustment reclassification reform . 

Sec. 505. MedPAC report on specialty hospitals. 

Subtitle B—Other Provisions 

Sec. 511. Payment for covered skilled nursing facility services. 

Sec. 512. Coverage of hospice consultation services. 

TITLE VI—PROVISIONS RELATING TO PART B 

Subtitle A—Physicians’ Services 

Sec. 601. Revision of updates for physicians’ services. 

Sec. 602. Studies on access to physicians’ services. 

Sec. 603. MedPAC report on payment for physicians’ services. 

Sec. 604. Inclusion of podiatrists and dentists under private contracting authority. 

Sec. 605. Establishment of floor on work geographic adjustment. 

SUBTITLE B—PREVENTIVE SERVICES

Sec. 611. Coverage of an initial preventive physical examination. 

Sec. 612. Coverage of cholesterol and blood lipid screening. 

Sec. 613. Waiver of deductible for colorectal cancer screening tests. 

Sec. 614. Improved payment for certain mammography services. 

Sec. 615. Medicare coverage of diabetes laboratory diagnostic tests. 

Subtitle C—Other Services 

Sec. 621. Hospital outpatient department (HOPD) payment reform. 

Sec. 622. Payment for ambulance services. 

Sec. 623. Renal dialysis services. 

Sec. 624. One-year moratorium on therapy caps; provisions relating to reports. 

Sec. 625. Adjustment to payments for services furnished in ambulatory surgical 

centers. 

Sec. 626. Payment for certain shoes and inserts under the fee schedule for 

orthotics and prosthetics. 

Sec. 627. Waiver of part B late enrollment penalty for certain military retirees; 

special enrollment period. 

Sec. 628. Part B deductible. 

Sec. 629. Demonstration project for coverage of self-injected biologics for rheumatoid arthritis. 

TITLE VII—PROVISIONS RELATING TO PARTS A AND B 

Subtitle A—Home Health Services 

Sec. 701. Update in home health services. 

Sec. 702. MedPAC study on medicare margins of home health agencies. 
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Sec. 703. Demonstration project to clarify the definition of homebound. 

Subtitle B—Direct Graduate Medical Education 

Sec. 711. Extension of update limitation on high cost programs. 

Subtitle C—Chronic Care Improvement 

Sec. 721. Voluntary chronic care improvement under traditional fee-for-service. 

Sec. 722. Chronic care improvement under medicare advantage and enhanced feefor-service programs. 

Sec. 723. Institute of Medicine report. 

Sec. 724. MedPAC report. 

Subtitle D—Other Provisions 

Sec. 731. Modifications to medicare payment advisory commission (MedPAC). 

Sec. 732. Demonstration project for medical adult day care services. 

Sec. 733. Improvements in national and local coverage determination process to 

respond to changes in technology. 

Sec. 734. Treatment of certain physician pathology services. 

Sec. 735. Medicare pancreatic islet cell transplant demonstration project. 

Sec. 736. Demonstration project for consumer-directed chronic outpatient services. 

TITLE VIII—MEDICARE BENEFITS ADMINISTRATION 

Sec. 801. Establishment of Medicare Benefits Administration. 

TITLE IX—REGULATORY REDUCTION AND CONTRACTING REFORM 

Subtitle A—Regulatory Reform 

Sec. 901. Construction; definition of supplier. 

‘‘Supplier 

Sec. 902. Issuance of regulations. 

Sec. 903. Compliance with changes in regulations and policies. 

Sec. 904. Reports and studies relating to regulatory reform. 

Subtitle B—Contracting Reform 

Sec. 911. Increased flexibility in medicare administration. 

Sec. 912. Requirements for information security for medicare administrative contractors. 

Subtitle C—Education and Outreach 

Sec. 921. Provider education and technical assistance. 

‘‘Sec. 1889. Provider education and technical assistance. 

Sec. 922. Small provider technical assistance demonstration program. 

Sec. 923. Medicare Provider Ombudsman; Medicare Beneficiary Ombudsman. 

Sec. 924. Beneficiary outreach demonstration program. 

Sec. 925. Inclusion of additional information in notices to beneficiaries about 

skilled nursing facility benefits. 

Sec. 926. Information on medicare-certified skilled nursing facilities in hospital 

discharge plans. 
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Subtitle D—Appeals and Recovery 

Sec. 931. Transfer of responsibility for medicare appeals. 

Sec. 932. Process for expedited access to review. 

Sec. 933. Revisions to medicare appeals process. 

Sec. 934. Prepayment review. 

Sec. 935. Recovery of overpayments. 

Sec. 936. Provider enrollment process; right of appeal. 

Sec. 937. Process for correction of minor errors and omissions without pursuing 

appeals process. 

Sec. 938. Prior determination process for certain items and services; advance beneficiary notices. 

Subtitle V—Miscellaneous Provisions 

Sec. 941. Policy development regarding evaluation and management (E & M) 

documentation guidelines. 

Sec. 942. Improvement in oversight of technology and coverage. 

Sec. 943. Treatment of hospitals for certain services under medicare secondary 

payor (MSP) provisions. 

Sec. 944. EMTALA improvements. 

Sec. 945. Emergency Medical Treatment and Active Labor Act (EMTALA) technical advisory group. 

Sec. 946. Authorizing use of arrangements to provide core hospice services in certain circumstances. 

Sec. 947. Application of osha bloodborne pathogens standard to certain hospitals. 

Sec. 948. BIPA-related technical amendments and corrections. 

Sec. 949. Conforming authority to waive a program exclusion. 

Sec. 950. Treatment of certain dental claims. 

Sec. 951. Furnishing hospitals with information to compute dsh formula. 

Sec. 952. Revisions to reassignment provisions. 

Sec. 953. Other provisions. 

TITLE X—MEDICAID 

Sec. 1001. Medicaid disproportionate share hospital (DSH) payments. 

Sec. 1002. Clarification of inclusion of inpatient drug prices charged to certain 

public hospitals in the best price exemptions for the medicaid 

drug rebate program.

1 TITLE I—MEDICARE 

2 PRESCRIPTION DRUG BENEFIT 

3 SEC. 101. ESTABLISHMENT OF A MEDICARE PRESCRIPTION 

4 DRUG BENEFIT. 

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

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

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

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

2 PROGRAM

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

4 COVERAGE PERIOD. 

5 ‘‘(a) PROVISION OF QUALIFIED PRESCRIPTION DRUG

6 COVERAGE THROUGH ENROLLMENT IN PLANS.—Subject to 

7 the succeeding provisions of this part, each individual who 

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

9 B is entitled to obtain qualified prescription drug coverage 

10 (described in section 1860D–2(a)) as follows:

11 ‘‘(1) MEDICARE-RELATED PLANS.—

12 ‘‘(A) MEDICARE ADVANTAGE.—If the indi13 vidual is eligible to enroll in a Medicare Advan14 tage plan that provides qualified prescription 

15 drug coverage under section 1851(j), the indi16 vidual may enroll in such plan and obtain cov17 erage through such plan. 

18 ‘‘(B) EFFS PLANS.—If the individual is el19 igible to enroll in an EFFS plan that provides 

20 qualified prescription drug coverage under part 

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

22 enroll in such plan and obtain coverage through 

23 such plan. 

24 ‘‘(C) MA-EFFS PLAN; MA-EFFS RX

25 PLAN.—For purposes of this part, the term ‘MA-
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1 EFFS plan’ means a Medicare Advantage plan 

2 under part C and an EFFS plan under part E 

3 and the term ‘MA-EFFS Rx plan’ means a MA4 EFFS plan insofar as such plan provides quali5 fied prescription drug coverage. 

6 ‘‘(2) PRESCRIPTION DRUG PLAN.—If the indi7 vidual is not enrolled in a MA-EFFS plan , the indi8 vidual may enroll under this part in a prescription 

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

10 Such individuals shall have a choice of such plans under 

11 section 1860D–5(d). 

12 ‘‘(b) GENERAL ELECTION PROCEDURES.—

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

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

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

16 elect the option of qualified prescription drug cov17 erage under a MA-EFFS Rx plan under part C or 

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

19 manner and form as may be prescribed by regulations 

20 of the Administrator of the Medicare Benefits Admin21 istration (appointed under section 1809(b)) (in this 

22 part referred to as the ‘Medicare Benefits Adminis23 trator’) and only during an election period prescribed 

24 in or under this subsection. 

25 ‘‘(2) ELECTION PERIODS.—
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1 ‘‘(A) IN GENERAL.—Except as provided in 

2 this paragraph, the election periods under this 

3 subsection shall be the same as the coverage elec4 tion periods under the Medicare Advantage and 

5 EFFS programs under section 1851(e), includ6 ing—

7 ‘‘(i) annual coordinated election peri8 ods; and 

9 ‘‘(ii) special election periods. 

10 In applying the last sentence of section 

11 1851(e)(4) (relating to discontinuance of an elec12 tion during the first year of eligibility) under 

13 this subparagraph, in the case of an election de14 scribed in such section in which the individual 

15 had elected or is provided qualified prescription 

16 drug coverage at the time of such first enroll17 ment, the individual shall be permitted to enroll 

18 in a prescription drug plan under this part at 

19 the time of the election of coverage under the 

20 original fee-for-service plan. 

21 ‘‘(B) INITIAL ELECTION PERIODS.—

22 ‘‘(i) INDIVIDUALS CURRENTLY COV23 ERED.—In the case of an individual who is 

24 entitled to benefits under part A or enrolled 

25 under part B as of October 1, 2005, there 
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1 shall be an initial election period of 6 

2 months beginning on that date. 

3 ‘‘(ii) INDIVIDUAL COVERED IN FU4 TURE.—In the case of an individual who is 

5 first entitled to benefits under part A or en6 rolled under part B after such date, there 

7 shall be an initial election period which is 

8 the same as the initial enrollment period 

9 under section 1837(d). 

10 ‘‘(C) ADDITIONAL SPECIAL ELECTION PERI11 ODS.—The Administrator shall establish special 

12 election periods—

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

14 and involuntarily lose prescription drug 

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

16 ‘‘(ii) in cases described in section 

17 1837(h) (relating to errors in enrollment), 

18 in the same manner as such section applies 

19 to part B; 

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

21 meets such exceptional conditions (including 

22 conditions provided under section 

23 1851(e)(4)(D)) as the Administrator may 

24 provide; and 
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1 ‘‘(iv) in cases of individuals (as deter2 mined by the Administrator) who become el3 igible for prescription drug assistance under 

4 title XIX under section 1935(d). 

5 ‘‘(3) INFORMATION ON PLANS.—Information de6 scribed in section 1860D–3(b)(1) on prescription drug 

7 plans shall be made available during election periods. 

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

9 NONDISCRIMINATION.—

10 ‘‘(1) GUARANTEED ISSUE.—

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

12 who is eligible to elect qualified prescription 

13 drug coverage under a prescription drug plan or 

14 MA-EFFS Rx plan at a time during which elec15 tions are accepted under this part with respect 

16 to the plan shall not be denied enrollment based 

17 on any health status-related factor (described in 

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

19 Act) or any other factor. 

20 ‘‘(B) MEDICARE ADVANTAGE LIMITATIONS

21 PERMITTED.—The provisions of paragraphs (2) 

22 and (3) (other than subparagraph (C)(i), relat23 ing to default enrollment) of section 1851(g) (re24 lating to priority and limitation on termination 
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1 of election) shall apply to PDP sponsors under 

2 this subsection. 

3 ‘‘(2) COMMUNITY-RATED PREMIUM.—

4 ‘‘(A) IN GENERAL.—In the case of an indi5 vidual who enrolls under a prescription drug 

6 plan or in a MA-EFFS Rx plan during the in7 dividual’s initial enrollment period under this 

8 part or maintains (as determined under sub9 paragraph (C)) continuous prescription drug 

10 coverage since the date the individual first quali11 fies to elect prescription drug coverage under this 

12 part, a PDP sponsor or entity offering a pre13 scription drug plan or MA-EFFS Rx plan and 

14 in which the individual is enrolled may not 

15 deny, limit, or condition the coverage or provi16 sion of covered prescription drug benefits or vary 

17 or increase the premium under the plan based on 

18 any health status-related factor described in sec19 tion 2702(a)(1) of the Public Health Service Act 

20 or any other factor. 

21 ‘‘(B) LATE ENROLLMENT PENALTY.—In the 

22 case of an individual who does not maintain 

23 such continuous prescription drug coverage (as 

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

25 or an entity offering a MA-EFFS Rx plan may 
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1 (notwithstanding any provision in this title) ad2 just the premium otherwise applicable or impose 

3 a pre-existing condition exclusion with respect to 

4 qualified prescription drug coverage in a man5 ner that reflects additional actuarial risk in6 volved. Such a risk shall be established through 

7 an appropriate actuarial opinion of the type de8 scribed in subparagraphs (A) through (C) of sec9 tion 2103(c)(4). 

10 ‘‘(C) CONTINUOUS PRESCRIPTION DRUG

11 COVERAGE.—An individual is considered for 

12 purposes of this part to be maintaining contin13 uous prescription drug coverage on and after the 

14 date the individual first qualifies to elect pre15 scription drug coverage under this part if the in16 dividual establishes that as of such date the indi17 vidual is covered under any of the following pre18 scription drug coverage and before the date that 

19 is the last day of the 63-day period that begins 

20 on the date of termination of the particular pre21 scription drug coverage involved (regardless of 

22 whether the individual subsequently obtains any 

23 of the following prescription drug coverage): 

24 ‘‘(i) COVERAGE UNDER PRESCRIPTION

25 DRUG PLAN OR MA-EFFS RX PLAN.—Quali-
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1 fied prescription drug coverage under a pre2 scription drug plan or under a MA-EFFS 

3 Rx plan. 

4 ‘‘(ii) MEDICAID PRESCRIPTION DRUG

5 COVERAGE.—Prescription drug coverage 

6 under a medicaid plan under title XIX, in7 cluding through the Program of All-inclu8 sive Care for the Elderly (PACE) under sec9 tion 1934, through a social health mainte10 nance organization (referred to in section 

11 4104(c) of the Balanced Budget Act of 

12 1997), or through a demonstration project 

13 under part C that demonstrates the applica14 tion of capitation payment rates for frail 

15 elderly medicare beneficiaries through the 

16 use of an interdisciplinary team and 

17 through the provision of primary care serv18 ices to such beneficiaries by means of such 

19 a team at the nursing facility involved. 

20 ‘‘(iii) PRESCRIPTION DRUG COVERAGE

21 UNDER GROUP HEALTH PLAN.—Any out22 patient prescription drug coverage under a 

23 group health plan, including a health bene24 fits plan under the Federal Employees 

25 Health Benefit Plan under chapter 89 of 
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1 title 5, United States Code, and a qualified 

2 retiree prescription drug plan as defined in 

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

4 to subparagraph (E)(ii)) the coverage pro5 vides benefits at least equivalent to the bene6 fits under a qualified prescription drug 

7 plan. 

8 ‘‘(iv) PRESCRIPTION DRUG COVERAGE

9 UNDER CERTAIN MEDIGAP POLICIES.—Cov10 erage under a medicare supplemental policy 

11 under section 1882 that provides benefits for 

12 prescription drugs (whether or not such cov13 erage conforms to the standards for pack14 ages of benefits under section 1882(p)(1)), 

15 but only if the policy was in effect on Janu16 ary 1, 2006, and if (subject to subpara17 graph (E)(ii)) the coverage provides benefits 

18 at least equivalent to the benefits under a 

19 qualified prescription drug plan. 

20 ‘‘(v) STATE PHARMACEUTICAL ASSIST21 ANCE PROGRAM.—Coverage of prescription 

22 drugs under a State pharmaceutical assist23 ance program, but only if (subject to sub24 paragraph (E)(ii)) the coverage provides 
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1 benefits at least equivalent to the benefits 

2 under a qualified prescription drug plan. 

3 ‘‘(vi) VETERANS’ COVERAGE OF PRE4 SCRIPTION DRUGS.—Coverage of prescrip5 tion drugs for veterans under chapter 17 of 

6 title 38, United States Code, but only if 

7 (subject to subparagraph (E)(ii)) the cov8 erage provides benefits at least equivalent to 

9 the benefits under a qualified prescription 

10 drug plan. 

11 ‘‘(D) CERTIFICATION.—For purposes of car12 rying out this paragraph, the certifications of the 

13 type described in sections 2701(e) of the Public 

14 Health Service Act and in section 9801(e) of the 

15 Internal Revenue Code shall also include a state16 ment for the period of coverage of whether the in17 dividual involved had prescription drug coverage 

18 described in subparagraph (C). 

19 ‘‘(E) DISCLOSURE.—

20 ‘‘(i) IN GENERAL.—Each entity that 

21 offers coverage of the type described in 

22 clause (iii), (iv), (v), or (vi) of subpara23 graph (C) shall provide for disclosure, con24 sistent with standards established by the 

25 Administrator, of whether such coverage 
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1 provides benefits at least equivalent to the 

2 benefits under a qualified prescription drug 

3 plan. 

4 ‘‘(ii) WAIVER OF LIMITATIONS.—An 

5 individual may apply to the Administrator 

6 to waive the requirement that coverage of 

7 such type provide benefits at least equiva8 lent to the benefits under a qualified pre9 scription drug plan, if the individual estab10 lishes that the individual was not ade11 quately informed that such coverage did not 

12 provide such level of benefits. 

13 ‘‘(F) CONSTRUCTION.—Nothing in this sec14 tion shall be construed as preventing the 

15 disenrollment of an individual from a prescrip16 tion drug plan or a MA-EFFS Rx plan based on 

17 the termination of an election described in sec18 tion 1851(g)(3), including for non-payment of 

19 premiums or for other reasons specified in sub20 section (d)(3), which takes into account a grace 

21 period described in section 1851(g)(3)(B)(i). 

22 ‘‘(3) NONDISCRIMINATION.—A PDP sponsor that 

23 offers a prescription drug plan in an area designated 

24 under section 1860D–4(b)(5) shall make such plan 

25 available to all eligible individuals residing in the 
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1 area without regard to their health or economic status 

2 or their place of residence within the area. 

3 ‘‘(d) EFFECTIVE DATE OF ELECTIONS.—

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

5 section, the Administrator shall provide that elections 

6 under subsection (b) take effect at the same time as 

7 the Administrator provides that similar elections 

8 under section 1851(e) take effect under section 

9 1851(f). 

10 ‘‘(2) NO ELECTION EFFECTIVE BEFORE 2006.—In 

11 no case shall any election take effect before January 

12 1, 2006. 

13 ‘‘(3) TERMINATION.—The Administrator shall 

14 provide for the termination of an election in the case 

15 of—

16 ‘‘(A) termination of coverage under both 

17 part A and part B; and 

18 ‘‘(B) termination of elections described in 

19 section 1851(g)(3) (including failure to pay re20 quired premiums). 

21 ‘‘SEC. 1860D–2. REQUIREMENTS FOR QUALIFIED PRESCRIP22 TION DRUG COVERAGE. 

23 ‘‘(a) REQUIREMENTS.—
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1 ‘‘(1) IN GENERAL.—For purposes of this part 

2 and part C and part E, the term ‘qualified prescrip3 tion drug coverage’ means either of the following: 

4 ‘‘(A) STANDARD COVERAGE WITH ACCESS

5 TO NEGOTIATED PRICES.—Standard coverage (as 

6 defined in subsection (b)) and access to nego7 tiated prices under subsection (d). 

8 ‘‘(B) ACTUARIALLY EQUIVALENT COVERAGE

9 WITH ACCESS TO NEGOTIATED PRICES.—Cov10 erage of covered outpatient drugs which meets the 

11 alternative coverage requirements of subsection 

12 (c) and access to negotiated prices under sub13 section (d), but only if it is approved by the Ad14 ministrator, as provided under subsection (c). 

15 ‘‘(2) PERMITTING ADDITIONAL OUTPATIENT PRE16 SCRIPTION DRUG COVERAGE.—

17 ‘‘(A) IN GENERAL.—Subject to subpara18 graph (B), nothing in this part shall be con19 strued as preventing qualified prescription drug 

20 coverage from including coverage of covered out21 patient drugs that exceeds the coverage required 

22 under paragraph (1), but any such additional 

23 coverage shall be limited to coverage of covered 

24 outpatient drugs. 
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1 ‘‘(B) DISAPPROVAL AUTHORITY.—The Ad2 ministrator shall review the offering of qualified 

3 prescription drug coverage under this part or 

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

5 case of a qualified prescription drug coverage 

6 under a prescription drug plan or a MA-EFFS 

7 Rx plan, that the organization or sponsor offer8 ing the coverage is engaged in activities intended 

9 to discourage enrollment of classes of eligible 

10 medicare beneficiaries obtaining coverage 

11 through the plan on the basis of their higher like12 lihood of utilizing prescription drug coverage, the 

13 Administrator may terminate the contract with 

14 the sponsor or organization under this part or 

15 part C or E. 

16 ‘‘(3) APPLICATION OF SECONDARY PAYOR PROVI17 SIONS.—The provisions of section 1852(a)(4) shall 

18 apply under this part in the same manner as they 

19 apply under part C. 

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

21 part, the ‘standard coverage’ is coverage of covered out22 patient drugs (as defined in subsection (f)) that meets the 

23 following requirements: 

24 ‘‘(1) DEDUCTIBLE.—The coverage has an annual 

25 deductible—
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1 ‘‘(A) for 2006, that is equal to $250; or 

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

3 the amount specified under this paragraph for 

4 the previous year increased by the percentage 

5 specified in paragraph (5) for the year involved. 

6 Any amount determined under subparagraph (B) 

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

8 nearest multiple of $10. 

9 ‘‘(2) 80:20 BENEFIT STRUCTURE.—

10 ‘‘(A) 20 PERCENT COINSURANCE.—The cov11 erage has cost-sharing (for costs above the annual 

12 deductible specified in paragraph (1) and up to 

13 the initial coverage limit under paragraph (3)) 

14 that is—

15 ‘‘(i) equal to 20 percent; or 

16 ‘‘(ii) is actuarially equivalent (using 

17 processes established under subsection (e)) to 

18 an average expected payment of 20 percent 

19 of such costs. 

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

21 shall be construed as preventing a PDP sponsor 

22 from applying tiered copayments, so long as such 

23 tiered copayments are consistent with subpara24 graph (A).
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1 ‘‘(3) INITIAL COVERAGE LIMIT.—Subject to para2 graph (4), the coverage has an initial coverage limit 

3 on the maximum costs that may be recognized for 

4 payment purposes—

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

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

7 the amount specified in this paragraph for the 

8 previous year, increased by the annual percent9 age increase described in paragraph (5) for the 

10 year involved. 

11 Any amount determined under subparagraph (B) 

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

13 nearest multiple of $25.

14 ‘‘(4) CATASTROPHIC PROTECTION.—

15 ‘‘(A) IN GENERAL.—Notwithstanding para16 graph (3), the coverage provides benefits with no 

17 cost-sharing after the individual has incurred 

18 costs (as described in subparagraph (C)) for cov19 ered outpatient drugs in a year equal to the an20 nual out-of-pocket threshold specified in subpara21 graph (B). 

22 ‘‘(B) ANNUAL OUT-OF-POCKET THRESH23 OLD.—

24 ‘‘(i) IN GENERAL.—For purposes of 

25 this part, the ‘annual out-of-pocket thresh-
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1 old’ specified in this subparagraph is equal 

2 to $3,500 (subject to adjustment under 

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

4 ‘‘(ii) INFLATION INCREASE.—For a 

5 year after 2006, the dollar amount specified 

6 in clause (i) shall be increased by the an7 nual percentage increase described in para8 graph (5) for the year involved. Any 

9 amount determined under the previous sen10 tence that is not a multiple of $100 shall be 

11 rounded to the nearest multiple of $100. 

12 ‘‘(C) APPLICATION.—In applying subpara13 graph (A)—

14 ‘‘(i) incurred costs shall only include 

15 costs incurred for the annual deductible (de16 scribed in paragraph (1)), cost-sharing (de17 scribed in paragraph (2)), and amounts for 

18 which benefits are not provided because of 

19 the application of the initial coverage limit 

20 described in paragraph (3); and 

21 ‘‘(ii) such costs shall be treated as in22 curred only if they are paid by the indi23 vidual (or by another individual, such as a 

24 family member, on behalf of the individual), 

25 under section 1860D–7, under title XIX, or 
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1 under a State pharmaceutical assistance 

2 program and the individual (or other indi3 vidual) is not reimbursed through insurance 

4 or otherwise, a group health plan, or other 

5 third-party payment arrangement (other 

6 than under such title or such program) for 

7 such costs. 

8 ‘‘(D) ADJUSTMENT OF ANNUAL OUT-OF9 POCKET THRESHOLDS.—

10 ‘‘(i) IN GENERAL.—For each enrollee 

11 in a prescription drug plan or in a MA12 EFFS Rx plan whose adjusted gross income 

13 exceeds the income threshold as defined in 

14 clause (ii) for a year, the annual out-of15 pocket threshold otherwise determined under 

16 subparagraph (B) for such year shall be in17 creased by an amount equal to the percent18 age specified in clause (iii), multiplied by 

19 the lesser of—

20 ‘‘(I) the amount of such excess; or 

21 ‘‘(II) the amount by which the in22 come threshold limit exceeds the income 

23 threshold. 
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1 Any amount determined under the previous 

2 sentence that is not a multiple of $100 shall 

3 be rounded to the nearest multiple of $100. 

4 ‘‘(ii) INCOME THRESHOLD.—For pur5 poses of clause (i)—

6 ‘‘(I) IN GENERAL.—Subject to 

7 subclause (II), the term ‘income thresh8 old’ means $60,000 and the term ‘in9 come threshold limit’ means $200,000. 

10 ‘‘(II) INCOME INFLATION ADJUST11 MENT.—In the case of a year begin12 ning after 2006, each of the dollar 

13 amounts in subclause (I) shall be in14 creased by an amount equal to such 

15 dollar amount multiplied by the cost16 of-living adjustment determined under 

17 section 1(f)(3) of the Internal Revenue 

18 Code of 1986 for such year, determined 

19 by substituting ‘calendar year 2005’ 

20 for ‘calendar year 1992’. If any 

21 amount increased under the previous 

22 sentence is not a multiple of $100, such 

23 amount shall be rounded to the nearest 

24 multiple of $100. 
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1 ‘‘(iii) PERCENTAGE.—The percentage 

2 specified in this clause for a year is a frac3 tion (expressed as a percentage) equal to—

4 ‘‘(I) the annual out-of-pocket 

5 threshold for a year under subpara6 graph (B) (determined without regard 

7 to this subparagraph), divided by 

8 ‘‘(II) the income threshold under 

9 clause (ii) for that year. 

10 If any percentage determined under the pre11 vious sentence that is not a multiple of 

1 12 ⁄10th of 1 percentage point, such percentage 

13 shall be rounded to the nearest multiple of 

1 14 ⁄10th of 1 percentage point. 

15 ‘‘(iv) USE OF MOST RECENT RETURN

16 INFORMATION.—For purposes of clause (i) 

17 for an enrollee for a year, except as pro18 vided in clause (v), the adjusted gross in19 come of an individual shall be based on the 

20 most recent information disclosed to the 

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

22 Internal Revenue Code of 1986 before the be23 ginning of that year. 

24 ‘‘(v) INDIVIDUAL ELECTION TO

25 PRESENT MOST RECENT INFORMATION RE-
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1 GARDING INCOME.—The Secretary shall pro2 vide, in coordination with the Secretary of 

3 the Treasury, a procedure under which, for 

4 purposes of applying this subparagraph for 

5 a calendar year, instead of using the infor6 mation described in clause (iv), an enrollee 

7 may elect to use more recent information, 

8 including information with respect to a tax9 able year ending in such calendar year. 

10 Such process shall—

11 ‘‘(I) require the enrollee to provide 

12 the Secretary with a copy of the rel13 evant portion of the more recent return 

14 to be used under this clause; 

15 ‘‘(II) provide for the Medicare 

16 Beneficiary Ombudsman (under sec17 tion 1810) offering assistance to such 

18 enrollees in presenting such informa19 tion and the toll-free number under 

20 such section being a point of contact 

21 for beneficiaries to inquire as to how to 

22 present such information; 

23 ‘‘(III) provide for the verification 

24 of the information in such return by 

25 the Secretary of the Treasury under 
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1 section 6103(l)(19) of the Internal Rev2 enue Code of 1986; and 

3 ‘‘(IV) provide for the payment by 

4 the Secretary (in a manner specified 

5 by the Secretary) to the enrollee of an 

6 amount equal to the excess of the ben7 efit payments that would have been 

8 payable under the plan if the more re9 cent return information were used, 

10 over the benefit payments that were 

11 made under the plan. 

12 In the case of a payment under subclause 

13 (III) for an enrollee under a prescription 

14 drug plan, the PDP sponsor of the plan 

15 shall pay to the Secretary the amount so 

16 paid, less the applicable reinsurance 

17 amount that would have applied under sec18 tion 1860D–8(c)(1)(B) if such payment had 

19 been treated as an allowable cost under such 

20 section. Such plan payment shall be depos21 ited in the Treasury to the credit of the 

22 Medicare Prescription Drug Account in the 

23 Federal Supplementary Medical Insurance 

24 Trust Fund (under section 1841). 
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1 ‘‘(vi) DISSEMINATION OF INFORMATION

2 ON PROCESS.—The Secretary shall provide, 

3 through the annual medicare handbook 

4 under section 1804(a), for a general descrip5 tion of the adjustment of annual out-of6 pocket thresholds provided under this sub7 paragraph, including the process for adjust8 ment based upon more recent information 

9 and the confidentiality provisions of sub10 paragraph (F), and shall provide for dis11 semination of a table for each year that sets 

12 forth the amount of the adjustment that is 

13 made under clause (i) based on the amount 

14 of an enrollee’s adjusted gross income. 

15 ‘‘(E) REQUESTING INFORMATION ON EN16 ROLLEES.—

17 ‘‘(i) IN GENERAL.—The Secretary 

18 shall, periodically as required to carry out 

19 subparagraph (D), transmit to the Sec20 retary of the Treasury a list of the names 

21 and TINs of enrollees in prescription drug 

22 plans (or in MA-EFFS Rx plans) and re23 quest that such Secretary disclose to the 

24 Secretary information under subparagraph 

25 (A) of section 6103(l)(19) of the Internal 
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1 Revenue Code of 1986 with respect to those 

2 enrollees for a specified taxable year for ap3 plication in a particular calendar year. 

4 ‘‘(ii) DISCLOSURE TO PLAN SPON5 SORS.—In the case of a specified taxpayer 

6 (as defined in section 6103(l)(19)(B) of the 

7 Internal Revenue Code of 1986) who is en8 rolled in a prescription drug plan or in an 

9 MA-EFFS Rx plan, the Secretary shall dis10 close to the entity that offers the plan the 

11 annual out-of-pocket threshold applicable to 

12 such individual under subparagraph (D). 

13 ‘‘(F) MAINTAINING CONFIDENTIALITY OF IN14 FORMATION.—

15 ‘‘(i) IN GENERAL.—The amount of any 

16 increase in an annual out-of-pocket thresh17 old under subparagraph (D) may not be 

18 disclosed by the Secretary except to a PDP 

19 sponsor or entity that offers a MA-EFFS 

20 Rx plan to the extent necessary to carry out 

21 this part. 

22 ‘‘(ii) CRIMINAL AND CIVIL PENALTIES

23 FOR UNAUTHORIZED DISCLOSURE.—A per24 son who makes an unauthorized disclosure 

25 of information disclosed under section 
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1 6103(l)(19) of the Internal Revenue Code of 

2 1986 (including disclosure of any increase 

3 in an annual out-of-pocket threshold under 

4 subparagraph (D)) shall be subject to pen5 alty to the extent provided under—

6 ‘‘(I) section 7213 of such Code (re7 lating to criminal penalty for unau8 thorized disclosure of information); 

9 ‘‘(II) section 7213A of such Code 

10 (relating to criminal penalty for unau11 thorized inspection of returns or return 

12 information); 

13 ‘‘(III) section 7431 of such Code 

14 (relating to civil damages for unau15 thorized inspection or disclosure of re16 turns and return information); 

17 ‘‘(IV) any other provision of the 

18 Internal Revenue Code of 1986; or 

19 ‘‘(V) any other provision of law. 

20 ‘‘(iii) APPLICATION OF ADDITIONAL

21 CIVIL MONETARY PENALTY FOR UNAUTHOR22 IZED DISCLOSURES.—In addition to any 

23 penalty otherwise provided under law, any 

24 person who makes an unauthorized disclo25 sure of such information shall be subject to 
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1 a civil monetary penalty of not to exceed 

2 $10,000 for each such unauthorized disclo3 sure. The provisions of section 1128A (other 

4 than subsections (a) and (b)) shall apply to 

5 civil money penalties under this subpara6 graph in the same manner as they apply to 

7 a penalty or proceeding under section 

8 1128A(a).

9 ‘‘(5) ANNUAL PERCENTAGE INCREASE.—For pur10 poses of this part, the annual percentage increase 

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

12 annual percentage increase in average per capita ag13 gregate expenditures for covered outpatient drugs in 

14 the United States for medicare beneficiaries, as deter15 mined by the Administrator for the 12-month period 

16 ending in July of the previous year.

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

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

19 a different prescription drug benefit design from the stand20 ard coverage described in subsection (b) so long as the Ad21 ministrator determines (based on an actuarial analysis by 

22 the Administrator) that the following requirements are met 

23 and the plan applies for, and receives, the approval of the 

24 Administrator for such benefit design: 
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1 ‘‘(1) ASSURING AT LEAST ACTUARIALLY EQUIVA2 LENT COVERAGE.—

3 ‘‘(A) ASSURING EQUIVALENT VALUE OF

4 TOTAL COVERAGE.—The actuarial value of the 

5 total coverage (as determined under subsection 

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

7 so determined) of standard coverage. 

8 ‘‘(B) ASSURING EQUIVALENT UNSUBSIDIZED

9 VALUE OF COVERAGE.—The unsubsidized value 

10 of the coverage is at least equal to the unsub11 sidized value of standard coverage. For purposes 

12 of this subparagraph, the unsubsidized value of 

13 coverage is the amount by which the actuarial 

14 value of the coverage (as determined under sub15 section (e)) exceeds the actuarial value of the sub16 sidy payments under section 1860D–8 with re17 spect to such coverage. 

18 ‘‘(C) ASSURING STANDARD PAYMENT FOR

19 COSTS AT INITIAL COVERAGE LIMIT.—The cov20 erage is designed, based upon an actuarially rep21 resentative pattern of utilization (as determined 

22 under subsection (e)), to provide for the pay23 ment, with respect to costs incurred that are 

24 equal to the initial coverage limit under sub-
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1 section (b)(3), of an amount equal to at least the 

2 product of—

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

4 coverage limit described in subsection (b)(3) 

5 exceeds the deductible described in sub6 section (b)(1); and 

7 ‘‘(ii) 100 percent minus the cost-shar8 ing percentage specified in subsection 

9 (b)(2)(A)(i). 

10 ‘‘(2) CATASTROPHIC PROTECTION.—The coverage 

11 provides for beneficiaries the catastrophic protection 

12 described in subsection (b)(4). 

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

14 ‘‘(1) IN GENERAL.—Under qualified prescription 

15 drug coverage offered by a PDP sponsor or an entity 

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

17 shall provide beneficiaries with access to negotiated 

18 prices (including applicable discounts) used for pay19 ment for covered outpatient drugs, regardless of the 

20 fact that no benefits may be payable under the cov21 erage with respect to such drugs because of the appli22 cation of cost-sharing or an initial coverage limit (de23 scribed in subsection (b)(3)). Insofar as a State elects 

24 to provide medical assistance under title XIX for a 

25 drug based on the prices negotiated by a prescription 
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1 drug plan or MA-EFFS Rx plan under this part, the 

2 requirements of section 1927 shall not apply to such 

3 drugs. The prices negotiated by a prescription drug 

4 plan under this part, by a MA-EFFS Rx plan with 

5 respect to covered outpatient drugs, or by a qualified 

6 retiree prescription drug plan (as defined in section 

7 1860D–8(f)(1)) with respect to such drugs on behalf 

8 of individuals entitled to benefits under part A or en9 rolled under part B, shall (notwithstanding any other 

10 provision of law) not be taken into account for the 

11 purposes of establishing the best price under section 

12 1927(c)(1)(C). 

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

14 offering a MA-EFFS Rx plan shall disclose to the Ad15 ministrator (in a manner specified by the Adminis16 trator) the extent to which discounts or rebates or 

17 other remuneration or price concessions made avail18 able to the sponsor or organization by a manufacturer 

19 are passed through to enrollees through pharmacies 

20 and other dispensers or otherwise. The provisions of 

21 section 1927(b)(3)(D) shall apply to information dis22 closed to the Administrator under this paragraph in 

23 the same manner as such provisions apply to infor24 mation disclosed under such section. 
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1 ‘‘(3) AUDITS AND REPORTS.—To protect against 

2 fraud and abuse and to ensure proper disclosures and 

3 accounting under this part, in addition to any pro4 tections against fraud and abuse provided under sec5 tion 1860D–4(b)(3)(C), the Administrator may peri6 odically audit the financial statements and records of 

7 PDP sponsor or entities offering a MA-EFFS Rx 

8 plan.

9 ‘‘(e) ACTUARIAL VALUATION; DETERMINATION OF AN10 NUAL PERCENTAGE INCREASES.—

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

12 the Administrator shall establish processes and meth13 ods—

14 ‘‘(A) for determining the actuarial valu15 ation of prescription drug coverage, including—

16 ‘‘(i) an actuarial valuation of standard 

17 coverage and of the reinsurance subsidy 

18 payments under section 1860D–8; 

19 ‘‘(ii) the use of generally accepted actu20 arial principles and methodologies; and 

21 ‘‘(iii) applying the same methodology 

22 for determinations of alternative coverage 

23 under subsection (c) as is used with respect 

24 to determinations of standard coverage 

25 under subsection (b); and 
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1 ‘‘(B) for determining annual percentage in2 creases described in subsection (b)(5). 

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

4 processes under paragraph (1)(A), PDP sponsors and 

5 entities offering MA-EFFS Rx plans may use actu6 arial opinions certified by independent, qualified ac7 tuaries to establish actuarial values, but the Adminis8 trator shall determine whether such actuarial values 

9 meet the requirements under subsection (c)(1). 

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

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

12 subsection, for purposes of this part, the term ‘covered 

13 outpatient drug’ means—

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

15 upon a prescription and that is described in sub16 paragraph (A)(i) or (A)(ii) of section 1927(k)(2); 

17 or 

18 ‘‘(B) a biological product described in 

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

20 such section or insulin described in subpara21 graph (C) of such section and medical supplies 

22 associated with the injection of insulin (as de23 fined in regulations of the Secretary), 

24 and such term includes a vaccine licensed under sec25 tion 351 of the Public Health Service Act and any 
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1 use of a covered outpatient drug for a medically ac2 cepted indication (as defined in section 1927(k)(6)). 

3 ‘‘(2) EXCLUSIONS.—

4 ‘‘(A) IN GENERAL.—Such term does not in5 clude drugs or classes of drugs, or their medical 

6 uses, which may be excluded from coverage or 

7 otherwise restricted under section 1927(d)(2), 

8 other than subparagraph (E) thereof (relating to 

9 smoking cessation agents), or under section 

10 1927(d)(3). 

11 ‘‘(B) AVOIDANCE OF DUPLICATE COV12 ERAGE.—A drug prescribed for an individual 

13 that would otherwise be a covered outpatient 

14 drug under this part shall not be so considered 

15 if payment for such drug is available under part 

16 A or B for an individual entitled to benefits 

17 under part A and enrolled under part B. 

18 ‘‘(3) APPLICATION OF FORMULARY RESTRIC19 TIONS.—A drug prescribed for an individual that 

20 would otherwise be a covered outpatient drug under 

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

22 the plan excludes the drug under a formulary and 

23 such exclusion is not successfully appealed under sec24 tion 1860D–3(f)(2). 
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1 ‘‘(4) APPLICATION OF GENERAL EXCLUSION PRO2 VISIONS.—A prescription drug plan or MA-EFFS Rx 

3 plan may exclude from qualified prescription drug 

4 coverage any covered outpatient drug—

5 ‘‘(A) for which payment would not be made 

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

7 ‘‘(B) which are not prescribed in accordance 

8 with the plan or this part. 

9 Such exclusions are determinations subject to recon10 sideration and appeal pursuant to section 1860D–

11 3(f). 

12 ‘‘SEC. 1860D–3. BENEFICIARY PROTECTIONS FOR QUALIFIED 

13 PRESCRIPTION DRUG COVERAGE. 

14 ‘‘(a) GUARANTEED ISSUE, COMMUNITY-RATED PRE15 MIUMS, ACCESS TO NEGOTIATED PRICES, AND NON16 DISCRIMINATION.—For provisions requiring guaranteed 

17 issue, community-rated premiums, access to negotiated 

18 prices, and nondiscrimination, see sections 1860D–1(c)(1), 

19 1860D–1(c)(2), 1860D–2(d), and 1860D–6(b), respectively. 

20 ‘‘(b) DISSEMINATION OF INFORMATION.—

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

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

23 form to each enrollee with a prescription drug plan 

24 offered by the sponsor under this part at the time of 

25 enrollment and at least annually thereafter, the infor-
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1 mation described in section 1852(c)(1) relating to 

2 such plan. Such information includes the following: 

3 ‘‘(A) Access to specific covered outpatient 

4 drugs, including access through pharmacy net5 works. 

6 ‘‘(B) How any formulary used by the spon7 sor functions, including the drugs included in 

8 the formulary. 

9 ‘‘(C) Co-payments and deductible require10 ments, including the identification of the tiered 

11 or other co-payment level applicable to each drug 

12 (or class of drugs). 

13 ‘‘(D) Grievance and appeals procedures. 

14 Such information shall also be made available upon 

15 request to prospective enrollees. 

16 ‘‘(2) DISCLOSURE UPON REQUEST OF GENERAL

17 COVERAGE, UTILIZATION, AND GRIEVANCE INFORMA18 TION.—Upon request of an individual eligible to en19 roll under a prescription drug plan, the PDP sponsor 

20 shall provide the information described in section 

21 1852(c)(2) (other than subparagraph (D)) to such in22 dividual. 

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

24 Each PDP sponsor offering a prescription drug plan 

25 shall have a mechanism for providing specific infor-
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1 mation to enrollees upon request. The sponsor shall 

2 make available on a timely basis, through an Internet 

3 website and in writing upon request, information on 

4 specific changes in its formulary. 

5 ‘‘(4) CLAIMS INFORMATION.—Each PDP sponsor 

6 offering a prescription drug plan must furnish to 

7 each enrollee in a form easily understandable to such 

8 enrollees an explanation of benefits (in accordance 

9 with section 1806(a) or in a comparable manner) and 

10 a notice of the benefits in relation to initial coverage 

11 limit and the annual out-of-pocket threshold applica12 ble to such enrollee for the current year, whenever pre13 scription drug benefits are provided under this part 

14 (except that such notice need not be provided more 

15 often than monthly).

16 ‘‘(c) ACCESS TO COVERED BENEFITS.—

17 ‘‘(1) ASSURING PHARMACY ACCESS.—

18 ‘‘(A) SECURING SUFFICIENT PARTICIPA19 TION.—

20 ‘‘(i) PARTICIPATION OF ANY WILLING

21 PHARMACY.—A PDP sponsor and an entity 

22 offering a MA-EFFS Rx plan shall permit 

23 the participation of any pharmacy that 

24 meets terms and conditions that the plan 

25 has established. 
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1 ‘‘(ii) DISCOUNTS ALLOWED FOR NET2 WORK PHARMACIES.—A prescription drug 

3 plan and a MA-EFFS Rx plan may, not4 withstanding clause (i), reduce coinsurance 

5 or copayments for its enrolled beneficiaries 

6 below the level otherwise provided for cov7 ered outpatient drugs dispensed through in8 network pharmacies, but in no case shall 

9 such a reduction result in an increase in 

10 payments made by the Administrator under 

11 section 1860D–8 to a plan. 

12 ‘‘(iii) CONVENIENT ACCESS FOR NET13 WORK PHARMACIES.—The PDP sponsor of 

14 the prescription drug plan and the entity 

15 offering a MA-EFFS Rx plan shall secure 

16 the participation in its network of a suffi17 cient number of pharmacies that dispense 

18 (other than by mail order) drugs directly to 

19 patients to ensure convenient access (con20 sistent with rules of the Administrator es21 tablished under subparagraph (B)). The Ad22 ministrator shall establish convenient access 

23 rules under this clause that are no less fa24 vorable to enrollees than the rules for con25 venient access to pharmacies of the Sec-
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1 retary of Defense established as of June 1, 

2 2003, for purposes of the TRICARE Retail 

3 Pharmacy (TRRx) program. Such rules 

4 shall include adequate emergency access for 

5 enrolled beneficiaries. 

6 ‘‘(iv) LEVEL PLAYING FIELD.—Such a 

7 sponsor shall permit enrollees to receive ben8 efits (which may include a 90-day supply of 

9 drugs or biologicals) through a community 

10 pharmacy, rather than through mail order, 

11 with any differential in cost paid by such 

12 enrollees. 

13 ‘‘(v) NOT REQUIRED TO ACCEPT INSUR14 ANCE RISK.—The terms and conditions 

15 under clause (i) may not require partici16 pating pharmacies to accept insurance risk 

17 as a condition of participation. 

18 ‘‘(2) USE OF STANDARDIZED TECHNOLOGY.—

19 ‘‘(A) IN GENERAL.—The PDP sponsor of a 

20 prescription drug plan and an entity offering a 

21 MA-EFFS Rx plan shall issue (and reissue, as 

22 appropriate) such a card (or other technology) 

23 that may be used by an enrollee to assure access 

24 to negotiated prices under section 1860D–2(d) 

25 for the purchase of prescription drugs for which 
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1 coverage is not otherwise provided under the 

2 plan. 

3 ‘‘(B) STANDARDS.—

4 ‘‘(i) DEVELOPMENT.—The Adminis5 trator shall provide for the development or 

6 utilization of uniform standards relating to 

7 a standardized format for the card or other 

8 technology referred to in subparagraph (A). 

9 Such standards shall be compatible with 

10 standards established under part C of title 

11 XI. 

12 ‘‘(ii) APPLICATION OF ADVISORY TASK

13 FORCE.—The advisory task force established 

14 under subsection (d)(3)(B)(ii) shall provide 

15 recommendations to the Administrator 

16 under such subsection regarding the stand17 ards developed under clause (i). 

18 ‘‘(3) REQUIREMENTS ON DEVELOPMENT AND AP19 PLICATION OF FORMULARIES.—If a PDP sponsor of a 

20 prescription drug plan or an entity offering a MA21 EFFS Rx plan uses a formulary, the following re22 quirements must be met: 

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

24 COMMITTEE.—The sponsor or entity must estab25 lish a pharmacy and therapeutic committee that 
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1 develops and reviews the formulary. Such com2 mittee shall include at least one practicing phy3 sician and at least one practicing pharmacist 

4 both with expertise in the care of elderly or dis5 abled persons and a majority of its members 

6 shall consist of individuals who are practicing 

7 physicians or practicing pharmacists (or both). 

8 ‘‘(B) FORMULARY DEVELOPMENT.—In de9 veloping and reviewing the formulary, the com10 mittee shall—

11 ‘‘(i) base clinical decisions on the 

12 strength of scientific evidence and standards 

13 of practice, including assessing peer-re14 viewed medical literature, such as random15 ized clinical trials, pharmacoeconomic stud16 ies, outcomes research data, and such other 

17 information as the committee determines to 

18 be appropriate; and 

19 ‘‘(ii) shall take into account whether 

20 including in the formulary particular cov21 ered outpatient drugs has therapeutic ad22 vantages in terms of safety and efficacy. 

23 ‘‘(C) INCLUSION OF DRUGS IN ALL THERA24 PEUTIC CATEGORIES.—The formulary must in25 clude drugs within each therapeutic category and 
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1 class of covered outpatient drugs (although not 

2 necessarily for all drugs within such categories 

3 and classes). In establishing such classes, the 

4 committee shall take into account the standards 

5 published in the United States Pharmacopeia6 Drug Information. The committee shall make 

7 available to the enrollees under the plan through 

8 the Internet or otherwise the clinical bases for the 

9 coverage of any drug on the formulary. 

10 ‘‘(D) PROVIDER AND PATIENT EDU11 CATION.—The committee shall establish policies 

12 and procedures to educate and inform health 

13 care providers and enrollees concerning the for14 mulary. 

15 ‘‘(E) NOTICE BEFORE REMOVING DRUG

16 FROM FORMULARY FOR CHANGING PREFERRED

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

18 covered outpatient drug from a formulary and 

19 any change in the preferred or tier cost-sharing 

20 status of such a drug shall take effect only after 

21 appropriate notice is made available to bene22 ficiaries and physicians. 

23 ‘‘(F) PERIODIC EVALUATION OF PROTO24 COLS.—In connection with the formulary, a pre25 scription drug plan shall provide for the periodic 
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1 evaluation and analysis of treatment protocols 

2 and procedures. 

3 ‘‘(G) GRIEVANCES AND APPEALS RELATING

4 TO APPLICATION OF FORMULARIES.—For provi5 sions relating to grievances and appeals of cov6 erage, see subsections (e) and (f). 

7 ‘‘(d) COST AND UTILIZATION MANAGEMENT; QUALITY

8 ASSURANCE; MEDICATION THERAPY MANAGEMENT PRO9 GRAM.—

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

11 offering a MA-EFFS Rx plan shall have in place, di12 rectly or through appropriate arrangements, with re13 spect to covered outpatient drugs—

14 ‘‘(A) an effective cost and drug utilization 

15 management program, including medically ap16 propriate incentives to use generic drugs and 

17 therapeutic interchange, when appropriate; 

18 ‘‘(B) quality assurance measures and sys19 tems to reduce medical errors and adverse drug 

20 interactions, including side-effects, and improve 

21 medication use, including a medication therapy 

22 management program described in paragraph 

23 (2) and for years beginning with 2007, an elec24 tronic prescription program described in para25 graph (3); and 
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1 ‘‘(C) a program to control fraud, abuse, and 

2 waste. 

3 Nothing in this section shall be construed as impair4 ing a PDP sponsor or entity from utilizing cost man5 agement tools (including differential payments) under 

6 all methods of operation. 

7 ‘‘(2) MEDICATION THERAPY MANAGEMENT PRO8 GRAM.—

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

10 management program described in this para11 graph is a program of drug therapy management 

12 and medication administration that may be fur13 nished by a pharmacy provider and that is de14 signed to assure, with respect to beneficiaries at 

15 risk for potential medication problems, such as 

16 beneficiaries with complex or chronic diseases 

17 (such as diabetes, asthma, hypertension, and 

18 congestive heart failure) or multiple prescrip19 tions, that covered outpatient drugs under the 

20 prescription drug plan are appropriately used to 

21 optimize therapeutic outcomes through improved 

22 medication use and reduce the risk of adverse 

23 events, including adverse drug interactions. Such 

24 programs may distinguish between services in 

25 ambulatory and institutional settings. 
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1 ‘‘(B) ELEMENTS.—Such program may in2 clude—

3 ‘‘(i) enhanced beneficiary under4 standing to promote the appropriate use of 

5 medications by beneficiaries and to reduce 

6 the risk of potential adverse events associ7 ated with medications, through beneficiary 

8 education, counseling, case management, 

9 disease state management programs, and 

10 other appropriate means; 

11 ‘‘(ii) increased beneficiary adherence 

12 with prescription medication regimens 

13 through medication refill reminders, special 

14 packaging, and other compliance programs 

15 and other appropriate means; and 

16 ‘‘(iii) detection of patterns of overuse 

17 and underuse of prescription drugs. 

18 ‘‘(C) DEVELOPMENT OF PROGRAM IN CO19 OPERATION WITH LICENSED PHARMACISTS.—The 

20 program shall be developed in cooperation with 

21 licensed and practicing pharmacists and physi22 cians. 

23 ‘‘(D) CONSIDERATIONS IN PHARMACY

24 FEES.—The PDP sponsor of a prescription drug 

25 program and an entity offering a MA-EFFS Rx 
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1 plan shall take into account, in establishing fees 

2 for pharmacists and others providing services 

3 under the medication therapy management pro4 gram, the resources and time used in imple5 menting the program. Each such sponsor or enti6 ty shall disclose to the Administrator upon re7 quest the amount of any such management or 

8 dispensing fees. 

9 ‘‘(3) ELECTRONIC PRESCRIPTION PROGRAM.—

10 ‘‘(A) IN GENERAL.—An electronic prescrip11 tion drug program described in this paragraph 

12 is a program that includes at least the following 

13 components, consistent with uniform standards 

14 established under subparagraph (B): 

15 ‘‘(i) ELECTRONIC TRANSMITTAL OF

16 PRESCRIPTIONS.—Prescriptions must be 

17 written and transmitted electronically 

18 (other than by facsimile), except in emer19 gency cases and other exceptional cir20 cumstances recognized by the Adminis21 trator. 

22 ‘‘(ii) PROVISION OF INFORMATION TO

23 PRESCRIBING HEALTH CARE PROFES24 SIONAL.—The program provides for the elec25 tronic transmittal to the prescribing health 
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1 care professional of information that in2 cludes—

3 ‘‘(I) information (to the extent 

4 available and feasible) on the drug or 

5 drugs being prescribed for that patient 

6 and other information relating to the 

7 medical history or condition of the pa8 tient that may be relevant to the ap9 propriate prescription for that patient; 

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

11 any) for the use of the drug prescribed; 

12 and 

13 ‘‘(III) information on the drugs 

14 included in the applicable formulary. 

15 To the extent feasible, such program shall 

16 permit the prescribing health care profes17 sional to provide (and be provided) related 

18 information on an interactive, real-time 

19 basis. 

20 ‘‘(B) STANDARDS.—

21 ‘‘(i) DEVELOPMENT.—The Adminis22 trator shall provide for the development of 

23 uniform standards relating to the electronic 

24 prescription drug program described in sub25 paragraph (A). Such standards shall be 
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1 compatible with standards established under 

2 part C of title XI. 

3 ‘‘(ii) ADVISORY TASK FORCE.—In de4 veloping such standards and the standards 

5 described in subsection (c)(2)(B)(i) the Ad6 ministrator shall establish a task force that 

7 includes representatives of physicians, hos8 pitals, pharmacies, beneficiaries, pharmacy 

9 benefit managers, individuals with expertise 

10 in information technology, and pharmacy 

11 benefit experts of the Departments of Vet12 erans Affairs and Defense and other appro13 priate Federal agencies to provide rec14 ommendations to the Administrator on such 

15 standards, including recommendations re16 lating to the following: 

17 ‘‘(I) The range of available com18 puterized prescribing software and 

19 hardware and their costs to develop 

20 and implement. 

21 ‘‘(II) The extent to which such 

22 standards and systems reduce medica23 tion errors and can be readily imple24 mented by physicians, pharmacies, and 

25 hospitals. 
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1 ‘‘(III) Efforts to develop uniform 

2 standards and a common software 

3 platform for the secure electronic com4 munication of medication history, eli5 gibility, benefit, and prescription in6 formation. 

7 ‘‘(IV) Efforts to develop and pro8 mote universal connectivity and inter9 operability for the secure electronic ex10 change of such information.

11 ‘‘(V) The cost of implementing 

12 such systems in the range of hospital 

13 and physician office settings and phar14 macies, including hardware, software, 

15 and training costs. 

16 ‘‘(VI) Implementation issues as 

17 they relate to part C of title XI, and 

18 current Federal and State prescribing 

19 laws and regulations and their impact 

20 on implementation of computerized 

21 prescribing. 

22 ‘‘(iii) DEADLINES.—

23 ‘‘(I) The Administrator shall con24 stitute the task force under clause (ii) 

25 by not later than April 1, 2004. 
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1 ‘‘(II) Such task force shall submit 

2 recommendations to Administrator by 

3 not later than January 1, 2005. 

4 ‘‘(III) The Administrator shall 

5 provide for the development and pro6 mulgation, by not later than January 

7 1, 2006, of national standards relating 

8 to the electronic prescription drug pro9 gram described in clause (ii). Such 

10 standards shall be issued by a stand11 ards organization accredited by the 

12 American National Standards Insti13 tute (ANSI) and shall be compatible 

14 with standards established under part 

15 C of title XI. 

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

17 1852(e)(4) (relating to treatment of accreditation) 

18 shall apply to prescription drug plans under this part 

19 with respect to the following requirements, in the 

20 same manner as they apply to plans under part C 

21 with respect to the requirements described in a clause 

22 of section 1852(e)(4)(B): 

23 ‘‘(A) Paragraph (1) (including quality as24 surance), including medication therapy manage25 ment program under paragraph (2). 
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1 ‘‘(B) Subsection (c)(1) (relating to access to 

2 covered benefits). 

3 ‘‘(C) Subsection (g) (relating to confiden4 tiality and accuracy of enrollee records). 

5 ‘‘(5) PUBLIC DISCLOSURE OF PHARMACEUTICAL

6 PRICES FOR EQUIVALENT DRUGS.—Each PDP spon7 sor and each entity offering a MA-EFFS Rx plan 

8 shall provide that each pharmacy or other dispenser 

9 that arranges for the dispensing of a covered out10 patient drug shall inform the beneficiary at the time 

11 of purchase of the drug of any differential between the 

12 price of the prescribed drug to the enrollee and the 

13 price of the lowest cost available generic drug covered 

14 under the plan that is therapeutically equivalent and 

15 bioequivalent.

16 ‘‘(e) GRIEVANCE MECHANISM, COVERAGE DETERMINA17 TIONS, AND RECONSIDERATIONS.—

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

19 provide meaningful procedures for hearing and resolv20 ing grievances between the organization (including 

21 any entity or individual through which the sponsor 

22 provides covered benefits) and enrollees with prescrip23 tion drug plans of the sponsor under this part in ac24 cordance with section 1852(f). 
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1 ‘‘(2) APPLICATION OF COVERAGE DETERMINA2 TION AND RECONSIDERATION PROVISIONS.—A PDP 

3 sponsor shall meet the requirements of paragraphs (1) 

4 through (3) of section 1852(g) with respect to covered 

5 benefits under the prescription drug plan it offers 

6 under this part in the same manner as such require7 ments apply to an organization with respect to bene8 fits it offers under a plan under part C. 

9 ‘‘(3) REQUEST FOR REVIEW OF TIERED FOR10 MULARY DETERMINATIONS.—In the case of a prescrip11 tion drug plan offered by a PDP sponsor or a MA12 EFFS Rx plan that provides for tiered cost-sharing 

13 for drugs included within a formulary and provides 

14 lower cost-sharing for preferred drugs included within 

15 the formulary, an individual who is enrolled in the 

16 plan may request coverage of a nonpreferred drug 

17 under the terms applicable for preferred drugs if the 

18 prescribing physician determines that the preferred 

19 drug for treatment of the same condition either would 

20 not be as effective for the individual or would have 

21 adverse effects for the individual or both.

22 ‘‘(f) APPEALS.—

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

24 PDP sponsor shall meet the requirements of para25 graphs (4) and (5) of section 1852(g) with respect to 
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1 drugs (including a determination related to the appli2 cation of tiered cost-sharing described in subsection 

3 (e)(3)) in the same manner as such requirements 

4 apply to an organization with respect to benefits it 

5 offers under a plan under part C. 

6 ‘‘(2) FORMULARY DETERMINATIONS.—An indi7 vidual who is enrolled in a prescription drug plan of8 fered by a PDP sponsor or in a MA-EFFS Rx plan 

9 may appeal to obtain coverage for a covered out10 patient drug that is not on a formulary of the sponsor 

11 or entity offering the plan if the prescribing physi12 cian determines that the formulary drug for treat13 ment of the same condition either would not be as ef14 fective for the individual or would have adverse effects 

15 for the individual or both. 

16 ‘‘(g) CONFIDENTIALITY AND ACCURACY OF ENROLLEE

17 RECORDS.—A PDP sponsor that offers a prescription drug 

18 plan shall meet the requirements of section 1852(h) with 

19 respect to enrollees under the plan in the same manner as 

20 such requirements apply to an organization with respect 

21 to enrollees under part C. A PDP sponsor shall be treated 

22 as a covered entity for purposes of the provisions of subpart 

23 E of part 164 of title 45, Code of Federal Regulations, 

24 adopted pursuant to the authority of the Secretary under 
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1 section 264(c) of the Health Insurance Portability and Ac2 countability Act of 1996 (42 U.S. C. 1320d-2 note). 

3 ‘‘SEC. 1860D–4. REQUIREMENTS FOR AND CONTRACTS WITH 

4 PRESCRIPTION DRUG PLAN (PDP) SPONSORS. 

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

6 of a prescription drug plan shall meet the following require7 ments: 

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

9 sponsor is organized and licensed under State law as 

10 a risk-bearing entity eligible to offer health insurance 

11 or health benefits coverage in each State in which it 

12 offers a prescription drug plan. 

13 ‘‘(2) ASSUMPTION OF FINANCIAL RISK FOR UN14 SUBSIDIZED COVERAGE.—

15 ‘‘(A) IN GENERAL.—Subject to subpara16 graph (B) and section 1860D–5(d)(2), the entity 

17 assumes full financial risk on a prospective basis 

18 for qualified prescription drug coverage that it 

19 offers under a prescription drug plan and that 

20 is not covered under section 1860D–8. 

21 ‘‘(B) REINSURANCE PERMITTED.—The enti22 ty may obtain insurance or make other arrange23 ments for the cost of coverage provided to any 

24 enrollee. 
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1 ‘‘(3) SOLVENCY FOR UNLICENSED SPONSORS.—In 

2 the case of a sponsor that is not described in para3 graph (1), the sponsor shall meet solvency standards 

4 established by the Administrator under subsection (d).

5 ‘‘(b) CONTRACT REQUIREMENTS.—

6 ‘‘(1) IN GENERAL.—The Administrator shall not 

7 permit the election under section 1860D–1 of a pre8 scription drug plan offered by a PDP sponsor under 

9 this part, and the sponsor shall not be eligible for 

10 payments under section 1860D–7 or 1860D–8, unless 

11 the Administrator has entered into a contract under 

12 this subsection with the sponsor with respect to the of13 fering of such plan. Such a contract with a sponsor 

14 may cover more than one prescription drug plan. 

15 Such contract shall provide that the sponsor agrees to 

16 comply with the applicable requirements and stand17 ards of this part and the terms and conditions of 

18 payment as provided for in this part. 

19 ‘‘(2) NEGOTIATION REGARDING TERMS AND CON20 DITIONS.—The Administrator shall have the same au21 thority to negotiate the terms and conditions of pre22 scription drug plans under this part as the Director 

23 of the Office of Personnel Management has with re24 spect to health benefits plans under chapter 89 of title 

25 5, United States Code. In negotiating the terms and 
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1 conditions regarding premiums for which information 

2 is submitted under section 1860D–6(a)(2), the Ad3 ministrator shall take into account the subsidy pay4 ments under section 1860D–8. 

5 ‘‘(3) INCORPORATION OF CERTAIN MEDICARE AD6 VANTAGE CONTRACT REQUIREMENTS.—The following 

7 provisions of section 1857 shall apply, subject to sub8 section (c)(5), to contracts under this section in the 

9 same manner as they apply to contracts under section 

10 1857(a): 

11 ‘‘(A) MINIMUM ENROLLMENT.—Paragraphs 

12 (1) and (3) of section 1857(b). 

13 ‘‘(B) CONTRACT PERIOD AND EFFECTIVE14 NESS.—Paragraphs (1) through (3) and (5) of 

15 section 1857(c). 

16 ‘‘(C) PROTECTIONS AGAINST FRAUD AND

17 BENEFICIARY PROTECTIONS.—Section 1857(d). 

18 ‘‘(D) ADDITIONAL CONTRACT TERMS.—Sec19 tion 1857(e); except that in applying section 

20 1857(e)(2) under this part—

21 ‘‘(i) such section shall be applied sepa22 rately to costs relating to this part (from 

23 costs under part C and part E); 

24 ‘‘(ii) in no case shall the amount of the 

25 fee established under this subparagraph for 
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1 a plan exceed 20 percent of the maximum 

2 amount of the fee that may be established 

3 under subparagraph (B) of such section; 

4 and 

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

6 this subparagraph with respect to MA7 EFFS Rx plans. 

8 ‘‘(E) INTERMEDIATE SANCTIONS.—Section 

9 1857(g). 

10 ‘‘(F) PROCEDURES FOR TERMINATION.—

11 Section 1857(h). 

12 ‘‘(4) RULES OF APPLICATION FOR INTERMEDIATE

13 SANCTIONS.—In applying paragraph (3)(E)—

14 ‘‘(A) the reference in section 1857(g)(1)(B) 

15 to section 1854 is deemed a reference to this 

16 part; and 

17 ‘‘(B) the reference in section 1857(g)(1)(F) 

18 to section 1852(k)(2)(A)(ii) shall not be applied. 

19 ‘‘(5) SERVICE AREA REQUIREMENT.—For pur20 poses of this part, the Administrator shall designate 

21 at least 10 areas covering the entire United States 

22 and to the extent practicable shall be consistent with 

23 EFFS regions established under section 1860E–

24 1(a)(2). 
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1 ‘‘(c) WAIVER OF CERTAIN REQUIREMENTS TO EXPAND

2 CHOICE.—

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

4 seeks to offer a prescription drug plan in a State, the 

5 Administrator shall waive the requirement of sub6 section (a)(1) that the entity be licensed in that State 

7 if the Administrator determines, based on the applica8 tion and other evidence presented to the Adminis9 trator, that any of the grounds for approval of the ap10 plication described in paragraph (2) have been met. 

11 ‘‘(2) GROUNDS FOR APPROVAL.—The grounds for 

12 approval under this paragraph are the grounds for 

13 approval described in subparagraph (B), (C), and 

14 (D) of section 1855(a)(2), and also include the appli15 cation by a State of any grounds other than those re16 quired under Federal law. 

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

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

19 waiver granted) under this subsection, the provisions 

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

21 1855(a)(2) shall apply. 

22 ‘‘(4) LICENSURE DOES NOT SUBSTITUTE FOR OR

23 CONSTITUTE CERTIFICATION.—The fact that an entity 

24 is licensed in accordance with subsection (a)(1) does 
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1 not deem the entity to meet other requirements im2 posed under this part for a PDP sponsor. 

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

4 For purposes of this subsection, in applying provi5 sions of section 1855(a)(2) under this subsection to 

6 prescription drug plans and PDP sponsors—

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

8 under section 1855 shall be treated as a reference 

9 to a waiver application under paragraph (1); 

10 and 

11 ‘‘(B) any reference to solvency standards 

12 shall be treated as a reference to solvency stand13 ards established under subsection (d). 

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

15 SPONSORS.—

16 ‘‘(1) ESTABLISHMENT.—The Administrator shall 

17 establish, by not later than October 1, 2004, financial 

18 solvency and capital adequacy standards that an en19 tity that does not meet the requirements of subsection 

20 (a)(1) must meet to qualify as a PDP sponsor under 

21 this part. 

22 ‘‘(2) COMPLIANCE WITH STANDARDS.—Each 

23 PDP sponsor that is not licensed by a State under 

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

25 has been approved under subsection (c) shall meet sol-
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1 vency and capital adequacy standards established 

2 under paragraph (1). The Administrator shall estab3 lish certification procedures for such PDP sponsors 

4 with respect to such solvency standards in the manner 

5 described in section 1855(c)(2). 

6 ‘‘(e) RELATION TO STATE LAWS.—

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

8 under this part shall supersede any State law or reg9 ulation (other than State licensing laws or State laws 

10 relating to plan solvency, except as provided in sub11 section (d)) with respect to prescription drug plans 

12 which are offered by PDP sponsors under this part. 

13 ‘‘(2) PROHIBITION OF STATE IMPOSITION OF

14 PREMIUM TAXES.—No State may impose a premium 

15 tax or similar tax with respect to premiums paid to 

16 PDP sponsors for prescription drug plans under this 

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

18 a sponsor by the Administrator under this part. 

19 ‘‘SEC. 1860D–5. PROCESS FOR BENEFICIARIES TO SELECT 

20 QUALIFIED PRESCRIPTION DRUG COVERAGE. 

21 ‘‘(a) IN GENERAL.—The Administrator shall establish 

22 a process for the selection of the prescription drug plan or 

23 MA-EFFS Rx plan through which eligible individuals elect 

24 qualified prescription drug coverage under this part. 
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1 ‘‘(b) ELEMENTS.—Such process shall include the fol2 lowing: 

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

4 which such individuals can change the qualifying 

5 plans through which they obtain coverage, in accord6 ance with section 1860D–1(b)(2). 

7 ‘‘(2) Active dissemination of information to pro8 mote an informed selection among qualifying plans 

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

10 manner described in (and in coordination with) sec11 tion 1851(d), including the provision of annual com12 parative information, maintenance of a toll-free hot13 line, and the use of non-Federal entities. 

14 ‘‘(3) Coordination of elections through filing 

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

16 PDP sponsor, in the manner described in (and in co17 ordination with) section 1851(c)(2). 

18 ‘‘(4) Informing each enrollee before the beginning 

19 of each year of the annual out-of-pocket threshold ap20 plicable to the enrollee for that year under section 

21 1860D–2(b)(4) at such time. 

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

23 BENEFITS THROUGH THE PLAN.—An individual who is 

24 enrolled under a MA-EFFS Rx plan may only elect to re-
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1 ceive qualified prescription drug coverage under this part 

2 through such plan. 

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

4 PRESCRIPTION DRUG COVERAGE.—

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

6 AREA.—

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

8 shall assure that each individual who is entitled 

9 to benefits under part A or enrolled under part 

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

11 States has available, consistent with subpara12 graph (B), a choice of enrollment in at least two 

13 qualifying plans (as defined in paragraph (5)) 

14 in the area in which the individual resides, at 

15 least one of which is a prescription drug plan. 

16 ‘‘(B) REQUIREMENT FOR DIFFERENT PLAN

17 SPONSORS.—The requirement in subparagraph 

18 (A) is not satisfied with respect to an area if 

19 only one PDP sponsor or one entity that offers 

20 a MA-EFFS Rx plan offers all the qualifying 

21 plans in the area. 

22 ‘‘(2) GUARANTEEING ACCESS TO COVERAGE.—In 

23 order to assure access under paragraph (1) and con24 sistent with paragraph (3), the Administrator may 

25 provide partial underwriting of risk for a PDP spon-
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1 sor to expand the service area under an existing pre2 scription drug plan to adjoining or additional areas 

3 or to establish such a plan (including offering such a 

4 plan on a regional or nationwide basis), but only so 

5 long as (and to the extent) necessary to assure the ac6 cess guaranteed under paragraph (1). 

7 ‘‘(3) LIMITATION ON AUTHORITY.—In exercising 

8 authority under this subsection, the Administrator—

9 ‘‘(A) shall not provide for the full under10 writing of financial risk for any PDP sponsor; 

11 and 

12 ‘‘(B) shall seek to maximize the assumption 

13 of financial risk by PDP sponsors or entities of14 fering a MA-EFFS Rx plan. 

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

16 each annual report to Congress under section 1809(f), 

17 include information on the exercise of authority under 

18 this subsection. The Administrator also shall include 

19 such recommendations as may be appropriate to min20 imize the exercise of such authority, including mini21 mizing the assumption of financial risk. 

22 ‘‘(5) QUALIFYING PLAN DEFINED.—For purposes 

23 of this subsection, the term ‘qualifying plan’ means a 

24 prescription drug plan or a MA-EFFS Rx plan. 
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1 ‘‘SEC. 1860D–6. SUBMISSION OF BIDS AND PREMIUMS. 

2 ‘‘(a) SUBMISSION OF BIDS, PREMIUMS, AND RELATED

3 INFORMATION.—

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

5 submit to the Administrator the information de6 scribed in paragraph (2) in the same manner as in7 formation is submitted by an organization under sec8 tion 1854(a)(1). 

9 ‘‘(2) INFORMATION SUBMITTED.—The informa10 tion described in this paragraph is the following: 

11 ‘‘(A) COVERAGE PROVIDED.—Information 

12 on the qualified prescription drug coverage to be 

13 provided. 

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

15 the actuarial value of the coverage. 

16 ‘‘(C) BID AND PREMIUM.—Information on 

17 the bid and the premium for the coverage, in18 cluding an actuarial certification of—

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

20 and premium; 

21 ‘‘(ii) the portion of such bid and pre22 mium attributable to benefits in excess of 

23 standard coverage; 

24 ‘‘(iii) the reduction in such bid result25 ing from the reinsurance subsidy payments 

26 provided under section 1860D–8(a)(2); and 
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1 ‘‘(iv) the reduction in such premium 

2 resulting from the direct and reinsurance 

3 subsidy payments provided under section 

4 1860D–8. 

5 ‘‘(D) ADDITIONAL INFORMATION.—Such 

6 other information as the Administrator may re7 quire to carry out this part. 

8 ‘‘(3) REVIEW OF INFORMATION; NEGOTIATION

9 AND APPROVAL OF PREMIUMS.—

10 ‘‘(A) IN GENERAL.—Subject to subpara11 graph (B), the Administrator shall review the in12 formation filed under paragraph (2) for the pur13 pose of conducting negotiations under section 

14 1860D–4(b)(2) (relating to using OPM-like au15 thority under the FEHBP). The Administrator, 

16 using the information provided (including the 

17 actuarial certification under paragraph (2)(C)) 

18 shall approve the premium submitted under this 

19 subsection only if the premium accurately re20 flects both (i) the actuarial value of the benefits 

21 provided, and (ii) the 73 percent average subsidy 

22 provided under section 1860D–8 for the standard 

23 benefit. The Administrator shall apply actuarial 

24 principles to approval of a premium under this 

25 part in a manner similar to the manner in 
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1 which those principles are applied in estab2 lishing the monthly part B premium under sec3 tion 1839. 

4 ‘‘(B) EXCEPTION.—In the case of a plan de5 scribed in section 1851(a)(2)(C), the provisions 

6 of subparagraph (A) shall not apply and the 

7 provisions of paragraph (5)(B) of section 

8 1854(a), prohibiting the review, approval, or dis9 approval of amounts described in such para10 graph, shall apply to the negotiation and rejec11 tion of the monthly bid amounts and proportion 

12 referred to in subparagraph (A). 

13 ‘‘(b) UNIFORM BID AND PREMIUM.—

14 ‘‘(1) IN GENERAL.—The bid and premium for a 

15 prescription drug plan under this section may not 

16 vary among enrollees in the plan in the same service 

17 area. 

18 ‘‘(2) CONSTRUCTION.—Nothing in paragraph (1) 

19 shall be construed as preventing the imposition of a 

20 late enrollment penalty under section 1860D–

21 1(c)(2)(B).

22 ‘‘(c) COLLECTION.—

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

24 THROUGH WITHHOLDING FROM SOCIAL SECURITY

25 PAYMENT OR USE OF ELECTRONIC FUNDS TRANSFER
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1 MECHANISM.—In accordance with regulations, a PDP 

2 sponsor shall permit each enrollee, at the enrollee’s 

3 option, to make payment of premiums under this 

4 part to the sponsor through withholding from benefit 

5 payments in the manner provided under section 1840 

6 with respect to monthly premiums under section 1839 

7 or through an electronic funds transfer mechanism 

8 (such as automatic charges of an account at a finan9 cial institution or a credit or debit card account) or 

10 otherwise. All premium payments that are withheld 

11 under this paragraph shall be credited to the Medi12 care Prescription Drug Trust Fund and shall be paid 

13 to the PDP sponsor involved. 

14 ‘‘(2) OFFSETTING.—Reductions in premiums for 

15 coverage under parts A and B as a result of a selec16 tion of a MA-EFFS Rx plan may be used to reduce 

17 the premium otherwise imposed under paragraph (1). 

18 ‘‘(d) ACCEPTANCE OF REFERENCE PREMIUM AMOUNT

19 AS FULL PREMIUM FOR SUBSIDIZED LOW-INCOME INDI20 VIDUALS IF NO STANDARD (OR EQUIVALENT) COVERAGE IN

21 AN AREA.—

22 ‘‘(1) IN GENERAL.—If there is no standard pre23 scription drug coverage (as defined in paragraph (2)) 

24 offered in an area, in the case of an individual who 

25 is eligible for a premium subsidy under section 
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1 1860D–7 and resides in the area, the PDP sponsor of 

2 any prescription drug plan offered in the area (and 

3 any entity offering a MA-EFFS Rx plan in the area) 

4 shall accept the reference premium amount (under 

5 paragraph (3)) as payment in full for the premium 

6 charge for qualified prescription drug coverage. 

7 ‘‘(2) STANDARD PRESCRIPTION DRUG COVERAGE

8 DEFINED.—For purposes of this subsection, the term 

9 ‘standard prescription drug coverage’ means qualified 

10 prescription drug coverage that is standard coverage 

11 or that has an actuarial value equivalent to the actu12 arial value for standard coverage. 

13 ‘‘(3) REFERENCE PREMIUM AMOUNT DEFINED.—

14 For purposes of this subsection, the term ‘reference 

15 premium amount’ means, with respect to qualified 

16 prescription drug coverage offered under—

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

18 ‘‘(i) provides standard coverage (or al19 ternative prescription drug coverage the ac20 tuarial value of which is equivalent to that 

21 of standard coverage), the plan’s PDP pre22 mium; or 

23 ‘‘(ii) provides alternative prescription 

24 drug coverage the actuarial value of which 

25 is greater than that of standard coverage, 
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1 the plan’s PDP premium multiplied by the 

2 ratio of (I) the actuarial value of standard 

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

4 alternative coverage; 

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

6 prescription drug beneficiary premium (as de7 fined in section 1860E–4(a)(3)(B)); or 

8 ‘‘(C) a Medicare Advantage, the Medicare 

9 Advantage monthly prescription drug beneficiary 

10 premium (as defined in section 1854(b)(2)(B)). 

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

12 premium’ means, with respect to a prescription drug 

13 plan, the premium amount for enrollment under the 

14 plan under this part (determined without regard to 

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

16 any late enrollment penalty under section 1860D–

17 1(c)(2)(B)). 

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

19 FOR LOW-INCOME INDIVIDUALS.

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

21 WITH INCOME BELOW 150 PERCENT OF FEDERAL POVERTY

22 LEVEL.—

23 ‘‘(1) FULL PREMIUM SUBSIDY AND REDUCTION

24 OF COST-SHARING FOR INDIVIDUALS WITH INCOME

25 BELOW 135 PERCENT OF FEDERAL POVERTY LEVEL.—
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1 In the case of a subsidy eligible individual (as defined 

2 in paragraph (4)) who is determined to have income 

3 that does not exceed 135 percent of the Federal pov4 erty level, the individual is entitled under this sec5 tion—

6 ‘‘(A) to an income-related premium subsidy 

7 equal to 100 percent of the amount described in 

8 subsection (b)(1); and 

9 ‘‘(B) subject to subsection (c), to the substi10 tution for the beneficiary cost-sharing described 

11 in paragraphs (1) and (2) of section 1860D–2(b) 

12 (up to the initial coverage limit specified in 

13 paragraph (3) of such section) of amounts that 

14 do not exceed $2 for a multiple source or generic 

15 drug (as described in section 1927(k)(7)(A)) and 

16 $5 for a non-preferred drug.

17 ‘‘(2) SLIDING SCALE PREMIUM SUBSIDY FOR IN18 DIVIDUALS WITH INCOME ABOVE 135, BUT BELOW 150

19 PERCENT, OF FEDERAL POVERTY LEVEL.—In the case 

20 of a subsidy eligible individual who is determined to 

21 have income that exceeds 135 percent, but does not ex22 ceed 150 percent, of the Federal poverty level, the in23 dividual is entitled under this section to an income24 related premium subsidy determined on a linear slid25 ing scale ranging from 100 percent of the amount de-
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1 scribed in subsection (b)(1) for individuals with in2 comes at 135 percent of such level to 0 percent of such 

3 amount for individuals with incomes at 150 percent 

4 of such level. 

5 ‘‘(3) CONSTRUCTION.—Nothing in this section 

6 shall be construed as preventing a PDP sponsor or 

7 entity offering a MA-EFFS Rx plan from reducing to 

8 0 the cost-sharing otherwise applicable to generic 

9 drugs. 

10 ‘‘(4) DETERMINATION OF ELIGIBILITY.—

11 ‘‘(A) SUBSIDY ELIGIBLE INDIVIDUAL DE12 FINED.—For purposes of this section, subject to 

13 subparagraph (D), the term ‘subsidy eligible in14 dividual’ means an individual who—

15 ‘‘(i) is eligible to elect, and has elected, 

16 to obtain qualified prescription drug cov17 erage under this part; 

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

19 the Federal poverty line; and 

20 ‘‘(iii) meets the resources requirement 

21 described in subparagraph (D) . 

22 ‘‘(B) DETERMINATIONS.—The determina23 tion of whether an individual residing in a State 

24 is a subsidy eligible individual and the amount 

25 of such individual’s income shall be determined 
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1 under the State medicaid plan for the State 

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

3 Administration. In the case of a State that does 

4 not operate such a medicaid plan (either under 

5 title XIX or under a statewide waiver granted 

6 under section 1115), such determination shall be 

7 made under arrangements made by the Adminis8 trator. There are authorized to be appropriated 

9 to the Social Security Administration such sums 

10 as may be necessary for the determination of eli11 gibility under this subparagraph. 

12 ‘‘(C) INCOME DETERMINATIONS.—For pur13 poses of applying this section—

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

15 manner described in section 1905(p)(1)(B); 

16 and 

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

18 means the official poverty line (as defined 

19 by the Office of Management and Budget, 

20 and revised annually in accordance with 

21 section 673(2) of the Omnibus Budget Rec22 onciliation Act of 1981) applicable to a 

23 family of the size involved. 

24 ‘‘(D) RESOURCE STANDARD APPLIED TO BE

25 BASED ON TWICE SSI RESOURCE STANDARD.—
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1 The resource requirement of this subparagraph is 

2 that an individual’s resources (as determined 

3 under section 1613 for purposes of the supple4 mental security income program) do not ex5 ceed—

6 ‘‘(i) for 2006 twice the maximum 

7 amount of resources that an individual may 

8 have and obtain benefits under that pro9 gram; and 

10 ‘‘(ii) for a subsequent year the resource 

11 limitation established under this clause for 

12 the previous year increased by the annual 

13 percentage increase in the consumer price 

14 index (all items; U.S. city average) as of 

15 September of such previous year. 

16 Any resource limitation established under clause 

17 (ii) that is not a multiple of $10 shall be round18 ed to the nearest multiple of $10. 

19 ‘‘(E) TREATMENT OF TERRITORIAL RESI20 DENTS.—In the case of an individual who is not 

21 a resident of the 50 States or the District of Co22 lumbia, the individual is not eligible to be a sub23 sidy eligible individual but may be eligible for 

24 financial assistance with prescription drug ex25 penses under section 1935(e). 
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1 ‘‘(F) TREATMENT OF CONFORMING MEDIGAP

2 POLICIES.—For purposes of this section, the term 

3 ‘qualified prescription drug coverage’ includes a 

4 medicare supplemental policy described in sec5 tion 1860D–8(b)(4). 

6 ‘‘(5) INDEXING DOLLAR AMOUNTS.—

7 ‘‘(A) FOR 2007.—The dollar amounts ap8 plied under paragraphs (1)(B) for 2007 shall be 

9 the dollar amounts specified in such paragraph 

10 increased by the annual percentage increase de11 scribed in section 1860D–2(b)(5) for 2007. 

12 ‘‘(B) FOR SUBSEQUENT YEARS.—The dollar 

13 amounts applied under paragraph (1)(B) for a 

14 year after 2007 shall be the amounts (under this 

15 paragraph) applied under paragraph (1)(B) for 

16 the preceding year increased by the annual per17 centage increase described in section 1860D–

18 2(b)(5) (relating to growth in medicare prescrip19 tion drug costs per beneficiary) for the year in20 volved. 

21 ‘‘(b) PREMIUM SUBSIDY AMOUNT.—

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

23 amount described in this subsection for an individual 

24 residing in an area is the benchmark premium 

25 amount (as defined in paragraph (2)) for qualified 
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1 prescription drug coverage offered by the prescription 

2 drug plan or the MA-EFFS Rx plan in which the in3 dividual is enrolled. 

4 ‘‘(2) BENCHMARK PREMIUM AMOUNT DEFINED.—

5 For purposes of this subsection, the term ‘benchmark 

6 premium amount’ means, with respect to qualified 

7 prescription drug coverage offered under—

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

9 ‘‘(i) provides standard coverage (or al10 ternative prescription drug coverage the ac11 tuarial value of which is equivalent to that 

12 of standard coverage), the premium amount 

13 for enrollment under the plan under this 

14 part (determined without regard to any 

15 subsidy under this section or any late en16 rollment penalty under section 1860D–

17 1(c)(2)(B)); or 

18 ‘‘(ii) provides alternative prescription 

19 drug coverage the actuarial value of which 

20 is greater than that of standard coverage, 

21 the premium amount described in clause (i) 

22 multiplied by the ratio of (I) the actuarial 

23 value of standard coverage, to (II) the actu24 arial value of the alternative coverage; or 
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1 ‘‘(B) a MA-EFFS Rx plan, the portion of 

2 the premium amount that is attributable to stat3 utory drug benefits (described in section 

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

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

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

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

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

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

12 an individual receiving cost-sharing subsidies under 

13 subsection (a)(1)(B), the PDP sponsor or entity offer14 ing a MA-EFFS Rx plan may not charge more than 

15 $5 per prescription. 

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

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

19 manner as they apply to the dollar amounts specified 

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

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

22 Administrator shall provide a process whereby, in the case 

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

24 individual and who is enrolled in prescription drug plan 

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

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

5 under subsection (a); 

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

7 premiums or cost-sharing otherwise imposed by the 

8 amount of the applicable subsidy and submits to the 

9 Administrator information on the amount of such re10 duction; and 

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

12 timely basis reimburses the sponsor or entity for the 

13 amount of such reductions. 

14 The reimbursement under paragraph (3) with respect to 

15 cost-sharing subsidies may be computed on a capitated 

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

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

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

21 eligibility determinations, and additional financing, 

22 under the medicaid program, see section 1935. 

23 ‘‘(2) MEDICAID PROVIDING WRAP AROUND BENE24 FITS.—The coverage provided under this part is pri25 mary payor to benefits for prescribed drugs provided 
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1 under the medicaid program under title XIX con2 sistent with section 1935(d)(1). 

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

4 develop and implement a plan for the coordination of 

5 prescription drug benefits under this part with the 

6 benefits provided under the medicaid program under 

7 title XIX, with particular attention to insuring co8 ordination of payments and prevention of fraud and 

9 abuse. In developing and implementing such plan, the 

10 Administrator shall involve the Secretary, the States, 

11 the data processing industry, pharmacists, and phar12 maceutical manufacturers, and other experts.

13 ‘‘SEC. 1860D–8. SUBSIDIES FOR ALL MEDICARE BENE14 FICIARIES FOR QUALIFIED PRESCRIPTION 

15 DRUG COVERAGE. 

16 ‘‘(a) SUBSIDY PAYMENT.—In order to reduce premium 

17 levels applicable to qualified prescription drug coverage for 

18 all medicare beneficiaries consistent with an overall subsidy 

19 level of 73 percent, to reduce adverse selection among pre20 scription drug plans and MA-EFFS Rx plans, and to pro21 mote the participation of PDP sponsors under this part, 

22 the Administrator shall provide in accordance with this sec23 tion for payment to a qualifying entity (as defined in sub24 section (b)) of the following subsidies: 
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1 ‘‘(1) DIRECT SUBSIDY.—In the case of an en2 rollee enrolled for a month in a prescription drug 

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

4 to 43 percent of the national average monthly bid 

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

6 month.

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

8 case of an enrollee enrolled for a month in a prescrip9 tion drug plan or a MA-EFFS Rx plan, the reinsur10 ance payment amount (as defined in subsection (c)), 

11 which in the aggregate is 30 percent of the total pay12 ments made by qualifying entities for standard cov13 erage under the respective plan, for excess costs in14 curred in providing qualified prescription drug cov15 erage—

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

17 plan under this part; and 

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

19 plan. 

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

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

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

3 This section constitutes budget authority in advance of ap4 propriations Acts and represents the obligation of the Ad5 ministrator to provide for the payment of amounts provided 

6 under this section. In applying the percentages under para7 graphs (1) and (2), there shall be taken into account under 

8 the respective paragraphs the portion of the employer and 

9 union special subsidy payments under subsection (f)(3) that 

10 reflect payments that would have been made under the re11 spective paragraphs if such paragraphs had applied to 

12 qualified retiree prescription drug plans instead of para13 graph (3). 

14 ‘‘(b) QUALIFYING ENTITY DEFINED.—For purposes of 

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

16 following that has entered into an agreement with the Ad17 ministrator to provide the Administrator with such infor18 mation as may be required to carry out this section: 

19 ‘‘(1) A PDP sponsor offering a prescription drug 

20 plan under this part. 

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

22 ‘‘(3) The sponsor of a qualified retiree prescrip23 tion drug plan (as defined in subsection (f)). 

24 ‘‘(c) REINSURANCE PAYMENT AMOUNT.—
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1 ‘‘(1) IN GENERAL.—Subject to subsection 

2 (d)(1)(B) and paragraph (4), the reinsurance pay3 ment amount under this subsection for a qualifying 

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

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

6 equal to the sum of the following: 

7 ‘‘(A) REINSURANCE BETWEEN INITIAL REIN8 SURANCE THRESHOLD AND THE INITIAL COV9 ERAGE LIMIT.—For the portion of the individ10 ual’s gross covered prescription drug costs (as de11 fined in paragraph (3)) for the year that exceeds 

12 the initial reinsurance threshold specified in 

13 paragraph (4), but does not exceed the initial 

14 coverage limit specified in section 1860D–

15 2(b)(3), an amount equal to 20 percent of the al16 lowable costs (as defined in paragraph (2)) at17 tributable to such gross covered prescription drug 

18 costs. 

19 ‘‘(B) REINSURANCE ABOVE ANNUAL OUT-OF20 POCKET THRESHOLD.—For the portion of the in21 dividual’s gross covered prescription drug costs 

22 for the year that exceeds the annual out-of-pocket 

23 threshold specified in 1860D–2(b)(4)(B), an 

24 amount equal to 80 percent of the allowable costs 
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1 attributable to such gross covered prescription 

2 drug costs. 

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

4 section, the term ‘allowable costs’ means, with respect 

5 to gross covered prescription drug costs under a plan 

6 described in subsection (b) offered by a qualifying en7 tity, the part of such costs that are actually paid (net 

8 of discounts, chargebacks, and average percentage re9 bates) under the plan, but in no case more than the 

10 part of such costs that would have been paid under 

11 the plan if the prescription drug coverage under the 

12 plan were standard coverage. 

13 ‘‘(3) GROSS COVERED PRESCRIPTION DRUG

14 COSTS.—For purposes of this section, the term ‘gross 

15 covered prescription drug costs’ means, with respect to 

16 an enrollee with a qualifying entity under a plan de17 scribed in subsection (b) during a coverage year, the 

18 costs incurred under the plan (including costs attrib19 utable to administrative costs) for covered prescrip20 tion drugs dispensed during the year, including costs 

21 relating to the deductible, whether paid by the enrollee 

22 or under the plan, regardless of whether the coverage 

23 under the plan exceeds standard coverage and regard24 less of when the payment for such drugs is made. 
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1 ‘‘(4) INITIAL REINSURANCE THRESHOLD.—The 

2 initial reinsurance threshold specified in this para3 graph—

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

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

6 payment threshold specified in this paragraph 

7 for the previous year, increased by the annual 

8 percentage increase described in section 1860D–

9 2(b)(5) for the year involved. 

10 Any amount determined under subparagraph (B) 

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

12 nearest multiple of $10.

13 ‘‘(5) QUALIFYING COVERED INDIVIDUAL DE14 FINED.—For purposes of this subsection, the term 

15 ‘qualifying covered individual’ means an individual 

16 who—

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

18 plan under this part; or 

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

20 ‘‘(d) ADJUSTMENT OF PAYMENTS.—

21 ‘‘(1) ADJUSTMENT OF REINSURANCE PAYMENTS

22 TO ASSURE 30 PERCENT LEVEL OF SUBSIDY THROUGH

23 REINSURANCE.—

24 ‘‘(A) ESTIMATION OF PAYMENTS.—The Ad25 ministrator shall estimate—
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1 ‘‘(i) the total payments to be made 

2 (without regard to this subsection) during a 

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

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

5 qualifying entities for standard coverage 

6 under plans described in subsection (b) dur7 ing the year. 

8 ‘‘(B) ADJUSTMENT.—The Administrator 

9 shall proportionally adjust the payments made 

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

11 year in such manner so that the total of the pay12 ments made under such subsections (and under 

13 subsection (f)(3) insofar as such payments reflect 

14 payments that would have been made under such 

15 subsections if such subsections had applied to 

16 qualified retiree prescription drug plans instead 

17 of subsections (a)(3) and (f)(3)) for the year is 

18 equal to 30 percent of the total payments de19 scribed in subparagraph (A)(ii). 

20 ‘‘(2) RISK ADJUSTMENT FOR DIRECT SUB21 SIDIES.—To the extent the Administrator determines 

22 it appropriate to avoid risk selection, the payments 

23 made for direct subsidies under subsection (a)(1) are 

24 subject to adjustment based upon risk factors specified 

25 by the Administrator. Any such risk adjustment shall 
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1 be designed in a manner as to not result in a change 

2 in the aggregate payments made under such sub3 section. 

4 ‘‘(e) PAYMENT METHODS.—

5 ‘‘(1) IN GENERAL.—Payments under this section 

6 shall be based on such a method as the Administrator 

7 determines. The Administrator may establish a pay8 ment method by which interim payments of amounts 

9 under this section are made during a year based on 

10 the Administrator’s best estimate of amounts that will 

11 be payable after obtaining all of the information. 

12 ‘‘(2) SOURCE OF PAYMENTS.—Payments under 

13 this section shall be made from the Medicare Prescrip14 tion Drug Trust Fund. 

15 ‘‘(f) RULES RELATING TO QUALIFIED RETIREE PRE16 SCRIPTION DRUG PLAN.—

17 ‘‘(1) DEFINITION.—For purposes of this section, 

18 the term ‘qualified retiree prescription drug plan’ 

19 means employment-based retiree health coverage (as 

20 defined in paragraph (4)(A)) if, with respect to an 

21 individual who is a participant or beneficiary under 

22 such coverage and is eligible to be enrolled in a pre23 scription drug plan or a MA-EFFS Rx plan under 

24 this part, the following requirements are met: 
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1 ‘‘(A) ACTUARIAL EQUIVALENCE TO STAND2 ARD COVERAGE.—The Administrator determines 

3 (based on an actuarial analysis by the Adminis4 trator) that coverage provides at least the same 

5 actuarial value as standard coverage. Such de6 termination may be made on an annual basis. 

7 ‘‘(B) AUDITS.—The sponsor (and the plan) 

8 shall maintain, and afford the Administrator ac9 cess to, such records as the Administrator may 

10 require for purposes of audits and other oversight 

11 activities necessary to ensure the adequacy of 

12 prescription drug coverage and the accuracy of 

13 payments made. 

14 ‘‘(C) PROVISION OF CERTIFICATION OF PRE15 SCRIPTION DRUG COVERAGE.—The sponsor of the 

16 plan shall provide for issuance of certifications 

17 of the type described in section 1860D–

18 1(c)(2)(D). 

19 ‘‘(2) LIMITATION ON BENEFIT ELIGIBILITY.—No 

20 payment shall be provided under this section with re21 spect to a participant or beneficiary in a qualified re22 tiree prescription drug plan unless the individual 

23 is—

24 ‘‘(A) is covered under the plan; and 
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1 ‘‘(B) is eligible to obtain qualified prescrip2 tion drug coverage under section 1860D–1 but 

3 did not elect such coverage under this part (ei4 ther through a prescription drug plan or through 

5 a MA-EFFS Rx plan). 

6 ‘‘(3) EMPLOYER AND UNION SPECIAL SUBSIDY

7 AMOUNTS.—

8 ‘‘(A) IN GENERAL.—For purposes of sub9 section (a), the special subsidy payment amount 

10 under this paragraph for a qualifying covered 

11 retiree (as defined in paragraph (6)) for a cov12 erage year (as defined in subsection (h)) enrolled 

13 in a qualifying entity described in subsection 

14 (b)(3) under a qualified retiree prescription drug 

15 plan is, for the portion of the individual’s gross 

16 covered prescription drug costs for the year that 

17 exceeds the deductible amount specified in sub18 paragraph (B), an amount equal to, subject to 

19 subparagraph (D), 28 percent of the allowable 

20 costs attributable to such gross covered prescrip21 tion drug costs, but only to the extent such costs 

22 exceed the deductible under subparagraph (B) 

23 and do not exceed the cost limit under such sub24 paragraph in the case of any such individual for 

25 the plan year. 
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1 ‘‘(B) DEDUCTIBLE AND COST LIMIT APPLI2 CABLE.—Subject to subparagraph (C)—

3 ‘‘(i) the deductible under this subpara4 graph is equal to $250 for plan years that 

5 end in 2006; and 

6 ‘‘(ii) the cost limit under this subpara7 graph is equal to $5,000 for plan years that 

8 end in 2006. 

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

10 limit amounts specified in subparagraphs (B) 

11 for a plan year that ends after 2006 shall be ad12 justed in the same manner as the annual deduct13 ible under section 1860D–2(b)(1) is annually ad14 justed under such section. 

15 ‘‘(D) ADJUSTMENT CONTINGENCY.—The 

16 Secretary may adjust the percentage specified in 

17 subparagraph (A) with respect to plan years that 

18 end in a year in a manner so that the aggregate 

19 expenditures in the year under this section are 

20 the same as the aggregate expenditures that 

21 would have been made under this section (taking 

22 into account the effect of any adjustment under 

23 subsection (d)(1)(B)) if paragraphs (1) and (2) 

24 of subsection (a) had applied to qualified pre-
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1 scription drug coverage instead of this para2 graph and subsection (a)(3).

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

4 section: 

5 ‘‘(A) EMPLOYMENT-BASED RETIREE

6 HEALTH COVERAGE.—The term ‘employment7 based retiree health coverage’ means health in8 surance or other coverage of health care costs for 

9 individuals eligible to enroll in a prescription 

10 drug plan or MA-EFFS Rx plan under this part 

11 (or for such individuals and their spouses and 

12 dependents) under a group health plan (includ13 ing such a plan that is established or main14 tained under or pursuant to one or more collec15 tive bargaining agreements) based on their status 

16 as retired participants in such plan. 

17 ‘‘(B) QUALIFYING COVERED RETIREE.—The 

18 term ‘qualifying covered retiree’ means an indi19 vidual who is eligible to obtain qualified pre20 scription drug coverage under section 1860D–1 

21 but did not elect such coverage under this part 

22 (either through a prescription drug plan or 

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

24 under a qualified retiree prescription drug plan. 
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1 ‘‘(C) SPONSOR.—The term ‘sponsor’ means 

2 a plan sponsor, as defined in section 3(16)(B) of 

3 the Employee Retirement Income Security Act of 

4 1974. 

5 ‘‘(5) CONSTRUCTION.—Nothing in this subsection 

6 shall be construed as—

7 ‘‘(A) precluding an individual who is cov8 ered under employment-based retiree health cov9 erage from enrolling in a prescription drug plan 

10 or in a MA-EFFS plan; 

11 ‘‘(B) precluding such employment-based re12 tiree health coverage or an employer or other 

13 person from paying all or any portion of any 

14 premium required for coverage under such a pre15 scription drug plan or MA-EFFS plan on behalf 

16 of such an individual; or 

17 ‘‘(C) preventing such employment-based re18 tiree health coverage from providing coverage for 

19 retirees—

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

21 retiree prescription plan that is better than 

22 standard coverage; or 

23 ‘‘(ii) who are not covered under a 

24 qualified retiree prescription plan but who 

25 are enrolled in a prescription drug plan or 
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1 a MA-EFFS Rx plan, that is supplemental 

2 to the benefits provided under such prescrip3 tion drug plan or MA-EFFS Rx plan, ex4 cept that any such supplemental coverage 

5 (not including payment of any premium re6 ferred to in subparagraph (B)) shall be 

7 treated as primary coverage to which sec8 tion 1862(b)(2)(A)(i) is deemed to apply. 

9 ‘‘(g) COMPUTATION OF NATIONAL AVERAGE MONTHLY

10 BID AMOUNT.—

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

12 with 2006) the Administrator shall compute a na13 tional average monthly bid amount equal to the aver14 age of the benchmark bid amounts for each prescrip15 tion drug plan and for each MA-EFFS Rx plan (as 

16 computed under paragraph (2), but excluding plans 

17 described in section 1851(a)(2)(C))) adjusted under 

18 paragraph (4) to take into account reinsurance pay19 ments. 

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

21 purposes of this subsection, the term ‘benchmark bid 

22 amount’ means, with respect to qualified prescription 

23 drug coverage offered under—

24 ‘‘(A) a prescription drug plan that—
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1 ‘‘(i) provides standard coverage (or al2 ternative prescription drug coverage the ac3 tuarial value is equivalent to that of stand4 ard coverage), the PDP bid; or 

5 ‘‘(ii) provides alternative prescription 

6 drug coverage the actuarial value of which 

7 is greater than that of standard coverage, 

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

9 the actuarial value of standard coverage, to 

10 (II) the actuarial value of the alternative 

11 coverage; or 

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

13 the bid amount that is attributable to statutory 

14 drug benefits (described in section 

15 1853(a)(1)(A)(ii)(II)). 

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

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

18 the bid amount for enrollment under the plan under 

19 this part (determined without regard to any low-in20 come subsidy under section 1860D–7 or any late en21 rollment penalty under section 1860D–1(c)(2)(B)). 

22 ‘‘(3) WEIGHTED AVERAGE.—

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

24 average monthly bid amount computed under 

25 paragraph (1) shall be a weighted average, with 
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1 the weight for each plan being equal to the aver2 age number of beneficiaries enrolled under such 

3 plan in the previous year. 

4 ‘‘(B) SPECIAL RULE FOR 2006.—For pur5 poses of applying this subsection for 2006, the 

6 Administrator shall establish procedures for de7 termining the weighted average under subpara8 graph (A) for 2005. 

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

10 REINSURANCE SUBSIDIES.—The adjustment under 

11 this paragraph, to take into account reinsurance pay12 ments under subsection (c) making up 30 percent of 

13 total payments, is such an adjustment as will make 

14 the national average monthly bid amount represent 

15 represent 100 percent, instead of representing 70 per16 cent, of average payments under this part.

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

18 section, the term ‘coverage year’ means a calendar year in 

19 which covered outpatient drugs are dispensed if a claim for 

20 payment is made under the plan for such drugs, regardless 

21 of when the claim is paid. 

22 ‘‘SEC. 1860D–9. MEDICARE PRESCRIPTION DRUG TRUST 

23 FUND. 

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

25 the Treasury of the United States a trust fund to be known 
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1 as the ‘Medicare Prescription Drug Trust Fund’ (in this 

2 section referred to as the ‘Trust Fund’). The Trust Fund 

3 shall consist of such gifts and bequests as may be made as 

4 provided in section 201(i)(1), and such amounts as may 

5 be deposited in, or appropriated to, such fund as provided 

6 in this part. Except as otherwise provided in this section, 

7 the provisions of subsections (b) through (i) of section 1841 

8 shall apply to the Trust Fund in the same manner as they 

9 apply to the Federal Supplementary Medical Insurance 

10 Trust Fund under such section. 

11 ‘‘(b) PAYMENTS FROM TRUST FUND.—

12 ‘‘(1) IN GENERAL.—The Managing Trustee shall 

13 pay from time to time from the Trust Fund such 

14 amounts as the Administrator certifies are necessary 

15 to make—

16 ‘‘(A) payments under section 1860D–7 (re17 lating to low-income subsidy payments); 

18 ‘‘(B) payments under section 1860D–8 (re19 lating to subsidy payments); and 

20 ‘‘(C) payments with respect to administra21 tive expenses under this part in accordance with 

22 section 201(g). 

23 ‘‘(2) TRANSFERS TO MEDICAID ACCOUNT FOR IN24 CREASED ADMINISTRATIVE COSTS.—The Managing 

25 Trustee shall transfer from time to time from the 
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1 Trust Fund to the Grants to States for Medicaid ac2 count amounts the Administrator certifies are attrib3 utable to increases in payment resulting from the ap4 plication of a higher Federal matching percentage 

5 under section 1935(b). 

6 ‘‘(c) DEPOSITS INTO TRUST FUND.—

7 ‘‘(1) LOW-INCOME TRANSFER.—There is hereby 

8 transferred to the Trust Fund, from amounts appro9 priated for Grants to States for Medicaid, amounts 

10 equivalent to the aggregate amount of the reductions 

11 in payments under section 1903(a)(1) attributable to 

12 the application of section 1935(c). 

13 ‘‘(2) APPROPRIATIONS TO COVER GOVERNMENT

14 CONTRIBUTIONS.—There are authorized to be appro15 priated from time to time, out of any moneys in the 

16 Treasury not otherwise appropriated, to the Trust 

17 Fund, an amount equivalent to the amount of pay18 ments made from the Trust Fund under subsection 

19 (b), reduced by the amount transferred to the Trust 

20 Fund under paragraph (1). 

21 ‘‘(d) RELATION TO SOLVENCY REQUIREMENTS.—Any 

22 provision of law that relates to the solvency of the Trust 

23 Fund under this part shall take into account the Trust 

24 Fund and amounts receivable by, or payable from, the 

25 Trust Fund. 
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1 ‘‘SEC. 1860D–10. DEFINITIONS; APPLICATION TO MEDICARE 

2 ADVANTAGE AND EFFS PROGRAMS; TREAT3 MENT OF REFERENCES TO PROVISIONS IN 

4 PART C. 

5 ‘‘(a) DEFINITIONS.—For purposes of this part: 

6 ‘‘(1) COVERED OUTPATIENT DRUGS.—The term 

7 ‘covered outpatient drugs’ is defined in section 

8 1860D–2(f). 

9 ‘‘(2) INITIAL COVERAGE LIMIT.—The term ‘ini10 tial coverage limit’ means such limit as established 

11 under section 1860D–2(b)(3), or, in the case of cov12 erage that is not standard coverage, the comparable 

13 limit (if any) established under the coverage. 

14 ‘‘(3) MEDICARE PRESCRIPTION DRUG TRUST

15 FUND.—The term ‘Medicare Prescription Drug Trust 

16 Fund’ means the Trust Fund created under section 

17 1860D–9(a). 

18 ‘‘(4) PDP SPONSOR.—The term ‘PDP sponsor’ 

19 means an entity that is certified under this part as 

20 meeting the requirements and standards of this part 

21 for such a sponsor. 

22 ‘‘(5) PRESCRIPTION DRUG PLAN.—The term ‘pre23 scription drug plan’ means health benefits coverage 

24 that—

25 ‘‘(A) is offered under a policy, contract, or 

26 plan by a PDP sponsor pursuant to, and in ac-
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1 cordance with, a contract between the Adminis2 trator and the sponsor under section 1860D–

3 4(b); 

4 ‘‘(B) provides qualified prescription drug 

5 coverage; and 

6 ‘‘(C) meets the applicable requirements of 

7 the section 1860D–3 for a prescription drug 

8 plan. 

9 ‘‘(6) QUALIFIED PRESCRIPTION DRUG COV10 ERAGE.—The term ‘qualified prescription drug cov11 erage’ is defined in section 1860D–2(a). 

12 ‘‘(7) STANDARD COVERAGE.—The term ‘standard 

13 coverage’ is defined in section 1860D–2(b). 

14 ‘‘(b) OFFER OF QUALIFIED PRESCRIPTION DRUG COV15 ERAGE UNDER MEDICARE ADVANTAGE AND EFFS PRO16 GRAMS.—

17 ‘‘(1) AS PART OF MEDICARE ADVANTAGE PLAN.—

18 Medicare Advantage organizations are required to 

19 offer Medicare Advantage plans that include qualified 

20 prescription drug coverage under part C pursuant to 

21 section 1851(j). 

22 ‘‘(2) AS PART OF EFFS PLAN.—EFFS organiza23 tions are required to offer EFFS plans that include 

24 qualified prescription drug coverage under part E 

25 pursuant to section 1860E–2(d). 
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1 ‘‘(c) APPLICATION OF PART C PROVISIONS UNDER

2 THIS PART.—For purposes of applying provisions of part 

3 C under this part with respect to a prescription drug plan 

4 and a PDP sponsor, unless otherwise provided in this part 

5 such provisions shall be applied as if—

6 ‘‘(1) any reference to a Medicare Advantage or 

7 other plan included a reference to a prescription drug 

8 plan; 

9 ‘‘(2) any reference to a provider-sponsored orga10 nization included a reference to a PDP sponsor; 

11 ‘‘(3) any reference to a contract under section 

12 1857 included a reference to a contract under section 

13 1860D–4(b); and 

14 ‘‘(4) any reference to part C included a reference 

15 to this part. 

16 ‘‘(d) REPORT ON PHARMACY SERVICES PROVIDED TO

17 NURSING FACILITY PATIENTS.—

18 ‘‘(1) REVIEW.—Within 6 months after the date of 

19 the enactment of this section, the Secretary shall re20 view the current standards of practice for pharmacy 

21 services provided to patients in nursing facilities. 

22 ‘‘(2) EVALUATIONS AND RECOMMENDATIONS.—

23 Specifically in the review under paragraph (1), the 

24 Secretary shall—
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1 ‘‘(A) assess the current standards of prac2 tice, clinical services, and other service require3 ments generally utilized for pharmacy services in 

4 the long-term care setting; 

5 ‘‘(B) evaluate the impact of those standards 

6 with respect to patient safety, reduction of medi7 cation errors and quality of care; and 

8 ‘‘(C) recommend (in the Secretary’s report 

9 under paragraph (3)) necessary actions and ap10 propriate reimbursement to ensure the provision 

11 of prescription drugs to medicare beneficiaries 

12 residing in nursing facilities in a manner con13 sistent with existing patient safety and quality 

14 of care standards under applicable State and 

15 Federal laws. 

16 ‘‘(3) REPORT.—The Secretary shall submit a re17 port to the Congress on the Secretary’s findings and 

18 recommendations under this subsection, including a 

19 detailed description of the Secretary’s plans to imple20 ment this part in a manner consistent with applica21 ble State and Federal laws designed to protect the 

22 safety and quality of care of nursing facility pa23 tients.’’. 

24 (b) ADDITIONAL CONFORMING CHANGES.—
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1 (1) CONFORMING REFERENCES TO PREVIOUS

2 PART D.—Any reference in law (in effect before the 

3 date of the enactment of this Act) to part D of title 

4 XVIII of the Social Security Act is deemed a reference 

5 to part F of such title (as in effect after such date). 

6 (2) CONFORMING AMENDMENT PERMITTING WAIV7 ER OF COST-SHARING.—Section 1128B(b)(3) (42 

8 U.S.C. 1320a–7b(b)(3)) is amended—

9 (A) by striking ‘‘and’’ at the end of sub10 paragraph (E); 

11 (B) by striking the period at the end of sub12 paragraph (F) and inserting ‘‘; and’’; and 

13 (C) by adding at the end the following new 

14 subparagraph: 

15 ‘‘(G) the waiver or reduction of any cost-sharing 

16 imposed under part D of title XVIII.’’. 

17 (3) SUBMISSION OF LEGISLATIVE PROPOSAL.—

18 Not later than 6 months after the date of the enact19 ment of this Act, the Secretary of Health and Human 

20 Services shall submit to the appropriate committees of 

21 Congress a legislative proposal providing for such 

22 technical and conforming amendments in the law as 

23 are required by the provisions of this subtitle. 

24 (c) STUDY ON TRANSITIONING PART B PRESCRIPTION

25 DRUG COVERAGE.—Not later than January 1, 2005, the 
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1 Medicare Benefits Administrator shall submit a report to 

2 Congress that makes recommendations regarding methods 

3 for providing benefits under part D of title XVIII of the 

4 Social Security Act for outpatient prescription drugs for 

5 which benefits are provided under part B of such title. 

6 SEC. 102. OFFERING OF QUALIFIED PRESCRIPTION DRUG 

7 COVERAGE UNDER MEDICARE ADVANTAGE 

8 AND ENHANCED FEE-FOR-SERVICE (EFFS) 

9 PROGRAM. 

10 (a) MEDICARE ADVANTAGE.—Section 1851 (42 U.S.C. 

11 1395w–21) is amended by adding at the end the following 

12 new subsection: 

13 ‘‘(j) AVAILABILITY OF PRESCRIPTION DRUG BENEFITS

14 AND SUBSIDIES.—

15 ‘‘(1) OFFERING OF QUALIFIED PRESCRIPTION

16 DRUG COVERAGE.—A Medicare Advantage organiza17 tion on and after January 1, 2006—

18 ‘‘(A) may not offer a Medicare Advantage 

19 plan described in section 1851(a)(2)(A) in an 

20 area unless either that plan (or another Medicare 

21 Advantage plan offered by the organization in 

22 that area) includes qualified prescription drug 

23 coverage; and 

24 ‘‘(B) may not offer the prescription drug 

25 coverage (other than that required under parts A 
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1 and B) to an enrollee under a Medicare Advan2 tage plan, unless such drug coverage is at least 

3 qualified prescription drug coverage and unless 

4 the requirements of this subsection with respect 

5 to such coverage are met. 

6 ‘‘(2) REQUIREMENT FOR ELECTION OF PART D

7 COVERAGE TO OBTAIN QUALIFIED PRESCRIPTION

8 DRUG COVERAGE.—For purposes of this part, an in9 dividual who has not elected qualified prescription 

10 drug coverage under section 1860D–1(b) shall be 

11 treated as being ineligible to enroll in a Medicare Ad12 vantage plan under this part that offers such cov13 erage. 

14 ‘‘(3) COMPLIANCE WITH CERTAIN ADDITIONAL

15 BENEFICIARY PROTECTIONS FOR PRESCRIPTION DRUG

16 COVERAGE.—With respect to the offering of qualified 

17 prescription drug coverage by a Medicare Advantage 

18 organization under this part on and after January 1, 

19 2006, the organization and plan shall meet the re20 quirements of subsections (a) through (d) of section 

21 1860D–3 in the same manner as they apply to a 

22 PDP sponsor and a prescription drug plan under 

23 part D and shall submit to the Administrator the in24 formation described in section 1860D–6(a)(2). The 

25 Administrator shall waive such requirements to the 
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1 extent the Administrator determines that such re2 quirements duplicate requirements otherwise applica3 ble to the organization or plan under this part. 

4 ‘‘(4) AVAILABILITY OF PREMIUM AND COST-SHAR5 ING SUBSIDIES.—In the case of low-income individ6 uals who are enrolled in a Medicare Advantage plan 

7 that provides qualified prescription drug coverage, 

8 premium and cost-sharing subsidies are provided for 

9 such coverage under section 1860D–7. 

10 ‘‘(5) AVAILABILITY OF DIRECT AND REINSUR11 ANCE SUBSIDIES TO REDUCE BIDS AND PREMIUMS.—

12 Medicare Advantage organizations are provided direct 

13 and reinsurance subsidy payments for providing 

14 qualified prescription drug coverage under this part 

15 under section 1860D–8. 

16 ‘‘(6) CONSOLIDATION OF DRUG AND NON-DRUG

17 PREMIUMS.—In the case of a Medicare Advantage 

18 plan that includes qualified prescription drug cov19 erage, with respect to an enrollee in such plan there 

20 shall be a single premium for both drug and non-drug 

21 coverage provided under the plan. 

22 ‘‘(7) TRANSITION IN INITIAL ENROLLMENT PE23 RIOD.—Notwithstanding any other provision of this 

24 part, the annual, coordinated election period under 
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1 subsection (e)(3)(B) for 2006 shall be the 6-month pe2 riod beginning with November 2005. 

3 ‘‘(8) QUALIFIED PRESCRIPTION DRUG COVERAGE; 

4 STANDARD COVERAGE.—For purposes of this part, the 

5 terms ‘qualified prescription drug coverage’ and 

6 ‘standard coverage’ have the meanings given such 

7 terms in section 1860D–2.’’. 

8 (b) APPLICATION TO EFFS PLANS.—Subsection (d) of 

9 section 1860E–2, as added by section 201(a), is amended 

10 to read as follows: 

11 ‘‘(d) AVAILABILITY OF PRESCRIPTION DRUG BENEFITS

12 AND SUBSIDIES.—

13 ‘‘(1) OFFERING OF QUALIFIED PRESCRIPTION

14 DRUG COVERAGE.—An EFFS organization—

15 ‘‘(A) may not offer an EFFS plan in an 

16 area unless either that plan (or another EFFS 

17 plan offered by the organization in that area) 

18 includes qualified prescription drug coverage; 

19 and 

20 ‘‘(B) may not offer the prescription drug 

21 coverage (other than that required under parts A 

22 and B) to an enrollee under an EFFS plan, un23 less such drug coverage is at least qualified pre24 scription drug coverage and unless the require-
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1 ments of this subsection with respect to such cov2 erage are met. 

3 ‘‘(2) REQUIREMENT FOR ELECTION OF PART D

4 COVERAGE TO OBTAIN QUALIFIED PRESCRIPTION

5 DRUG COVERAGE.—For purposes of this part, an in6 dividual who has not elected qualified prescription 

7 drug coverage under section 1860D–1(b) shall be 

8 treated as being ineligible to enroll in an EFFS plan 

9 under this part that offers such coverage. 

10 ‘‘(3) COMPLIANCE WITH CERTAIN ADDITIONAL

11 BENEFICIARY PROTECTIONS FOR PRESCRIPTION DRUG

12 COVERAGE.—With respect to the offering of qualified 

13 prescription drug coverage by an EFFS organization 

14 under this part, the organization and plan shall meet 

15 the requirements of subsections (a) through (d) of sec16 tion 1860D–3 in the same manner as they apply to 

17 a PDP sponsor and a prescription drug plan under 

18 part D and shall submit to the Administrator the in19 formation described in section 1860D–6(a)(2). The 

20 Administrator shall waive such requirements to the 

21 extent the Administrator determines that such re22 quirements duplicate requirements otherwise applica23 ble to the organization or plan under this part. 

24 ‘‘(4) AVAILABILITY OF PREMIUM AND COST-SHAR25 ING SUBSIDIES.—In the case of low-income individ-
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1 uals who are enrolled in an EFFS plan that provides 

2 qualified prescription drug coverage, premium and 

3 cost-sharing subsidies are provided for such coverage 

4 under section 1860D–7. 

5 ‘‘(5) AVAILABILITY OF DIRECT AND REINSUR6 ANCE SUBSIDIES TO REDUCE BIDS AND PREMIUMS.—

7 EFFS organizations are provided direct and reinsur8 ance subsidy payments for providing qualified pre9 scription drug coverage under this part under section 

10 1860D–8. 

11 ‘‘(6) CONSOLIDATION OF DRUG AND NON-DRUG

12 PREMIUMS.—In the case of an EFFS plan that in13 cludes qualified prescription drug coverage, with re14 spect to an enrollee in such plan there shall be a sin15 gle premium for both drug and non-drug coverage 

16 provided under the plan. 

17 ‘‘(7) QUALIFIED PRESCRIPTION DRUG COVERAGE; 

18 STANDARD COVERAGE.—For purposes of this part, the 

19 terms ‘qualified prescription drug coverage’ and 

20 ‘standard coverage’ have the meanings given such 

21 terms in section 1860D–2.’’. 

22 (c) CONFORMING AMENDMENTS.—Section 1851 (42 

23 U.S.C. 1395w–21) is amended—

24 (1) in subsection (a)(1)—
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1 (A) by inserting ‘‘(other than qualified pre2 scription drug benefits)’’ after ‘‘benefits’’; 

3 (B) by striking the period at the end of sub4 paragraph (B) and inserting a comma; and 

5 (C) by adding after and below subpara6 graph (B) the following: 

7 ‘‘and may elect qualified prescription drug coverage 

8 in accordance with section 1860D–1.’’; and 

9 (2) in subsection (g)(1), by inserting ‘‘and sec10 tion 1860D–1(c)(2)(B)’’ after ‘‘in this subsection’’. 

11 (d) EFFECTIVE DATE.—The amendments made by this 

12 section apply to coverage provided on or after January 1, 

13 2006.

14 SEC. 103. MEDICAID AMENDMENTS. 

15 (a) DETERMINATIONS OF ELIGIBILITY FOR LOW-IN16 COME SUBSIDIES.—

17 (1) REQUIREMENT.—Section 1902(a) (42 U.S.C. 

18 1396a(a)) is amended—

19 (A) by striking ‘‘and’’ at the end of para20 graph (64); 

21 (B) by striking the period at the end of 

22 paragraph (65) and inserting ‘‘; and’’; and 

23 (C) by inserting after paragraph (65) the 

24 following new paragraph: 
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1 ‘‘(66) provide for making eligibility determina2 tions under section 1935(a).’’. 

3 (2) NEW SECTION.—Title XIX is further amend4 ed—

5 (A) by redesignating section 1935 as section 

6 1936; and 

7 (B) by inserting after section 1934 the fol8 lowing new section: 

9 ‘‘SPECIAL PROVISIONS RELATING TO MEDICARE

10 PRESCRIPTION DRUG BENEFIT

11 ‘‘SEC. 1935. (a) REQUIREMENT FOR MAKING ELIGI12 BILITY DETERMINATIONS FOR LOW-INCOME SUBSIDIES.—

13 As a condition of its State plan under this title under sec14 tion 1902(a)(66) and receipt of any Federal financial as15 sistance under section 1903(a), a State shall—

16 ‘‘(1) make determinations of eligibility for pre17 mium and cost-sharing subsidies under (and in ac18 cordance with) section 1860D–7; 

19 ‘‘(2) inform the Administrator of the Medicare 

20 Benefits Administration of such determinations in 

21 cases in which such eligibility is established; and 

22 ‘‘(3) otherwise provide such Administrator with 

23 such information as may be required to carry out 

24 part D of title XVIII (including section 1860D–7). 

25 ‘‘(b) PAYMENTS FOR ADDITIONAL ADMINISTRATIVE

26 COSTS.—
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1 ‘‘(1) IN GENERAL.—The amounts expended by a 

2 State in carrying out subsection (a) are, subject to 

3 paragraph (2), expenditures reimbursable under the 

4 appropriate paragraph of section 1903(a); except 

5 that, notwithstanding any other provision of such sec6 tion, the applicable Federal matching rates with re7 spect to such expenditures under such section shall be 

8 increased as follows (but in no case shall the rate as 

9 so increased exceed 100 percent):

10 ‘‘(A) For expenditures attributable to costs 

11 incurred during 2005, the otherwise applicable 

Federal matching rate shall be increased by 6-2 12 ⁄3

13 percent of the percentage otherwise payable (but 

14 for this subsection) by the State. 

15 ‘‘(B)(i) For expenditures attributable to 

16 costs incurred during 2006 and each subsequent 

17 year through 2018, the otherwise applicable Fed18 eral matching rate shall be increased by the ap19 plicable percent (as defined in clause (ii)) of the 

20 percentage otherwise payable (but for this sub21 section) by the State. 

22 ‘‘(ii) For purposes of clause (i), the ‘appli23 cable percent’ for—

‘‘(I) 2006 is 13-1 24 ⁄3 percent; or 
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1 ‘‘(II) a subsequent year is the applica2 ble percent under this clause for the previous year increased by 6-2 3 ⁄3 percentage 

4 points. 

5 ‘‘(C) For expenditures attributable to costs 

6 incurred after 2018, the otherwise applicable 

7 Federal matching rate shall be increased to 100 

8 percent.

9 ‘‘(2) COORDINATION.—The State shall provide 

10 the Administrator with such information as may be 

11 necessary to properly allocate administrative expendi12 tures described in paragraph (1) that may otherwise 

13 be made for similar eligibility determinations.’’. 

14 (b) PHASED-IN FEDERAL ASSUMPTION OF MEDICAID

15 RESPONSIBILITY FOR PREMIUM AND COST-SHARING SUB16 SIDIES FOR DUALLY ELIGIBLE INDIVIDUALS.—

17 (1) IN GENERAL.—Section 1903(a)(1) (42 U.S.C. 

18 1396b(a)(1)) is amended by inserting before the semi19 colon the following: ‘‘, reduced by the amount com20 puted under section 1935(c)(1) for the State and the 

21 quarter’’. 

22 (2) AMOUNT DESCRIBED.—Section 1935, as in23 serted by subsection (a)(2), is amended by adding at 

24 the end the following new subsection: 
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1 ‘‘(c) FEDERAL ASSUMPTION OF MEDICAID PRESCRIP2 TION DRUG COSTS FOR DUALLY-ELIGIBLE BENE3 FICIARIES.—

4 ‘‘(1) IN GENERAL.—For purposes of section 

5 1903(a)(1), for a State that is one of the 50 States 

6 or the District of Columbia for a calendar quarter in 

7 a year (beginning with 2005) the amount computed 

8 under this subsection is equal to the product of the 

9 following: 

10 ‘‘(A) MEDICARE SUBSIDIES.—The total 

11 amount of payments made in the quarter under 

12 section 1860D–7 (relating to premium and cost13 sharing prescription drug subsidies for low-in14 come medicare beneficiaries) that are attrib15 utable to individuals who are residents of the 

16 State and are entitled to benefits with respect to 

17 prescribed drugs under the State plan under this 

18 title (including such a plan operating under a 

19 waiver under section 1115). 

20 ‘‘(B) STATE MATCHING RATE.—A propor21 tion computed by subtracting from 100 percent 

22 the Federal medical assistance percentage (as de23 fined in section 1905(b)) applicable to the State 

24 and the quarter. 
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1 ‘‘(C) PHASE-OUT PROPORTION.—The phase2 out proportion (as defined in paragraph (2)) for 

3 the quarter. 

4 ‘‘(2) PHASE-OUT PROPORTION.—For purposes of 

5 paragraph (1)(C), the ‘phase-out proportion’ for a 

6 calendar quarter in—

‘‘(A) 2006 is 93-1 7 ⁄3 percent; 

8 ‘‘(B) a subsequent year before 2021, is the 

9 phase-out proportion for calendar quarters in the 

previous year decreased by 6-2 10 ⁄3 percentage 

11 points; or 

12 ‘‘(C) a year after 2020 is 0 percent.’’. 

13 (c) MEDICAID PROVIDING WRAP-AROUND BENE14 FITS.—Section 1935, as so inserted and amended, is further 

15 amended by adding at the end the following new subsection: 

16 ‘‘(d) ADDITIONAL PROVISIONS.—

17 ‘‘(1) MEDICAID AS SECONDARY PAYOR.—In the 

18 case of an individual who is entitled to qualified pre19 scription drug coverage under a prescription drug 

20 plan under part D of title XVIII (or under a MA21 EFFS Rx plan under part C or E of such title) and 

22 medical assistance for prescribed drugs under this 

23 title, medical assistance shall continue to be provided 

24 under this title for prescribed drugs to the extent pay-
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1 ment is not made under the prescription drug plan 

2 or MA-EFFS Rx plan selected by the individual. 

3 ‘‘(2) CONDITION.—A State may require, as a 

4 condition for the receipt of medical assistance under 

5 this title with respect to prescription drug benefits for 

6 an individual eligible to obtain qualified prescription 

7 drug coverage described in paragraph (1), that the in8 dividual elect qualified prescription drug coverage 

9 under section 1860D–1.’’. 

10 (d) TREATMENT OF TERRITORIES.—

11 (1) IN GENERAL.—Section 1935, as so inserted 

12 and amended, is further amended—

13 (A) in subsection (a) in the matter pre14 ceding paragraph (1), by inserting ‘‘subject to 

15 subsection (e)’’ after ‘‘section 1903(a)’’; 

16 (B) in subsection (c)(1), by inserting ‘‘sub17 ject to subsection (e)’’ after ‘‘1903(a)(1)’’; and 

18 (C) by adding at the end the following new 

19 subsection: 

20 ‘‘(e) TREATMENT OF TERRITORIES.—

21 ‘‘(1) IN GENERAL.—In the case of a State, other 

22 than the 50 States and the District of Columbia—

23 ‘‘(A) the previous provisions of this section 

24 shall not apply to residents of such State; and 
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1 ‘‘(B) if the State establishes a plan de2 scribed in paragraph (2) (for providing medical 

3 assistance with respect to the provision of pre4 scription drugs to medicare beneficiaries), the 

5 amount otherwise determined under section 

6 1108(f) (as increased under section 1108(g)) for 

7 the State shall be increased by the amount speci8 fied in paragraph (3). 

9 ‘‘(2) PLAN.—The plan described in this para10 graph is a plan that—

11 ‘‘(A) provides medical assistance with re12 spect to the provision of covered outpatient drugs 

13 (as defined in section 1860D–2(f)) to low-income 

14 medicare beneficiaries; and 

15 ‘‘(B) assures that additional amounts re16 ceived by the State that are attributable to the 

17 operation of this subsection are used only for 

18 such assistance. 

19 ‘‘(3) INCREASED AMOUNT.—

20 ‘‘(A) IN GENERAL.—The amount specified 

21 in this paragraph for a State for a year is equal 

22 to the product of—

23 ‘‘(i) the aggregate amount specified in 

24 subparagraph (B); and 
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1 ‘‘(ii) the amount specified in section 

2 1108(g)(1) for that State, divided by the 

3 sum of the amounts specified in such section 

4 for all such States. 

5 ‘‘(B) AGGREGATE AMOUNT.—The aggregate 

6 amount specified in this subparagraph for—

7 ‘‘(i) 2006, is equal to $25,000,000; or 

8 ‘‘(ii) a subsequent year, is equal to the 

9 aggregate amount specified in this subpara10 graph for the previous year increased by 

11 annual percentage increase specified in sec12 tion 1860D–2(b)(5) for the year involved. 

13 ‘‘(4) REPORT.—The Administrator shall submit 

14 to Congress a report on the application of this sub15 section and may include in the report such rec16 ommendations as the Administrator deems appro17 priate.’’. 

18 (2) CONFORMING AMENDMENT.—Section 1108(f) 

19 (42 U.S.C. 1308(f)) is amended by inserting ‘‘and sec20 tion 1935(e)(1)(B)’’ after ‘‘Subject to subsection (g)’’. 

21 (e) AMENDMENT TO BEST PRICE.—Section 

22 1927(c)(1)(C)(i) (42 U.S.C. 1396r–8(c)(1)(C)(i)) is amend23 ed—

24 (1) by striking ‘‘and’’ at the end of subclause 

25 (III); 
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1 (2) by striking the period at the end of subclause 

2 (IV) and inserting ‘‘; and’’; and 

3 (3) by adding at the end the following new sub4 clause: 

5 ‘‘(V) any prices charged which are 

6 negotiated by a prescription drug plan 

7 under part D of title XVIII, by a MA8 EFFS Rx plan under part C or E of 

9 such title with respect to covered out10 patient drugs, or by a qualified retiree 

11 prescription drug plan (as defined in 

12 section 1860D–8(f)(1)) with respect to 

13 such drugs on behalf of individuals en14 titled to benefits under part A or en15 rolled under part B of such title.’’. 

16 SEC. 104. MEDIGAP TRANSITION. 

17 (a) IN GENERAL.—Section 1882 (42 U.S.C. 1395ss) is 

18 amended by adding at the end the following new subsection: 

19 ‘‘(v) COVERAGE OF PRESCRIPTION DRUGS.—

20 ‘‘(1) IN GENERAL.—Notwithstanding any other 

21 provision of law, except as provided in paragraph (3) 

22 no new medicare supplemental policy that provides 

23 coverage of expenses for prescription drugs may be 

24 issued under this section on or after January 1, 2006, 

25 to an individual unless it replaces a medicare supple-
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1 mental policy that was issued to that individual and 

2 that provided some coverage of expenses for prescrip3 tion drugs. Nothing in this subsection shall be con4 strued as preventing the policy holder of a medicare 

5 supplemental policy issued before January 1, 2006, 

6 from continuing to receive benefits under such policy 

7 on and after such date. 

8 ‘‘(2) ISSUANCE OF SUBSTITUTE POLICIES FOR

9 BENEFICIARIES ENROLLED WITH A PLAN UNDER PART

10 D.—

11 ‘‘(A) IN GENERAL.—The issuer of a medi12 care supplemental policy—

13 ‘‘(i) may not deny or condition the 

14 issuance or effectiveness of a medicare sup15 plemental policy that has a benefit package 

16 classified as ‘A’, ‘B’, ‘C’, ‘D’, ‘E’, ‘F’, or ‘G’ 

17 (under the standards established under sub18 section (p)(2)) and that is offered and is 

19 available for issuance to new enrollees by 

20 such issuer; 

21 ‘‘(ii) may not discriminate in the pric22 ing of such policy, because of health status, 

23 claims experience, receipt of health care, or 

24 medical condition; and 
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1 ‘‘(iii) may not impose an exclusion of 

2 benefits based on a pre-existing condition 

3 under such policy, 

4 in the case of an individual described in sub5 paragraph (B) who seeks to enroll under the pol6 icy not later than 63 days after the date of the 

7 termination of enrollment described in such 

8 paragraph and who submits evidence of the date 

9 of termination or disenrollment along with the 

10 application for such medicare supplemental pol11 icy. 

12 ‘‘(B) INDIVIDUAL COVERED.—An individual 

13 described in this subparagraph is an individual 

14 who—

15 ‘‘(i) enrolls in a prescription drug 

16 plan under part D; and 

17 ‘‘(ii) at the time of such enrollment 

18 was enrolled and terminates enrollment in 

19 a medicare supplemental policy which has a 

20 benefit package classified as ‘H’, ‘I’, or ‘J’ 

21 under the standards referred to in subpara22 graph (A)(i) or terminates enrollment in a 

23 policy to which such standards do not apply 

24 but which provides benefits for prescription 

25 drugs. 
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1 ‘‘(C) ENFORCEMENT.—The provisions of 

2 paragraph (4) of subsection (s) shall apply with 

3 respect to the requirements of this paragraph in 

4 the same manner as they apply to the require5 ments of such subsection. 

6 ‘‘(3) NEW STANDARDS.—In applying subsection 

7 (p)(1)(E) (including permitting the NAIC to revise 

8 its model regulations in response to changes in law) 

9 with respect to the change in benefits resulting from 

10 title I of the Medicare Prescription Drug and Mod11 ernization Act of 2003, with respect to policies issued 

12 to individuals who are enrolled in a plan under part 

13 D, the changes in standards shall only provide for 

14 substituting (for the benefit packages described in 

15 paragraph (2)(B)(ii) that included coverage for pre16 scription drugs) two benefit packages that may pro17 vide for coverage of cost-sharing (other than the pre18 scription drug deductible) with respect to qualified 

19 prescription drug coverage under such part. The two 

20 benefit packages shall be consistent with the following: 

21 ‘‘(A) FIRST NEW POLICY.—The policy de22 scribed in this subparagraph has the following 

23 benefits, notwithstanding any other provision of 

24 this section relating to a core benefit package: 
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1 ‘‘(i) Coverage of 50 percent of the cost2 sharing otherwise applicable under parts A 

3 and B, except coverage of 100 percent of 

4 any cost-sharing otherwise applicable for 

5 preventive benefits. 

6 ‘‘(ii) No coverage of the part B deduct7 ible. 

8 ‘‘(iii) Coverage for all hospital coinsur9 ance for long stays (as in the current core 

10 benefit package). 

11 ‘‘(iv) A limitation on annual out-of12 pocket expenditures under parts A and B to 

13 $4,000 in 2005 (or, in a subsequent year, to 

14 such limitation for the previous year in15 creased by an appropriate inflation adjust16 ment specified by the Secretary). 

17 ‘‘(B) SECOND NEW POLICY.—The policy de18 scribed in this subparagraph has the same bene19 fits as the policy described in subparagraph (A), 

20 except as follows: 

21 ‘‘(i) Substitute ‘75 percent’ for ‘50 per22 cent’ in clause (i) of such subparagraph. 

23 ‘‘(ii) Substitute ‘$2,000’ for ‘$4,000’ in 

24 clause (iv) of such subparagraph. 
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1 ‘‘(4) CONSTRUCTION.—Any provision in this sec2 tion or in a medicare supplemental policy relating to 

3 guaranteed renewability of coverage shall be deemed 

4 to have been met through the offering of other coverage 

5 under this subsection.’’. 

6 (b) NAIC REPORT TO CONGRESS ON MEDIGAP MOD7 ERNIZATION.—The Secretary shall request the National As8 sociation of Insurance Commissioners to submit to Con9 gress, not later than 18 months after the date of the enact10 ment of this Act, a report that includes recommendations 

11 on the modernization of coverage under the medigap pro12 gram under section 1882 of the Social Security Act (42 

13 U.S.C. 1395ss).

14 SEC. 105. MEDICARE PRESCRIPTION DRUG DISCOUNT CARD 

15 AND ASSISTANCE PROGRAM. 

16 (a) IN GENERAL.—Title XVIII is amended by insert17 ing after section 1806 the following new sections: 

18 ‘‘MEDICARE PRESCRIPTION DRUG DISCOUNT CARD

19 ENDORSEMENT AND ASSISTANCE PROGRAM

20 ‘‘SEC. 1807. (a) ESTABLISHMENT OF PROGRAM.—

21 ‘‘(1) IN GENERAL.—The Secretary (or the Medi22 care Benefits Administrator pursuant to section 

23 1809(c)(3)(C)) shall establish a program—

24 ‘‘(A) to endorse prescription drug discount 

25 card programs (each such program referred to as 

26 an ‘endorsed program’) that meet the require-
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1 ments of this section in order to provide access 

2 to prescription drug discounts through an eligi3 ble entity for medicare beneficiaries throughout 

4 the United States; and 

5 ‘‘(B) to provide for prescription drug ac6 counts and public contributions into such ac7 counts. 

8 The Secretary shall make available to medicare bene9 ficiaries information regarding endorsed programs 

10 and accounts under this section. 

11 ‘‘(2) LIMITED PERIOD OF OPERATION.—The Sec12 retary shall begin—

13 ‘‘(A) the card endorsement part of the pro14 gram under paragraph (1)(A) as soon as pos15 sible, but in no case later than 90 days after the 

16 date of the enactment of this section; and 

17 ‘‘(B) the prescription drug account part of 

18 the program under paragraph (1)(B) as soon as 

19 possible, but in no case later than September 

20 2004. 

21 ‘‘(3) TRANSITION.—The program under this sec22 tion shall continue through 2005 throughout the 

23 United States. The Secretary shall provide for an ap24 propriate transition and discontinuation of such pro-
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1 gram at the time medicare prescription drug benefits 

2 become available under part D. 

3 ‘‘(4) VOLUNTARY NATURE OF PROGRAM.—Noth4 ing in this section shall be construed as requiring an 

5 eligible beneficiary to enroll in the program under 

6 this section. 

7 ‘‘(b) ELIGIBLE BENEFICIARY; ELIGIBLE ENTITY; PRE8 SCRIPTION DRUG ACCOUNT.—For purposes of this section: 

9 ‘‘(1) ELIGIBLE BENEFICIARY.—The term ‘eligible 

10 beneficiary’ means an individual who is eligible for 

11 benefits under part A or enrolled under part B and 

12 who is not enrolled in a prescription drug plan or 

13 MA-EFFS Rx plan, but who may be enrolled in a 

14 Medicare Advantage plan that does not offer qualified 

15 prescription drug coverage. 

16 ‘‘(2) ELIGIBLE ENTITY.—The term ‘eligible enti17 ty’ means any entity that the Secretary determines to 

18 be appropriate to provide the benefits under this sec19 tion, including—

20 ‘‘(A) pharmaceutical benefit management 

21 companies; 

22 ‘‘(B) wholesale and retail pharmacy deliv23 ery systems; 

24 ‘‘(C) insurers; 
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1 ‘‘(D) Medicare Advantage or EFFS organi2 zations; 

3 ‘‘(E) other entities; or 

4 ‘‘(F) any combination of the entities de5 scribed in subparagraphs (A) through (E). 

6 ‘‘(3) PRESCRIPTION DRUG ACCOUNT.—The term 

7 ‘prescription drug account’ means, with respect to an 

8 eligible beneficiary, an account established for the 

9 benefit of that beneficiary under section 1807A. 

10 ‘‘(c) ENROLLMENT IN ENDORSED PLAN.—

11 ‘‘(1) ESTABLISHMENT OF PROCESS.—

12 ‘‘(A) IN GENERAL.—The Secretary shall es13 tablish a process through which an eligible bene14 ficiary may make an election to enroll under 

15 this section with an endorsed program. 

16 ‘‘(B) REQUIREMENT OF ENROLLMENT.—An 

17 eligible beneficiary must enroll under this section 

18 for a year in order to be eligible to receive the 

19 benefits under this section for that year. 

20 ‘‘(C) LIMITATION ON ENROLLMENT.—

21 ‘‘(i) IN GENERAL.—Except as provided 

22 under this subparagraph and under such 

23 exceptional circumstances as the Secretary 

24 may provide, an eligible individual shall 

25 have the opportunity to enroll under this 
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1 section during an initial, general enroll2 ment period as soon as possible after the 

3 date of the enactment of this section and 

4 annually thereafter. The Secretary shall 

5 specify the form, manner, and timing of 

6 such election but shall permit the exercise of 

7 such election at the time the individual is 

8 eligible to enroll. The annual open enroll9 ment periods shall be coordinated with those 

10 provided under the Medicare Advantage and 

11 EFFS programs under parts C and E as 

12 well as under the prescription drug pro13 gram under part D. 

14 ‘‘(ii) REELECTION AFTER TERMI15 NATION OF ENROLLMENT IN A MEDICARE

16 ADVANTAGE PLAN.—In the case of an indi17 vidual who is enrolled under this section 

18 and who subsequently enrolls in a Medicare 

19 Advantage plan that provides qualified pre20 scription drug coverage under part C, the 

21 individual shall be given the opportunity to 

22 reenroll under this section at the time the 

23 individual discontinues the enrollment 

24 under such part. 
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1 ‘‘(iii) LATE ENROLLMENT.—The Sec2 retary shall permit individuals to elect to 

3 enroll under this section at times other than 

4 as permitted under the previous provisions 

5 of this paragraph. 

6 ‘‘(D) TERMINATION OF ENROLLMENT.—An 

7 enrollee under this section shall be disenrolled—

8 ‘‘(i) upon enrollment in a prescription 

9 drug plan under part D or a Medicare Ad10 vantage or EFFS plan under part C or E 

11 that provides qualified prescription drug 

12 coverage; 

13 ‘‘(ii) upon failure to pay the applicable 

14 enrollment fee under subsection (f); 

15 ‘‘(iii) upon termination of coverage 

16 under part A or part B; or 

17 ‘‘(iv) upon notice submitted to the Sec18 retary in such form, manner, and time as 

19 the Secretary shall provide. 

20 Terminations of enrollment under this subpara21 graph shall be effective as specified by the Sec22 retary in regulations. 

23 ‘‘(2) ENROLLMENT PERIODS.—

24 ‘‘(A) IN GENERAL.—Except as provided 

25 under this paragraph, an eligible beneficiary 
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1 may not enroll in the program under this part 

2 during any period after the beneficiary’s initial 

3 enrollment period under part B (as determined 

4 under section 1837). 

5 ‘‘(B) OPEN ENROLLMENT PERIOD FOR CUR6 RENT BENEFICIARIES.—The Secretary shall es7 tablish a period, which shall begin on the date 

8 on which the Secretary first begins to accept elec9 tions for enrollment under this section and shall 

10 end not earlier than 3 months later, during 

11 which any eligible beneficiary may enroll under 

12 this section. 

13 ‘‘(C) SPECIAL ENROLLMENT PERIOD IN

14 CASE OF TERMINATION OF COVERAGE UNDER A

15 GROUP HEALTH PLAN.—The Secretary shall pro16 vide for a special enrollment period under this 

17 section in the same manner as is provided under 

18 section 1837(i) with respect to part B, except 

19 that for purposes of this subparagraph any ref20 erence to ‘by reason of the individual’s (or the 

21 individual’s spouse’s) current employment status’ 

22 shall be treated as being deleted. 

23 ‘‘(3) PERIOD OF COVERAGE.—

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

25 subparagraph (B) and subject to subparagraph 
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1 (C), an eligible beneficiary’s coverage under the 

2 program under this section shall be effective for 

3 the period provided under section 1838, as if 

4 that section applied to the program under this 

5 section. 

6 ‘‘(B) ENROLLMENT DURING OPEN AND SPE7 CIAL ENROLLMENT.—Subject to subparagraph 

8 (C), an eligible beneficiary who enrolls under the 

9 program under this section under subparagraph 

10 (B) or (C) of paragraph (2) shall be entitled to 

11 the benefits under this section beginning on the 

12 first day of the month following the month in 

13 which such enrollment occurs. 

14 ‘‘(d) SELECTION OF AN ELIGIBLE ENTITY FOR ACCESS

15 TO NEGOTIATED PRICES.—

16 ‘‘(1) PROCESS.—

17 ‘‘(A) IN GENERAL.—The Secretary shall es18 tablish a process through which an eligible bene19 ficiary who is enrolled under this section shall 

20 select any eligible entity, that has been awarded 

21 a contract under this section and serves the State 

22 in which the beneficiary resides, to provide ac23 cess to negotiated prices under subsection (i). 

24 ‘‘(B) RULES.—In establishing the process 

25 under subparagraph (A), the Secretary shall use 
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1 rules similar to the rules for enrollment and 

2 disenrollment with a Medicare Advantage plan 

3 under section 1851 (including the special election 

4 periods under subsection (e)(4) of such section), 

5 including that—

6 ‘‘(i) an individual may not select more 

7 than one eligible entity at any time; and 

8 ‘‘(ii) an individual shall only be per9 mitted (except for unusual circumstances) to 

10 change the selection of the entity once a 

11 year. 

12 In carrying out clause (ii), the Secretary may 

13 consider a change in residential setting (such as 

14 placement in a nursing facility) to be an un15 usual circumstance. 

16 ‘‘(C) DEFAULT SELECTION.—In establishing 

17 such process, the Secretary shall provide an equi18 table method for selecting an eligible entity for 

19 individuals who enroll under this section and 

20 fail to make such a selection. 

21 ‘‘(2) COMPETITION.—Eligible entities with a 

22 contract under this section shall compete for bene23 ficiaries on the basis of discounts, formularies, phar24 macy networks, and other services provided for under 

25 the contract. 
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1 ‘‘(e) PROVIDING ENROLLMENT, SELECTION, AND COV2 ERAGE INFORMATION TO BENEFICIARIES.—

3 ‘‘(1) ACTIVITIES.—The Secretary shall provide 

4 for activities under this section to broadly dissemi5 nate information to eligible beneficiaries (and pro6 spective eligible beneficiaries) regarding enrollment 

7 under this section, the selection of eligible entities, 

8 and the prescription drug coverage made available by 

9 eligible entities with a contract under this section. 

10 ‘‘(2) SPECIAL RULE FOR FIRST ENROLLMENT

11 UNDER THE PROGRAM.—To the extent practicable, the 

12 activities described in paragraph (1) shall ensure that 

13 eligible beneficiaries are provided with such informa14 tion at least 60 days prior to the first enrollment pe15 riod described in subsection (c). 

16 ‘‘(f) ENROLLMENT FEE.—

17 ‘‘(1) AMOUNT.—

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

19 paragraph (3), enrollment under the program 

20 under this section is conditioned upon payment 

21 of an annual enrollment fee of $30 for 2004 (in22 cluding any portion of 2003 in which the pro23 gram is implemented under this section). 

24 ‘‘(B) ANNUAL PERCENTAGE INCREASE IN

25 ENROLLMENT FEE.—In the case of any calendar 
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1 year beginning after 2004, the dollar amount of 

2 the enrollment fee in subparagraph (A) shall be 

3 the dollar amount of such fee for the previous 

4 year increased by the annual percentage increase 

5 in the consumer price index for all urban con6 sumers (U.S. city average; all items) as of Sep7 tember before the beginning of the year involved. 

8 If any increase determined under the previous 

9 sentence is not a multiple of $1, such increase 

10 shall be rounded to the nearest multiple of $1. 

11 ‘‘(2) COLLECTION OF ENROLLMENT FEE.—The 

12 annual enrollment fee shall be collected and credited 

13 to the Federal Supplementary Medical Insurance 

14 Trust Fund in the same manner as the monthly pre15 mium determined under section 1839 is collected and 

16 credited to such Trust Fund under section 1840, ex17 cept that it shall be collected only 1 time per year. 

18 ‘‘(3) PAYMENT OF ENROLLMENT FEE BY STATE

19 FOR CERTAIN BENEFICIARIES.—

20 ‘‘(A) IN GENERAL.—The Secretary shall es21 tablish an arrangement under which a State 

22 may provide for payment of some or all of the 

23 enrollment fee for some or all low income enroll24 ees in the State, as specified by the State under 

25 the arrangement. Insofar as such a payment ar-
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1 rangement is made with respect to an enrollee, 

2 the amount of the enrollment fee shall be paid di3 rectly by the State and shall not be collected 

4 under paragraph (2). In carrying out this para5 graph, the Secretary may apply procedures simi6 lar to that applied under state agreements under 

7 section 1843. 

8 ‘‘(B) NO FEDERAL MATCHING AVAILABLE

9 UNDER MEDICAID OR SCHIP.—Expenditures 

10 made by a State described in subparagraph (A) 

11 shall not be treated as State expenditures for 

12 purposes of Federal matching payments under 

13 titles XIX and XXI insofar as such expenditures 

14 are for an enrollment fee under this subsection. 

15 ‘‘(4) DISTRIBUTION OF PORTION OF ENROLL16 MENT FEE.—Of the enrollment fee collected by the 

17 Secretary under this subsection with respect to a beneficiary, 2 18 ⁄3 of that fee shall be made available to the 

19 eligible entity selected by the eligible beneficiary. 

20 ‘‘(g) ISSUANCE OF CARD AND COORDINATION.—Each 

21 eligible entity shall—

22 ‘‘(1) issue, in a uniform standard format 

23 specified by the Secretary, to each enrolled bene24 ficiary a card and an enrollment number that 
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1 establishes proof of enrollment and that can be 

2 used in a coordinated manner—

3 ‘‘(A) to identify the eligible entity selected to 

4 provide access to negotiated prices under sub5 section (i); and 

6 ‘‘(B) to make deposits to and withdrawals 

7 from a prescription drug account under section 

8 1807A; and 

9 ‘‘(2) provide for electronic methods to coordinate 

10 with the accounts established under section 1807A. 

11 ‘‘(h) ENROLLEE PROTECTIONS.—

12 ‘‘(1) GUARANTEED ISSUE AND NONDISCRIMINA13 TION.—

14 ‘‘(A) GUARANTEED ISSUE.—

15 ‘‘(i) IN GENERAL.—An eligible bene16 ficiary who is eligible to select an eligible 

17 entity under subsection (b) for prescription 

18 drug coverage under this section at a time 

19 during which selections are accepted under 

20 this section with respect to the coverage 

21 shall not be denied selection based on any 

22 health status-related factor (described in sec23 tion 2702(a)(1) of the Public Health Service 

24 Act) or any other factor and may not be 
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1 charged any selection or other fee as a con2 dition of such acceptance. 

3 ‘‘(ii) MEDICARE+CHOICE LIMITATIONS

4 PERMITTED.—The provisions of paragraphs 

5 (2) and (3) (other than subparagraph 

6 (C)(i), relating to default enrollment) of sec7 tion 1851(g) (relating to priority and limi8 tation on termination of election) shall 

9 apply to selection of eligible entities under 

10 this paragraph. 

11 ‘‘(B) NONDISCRIMINATION.—An eligible en12 tity offering prescription drug coverage under 

13 this section shall not establish a service area in 

14 a manner that would discriminate based on 

15 health or economic status of potential enrollees. 

16 ‘‘(C) COVERAGE OF ALL PORTIONS OF A

17 STATE.—If an eligible entity with a contract 

18 under this section serves any part of a State it 

19 shall serve the entire State. 

20 ‘‘(2) DISSEMINATION OF INFORMATION.—

21 ‘‘(A) GENERAL INFORMATION.—An eligible 

22 entity with a contract under this section shall 

23 disclose, in a clear, accurate, and standardized 

24 form to each eligible beneficiary who has selected 

25 the entity to provide access to negotiated prices 
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1 under this section at the time of selection and at 

2 least annually thereafter, the information de3 scribed in section 1852(c)(1) relating to such 

4 prescription drug coverage. Such information in5 cludes the following (in a manner designed to 

6 permit and promote competition among eligible 

7 entities): 

8 ‘‘(i) Summary information regarding 

9 negotiated prices (including discounts) for 

10 covered outpatient drugs. 

11 ‘‘(ii) Access to such prices through 

12 pharmacy networks. 

13 ‘‘(iii) How any formulary used by the 

14 eligible entity functions. 

15 ‘‘(B) DISCLOSURE UPON REQUEST OF GEN16 ERAL COVERAGE, UTILIZATION, AND GRIEVANCE

17 INFORMATION.—Upon request of an eligible bene18 ficiary, the eligible entity shall provide the infor19 mation described in section 1852(c)(2) (other 

20 than subparagraph (D)) to such beneficiary. 

21 ‘‘(C) RESPONSE TO BENEFICIARY QUES22 TIONS.—Each eligible entity offering prescrip23 tion drug coverage under this section shall have 

24 a mechanism (including a toll-free telephone 

25 number) for providing upon request specific in-
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1 formation (such as negotiated prices, including 

2 discounts) to individuals who have selected the 

3 entity. The entity shall make available, through 

4 an Internet website and in writing upon request, 

5 information on specific changes in its formulary. 

6 ‘‘(D) COORDINATION WITH PRESCRIPTION

7 DRUG ACCOUNT BENEFITS.—Each such eligible 

8 entity shall provide for coordination of such in9 formation as the Secretary may specify to carry 

10 out section 1807A. 

11 ‘‘(3) ACCESS TO COVERED BENEFITS.—

12 ‘‘(A) ENSURING PHARMACY ACCESS.—The 

13 provisions of subsection (c)(1) of section 1860D–

14 3 (other than payment provisions under section 

15 1860D–8 with respect to sponsors under such 

16 subsection) shall apply to an eligible entity 

17 under this section in the same manner as they 

18 apply to a PDP sponsor under such section. 

19 ‘‘(B) ACCESS TO NEGOTIATED PRICES FOR

20 PRESCRIPTION DRUGS.—For requirements relat21 ing to the access of an eligible beneficiary to ne22 gotiated prices (including applicable discounts), 

23 see subsection (i). 

24 ‘‘(C) REQUIREMENTS ON DEVELOPMENT

25 AND APPLICATION OF FORMULARIES.—Insofar as 
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1 an eligible entity with a contract under this part 

2 uses a formulary, the entity shall comply with 

3 the requirements of section 1860D–3(c)(3), inso4 far as the Secretary determines that such re5 quirements can be implemented on a timely 

6 basis. 

7 ‘‘(4) COST AND UTILIZATION MANAGEMENT; 

8 QUALITY ASSURANCE; MEDICATION THERAPY MANAGE9 MENT PROGRAM.—

10 ‘‘(A) IN GENERAL.—For purposes of pro11 viding access to negotiated benefits under sub12 section (i), the eligible entity shall have in place 

13 the programs and measure described in section 

14 1860D–3(d), including an effective cost and drug 

15 utilization management program, quality assur16 ance measures and systems, and a program to 

17 control fraud, abuse, and waste, insofar as the 

18 Secretary determines that such provisions can be 

19 implemented on a timely basis. 

20 ‘‘(B) TREATMENT OF ACCREDITATION.—

21 Section 1852(e)(4) (relating to treatment of ac22 creditation) shall apply to the requirements for 

23 an endorsed program under this section with re24 spect to the following requirements, in the same 

25 manner as they apply to Medicare Advantage 
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1 plans under part C with respect to the require2 ments described in a clause of section 

3 1852(e)(4)(B): 

4 ‘‘(i) Paragraph (3)(A) (relating to ac5 cess to covered benefits). 

6 ‘‘(ii) Paragraph (7) (relating to con7 fidentiality and accuracy of enrollee 

8 records). 

9 ‘‘(5) GRIEVANCE MECHANISM.—Each eligible en10 tity shall provide meaningful procedures for hearing 

11 and resolving grievances between the organization 

12 consistent with the requirements of section 1860D–

13 3(e) insofar as they relate to PDP sponsors of pre14 scription drug plans. 

15 ‘‘(6) BENEFICIARY SERVICES.—An eligible entity 

16 shall provide for its enrollees pharmaceutical support 

17 services, such as education and counseling, and serv18 ices to prevent adverse drug interactions. 

19 ‘‘(7) COVERAGE DETERMINATIONS AND RECON20 SIDERATIONS.—An eligible entity shall meet the re21 quirements of section 1852(g) with respect to covered 

22 benefits under the prescription drug coverage it offers 

23 under this section in the same manner as such re24 quirements apply to a Medicare Advantage organiza-
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1 tion with respect to benefits it offers under a Medicare 

2 Advantage plan under part C. 

3 ‘‘(8) CONFIDENTIALITY AND ACCURACY OF EN4 ROLLEE RECORDS.—An eligible entity shall meet the 

5 requirements of section 1852(h) with respect to enroll6 ees under this section in the same manner as such re7 quirements apply to a Medicare Advantage organiza8 tion with respect to enrollees under part C. The eligi9 ble entity shall implement policies and procedures to 

10 safeguard the use and disclosure of enrollees’ individ11 ually identifiable health information in a manner 

12 consistent with the Federal regulations (concerning 

13 the privacy of individually identifiable health infor14 mation) promulgated under section 264(c) of the 

15 Health Insurance Portability and Accountability Act 

16 of 1996. The eligible entity shall be treated as a cov17 ered entity for purposes of the provisions of subpart 

18 E of part 164 of title 45, Code of Federal Regulations, 

19 adopted pursuant to the authority of the Secretary 

20 under section 264(c) of the Health Insurance Port21 ability and Accountability Act of 1996 (42 U.S. C. 

22 1320d-2 note). 

23 ‘‘(9) PERIODIC REPORTS AND OVERSIGHT.—The 

24 eligible entity shall submit to the Secretary periodic 

25 reports on performance, utilization, finances, and 
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1 such other matters as the Secretary may specify. The 

2 Secretary shall provide appropriate oversight to en3 sure compliance of eligible entities with the require4 ments of this subsection, including verification of the 

5 discounts and services provided. 

6 ‘‘(10) ADDITIONAL BENEFICIARY PROTEC7 TIONS.—The eligible entity meets such additional re8 quirements as the Secretary identifies to protect and 

9 promote the interest of enrollees, including require10 ments that ensure that enrollees are not charged more 

11 than the lower of the negotiated retail price or the 

12 usual and customary price.

13 ‘‘(i) BENEFITS UNDER THE PROGRAM THROUGH SAV14 INGS TO ENROLLEES THROUGH NEGOTIATED PRICES.—

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

16 each eligible entity with a contract under this section 

17 shall provide each eligible beneficiary enrolled with 

18 the entity with access to negotiated prices (including 

19 applicable discounts). For purposes of this paragraph, 

20 the term ‘prescription drugs’ is not limited to covered 

21 outpatient drugs, but does not include any over-the22 counter drug that is not a covered outpatient drug. 

23 The prices negotiated by an eligible entity under this 

24 paragraph shall (notwithstanding any other provision 

25 of law) not be taken into account for the purposes of 
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1 establishing the best price under section 

2 1927(c)(1)(C). 

3 ‘‘(2) FORMULARY RESTRICTIONS.—Insofar as an 

4 eligible entity with a contract under this part uses a 

5 formulary, the negotiated prices (including applicable 

6 discounts) for prescription drugs shall only be avail7 able for drugs included in such formulary. 

8 ‘‘(3) PROHIBITION ON APPLICATION ONLY TO

9 MAIL ORDER.—The negotiated prices under this sub10 section shall apply to prescription drugs that are 

11 available other than solely through mail order. 

12 ‘‘(4) PROHIBITION ON CHARGES FOR REQUIRED

13 SERVICES.—An eligible entity (and any pharmacy 

14 contracting with such entity for the provision of a 

15 discount under this section) may not charge a bene16 ficiary any amount for any services required to be 

17 provided by the entity under this section. 

18 ‘‘(5) DISCLOSURE.—The eligible entity offering 

19 the endorsed program shall disclose to the Secretary 

20 (in a manner specified by the Secretary) the extent to 

21 which discounts or rebates or other remuneration or 

22 price concessions made available to the entity by a 

23 manufacturer are passed through to enrollees through 

24 pharmacies and other dispensers or otherwise. The 

25 provisions of section 1927(b)(3)(D) shall apply to in-
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1 formation disclosed to the Administrator under this 

2 paragraph in the same manner as such provisions 

3 apply to information disclosed under such section. 

4 ‘‘(6) PUBLIC DISCLOSURE OF PHARMACEUTICAL

5 PRICES FOR EQUIVALENT DRUGS.—Each eligible enti6 ty shall provide that each pharmacy or other dis7 penser that arranges for the dispensing of a covered 

8 outpatient drug in connection with its endorsed pro9 gram shall inform the enrollee in that program at the 

10 time of purchase of the drug of any differential be11 tween the price of the prescribed drug to the enrollee 

12 and the price of the lowest cost available generic drug 

13 covered under the program that is therapeutically 

14 equivalent and bioequivalent. 

15 ‘‘(j) CONTRIBUTION INTO PRESCRIPTION DRUG AC16 COUNT.—

17 ‘‘(1) IN GENERAL.—In the case of an individual 

18 enrolled under this section—

19 ‘‘(A) the Secretary shall establish a pre20 scription drug account for the individual under 

21 section 1807A; and 

22 ‘‘(B) shall deposit into such account on a 

23 monthly or other periodic basis an amount that, 

24 on an annual basis, is equivalent to the annual 
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1 Federal contribution amount specified in para2 graph (2) for the enrollee involved. 

3 ‘‘(2) ANNUAL FEDERAL CONTRIBUTION

4 AMOUNT.—

5 ‘‘(A) IN 2004.—Subject to paragraphs (3) 

6 and (4), in the case of an accountholder whose 

7 modified adjusted gross income is—

8 ‘‘(i) not more than 135 percent of the 

9 poverty line, the annual Federal contribu10 tion amount for 2004 is $800; 

11 ‘‘(ii) more than 135 percent, but less 

12 than 150 percent, of the poverty line, the 

13 annual Federal contribution amount for 

14 2004 is $500; and 

15 ‘‘(iii) more than 150 percent of the 

16 poverty line, the annual Federal contribu17 tion amount for 2004 is $100. 

18 ‘‘(B) THEREAFTER.—For periods after 

19 2004, the amounts applicable under subpara20 graph (A) shall be increased by the annual per21 centage increase described in section 1860D–

22 2(b)(5) for the period involved. 

23 ‘‘(C) ROUNDING.—If an annual Federal 

24 contribution amount determined under subpara-
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1 graph (B) is not a multiple of $10, it shall be 

2 rounded to the nearest multiple of $10. 

3 ‘‘(3) REQUIREMENT FOR INCOME VERIFICATION

4 TO OBTAIN INCREASED CONTRIBUTION AMOUNT.—

5 ‘‘(A) IN GENERAL.—The provisions of sub6 sections clauses (i) and (ii) of subparagraphs (A) 

7 and (B) of paragraph (2) shall apply to an indi8 vidual only if the individual—

9 ‘‘(i) provides such information as the 

10 Secretary may require in order to deter11 mine the appropriate category of benefits 

12 under the respective provisions; and 

13 ‘‘(ii) authorizes in a form and manner 

14 specified by the Secretary the verification of 

15 the individual’s modified adjusted gross in16 come by the Secretary through arrange17 ments with States. 

18 An arrangement with a State under clause (ii) 

19 shall provide for the payment by the Secretary 

20 under this section of the State’s reasonable costs 

21 of conducting income verifications under such 

22 arrangement. 

23 ‘‘(B) PENALTIES FOR UNDERSTATEMENT OF

24 INCOME.—The provision of false information 
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1 under subparagraph (A)(i) is subject to criminal 

2 penalties under section 1128B. 

3 ‘‘(C) PROCEDURES FOR DETERMINING

4 MODIFIED ADJUSTED GROSS INCOME.—

5 ‘‘(i) IN GENERAL.—The Secretary shall 

6 establish procedures for determining the 

7 modified adjusted gross income of enrollees. 

8 The Secretary shall consult with the Sec9 retary of the Treasury in making such de10 terminations. Income determinations under 

11 this subsection shall be valid for a period (of 

12 not less than 1 year) specified by the Sec13 retary. 

14 ‘‘(ii) DISCLOSURE OF INFORMATION.—

15 The Secretary of the Treasury may, upon 

16 written request from the Secretary, disclose 

17 to Secretary such return information as is 

18 necessary to make the determinations de19 scribed in clause (i). Return information 

20 disclosed under the preceding sentence may 

21 be used by the Secretary only for the pur22 poses of, and to the extent necessary in, 

23 making such determinations. 

24 ‘‘(iii) PENALTY FOR UNAUTHORIZED

25 DISCLOSURE.—The provisions of section 
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1 1860D–2(b)(4)(F)(ii) shall apply to an un2 authorized disclosure of information under 

3 clause (ii) in the same manner as those pro4 visions apply to an unauthorized disclosure 

5 of information under such section. 

6 ‘‘(4) PARTIAL YEAR.—Insofar as the provisions 

7 of this subsection and section 1807A are not imple8 mented for all months in 2004, the annual contribu9 tion amount under this subsection for 2004 shall be 

10 prorated to reflect the portion of that year in which 

11 such provisions are in effect. 

12 ‘‘(5) APPROPRIATION TO COVER NET PROGRAM

13 EXPENDITURES.—There are authorized to be appro14 priated from time to time, out of any moneys in the 

15 Treasury not otherwise appropriated, to the Federal 

16 Supplementary Medical Insurance Trust Fund estab17 lished under section 1841, an amount equal to the 

18 amount by which the benefits and administrative 

19 costs of providing the benefits under this section ex20 ceed the sum of the portion of the enrollment fees re21 tained by the Secretary. 

22 ‘‘(k) DEFINITIONS.—In this part and section 1807A: 

23 ‘‘(1) COVERED OUTPATIENT DRUG.—
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1 ‘‘(A) IN GENERAL.—Except as provided in 

2 this paragraph, for purposes of this section, the 

3 term ‘covered outpatient drug’ means—

4 ‘‘(i) a drug that may be dispensed only 

5 upon a prescription and that is described in 

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

7 1927(k)(2); or 

8 ‘‘(ii) a biological product described in 

9 clauses (i) through (iii) of subparagraph 

10 (B) of such section or insulin described in 

11 subparagraph (C) of such section and med12 ical supplies associated with the injection of 

13 insulin (as defined in regulations of the 

14 Secretary), 

15 and such term includes a vaccine licensed under 

16 section 351 of the Public Health Service Act and 

17 any use of a covered outpatient drug for a medi18 cally accepted indication (as defined in section 

19 1927(k)(6)). 

20 ‘‘(B) EXCLUSIONS.—

21 ‘‘(i) IN GENERAL.—Such term does not 

22 include drugs or classes of drugs, or their 

23 medical uses, which may be excluded from 

24 coverage or otherwise restricted under sec25 tion 1927(d)(2), other than subparagraph 
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1 (E) thereof (relating to smoking cessation 

2 agents), or under section 1927(d)(3). 

3 ‘‘(ii) AVOIDANCE OF DUPLICATE COV4 ERAGE.—A drug prescribed for an indi5 vidual that would otherwise be a covered 

6 outpatient drug under this section shall not 

7 be so considered if payment for such drug is 

8 available under part A or B for an indi9 vidual entitled to benefits under part A and 

10 enrolled under part B. 

11 ‘‘(C) APPLICATION OF FORMULARY RESTRIC12 TIONS.—A drug prescribed for an individual 

13 that would otherwise be a covered outpatient 

14 drug under this section shall not be so considered 

15 under an endorsed program if the eligible entity 

16 offering the program excludes the drug under a 

17 formulary and a review of such exclusion is not 

18 successfully resolved under subsection (h)(5). 

19 ‘‘(D) APPLICATION OF GENERAL EXCLUSION

20 PROVISIONS.—An eligible entity offering an en21 dorsed program may exclude from qualified pre22 scription drug coverage any covered outpatient 

23 drug—
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1 ‘‘(i) for which payment would not be 

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

3 or 

4 ‘‘(ii) which are not prescribed in ac5 cordance with the program or this section. 

6 Such exclusions are determinations subject to re7 view pursuant to subsection (h)(5). 

8 ‘‘(2) INCOME.—

9 ‘‘(A) IN GENERAL.—The term ‘income’ 

10 means, with respect to benefits under this section 

11 in a year, the modified adjusted gross income of 

12 the individual for the taxable year ending in the 

13 previous year. 

14 ‘‘(B) TREATMENT OF JOINT RETURNS.—In 

15 the case of a individual who files a joint return 

16 (as defined for purposes of the Internal Revenue 

17 Code of 1986), the income of the modified ad18 justed gross income of both individuals shall be 

19 treated as the income of each individual. 

20 ‘‘(C) TREATMENT OF SEPARATE RE21 TURNS.—In the case of an individual who is 

22 married and who does not file a joint return and 

23 who is not living separate and apart from the 

24 individual’s spouse during at least 6 months of 

25 the taxable year shall be treated for purposes of 
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1 this section as having income that exceeds 150 

2 percent of the poverty line. 

3 ‘‘(3) DEFINITION OF MODIFIED ADJUSTED GROSS

4 INCOME.—The term ‘modified adjusted gross income’ 

5 means adjusted gross income (as defined in section 62 

6 of the Internal Revenue Code of 1986)—

7 ‘‘(A) determined without regard to sections 

8 911, 931, and 933 of such Code; and 

9 ‘‘(B) increased by—

10 ‘‘(i) the amount of interest received or 

11 accrued by the taxpayer during the taxable 

12 year which is exempt from tax under such 

13 Code, and 

14 ‘‘(ii) the amount of social security ben15 efits not includible in gross income under 

16 section 86 of such Code. 

17 ‘‘(4) POVERTY LINE.—The term ‘poverty line’ 

18 means the income official poverty line (as defined by 

19 the Office of Management and Budget, and revised 

20 annually in accordance with section 673(2) of the 

21 Omnibus Budget Reconciliation Act of 1981) applica22 ble to a family of the size involved. 

23 ‘‘(l) AUTHORIZATION OF APPROPRIATIONS.—There are 

24 authorized to be appropriated such sums as may be nec25 essary to carry out this section and section 1807A. 
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1 ‘‘(e) INTERIM, FINAL REGULATORY AUTHORITY.—In 

2 order to carry out this section and section 1807A in a time3 ly manner, the Secretary may promulgate regulations that 

4 take effect on an interim basis, after notice and pending 

5 opportunity for public comment. 

6 ‘‘PRESCRIPTION DRUG ACCOUNTS

7 ‘‘SEC. 1807A. ‘‘(a) ESTABLISHMENT OF ACCOUNTS.—

8 ‘‘(1) IN GENERAL.—The Secretary shall establish 

9 and maintain for each eligible beneficiary who is en10 rolled under section 1807 at the time of enrollment a 

11 prescription drug account (in this section and section 

12 1807 referred to as an ‘account’). 

13 ‘‘(2) RESERVE ACCOUNTS.—In cases described in 

14 subsections (b)(3)(A), (b)(3)(B)(i), and 

15 (b)(3)(B)(ii)(I), the Secretary shall establish and 

16 maintain for each surviving spouse who is not en17 rolled under section 1807 a reserve prescription drug 

18 account (in this section referred to as an ‘reserve ac19 count’). 

20 ‘‘(3) ACCOUNTHOLDER DEFINED.—In this section 

21 and section 1807A, the term ‘accountholder’ means an 

22 individual for whom an account or reserve account 

23 has been established under this section. 

24 ‘‘(4) EXPENDITURES FROM ACCOUNT.—Nothing 

25 in this section shall be construed as requiring the 

26 Federal Government to obligate funds for amounts in 
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1 any account until such time as a withdrawal from 

2 such account is authorized under this section. 

3 ‘‘(b) USE OF ACCOUNTS.—

4 ‘‘(1) APPLICATION OF ACCOUNT.—Except as pro5 vided in this subsection, amounts credited to an ac6 count shall only be used for the purchase of covered 

7 outpatient drugs for the accountholder. Any amounts 

8 remaining at the end of a year remain available for 

9 expenditures in succeeding years. 

10 ‘‘(2) ACCOUNT RULES FOR PUBLIC AND PRIVATE

11 CONTRIBUTIONS.—The Secretary shall establish a on12 going process for the determination of the amount in 

13 each account that is attributable to public and pri14 vate contributions (including spousal rollover con15 tributions) based on the following rules: 

16 ‘‘(A) TREATMENT OF EXPENDITURES.—Ex17 penditures from the account shall—

18 ‘‘(i) first be counted against any public 

19 contribution; and 

20 ‘‘(ii) next be counted against private 

21 contributions. 

22 ‘‘(B) TREATMENT OF SPOUSAL ROLLOVER

23 CONTRIBUTIONS.—With respect to any spousal 

24 rollover contribution, the portions of such con25 tribution that were attributable to public and 
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1 private contributions at the time of its distribu2 tion under subsection (b)(3) shall be treated 

3 under this paragraph as if it were a direct pub4 lic or private contribution, respectively, into the 

5 account of the spouse. 

6 ‘‘(3) DEATH OF ACCOUNTHOLDER.—In the case 

7 of the death of an accountholder, the balance in any 

8 account (taking into account liabilities accrued before 

9 the time of death) shall be distributed as follows: 

10 ‘‘(A) TREATMENT OF PUBLIC CONTRIBU11 TIONS.—If the accountholder is married at the 

12 time of death, the amount in the account that is 

13 attributable to public contributions shall be cred14 ited to the account (if any) of the surviving 

15 spouse of the accountholder (or, if the surviving 

16 spouse is not an eligible beneficiary, into a re17 serve account to be held for when that spouse be18 comes an eligible beneficiary). 

19 ‘‘(B) TREATMENT OF PRIVATE CONTRIBU20 TIONS.—The amount in the account that is at21 tributable to private contributions shall be dis22 tributed as follows: 

23 ‘‘(i) DESIGNATION OF DISTRIBUTEE.—

24 If the accountholder has made a designa25 tion, in a form and manner specified by the 
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1 Secretary, for the distribution of some or all 

2 of such amount, such amount shall be dis3 tributed in accordance with the designation. 

4 Such designation may provide for the dis5 tribution into an account (including a re6 serve account) of a surviving spouse. 

7 ‘‘(ii) ABSENCE OF DESIGNATION.—In8 sofar as the accountholder has not made 

9 such a designation—

10 ‘‘(I) SURVIVING SPOUSE.—If the 

11 accountholder was married at the time 

12 of death, the remainder shall be cred13 ited to an account (including a reserve 

14 account) of the accountholder’s sur15 viving spouse. 

16 ‘‘(II) NO SURVIVING SPOUSE.—If 

17 the accountholder was not so married, 

18 the remainder shall be distributed to 

19 the estate of the accountholder and dis20 tributed as provided by law. 

21 ‘‘(4) USE OF ACCOUNT FOR PREMIUMS FOR EN22 ROLLMENT IN A MEDICARE ADVANTAGE OR EFFS

23 PLAN.—During any period in which an accountholder 

24 is enrolled in a Medicare Advantage plan under part 

25 C or an EFFS plan under part E, the balance in the 
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1 account may be used and applied only to reimburse 

2 the amount of the premium (if any) established for 

3 enrollment under the plan. 

4 ‘‘(5) APPLICATION TO MEDICAID EXPENSES IN

5 CERTAIN CASES.—

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

7 this paragraph, an account shall be treated as 

8 an asset for purposes of establishing eligibility 

9 for medical assistance under title XIX. 

10 ‘‘(B) APPLICATION TOWARDS

11 SPENDDOWN.—In the case of an accountholder 

12 who is applying for such medical assistance and 

13 who would, but for the application of subpara14 graph (A), be eligible for such assistance—

15 ‘‘(i) subparagraph (A) shall not apply; 

16 and 

17 ‘‘(ii) the account shall be available (in 

18 accordance with a procedure established by 

19 the Secretary) to the State to reimburse the 

20 State for any expenditures made under the 

21 plan for such medical assistance. 

22 ‘‘(c) AMOUNTS CREDITED IN ACCOUNT.—The Sec23 retary shall credit to a prescription drug account of an eli24 gible beneficiary the following amounts: 
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1 ‘‘(1) PUBLIC CONTRIBUTIONS.—The following 

2 contributions (each referred to in this section as a 

3 ‘public contribution’): 

4 ‘‘(A) FEDERAL CONTRIBUTIONS.—Federal 

5 contributions provided under subsection (d). 

6 ‘‘(B) STATE CONTRIBUTIONS.—Contribu7 tions made by a State under subsection (f). 

8 ‘‘(2) SPOUSAL ROLLOVER CONTRIBUTION.—A 

9 distribution from a deceased spouse under subsection 

10 (b)(3) (referred to in this section as a ‘spousal rollover 

11 contribution’). 

12 ‘‘(3) PRIVATE CONTRIBUTIONS.—The following 

13 contributions (each referred to in this section as a 

14 ‘private contribution’): 

15 ‘‘(A) EMPLOYER AND INDIVIDUAL CON16 TRIBUTIONS.—Contributions made under sub17 section (e). 

18 ‘‘(B) OTHER INDIVIDUAL CONTRIBUTIONS.—

19 Contributions made by accountholder other than 

20 under subsection (e). 

21 ‘‘(C) CONTRIBUTIONS BY NONPROFIT ORGA22 NIZATIONS.—Contributions made by a chari23 table, not-for-profit organization (that may be a 

24 religious organization). 
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1 Except as provided in this subsection, no amounts may be 

2 contributed to, or credited to, a prescription drug account. 

3 ‘‘(d) FEDERAL CONTRIBUTION.—For Federal contribu4 tions in the case of accountholders, see section 1807(j). 

5 ‘‘(e) EMPLOYER AND INDIVIDUAL CONTRIBUTIONS.—

6 ‘‘(1) EMPLOYMENT-RELATED CONTRIBUTION.—

7 ‘‘(A) IN GENERAL.—In the case of any 

8 accountholder who is a beneficiary or partici9 pant in a group health plan (including a multi10 employer plan), whether as an employee, former 

11 employee or otherwise, including as a dependent 

12 of an employee or former employee, the plan 

13 may make a contribution into the 

14 accountholder’s account (but not into a reserve 

15 account of the accountholder). 

16 ‘‘(B) LIMITATION.—The total amount that 

17 may be contributed under subparagraph (A) 

18 under a plan to an account during any year 

19 may not exceed $5,000. 

20 ‘‘(C) CONDITION.—A group health plan 

21 may condition a contribution with respect to an 

22 accountholder under this paragraph on the 

23 accountholder’s enrollment under section 1807 

24 with an eligible entity that is recognized or ap25 proved by that plan. 
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1 ‘‘(2) OTHER INDIVIDUALS.—

2 ‘‘(A) IN GENERAL.—Any individual may 

3 also contribute to the account of that individual 

4 or the account of any other individual under this 

5 subsection. 

6 ‘‘(B) LIMITATION.—The total amount that 

7 may be contributed to an account under sub8 paragraph (A) during any year may not exceed 

9 $5,000, regardless of who makes such contribu10 tion. 

11 ‘‘(3) NO CONTRIBUTION PERMITTED TO RESERVE

12 ACCOUNT.—No contribution may be made under this 

13 subsection to a reserve account. 

14 ‘‘(4) FORM AND MANNER OF CONTRIBUTION.—

15 The Secretary shall specify the form and manner of 

16 contributions under this subsection. 

17 ‘‘(5) INDEXING OF DOLLAR AMOUNTS.—The dol18 lar amounts of the limitation amounts specified in 

19 paragraphs (1)(B) and (2)(B) shall be subject to an20 nual increases for each year after 2004 in the same 

21 manner as the annual deductible is subject to an an22 nual increase under subparagraph (B) and the last 

23 sentence of section 1860D–2(b)(1). 

24 ‘‘(f) STATE CONTRIBUTIONS.—
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1 ‘‘(1) IN GENERAL.—A State may enter into ar2 rangements with the Secretary for the crediting of 

3 amounts for accountholders. 

4 ‘‘(2) FORM AND MANNER OF CONTRIBUTION.—

5 The Secretary shall specify the form and manner of 

6 contributions under this subsection. 

7 ‘‘(3) MEDICAID TREATMENT.—Amounts credited 

8 under this subsection shall not be treated as medical 

9 assistance for purposes of title XIX or child health as10 sistance for purposes of title XXI for individuals who 

11 are not qualifying low income enrollees.’’. 

12 (b) EXCLUSION OF COSTS FROM DETERMINATION OF

13 PART B MONTHLY PREMIUM.—Section 1839(g) (42 U.S.C. 

14 1395r(g)) is amended—

15 (1) by striking ‘‘attributable to the application of 

16 section’’ and inserting ‘‘attributable to—

17 ‘‘(1) the application of section’’;

18 (2) by striking the period and inserting ‘‘; and’’; 

19 and 

20 (3) by adding at the end the following new para21 graph: 

22 ‘‘(2) the Voluntary Medicare Outpatient Pre23 scription Drug Discount and Security Program under 

24 sections 1807 and 1807A.’’. 

25 (c) MEDICAID AMENDMENTS.—
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1 (1) VERIFICATION OF ELIGIBILITY FOR IM2 PROVED ACCOUNT CONTRIBUTIONS.—

3 (A) REQUIREMENT.—Section 1902(a) (42 

4 U.S.C. 1396a(a)) is amended—

5 (i) by striking ‘‘and’’ at the end of 

6 paragraph (64); 

7 (ii) by striking the period at the end of 

8 paragraph (65) and inserting ‘‘; and’’; and 

9 (iii) by inserting after paragraph (65) 

10 the following new paragraph: 

11 ‘‘(66) provide for verification of income under 

12 section 1807(j)(3).’’. 

13 (B) NEW SECTION.—Title XIX is further 

14 amended—

15 (i) by redesignating section 1935 as 

16 section 1936; and 

17 (ii) by inserting after section 1934 the 

18 following new section: 

19 ‘‘SPECIAL PROVISIONS RELATING TO MEDICARE PART D

20 BENEFITS

21 ‘‘SEC. 1935. (a) REQUIREMENT FOR VERIFICATION OF

22 ELIGIBILITY DETERMINATIONS FOR IMPROVED ACCOUNT

23 CONTRIBUTIONS.—As a condition of its State plan under 

24 this title under section 1902(a)(66) and receipt of any Fed25 eral financial assistance under section 1903(a), a State 
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1 shall provide for verification of income statements in ac2 cordance with arrangements under section 1807(j)(1). 

3 ‘‘(b) PAYMENTS FOR ADDITIONAL ADMINISTRATIVE

4 COSTS.—

5 ‘‘(1) IN GENERAL.—The amounts expended by a 

6 State in carrying out subsection (a) are, subject to 

7 paragraph (2), expenditures reimbursable under the 

8 appropriate paragraph of section 1903(a); except 

9 that, notwithstanding any other provision of such sec10 tion, the applicable Federal matching rates with re11 spect to such expenditures under such section shall be 

12 90 percent. 

13 ‘‘(2) COORDINATION.—The State shall provide 

14 the Secretary with such information as may be nec15 essary to properly allocate administrative expendi16 tures described in paragraph (1) that may otherwise 

17 be made for eligibility determinations.’’. 

18 SEC. 106. DISCLOSURE OF RETURN INFORMATION FOR PUR19 POSES OF CARRYING OUT MEDICARE CATA20 STROPHIC PRESCRIPTION DRUG PROGRAM. 

21 (a) IN GENERAL.—Subsection (l) of section 6103 of the 

22 Internal Revenue Code of 1986 (relating to disclosure of re23 turns and return information for purposes other than tax 

24 administration) is amended by adding at the end the fol25 lowing new paragraph: 
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1 ‘‘(19) DISCLOSURE OF RETURN INFORMATION

2 FOR PURPOSES OF CARRYING OUT MEDICARE CATA3 STROPHIC PRESCRIPTION DRUG PROGRAM.—

4 ‘‘(A) IN GENERAL.—The Secretary may, 

5 upon written request from the Secretary of 

6 Health and Human Services under section 

7 1860D–2(b)(4)(E)(i) of the Social Security Act, 

8 disclose to officers and employees of the Depart9 ment of Health and Human Services with re10 spect to a specified taxpayer for the taxable year 

11 specified by the Secretary of Health and Human 

12 Services in such request—

13 ‘‘(i) the taxpayer identity information 

14 with respect to such taxpayer, and 

15 ‘‘(ii) the adjusted gross income of such 

16 taxpayer for the taxable year (or, if less, the 

17 income threshold limit specified in section 

18 1860D–2(b)(4)(D)(ii) for the calendar year 

19 specified by such Secretary in such request). 

20 ‘‘(B) SPECIFIED TAXPAYER.—For purposes 

21 of this paragraph, the term ‘specified taxpayer’ 

22 means any taxpayer who—

23 ‘‘(i) is identified by the Secretary of 

24 Health and Human Services in the request 

25 referred to in subparagraph (A), and 
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1 ‘‘(ii) either—

2 ‘‘(I) has an adjusted gross income 

3 for the taxable year referred to in sub4 paragraph (A) in excess of the income 

5 threshold specified in section 1860D–

6 2(b)(4)(D)(ii) of such Act for the cal7 endar year referred to in such subpara8 graph, or 

9 ‘‘(II) is identified by such Sec10 retary under subparagraph (A) as 

11 being an individual who elected to use 

12 more recent information under section 

13 1860D–2(b)(4)(D)(v) of such Act. 

14 ‘‘(C) JOINT RETURNS.—In the case of a 

15 joint return, the Secretary shall, for purposes of 

16 applying this paragraph, treat each spouse as a 

17 separate taxpayer having an adjusted gross in18 come equal to one-half of the adjusted gross in19 come determined with respect to such return. 

20 ‘‘(D) RESTRICTION ON USE OF DISCLOSED

21 INFORMATION.—Return information disclosed 

22 under subparagraph (A) may be used by officers 

23 and employees of the Department of Health and 

24 Human Services only for the purpose of admin25 istering the prescription drug benefit under title 
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1 XVIII of the Social Security Act. Such officers 

2 and employees may disclose the annual out-of3 pocket threshold which applies to an individual 

4 under such part to the entity that offers the plan 

5 referred to in section 1860D–2(b)(4)(E)(ii) of 

6 such Act in which such individual is enrolled. 

7 Such sponsor may use such information only for 

8 purposes of administering such benefit.’’. 

9 (b) CONFIDENTIALITY.—Paragraph (3) of section 

10 6103(a) of such Code is amended by striking ‘‘or (16)’’ and 

11 inserting ‘‘(16), or (19)’’. 

12 (c) PROCEDURES AND RECORDKEEPING RELATED TO

13 DISCLOSURES.—Subsection (p)(4) of section 6103 of such 

14 Code is amended by striking ‘‘any other person described 

15 in subsection (l)(16) or (17)’’ each place it appears and in16 serting ‘‘any other person described in subsection (l)(16), 

17 (17), or (19)’’. 

18 (d) UNAUTHORIZED DISCLOSURE.—Paragraph (2) of 

19 section 7213(a) of such Code is amended by striking ‘‘or 

20 (16)’’ and inserting ‘‘(16), or (19)’’. 

21 (e) UNAUTHORIZED INSPECTION.—Subparagraph (B) 

22 of section 7213A(a)(1) of such Code is amended by inserting 

23 ‘‘or (19)’’ after ‘‘subsection (l)(18)’’.
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1 SEC. 107. STATE PHARMACEUTICAL ASSISTANCE TRANSI2 TION COMMISSION. 

3 (a) ESTABLISHMENT.—

4 (1) IN GENERAL.—There is established, as of the 

5 first day of the third month beginning after the date 

6 of the enactment of this Act, a State Pharmaceutical 

7 Assistance Transition Commission (in this section re8 ferred to as the ‘‘Commission’’) to develop a proposal 

9 for addressing the unique transitional issues facing 

10 State pharmaceutical assistance programs, and pro11 gram participants, due to the implementation of the 

12 medicare prescription drug program under part D of 

13 title XVIII of the Social Security Act. 

14 (2) DEFINITIONS.—For purposes of this section: 

15 (A) STATE PHARMACEUTICAL ASSISTANCE

16 PROGRAM DEFINED.—The term ‘‘State pharma17 ceutical assistance program’’ means a program 

18 (other than the medicaid program) operated by 

19 a State (or under contract with a State) that 

20 provides as of the date of the enactment of this 

21 Act assistance to low-income medicare bene22 ficiaries for the purchase of prescription drugs. 

23 (B) PROGRAM PARTICIPANT.—The term 

24 ‘‘program participant’’ means a low-income 

25 medicare beneficiary who is a participant in a 

26 State pharmaceutical assistance program. 
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1 (b) COMPOSITION.—The Commission shall include the 

2 following: 

3 (1) A representative of each governor of each 

4 State that the Secretary identifies as operating on a 

5 statewide basis a State pharmaceutical assistance 

6 program that provides for eligibility and benefits that 

7 are comparable or more generous than the low-income 

8 assistance eligibility and benefits offered under part 

9 D of title XVIII of the Social Security Act. 

10 (2) Representatives from other States that the 

11 Secretary identifies have in operation other State 

12 pharmaceutical assistance programs, as appointed by 

13 the Secretary. 

14 (3) Representatives of organizations that have an 

15 inherent interest in program participants or the pro16 gram itself, as appointed by the Secretary but not to 

17 exceed the number of representatives under para18 graphs (1) and (2). 

19 (4) Representatives of Medicare Advantage orga20 nizations and other private health insurance plans, as 

21 appointed by the Secretary. 

22 (5) The Secretary (or the Secretary’s designee) 

23 and such other members as the Secretary may specify 
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1 The Secretary shall designate a member to serve as chair 

2 of the Commission and the Commission shall meet at the 

3 call of the chair. 

4 (c) DEVELOPMENT OF PROPOSAL.—The Commission 

5 shall develop the proposal described in subsection (a) in a 

6 manner consistent with the following principles: 

7 (1) Protection of the interests of program par8 ticipants in a manner that is the least disruptive to 

9 such participants and that includes a single point of 

10 contact for enrollment and processing of benefits. 

11 (2) Protection of the financial and flexibility in12 terests of States so that States are not financially 

13 worse off as a result of the enactment of this title. 

14 (3) Principles of medicare modernization pro15 vided under title II of this Act. 

16 (d) REPORT.—By not later than January 1, 2005, the 

17 Commission shall submit to the President and the Congress 

18 a report that contains a detailed proposal (including spe19 cific legislative or administrative recommendations, if any) 

20 and such other recommendations as the Commission deems 

21 appropriate. 

22 (e) SUPPORT.—The Secretary shall provide the Com23 mission with the administrative support services necessary 

24 for the Commission to carry out its responsibilities under 

25 this section. 
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1 (f) TERMINATION.—The Commission shall terminate 

2 30 days after the date of submission of the report under 

3 subsection (d).

4 TITLE II—MEDICARE ENHANCED 

5 FEE-FOR-SERVICE AND MEDI6 CARE ADVANTAGE PRO7 GRAMS; MEDICARE COMPETI8 TION 

9 SEC. 200. MEDICARE MODERNIZATION AND REVITALIZA10 TION. 

11 This title provides for—

12 (1) establishment of the medicare enhanced fee13 for-service (EFFS) program under which medicare 

14 beneficiaries are provided access to a range of en15 hanced fee-for-service (EFFS) plans that may use 

16 preferred provider networks to offer an enhanced 

17 range of benefits; 

18 (2) establishment of a Medicare Advantage pro19 gram that offers improved managed care plans with 

20 coordinated care; and 

21 (3) competitive bidding, in the style of the Fed22 eral Employees Health Benefits program (FEHBP), 

23 among enhanced fee-for-service plans and Medicare 

24 Advantage plans in order to promote greater effi25 ciency and responsiveness to medicare beneficiaries.
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1 Subtitle A—Medicare Enhanced 

2 Fee-for-Service Program 

3 SEC. 201. ESTABLISHMENT OF ENHANCED FEE-FOR-SERV4 ICE (EFFS) PROGRAM UNDER MEDICARE. 

5 (a) IN GENERAL.—Title XVIII, as amended by section 

6 101(a), is amended—

7 (1) by redesignating part E as part F; and 

8 (2) by inserting after part D the following new 

9 part:

10 ‘‘PART E—ENHANCED FEE-FOR-SERVICE PROGRAM

11 ‘‘OFFERING OF ENHANCED FEE-FOR-SERVICE PLANS

12 THROUGHOUT THE UNITED STATES

13 ‘‘SEC. 1860E–1. (a) ESTABLISHMENT OF PROGRAM.—

14 ‘‘(1) IN GENERAL.—The Administrator shall es15 tablish under this part beginning January 1, 2006, 

16 an enhanced fee-for-service program under which en17 hanced fee-for-service plans (as defined in subsection 

18 (b)) are offered to EFFS-eligible individuals (as so 

19 defined) in EFFS regions throughout the United 

20 States. 

21 ‘‘(2) EFFS REGIONS.—For purposes of this part 

22 the Administrator shall establish EFFS regions 

23 throughout the United States by dividing the entire 

24 United States into at least 10 such regions. Before es25 tablishing such regions, the Administrator shall con-
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1 duct a market survey and analysis, including an ex2 amination of current insurance markets, to determine 

3 how the regions should be established. The regions 

4 shall be established in a manner to take into consider5 ation maximizing full access for all EFFS-eligible in6 dividuals, especially those residing in rural areas. 

7 ‘‘(b) DEFINITIONS.—For purposes of this part: 

8 ‘‘(1) EFFS ORGANIZATION.—The ‘EFFS organi9 zation’ means an entity that the Administrator cer10 tifies as meeting the requirements and standards ap11 plicable to such organization under this part. 

12 ‘‘(2) ENHANCED FEE-FOR-SERVICE PLAN; EFFS

13 PLAN.—The terms ‘enhanced fee-for-service plan’ and 

14 ‘EFFS plan’ mean health benefits coverage offered 

15 under a policy, contract, or plan by an EFFS organi16 zation pursuant to and in accordance with a contract 

17 pursuant to section 1860E–4(c), but only if the plan 

18 provides either fee-for-service coverage described in the 

19 following subparagraph (A) or preferred provider cov20 erage described in the following subparagraph (B): 

21 ‘‘(A) FEE-FOR-SERVICE COVERAGE.—The 

22 plan—

23 ‘‘(i) reimburses hospitals, physicians, 

24 and other providers at a rate determined by 
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1 the plan on a fee-for-service basis without 

2 placing the provider at financial risk; 

3 ‘‘(ii) does not vary such rates for such 

4 a provider based on utilization relating to 

5 such provider; and 

6 ‘‘(iii) does not restrict the selection of 

7 providers among those who are lawfully au8 thorized to provide the covered services and 

9 agree to accept the terms and conditions of 

10 payment established by the plan. 

11 ‘‘(B) PREFERRED PROVIDER COVERAGE.—

12 The plan—

13 ‘‘(i) has a network of providers that 

14 have agreed to a contractually specified re15 imbursement for covered benefits with the 

16 organization offering the plan; and 

17 ‘‘(ii) provides for reimbursement for all 

18 covered benefits regardless of whether such 

19 benefits are provided within such network of 

20 providers. 

21 ‘‘(3) EFFS ELIGIBLE INDIVIDUAL.—The term 

22 ‘EFFS eligible individual’ means an eligible indi23 vidual described in section 1851(a)(3). 

24 ‘‘(4) EFFS REGION.—The term ‘EFFS region’ 

25 means a region established under subsection (a)(2). 
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1 ‘‘(c) APPLICATION OF CERTAIN ELIGIBILITY, ENROLL2 MENT, ETC. REQUIREMENTS.—The provisions of section 

3 1851 (other than subsection (h)(4)(A)) shall apply to EFFS 

4 plans offered by an EFFS organization in an EFFS region, 

5 including subsection (g) (relating to guaranteed issue and 

6 renewal). 

7 ‘‘OFFERING OF ENHANCED FEE-FOR-SERVICE (EFFS)PLANS

8 ‘‘SEC. 1860E–2. (a) PLAN REQUIREMENTS.—No 

9 EFFS plan may be offered under this part in an EFFS 

10 region unless the requirements of this part are met with 

11 respect to the plan and EFFS organization offering the 

12 plan. 

13 ‘‘(b) AVAILABLE TO ALL EFFS BENEFICIARIES IN THE

14 ENTIRE REGION.—With respect to an EFFS plan offered 

15 in an EFFS region—

16 ‘‘(1) IN GENERAL.—The plan must be offered to 

17 all EFFS-eligible individuals residing in the region. 

18 ‘‘(2) ASSURING ACCESS TO SERVICES.—The plan 

19 shall comply with the requirements of section 

20 1852(d)(4). 

21 ‘‘(c) BENEFITS.—

22 ‘‘(1) IN GENERAL.—Each EFFS plan shall pro23 vide to members enrolled in the plan under this part 

24 benefits, through providers and other persons that 

25 meet the applicable requirements of this title and part 

26 A of title XI—
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1 ‘‘(A) for the items and services described in 

2 section 1852(a)(1); 

3 ‘‘(B) that are uniform for the plan for all 

4 EFFS eligible individuals residing in the same 

5 EFFS region; 

6 ‘‘(C) that include a single deductible appli7 cable to benefits under parts A and B and in8 clude a catastrophic limit on out-of-pocket ex9 penditures for such covered benefits; and 

10 ‘‘(D) that include benefits for prescription 

11 drug coverage for each enrollee who elects under 

12 part D to be provided qualified prescription 

13 drug coverage through the plan.

14 ‘‘(2) DISAPPROVAL AUTHORITY.—The Adminis15 trator shall not approve a plan of an EFFS organi16 zation if the Administrator determines (pursuant to 

17 the last sentence of section 1852(b)(1)(A)) that the 

18 benefits are designed to substantially discourage en19 rollment by certain EFFS eligible individuals with 

20 the organization. 

21 ‘‘(d) OUTPATIENT PRESCRIPTION DRUG COVERAGE.—

22 For rules concerning the offering of prescription drug cov23 erage under EFFS plans, see the amendment made by sec24 tion 102(b) of the Medicare Prescription Drug and Mod25 ernization Act of 2003. 
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1 ‘‘(e) OTHER ADDITIONAL PROVISIONS.—The provi2 sions of section 1852 (other than subsection (a)(1)) shall 

3 apply under this part to EFFS plans. For the application 

4 of chronic care improvement provisions, see the amendment 

5 made by section 722(b). 

6 ‘‘SUBMISSION OF BIDS; BENEFICIARY SAVINGS; PAYMENT

7 OF PLANS

8 ‘‘SEC. 1860E–3. (a) SUBMISSION OF BIDS.—

9 ‘‘(1) REQUIREMENT.—

10 ‘‘(A) EFFS MONTHLY BID AMOUNT.—For 

11 each year (beginning with 2006), an EFFS orga12 nization shall submit to the Administrator an 

13 EFFS monthly bid amount for each EFFS plan 

14 offered in each region. Each such bid is referred 

15 to in this section as the ‘EFFS monthly bid 

16 amount’. 

17 ‘‘(B) FORM.—Such bid amounts shall be 

18 submitted for each such plan and region in a 

19 form and manner and time specified by the Ad20 ministrator, and shall include information de21 scribed in paragraph (3)(A).

22 ‘‘(2) UNIFORM BID AMOUNTS.—Each EFFS 

23 monthly bid amount submitted under paragraph (1) 

24 by an EFFS organization under this part for an 

25 EFFS plan in an EFFS region may not vary among 
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1 EFFS eligible individuals residing in the EFFS re2 gion involved. 

3 ‘‘(3) SUBMISSION OF BID AMOUNT INFORMATION

4 BY EFFS ORGANIZATIONS.—

5 ‘‘(A) INFORMATION TO BE SUBMITTED.—

6 The information described in this subparagraph 

7 is as follows: 

8 ‘‘(i) The EFFS monthly bid amount 

9 for provision of all items and services under 

10 this part, which amount shall be based on 

11 average costs for a typical beneficiary resid12 ing in the region, and the actuarial basis 

13 for determining such amount. 

14 ‘‘(ii) The proportions of such bid 

15 amount that are attributable to—

16 ‘‘(I) the provision of statutory 

17 non-drug benefits (such portion re18 ferred to in this part as the 

19 ‘unadjusted EFFS statutory non-drug 

20 monthly bid amount’); 

21 ‘‘(II) the provision of statutory 

22 prescription drug benefits; and 

23 ‘‘(III) the provision of non-statu24 tory benefits; 
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1 and the actuarial basis for determining 

2 such proportions. 

3 ‘‘(iii) Such additional information as 

4 the Administrator may require to verify the 

5 actuarial bases described in clauses (i) and 

6 (ii). 

7 ‘‘(B) STATUTORY BENEFITS DEFINED.—For 

8 purposes of this part: 

9 ‘‘(i) The term ‘statutory non-drug ben10 efits’ means benefits under section 

11 1852(a)(1). 

12 ‘‘(ii) The term ‘statutory prescription 

13 drug benefits’ means benefits under part D. 

14 ‘‘(iii) The term ‘statutory benefits’ 

15 means statutory prescription drug benefits 

16 and statutory non-drug benefits.

17 ‘‘(C) ACCEPTANCE AND NEGOTIATION OF

18 BID AMOUNTS.—The Administrator has the au19 thority to negotiate regarding monthly bid 

20 amounts submitted under subparagraph (A) 

21 (and the proportion described in subparagraph 

22 (A)(ii)), and for such purpose, the Administrator 

23 has negotiation authority that the Director of the 

24 Office of Personnel Management has with respect 

25 to health benefits plans under chapter 89 of title 
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1 5, United States Code. The Administrator may 

2 reject such a bid amount or proportion if the Ad3 ministrator determines that such amount or pro4 portion is not supported by the actuarial bases 

5 provided under subparagraph (A). 

6 ‘‘(D) CONTRACT AUTHORITY.—The Admin7 istrator may, taking into account the unadjusted 

8 EFFS statutory non-drug monthly bid amounts 

9 accepted under subparagraph (C), enter into con10 tracts for the offering of up to 3 EFFS plans in 

11 any region.

12 ‘‘(b) PROVISION OF BENEFICIARY SAVINGS FOR CER13 TAIN PLANS.—

14 ‘‘(1) BENEFICIARY REBATE RULE.—

15 ‘‘(A) REQUIREMENT.—The EFFS plan shall 

16 provide to the enrollee a monthly rebate equal to 

17 75 percent of the average per capita savings (if 

18 any) described in paragraph (2) applicable to 

19 the plan and year involved. 

20 ‘‘(B) FORM OF REBATE.—A rebate required 

21 under this paragraph shall be provided—

22 ‘‘(i) through the crediting of the 

23 amount of the rebate towards the EFFS 

24 monthly prescription drug beneficiary pre25 mium (as defined in section 1860E–
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1 4(a)(3)(B)) and the EFFS monthly supple2 mental beneficiary premium (as defined in 

3 section 1860E–4(a)(3)(C)); 

4 ‘‘(ii) through a direct monthly pay5 ment (through electronic funds transfer or 

6 otherwise); or 

7 ‘‘(iii) through other means approved by 

8 the Medicare Benefits Administrator, 

9 or any combination thereof. 

10 ‘‘(2) COMPUTATION OF AVERAGE PER CAPITA

11 MONTHLY SAVINGS.—For purposes of paragraph 

12 (1)(A), the average per capita monthly savings re13 ferred to in such paragraph for an EFFS plan and 

14 year is computed as follows: 

15 ‘‘(A) DETERMINATION OF REGION-WIDE AV16 ERAGE RISK ADJUSTMENT.—

17 ‘‘(i) IN GENERAL.—The Medicare Ben18 efits Administrator shall determine, at the 

19 same time rates are promulgated under sec20 tion 1853(b)(1) (beginning with 2006), for 

21 each EFFS region the average of the risk 

22 adjustment factors described in subsection 

23 (c)(3) to be applied to enrollees under this 

24 part in that region. In the case of an EFFS 

25 region in which an EFFS plan was offered 
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1 in the previous year, the Administrator 

2 may compute such average based upon risk 

3 adjustment factors applied under subsection 

4 (c)(3) in that region in a previous year. 

5 ‘‘(ii) TREATMENT OF NEW REGIONS.—

6 In the case of a region in which no EFFS 

7 plan was offered in the previous year, the 

8 Administrator shall estimate such average. 

9 In making such estimate, the Administrator 

10 may use average risk adjustment factors ap11 plied to comparable EFFS regions or ap12 plied on a national basis. 

13 ‘‘(B) DETERMINATION OF RISK ADJUSTED

14 BENCHMARK AND RISK-ADJUSTED BID.—For 

15 each EFFS plan offered in an EFFS region, the 

16 Administrator shall—

17 ‘‘(i) adjust the EFFS region-specific 

18 non-drug monthly benchmark amount (as 

19 defined in paragraph (3)) by the applicable 

20 average risk adjustment factor computed 

21 under subparagraph (A); and 

22 ‘‘(ii) adjust the unadjusted EFFS stat23 utory non-drug monthly bid amount by 

24 such applicable average risk adjustment fac25 tor. 
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1 ‘‘(C) DETERMINATION OF AVERAGE PER

2 CAPITA MONTHLY SAVINGS.—The average per 

3 capita monthly savings described in this sub4 paragraph is equal to the amount (if any) by 

5 which—

6 ‘‘(i) the risk-adjusted benchmark 

7 amount computed under subparagraph 

8 (B)(i), exceeds 

9 ‘‘(ii) the risk-adjusted bid computed 

10 under subparagraph (B)(ii). 

11 ‘‘(3) COMPUTATION OF EFFS REGION-SPECIFIC

12 NON-DRUG MONTHLY BENCHMARK AMOUNT.—For pur13 poses of this part, the term ‘EFFS region-specific 

14 non-drug monthly benchmark amount’ means, with 

15 respect to an EFFS region for a month in a year, an 

amount equal to 1 16 ⁄12 of the average (weighted by num17 ber of EFFS eligible individuals in each payment 

18 area described in section 1853(d)) of the annual capi19 tation rate as calculated under section 1853(c)(1) for 

20 that area. 

21 ‘‘(c) PAYMENT OF PLANS BASED ON BID AMOUNTS.—

22 ‘‘(1) NON-DRUG BENEFITS.—Under a contract 

23 under section 1860E–4(c) and subject to section 

24 1853(g) (as made applicable under subsection (d)), 

25 the Administrator shall make monthly payments 
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1 under this subsection in advance to each EFFS orga2 nization, with respect to coverage of an individual 

3 under this part in an EFFS region for a month, in 

4 an amount determined as follows: 

5 ‘‘(A) PLANS WITH BIDS BELOW BENCH6 MARK.—In the case of a plan for which there are 

7 average per capita monthly savings described in 

8 subsection (b)(2)(C), the payment under this sub9 section is equal to the unadjusted EFFS statu10 tory non-drug monthly bid amount, adjusted 

11 under paragraphs (3) and (4), plus the amount 

12 of the monthly rebate computed under subsection 

13 (b)(1)(A) for that plan and year. 

14 ‘‘(B) PLANS WITH BIDS AT OR ABOVE

15 BENCHMARK.—In the case of a plan for which 

16 there are no average per capita monthly savings 

17 described in subsection (b)(2)(C), the payment 

18 amount under this subsection is equal to the 

19 EFFS region-specific non-drug monthly bench20 mark amount, adjusted under paragraphs (3) 

21 and (4). 

22 ‘‘(2) FOR FEDERAL DRUG SUBSIDIES.—In the 

23 case in which an enrollee who elects under part D to 

24 be provided qualified prescription drug coverage 
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1 through the plan, the EFFS organization offering 

2 such plan also is entitled—

3 ‘‘(A) to direct subsidy payment under sec4 tion 1860D–8(a)(1); 

5 ‘‘(B) to reinsurance subsidy payments 

6 under section 1860D–8(a)(2); and 

7 ‘‘(C) to reimbursement for premium and 

8 cost-sharing reductions for low-income individ9 uals under section 1860D–7(c)(3). 

10 ‘‘(3) DEMOGRAPHIC RISK ADJUSTMENT, INCLUD11 ING ADJUSTMENT FOR HEALTH STATUS.—The Admin12 istrator shall adjust under paragraph (1)(A) the 

13 unadjusted EFFS statutory non-drug monthly bid 

14 amount and under paragraph (1)(B) the EFFS re15 gion-specific non-drug monthly benchmark amount 

16 for such risk factors as age, disability status, gender, 

17 institutional status, and such other factors as the Ad18 ministrator determines to be appropriate, including 

19 adjustment for health status under section 1853(a)(3) 

20 (as applied under subsection (d)), so as to ensure ac21 tuarial equivalence. The Administrator may add to, 

22 modify, or substitute for such adjustment factors if 

23 such changes will improve the determination of actu24 arial equivalence. 
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1 ‘‘(4) ADJUSTMENT FOR INTRA-REGIONAL GEO2 GRAPHIC VARIATIONS.—The Administrator shall also 

3 adjust such amounts in a manner to take into ac4 count variations in payments rates under part C 

5 among the different payment areas under such part 

6 included in each EFFS region. 

7 ‘‘(d) APPLICATION OF ADDITIONAL PAYMENT

8 RULES.—The provisions of section 1853 (other than sub9 sections (a)(1)(A), (d), and (e)) shall apply to an EFFS 

10 plan under this part, except as otherwise provided in this 

11 section. 

12 ‘‘PREMIUMS; ORGANIZATIONAL AND FINANCIAL REQUIRE13 MENTS; ESTABLISHMENT OF STANDARDS; CONTRACTS

14 WITH EFFS ORGANIZATIONS

15 ‘‘SEC. 1860E–4. (a) PREMIUMS.—

16 ‘‘(1) IN GENERAL.—The provisions of section 

17 1854 (other than subsections (a)(6)(C) and (h)), in18 cluding subsection (b)(5) relating to the consolidation 

19 of drug and non-drug beneficiary premiums and sub20 section (c) relating to uniform bids and premiums, 

21 shall apply to an EFFS plan under this part, subject 

22 to paragraph (2). 

23 ‘‘(2) CROSS-WALK.—In applying paragraph (1), 

24 any reference in section 1854(b)(1)(A) or 1854(d) 

25 to—
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1 ‘‘(A) a Medicare Advantage monthly basic 

2 beneficiary premium is deemed a reference to the 

3 EFFS monthly basic beneficiary premium (as 

4 defined in paragraph (3)(A)); 

5 ‘‘(B) a Medicare Advantage monthly pre6 scription drug beneficiary premium is deemed a 

7 reference to the EFFS monthly prescription drug 

8 beneficiary premium (as defined in paragraph 

9 (3)(B)); and 

10 ‘‘(C) a Medicare Advantage monthly supple11 mental beneficiary premium is deemed a ref12 erence to the EFFS monthly supplemental bene13 ficiary premium (as defined in paragraph 

14 (3)(C)). 

15 ‘‘(3) DEFINITIONS.—For purposes of this part: 

16 ‘‘(A) EFFS MONTHLY BASIC BENEFICIARY

17 PREMIUM.—The term ‘EFFS monthly basic ben18 eficiary premium’ means, with respect to an 

19 EFFS plan—

20 ‘‘(i) described in section 1860E–

21 3(c)(1)(A) (relating to plans providing re22 bates), zero; or 

23 ‘‘(ii) described in section 1860E–

24 3(c)(1)(B), the amount (if any) by which 

25 the unadjusted EFFS statutory non-drug 
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1 monthly bid amount exceeds the EFFS re2 gion-specific non-drug monthly benchmark 

3 amount (as defined in section 1860E–

4 3(b)(3)). 

5 ‘‘(B) EFFS MONTHLY PRESCRIPTION DRUG

6 BENEFICIARY PREMIUM.—The term ‘EFFS 

7 monthly prescription drug beneficiary premium’ 

8 means, with respect to an EFFS plan, the por9 tion of the aggregate monthly bid amount sub10 mitted under clause (i) of section 1860E–

11 3(a)(3)(A) for the year that is attributable under 

12 such section to the provision of statutory pre13 scription drug benefits. 

14 ‘‘(C) EFFS MONTHLY SUPPLEMENTAL BEN15 EFICIARY PREMIUM.—The term ‘EFFS monthly 

16 supplemental beneficiary premium’ means, with 

17 respect to an EFFS plan, the portion of the ag18 gregate monthly bid amount submitted under 

19 clause (i) of section 1860E–3(a)(3)(A) for the 

20 year that is attributable under such section to 

21 the provision of nonstatutory benefits.

22 ‘‘(b) ORGANIZATIONAL AND FINANCIAL REQUIRE23 MENTS.—The provisions of section 1855 shall apply to an 

24 EFFS plan offered by an EFFS organization under this 

25 part. 
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1 ‘‘(c) CONTRACTS WITH EFFS ORGANIZATIONS.—The 

2 provisions of section 1857 shall apply to an EFFS plan 

3 offered by an EFFS organization under this part, except 

4 that any reference in such section to part C is deemed a 

5 reference to this part.’’. 

6 (b) PROHIBITION ON COVERAGE UNDER MEDIGAP

7 PLANS OF DEDUCTIBLE IMPOSED UNDER EFFS PLANS.—

8 Section 1882 (42 U.S.C. 1395ss), as amended by section 

9 104(a), is amended by adding at the end the following new 

10 subsection: 

11 ‘‘(w) PROHIBITION ON COVERAGE OF DEDUCTIBLE

12 AND CERTAIN COST-SHARING IMPOSED UNDER EFFS 

13 PLANS.—Notwithstanding any other provision of law, no 

14 medicare supplemental policy (other than the 2 benefit 

15 packages described in subsection (v)(3)) may provide for 

16 coverage of the single deductible or more than 50 percent 

17 of other cost-sharing imposed under an EFFS plan under 

18 part E.’’. 

19 (c) CONFORMING PROVISIONS.—Section 1882 of the 

20 Social Security Act (42 U.S.C. 1395ss) shall be adminis21 tered as if any reference to a Medicare+Choice organization 

22 offering a Medicare+Choice plan under part C of title 

23 XVIII of such Act were a reference both to a Medicare Ad24 vantage organization offering a Medicare Advantage plan 
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1 under such part and an EFFS organization offering an 

2 EFFS plan under part E of such title. 

3 Subtitle B—Medicare Advantage 

4 Program 

5 CHAPTER 1—IMPLEMENTATION OF 

6 PROGRAM 

7 SEC. 211. IMPLEMENTATION OF MEDICARE ADVANTAGE 

8 PROGRAM. 

9 (a) IN GENERAL.—There is hereby established the 

10 Medicare Advantage program. The Medicare Advantage 

11 program shall consist of the program under part C of title 

12 XVIII of the Social Security Act, as amended by this title. 

13 (b) REFERENCES.—Any reference to the program 

14 under part C of title XVIII of the Social Security Act shall 

15 be deemed a reference to the Medicare Advantage program 

16 and, with respect to such part, any reference to 

17 ‘‘Medicare+Choice’’ is deemed a reference to ‘‘Medicare Ad18 vantage’’. 

19 SEC. 212. MEDICARE ADVANTAGE IMPROVEMENTS. 

20 (a) EQUALIZING PAYMENTS WITH FEE-FOR-SERV21 ICE.—

22 (1) IN GENERAL.—Section 1853(c)(1) (42 U.S.C. 

23 1395w–23(c)(1)) is amended by adding at the end the 

24 following: 
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1 ‘‘(D) BASED ON 100 PERCENT OF FEE-FOR2 SERVICE COSTS.—

3 ‘‘(i) IN GENERAL.—For 2004, the ad4 justed average per capita cost for the year 

5 involved, determined under section 

6 1876(a)(4) for the Medicare Advantage pay7 ment area for services covered under parts 

8 A and B for individuals entitled to benefits 

9 under part A and enrolled under part B 

10 who are not enrolled in a Medicare Advan11 tage under this part for the year, but ad12 justed to exclude costs attributable to pay13 ments under section 1886(h). 

14 ‘‘(ii) INCLUSION OF COSTS OF VA AND

15 DOD MILITARY FACILITY SERVICES TO MEDI16 CARE-ELIGIBLE BENEFICIARIES.—In deter17 mining the adjusted average per capita cost 

18 under clause (i) for a year, such cost shall 

19 be adjusted to include the Secretary’s esti20 mate, on a per capita basis, of the amount 

21 of additional payments that would have 

22 been made in the area involved under this 

23 title if individuals entitled to benefits under 

24 this title had not received services from fa-
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1 cilities of the Department of Veterans Af2 fairs or the Department of Defense.’’.

3 (2) CONFORMING AMENDMENT.—Such section is 

4 further amended, in the matter before subparagraph 

5 (A), by striking ‘‘or (C)’’ and inserting ‘‘(C), or (D)’’. 

6 (b) CHANGE IN BUDGET NEUTRALITY FOR BLEND.—

7 Section 1853(c) (42 U.S.C. 1395w–23(c)) is amended—

8 (1) in paragraph (1)(A), by inserting ‘‘(for a 

9 year other than 2004)’’ after ‘‘multiplied’’; and 

10 (2) in paragraph (5), by inserting ‘‘(other than 

11 2004)’’ after ‘‘for each year’’.

12 (c) INCREASING MINIMUM PERCENTAGE INCREASE TO

13 NATIONAL GROWTH RATE.—

14 (1) IN GENERAL.—Section 1853(c)(1) (42 U.S.C. 

15 1395w–23(c)(1)) is amended—

16 (A) in subparagraph (B)(iv), by striking 

17 ‘‘and each succeeding year’’ and inserting ‘‘, 

18 2003, and 2004’’; 

19 (B) in subparagraph (C)(iv), by striking 

20 ‘‘and each succeeding year’’ and inserting ‘‘and 

21 2003’’; and 

22 (C) by adding at the end of subparagraph 

23 (C) the following new clause: 

24 ‘‘(v) For 2004 and each succeeding 

25 year, the greater of—
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1 ‘‘(I) 102 percent of the annual 

2 Medicare Advantage capitation rate 

3 under this paragraph for the area for 

4 the previous year; or 

5 ‘‘(II) the annual Medicare Advan6 tage capitation rate under this para7 graph for the area for the previous 

8 year increased by the national per cap9 ita Medicare Advantage growth per10 centage, described in paragraph (6) for 

11 that succeeding year, but not taking 

12 into account any adjustment under 

13 paragraph (6)(C) for a year before 

14 2004.’’. 

15 (2) CONFORMING AMENDMENT.—Section 

16 1853(c)(6)(C) (42 U.S.C. 1395w–23(c)(6)(C)) is 

17 amended by inserting before the period at the end the 

18 following: ‘‘, except that for purposes of paragraph 

19 (1)(C)(v)(II), no such adjustment shall be made for a 

20 year before 2004’’.

21 (d) INCLUSION OF COSTS OF DOD AND VA MILITARY

22 FACILITY SERVICES TO MEDICARE-ELIGIBLE BENE23 FICIARIES IN CALCULATION OF MEDICARE+CHOICE PAY24 MENT RATES.—Section 1853(c)(3) (42 U.S.C. 1395w–

25 23(c)(3)) is amended—
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1 (1) in subparagraph (A), by striking ‘‘subpara2 graph (B)’’ and inserting ‘‘subparagraphs (B) and 

3 (E)’’, and 

4 (2) by adding at the end the following new sub5 paragraph: 

6 ‘‘(E) INCLUSION OF COSTS OF DOD AND VA

7 MILITARY FACILITY SERVICES TO MEDICARE-ELI8 GIBLE BENEFICIARIES.—In determining the 

9 area-specific Medicare+Choice capitation rate 

10 under subparagraph (A) for a year (beginning 

11 with 2004), the annual per capita rate of pay12 ment for 1997 determined under section 

13 1876(a)(1)(C) shall be adjusted to include in the 

14 rate the Secretary’s estimate, on a per capita 

15 basis, of the amount of additional payments that 

16 would have been made in the area involved 

17 under this title if individuals entitled to benefits 

18 under this title had not received services from fa19 cilities of the Department of Defense or the De20 partment of Veterans Affairs.’’. 

21 (e) EXTENDING SPECIAL RULE FOR CERTAIN INPA22 TIENT HOSPITAL STAYS TO REHABILITATION HOS23 PITALS.—

24 (1) IN GENERAL.—Section 1853(g) (42 U.S.C. 

25 1395w–23(g)) is amended—
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1 (A) by inserting ‘‘or from a rehabilitation 

2 facility (as defined in section 1886(j)(1)(A))’’ 

3 after ‘‘1886(d)(1)(B))’’; and 

4 (B) in paragraph (2)(B), by inserting ‘‘or 

5 section 1886(j), as the case may be,’’ after 

6 ‘‘1886(d)’’. 

7 (2) EFFECTIVE DATE.—The amendments made 

8 by paragraph (1) shall apply to contract years begin9 ning on or after January 1, 2004. 

10 (f) APPLICATION OF PRIVACY REGULATIONS.—Section 

11 1852(h) (42 U.S.C. 1395w–22(h)) is amended by adding 

12 after and below paragraph (3) the following: 

13 ‘‘A Medicare Advantage organization shall be treated as a 

14 covered entity for purposes of the provisions of subpart E 

15 of part 164 of title 45, Code of Federal Regulations, adopted 

16 pursuant to the authority of the Secretary under section 

17 264(c) of the Health Insurance Portability and Account18 ability Act of 1996 (42 U.S. C. 1320d-2 note).’’. 

19 (g) MEDPAC STUDY OF AAPCC.—

20 (1) STUDY.—The Medicare Payment Advisory 

21 Commission shall conduct a study that assesses the 

22 method used for determining the adjusted average per 

23 capita cost (AAPCC) under section 1876(a)(4) of the 

24 Social Security Act (42 U.S.C. 1395mm(a)(4)) as ap25 plied under section 1853(c)(1)(A) of such Act (as 
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1 amended by subsection (a)). Such study shall include 

2 an examination of—

3 (A) the bases for variation in such costs be4 tween different areas, including differences in 

5 input prices, utilization, and practice patterns; 

6 (B) the appropriate geographic area for 

7 payment under the Medicare Advantage program 

8 under part C of title XVIII of such Act; and 

9 (C) the accuracy of risk adjustment methods 

10 in reflecting differences in costs of providing care 

11 to different groups of beneficiaries served under 

12 such program. 

13 (2) REPORT.—Not later than 18 months after the 

14 date of the enactment of this Act, the Commission 

15 shall submit to Congress a report on the study con16 ducted under paragraph (1). 

17 (h) REPORT ON IMPACT OF INCREASED FINANCIAL AS18 SISTANCE TO MEDICARE ADVANTAGE PLANS.—Not later 

19 than July 1, 2006, the Medicare Benefits Administrator 

20 shall submit to Congress a report that describes the impact 

21 of additional financing provided under this Act and other 

22 Acts (including the Medicare, Medicaid, and SCHIP Bal23 anced Budget Refinement Act of 1999 and BIPA) on the 

24 availability of Medicare Advantage plans in different areas 
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1 and its impact on lowering premiums and increasing bene2 fits under such plans. 

3 CHAPTER 2—IMPLEMENTATION OF 

4 COMPETITION PROGRAM

5 SEC. 221. COMPETITION PROGRAM BEGINNING IN 2006. 

6 (a) SUBMISSION OF EFFS-LIKE BIDDING INFORMA7 TION BEGINNING IN 2006.—Section 1854 (42 U.S.C. 

8 1395w–24) is amended—

9 (1) by amending the section heading to read as 

10 follows: 

11 ‘‘PREMIUMS AND BID AMOUNT’’; 

12 (2) in subsection (a)(1)(A)—

13 (A) by striking ‘‘(A)’’ and inserting ‘‘(A)(i) 

14 if the following year is before 2006,’’; and 

15 (B) by inserting before the semicolon at the 

16 end the following: ‘‘or (ii) if the following year 

17 is 2006 or later, the information described in 

18 paragraph (3) or (6)(A) for the type of plan in19 volved’’; and 

20 (3) by adding at the end of subsection (a) the fol21 lowing: 

22 ‘‘(6) SUBMISSION OF BID AMOUNTS BY MEDICARE

23 ADVANTAGE ORGANIZATIONS.—

24 ‘‘(A) INFORMATION TO BE SUBMITTED.—

25 The information described in this subparagraph 

26 is as follows: 
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1 ‘‘(i) The monthly aggregate bid 

2 amount for provision of all items and serv3 ices under this part, which amount shall be 

4 based on average costs for a typical bene5 ficiary residing in the area, and the actu6 arial basis for determining such amount. 

7 ‘‘(ii) The proportions of such bid 

8 amount that are attributable to—

9 ‘‘(I) the provision of statutory 

10 non-drug benefits (such portion re11 ferred to in this part as the 

12 ‘unadjusted Medicare Advantage statu13 tory non-drug monthly bid amount’); 

14 ‘‘(II) the provision of statutory 

15 prescription drug benefits; and 

16 ‘‘(III) the provision of non-statu17 tory benefits; 

18 and the actuarial basis for determining 

19 such proportions. 

20 ‘‘(iii) Such additional information as 

21 the Administrator may require to verify the 

22 actuarial bases described in clauses (i) and 

23 (ii). 

24 ‘‘(B) STATUTORY BENEFITS DEFINED.—For 

25 purposes of this part: 
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1 ‘‘(i) The term ‘statutory non-drug ben2 efits’ means benefits under section 

3 1852(a)(1). 

4 ‘‘(ii) The term ‘statutory prescription 

5 drug benefits’ means benefits under part D. 

6 ‘‘(iii) The term ‘statutory benefits’ 

7 means statutory prescription drug benefits 

8 and statutory non-drug benefits.

9 ‘‘(C) ACCEPTANCE AND NEGOTIATION OF

10 BID AMOUNTS.—

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

12 (ii)—

13 ‘‘(I) the Administrator has the au14 thority to negotiate regarding monthly 

15 bid amounts submitted under subpara16 graph (A) (and the proportion de17 scribed in subparagraph (A)(ii)), and 

18 for such purpose and subject to such 

19 clause, the Administrator has negotia20 tion authority that the Director of the 

21 Office of Personnel Management has 

22 with respect to health benefits plans 

23 under chapter 89 of title 5, United 

24 States Code; and 
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1 ‘‘(II) the Administrator may re2 ject such a bid amount or proportion if 

3 the Administrator determines that such 

4 amount or proportion is not supported 

5 by the actuarial bases provided under 

6 subparagraph (A). 

7 ‘‘(ii) EXCEPTION.—In the case of a 

8 plan described in section 1851(a)(2)(C), the 

9 provisions of clause (i) shall not apply and 

10 the provisions of paragraph (5)(B), prohib11 iting the review, approval, or disapproval of 

12 amounts described in such paragraph, shall 

13 apply to the negotiation and rejection of the 

14 monthly bid amounts and proportion re15 ferred to in subparagraph (A).’’. 

16 (b) PROVIDING FOR BENEFICIARY SAVINGS FOR CER17 TAIN PLANS.—

18 (1) IN GENERAL.—Section 1854(b) (42 U.S.C. 

19 1395w–24(b)) is amended—

20 (A) by adding at the end of paragraph (1) 

21 the following new subparagraph: 

22 ‘‘(C) BENEFICIARY REBATE RULE.—

23 ‘‘(i) REQUIREMENT.—The Medicare 

24 Advantage plan shall provide to the enrollee 

25 a monthly rebate equal to 75 percent of the 
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1 average per capita savings (if any) de2 scribed in paragraph (3) applicable to the 

3 plan and year involved. 

4 ‘‘(iii) FORM OF REBATE.—A rebate re5 quired under this subparagraph shall be 

6 provided—

7 ‘‘(I) through the crediting of the 

8 amount of the rebate towards the Medi9 care Advantage monthly supple10 mentary beneficiary premium or the 

11 premium imposed for prescription 

12 drug coverage under part D; 

13 ‘‘(II) through a direct monthly 

14 payment (through electronic funds 

15 transfer or otherwise); or 

16 ‘‘(III) through other means ap17 proved by the Medicare Benefits Ad18 ministrator, 

19 or any combination thereof.’’; and 

20 (B) by adding at the end the following new 

21 paragraphs: 

22 ‘‘(3) COMPUTATION OF AVERAGE PER CAPITA

23 MONTHLY SAVINGS.—For purposes of paragraph 

24 (1)(C)(i), the average per capita monthly savings re-
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1 ferred to in such paragraph for a Medicare Advantage 

2 plan and year is computed as follows: 

3 ‘‘(A) DETERMINATION OF STATE-WIDE AV4 ERAGE RISK ADJUSTMENT.—

5 ‘‘(i) IN GENERAL.—The Medicare Ben6 efits Administrator shall determine, at the 

7 same time rates are promulgated under sec8 tion 1853(b)(1) (beginning with 2006), for 

9 each State the average of the risk adjust10 ment factors to be applied under section 

11 1853(a)(1)(A) to payment for enrollees in 

12 that State. In the case of a State in which 

13 a Medicare Advantage plan was offered in 

14 the previous year, the Administrator may 

15 compute such average based upon risk ad16 justment factors applied in that State in a 

17 previous year. 

18 ‘‘(ii) TREATMENT OF NEW STATES.—In 

19 the case of a State in which no Medicare 

20 Advantage plan was offered in the previous 

21 year, the Administrator shall estimate such 

22 average. In making such estimate, the Ad23 ministrator may use average risk adjust24 ment factors applied to comparable States 

25 or applied on a national basis. 
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1 ‘‘(B) DETERMINATION OF RISK ADJUSTED

2 BENCHMARK AND RISK-ADJUSTED BID.—For 

3 each Medicare Advantage plan offered in a State, 

4 the Administrator shall—

5 ‘‘(i) adjust the Medicare Advantage 

6 area-specific non-drug monthly benchmark 

7 amount (as defined in subsection (j)) by the 

8 applicable average risk adjustment factor 

9 computed under subparagraph (A); and 

10 ‘‘(ii) adjust the unadjusted Medicare 

11 Advantage statutory non-drug monthly bid 

12 amount by such applicable average risk ad13 justment factor. 

14 ‘‘(C) DETERMINATION OF AVERAGE PER

15 CAPITA MONTHLY SAVINGS.—The average per 

16 capita monthly savings described in this sub17 paragraph is equal to the amount (if any) by 

18 which—

19 ‘‘(i) the risk-adjusted benchmark 

20 amount computed under subparagraph 

21 (B)(i), exceeds 

22 ‘‘(ii) the risk-adjusted bid computed 

23 under subparagraph (B)(ii). 

24 ‘‘(D) AUTHORITY TO DETERMINE RISK AD25 JUSTMENT FOR AREAS OTHER THAN STATES.—
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1 The Administrator may provide for the deter2 mination and application of risk adjustment fac3 tors under this paragraph on the basis of areas 

4 other than States. 

5 ‘‘(4) BENEFICIARY’S OPTION OF PAYMENT

6 THROUGH WITHHOLDING FROM SOCIAL SECURITY

7 PAYMENT OR USE OF ELECTRONIC FUNDS TRANSFER

8 MECHANISM.—In accordance with regulations, a 

9 Medicare Advantage organization shall permit each 

10 enrollee, at the enrollee’s option, to make payment of 

11 premiums under this part to the organization indi12 rectly through withholding from benefit payments in 

13 the manner provided under section 1840 with respect 

14 to monthly premiums under section 1839 or through 

15 an electronic funds transfer mechanism (such as auto16 matic charges of an account at a financial institution 

17 or a credit or debit card account) or otherwise. All 

18 premium payments that are withheld under this 

19 paragraph that are credited to the Federal Supple20 mentary Medical Insurance Drug Trust Fund shall be 

21 paid to the Medicare Advantage organization in22 volved.’’. 

23 (2) PROVISION OF SINGLE CONSOLIDATED PRE24 MIUM.—Section 1854(b) (42 U.S.C. 1395w–24(b)), as 
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1 amended by paragraph (1), is further amended by 

2 adding at the end the following new paragraph: 

3 ‘‘(5) SINGLE CONSOLIDATED PREMIUM.—In the 

4 case of an enrollee in a Medicare Advantage plan who 

5 elects under part D to be provided qualified prescrip6 tion drug coverage through the plan, the Adminis7 trator shall provide a mechanism for the consolida8 tion of the beneficiary premium amount for non-drug 

9 benefits under this part with the premium amount for 

10 prescription drug coverage under part D provided 

11 through the plan.’’. 

12 (3) COMPUTATION OF MEDICARE ADVANTAGE

13 AREA-SPECIFIC NON-DRUG BENCHMARK.—Section 

14 1853 (42 U.S.C. 1395w–23) is amended by adding at 

15 the end the following new subsection: 

16 ‘‘(j) COMPUTATION OF MEDICARE ADVANTAGE AREA17 SPECIFIC NON-DRUG MONTHLY BENCHMARK AMOUNT.—

18 For purposes of this part, the term ‘Medicare Advantage 

19 area-specific non-drug monthly benchmark amount’ means, 

20 with respect to a Medicare Advantage payment area for a 

month in a year, an amount equal to 1 21 ⁄12 of the annual 

22 Medicare Advantage capitation rate under section 

23 1853(c)(1) for the area for the year.’’. 

24 (c) PAYMENT OF PLANS BASED ON BID AMOUNTS.—
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1 (1) IN GENERAL.—Section 1853(a)(1)(A) (42 

2 U.S.C. 1395w–23) is amended by striking ‘‘in an 

3 amount’’ and all that follows and inserting the fol4 lowing: ‘‘in an amount determined as follows: 

5 ‘‘(i) PAYMENT BEFORE 2006.—For 

6 years before 2006, the payment amount 

shall be equal to 1 7 ⁄12 of the annual Medicare 

8 Advantage capitation rate (as calculated 

9 under subsection (c)(1)) with respect to that 

10 individual for that area, reduced by the 

11 amount of any reduction elected under sec12 tion 1854(f )(1)(E) and adjusted under 

13 clause (iv). 

14 ‘‘(ii) PAYMENT FOR STATUTORY NON15 DRUG BENEFITS BEGINNING WITH 2006.—

16 For years beginning with 2006—

17 ‘‘(I) PLANS WITH BIDS BELOW

18 BENCHMARK.—In the case of a plan 

19 for which there are average per capita 

20 monthly savings described in section 

21 1854(b)(3)(C), the payment under this 

22 subsection is equal to the unadjusted 

23 Medicare Advantage statutory non24 drug monthly bid amount, adjusted 

25 under clause (iv), plus the amount of 
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1 the monthly rebate computed under 

2 section 1854(b)(1)(C)(i) for that plan 

3 and year. 

4 ‘‘(II) PLANS WITH BIDS AT OR

5 ABOVE BENCHMARK.—In the case of a 

6 plan for which there are no average 

7 per capita monthly savings described 

8 in section 1854(b)(3)(C), the payment 

9 amount under this subsection is equal 

10 to the Medicare Advantage area-spe11 cific non-drug monthly benchmark 

12 amount, adjusted under clause (iv). 

13 ‘‘(iii) FOR FEDERAL DRUG SUB14 SIDIES.—In the case in which an enrollee 

15 who elects under part D to be provided 

16 qualified prescription drug coverage through 

17 the plan, the Medicare Advantage organiza18 tion offering such plan also is entitled—

19 ‘‘(I) to direct subsidy payment 

20 under section 1860D–8(a)(1); 

21 ‘‘(II) to reinsurance subsidy pay22 ments under section 1860D–8(a)(2); 

23 and 

24 ‘‘(III) to reimbursement for pre25 mium and cost-sharing reductions for 
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1 low-income individuals under section 

2 1860D–7(c)(3). 

3 ‘‘(iv) DEMOGRAPHIC ADJUSTMENT, IN4 CLUDING ADJUSTMENT FOR HEALTH STA5 TUS.—The Administrator shall adjust the 

6 payment amount under clause (i), the 

7 unadjusted Medicare Advantage statutory 

8 non-drug monthly bid amount under clause 

9 (ii)(I), and the Medicare Advantage area10 specific non-drug monthly benchmark 

11 amount under clause (ii)(II) for such risk 

12 factors as age, disability status, gender, in13 stitutional status, and such other factors as 

14 the Administrator determines to be appro15 priate, including adjustment for health sta16 tus under paragraph (3), so as to ensure ac17 tuarial equivalence. The Administrator may 

18 add to, modify, or substitute for such ad19 justment factors if such changes will im20 prove the determination of actuarial equiva21 lence.’’. 

22 (d) CONFORMING AMENDMENTS.—

23 (1) PROTECTION AGAINST BENEFICIARY SELEC24 TION.—Section 1852(b)(1)(A) (42 U.S.C. 1395w–

25 22(b)(1)(A)) is amended by adding at the end the fol-
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1 lowing: ‘‘The Administrator shall not approve a plan 

2 of an organization if the Administrator determines 

3 that the benefits are designed to substantially discour4 age enrollment by certain Medicare Advantage eligible 

5 individuals with the organization.’’. 

6 (2) CONFORMING AMENDMENT TO PREMIUM TER7 MINOLOGY.—Section 1854(b)(2) (42 U.S.C. 1395w–

8 24(b)(2)) is amended by redesignating subparagraph 

9 (C) as subparagraph (D) and by striking subpara10 graphs (A) and (B) and inserting the following: 

11 ‘‘(A) MEDICARE ADVANTAGE MONTHLY

12 BASIC BENEFICIARY PREMIUM.—The term ‘Medi13 care Advantage monthly basic beneficiary pre14 mium’ means, with respect to a Medicare Advan15 tage plan—

16 ‘‘(i) described in section 

17 1853(a)(1)(A)(ii)(I) (relating to plans pro18 viding rebates), zero; or 

19 ‘‘(ii) described in section 

20 1853(a)(1)(A)(ii)(II), the amount (if any) 

21 by which the unadjusted Medicare Advan22 tage statutory non-drug monthly bid 

23 amount exceeds the Medicare Advantage 

24 area-specific non-drug monthly benchmark 

25 amount; 
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1 except that, in the case of a Medicare Advantage 

2 private fee-for-service plan, such term means 

3 such premium as the plan files with the Admin4 istrator under this section. 

5 ‘‘(B) MEDICARE ADVANTAGE MONTHLY PRE6 SCRIPTION DRUG BENEFICIARY PREMIUM.—The 

7 term ‘Medicare Advantage monthly prescription 

8 drug beneficiary premium’ means, with respect 

9 to a Medicare Advantage plan, that portion of 

10 the bid amount submitted under clause (i) of 

11 subsection (a)(6)(A) for the year that is attrib12 utable under such section to the provision of stat13 utory prescription drug benefits. 

14 ‘‘(C) MEDICARE ADVANTAGE MONTHLY SUP15 PLEMENTAL BENEFICIARY PREMIUM.—The term 

16 ‘Medicare Advantage monthly supplemental ben17 eficiary premium’ means, with respect to a 

18 Medicare Advantage plan, the portion of the ag19 gregate monthly bid amount submitted under 

20 clause (i) of subsection (a)(6)(A) for the year 

21 that is attributable under such section to the pro22 vision of nonstatutory benefits.’’. 

23 (3) REQUIREMENT FOR UNIFORM PREMIUM AND

24 BID AMOUNTS.—Section 1854(c) (42 U.S.C. 1395w–

25 24(c)) is amended to read as follows: 
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1 ‘‘(c) UNIFORM PREMIUM AND BID AMOUNTS.—The 

2 Medicare Advantage monthly bid amount submitted under 

3 subsection (a)(6), the Medicare Advantage monthly basic, 

4 prescription drug, and supplemental beneficiary premiums, 

5 and the Medicare Advantage monthly MSA premium 

6 charged under subsection (b) of a Medicare Advantage orga7 nization under this part may not vary among individuals 

8 enrolled in the plan.’’. 

9 (4) PERMITTING BENEFICIARY REBATES.—

10 (A) Section 1851(h)(4)(A) (42 U.S.C. 

11 1395w–21(h)(4)(A)) is amended by inserting 

12 ‘‘except as provided under section 1854(b)(1)(C)’’ 

13 after ‘‘or otherwise’’. 

14 (B) Section 1854(d) (42 U.S.C. 1395w–

15 24(d)) is amended by inserting ‘‘, except as pro16 vided under subsection (b)(1)(C),’’ after ‘‘and 

17 may not provide’’. 

18 (5) OTHER CONFORMING AMENDMENTS RELATING

19 TO BIDS.—Section 1854 (42 U.S.C. 1395w–24) is 

20 amended—

21 (A) in the heading of subsection (a), by in22 serting ‘‘AND BID AMOUNTS’’ after ‘‘PREMIUMS’’; 

23 and 
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1 (B) in subsection (a)(5)(A), by inserting 

2 ‘‘paragraphs (2), (3), and (4) of’’ after ‘‘filed 

3 under’’. 

4 (e) ADDITIONAL CONFORMING AMENDMENTS.—

5 (1) ANNUAL DETERMINATION AND ANNOUNCE6 MENT OF CERTAIN FACTORS.—Section 1853(b)(1) (42 

7 U.S.C. 1395w–23(b)(1)) is amended by striking ‘‘the 

8 respective calendar year’’ and all that follows and in9 serting the following: ‘‘the calendar year concerned 

10 with respect to each Medicare Advantage payment 

11 area, the following: 

12 ‘‘(A) PRE-COMPETITION INFORMATION.—

13 For years before 2006, the following: 

14 ‘‘(i) MEDICARE ADVANTAGE CAPITA15 TION RATES.—The annual Medicare Advan16 tage capitation rate for each Medicare Ad17 vantage payment area for the year. 

18 ‘‘(ii) ADJUSTMENT FACTORS.—The risk 

19 and other factors to be used in adjusting 

20 such rates under subsection (a)(1)(A) for 

21 payments for months in that year. 

22 ‘‘(B) COMPETITION INFORMATION.—For 

23 years beginning with 2006, the following: 
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1 ‘‘(i) BENCHMARK.—The Medicare Ad2 vantage area-specific non-drug benchmark 

3 under section 1853(j). 

4 ‘‘(ii) ADJUSTMENT FACTORS.—The ad5 justment factors applied under section 

6 1853(a)(1)(A)(iv) (relating to demographic 

7 adjustment), section 1853(a)(1)(B) (relating 

8 to adjustment for end-stage renal disease), 

9 and section 1853(a)(3) (relating to health 

10 status adjustment).’’. 

11 (2) REPEAL OF PROVISIONS RELATING TO AD12 JUSTED COMMUNITY RATE (ACR).—

13 (A) IN GENERAL.—Subsections (e) and (f) 

14 of section 1854 (42 U.S.C. 1395w–24) are re15 pealed. 

16 (B) CONFORMING AMENDMENTS.—(i) Sec17 tion 1839(a)(2) (42 U.S.C. 1395r(a)(2)) is 

18 amended by striking ‘‘, and to reflect’’ and all 

19 that follows and inserting a period. 

20 (ii) Section 1852(a)(1) (42 U.S.C. 1395w–

21 22(a)(1)) is amended by striking ‘‘title XI’’ and 

22 all that follows and inserting the following: ‘‘title 

23 XI those items and services (other than hospice 

24 care) for which benefits are available under parts 
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1 A and B to individuals residing in the area 

2 served by the plan.’’. 

3 (iii) Section 1857(d)(1) (42 U.S.C. 1395w–

4 27(d)(1)) is amended by striking ‘‘, costs, and 

5 computation of the adjusted community rate’’ 

6 and inserting ‘‘and costs’’. 

7 (f) REFERENCES UNDER PART E.—Section 1859 (42 

8 U.S.C. 1395w–29) is amended by adding at the end the fol9 lowing new subsection: 

10 ‘‘(f) APPLICATION UNDER PART E.—In the case of any 

11 reference under part E to a requirement or provision of this 

12 part in the relation to an EFFS plan or organization under 

13 such part, except as otherwise specified any such require14 ment or provision shall be applied to such organization or 

15 plan in the same manner as such requirement or provision 

16 applies to a Medicare Advantage private fee-for-service plan 

17 (and the Medicare Advantage organization that offers such 

18 plan) under this part.’’. 

19 (g) EFFECTIVE DATE.—The amendments made by this 

20 section shall apply to payments and premiums for months 

21 beginning with January 2006. 
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1 CHAPTER 3—ADDITIONAL REFORMS

2 SEC. 231. MAKING PERMANENT CHANGE IN MEDICARE AD3 VANTAGE REPORTING DEADLINES AND AN4 NUAL, COORDINATED ELECTION PERIOD. 

5 (a) CHANGE IN REPORTING DEADLINE.—Section 

6 1854(a)(1) (42 U.S.C. 1395w–24(a)(1)), as amended by sec7 tion 532(b)(1) of the Public Health Security and Bioter8 rorism Preparedness and Response Act of 2002, is amended 

9 by striking ‘‘2002, 2003, and 2004 (or July 1 of each other 

10 year)’’ and inserting ‘‘2002 and each subsequent year’’. 

11 (b) DELAY IN ANNUAL, COORDINATED ELECTION PE12 RIOD.—Section 1851(e)(3)(B) (42 U.S.C. 1395w–

13 21(e)(3)(B)), as amended by section 532(c)(1)(A) of the 

14 Public Health Security and Bioterrorism Preparedness and 

15 Response Act of 2002, is amended—

16 (1) by striking ‘‘and after 2005’’; and 

17 (2) by striking ‘‘, 2004, and 2005’’ and inserting 

18 ‘‘and any subsequent year’’. 

19 (c) ANNUAL ANNOUNCEMENT OF PAYMENT RATES.—

20 Section 1853(b)(1) (42 U.S.C. 1395w–23(b)(1)), as amend21 ed by section 532(d)(1) of the Public Health Security and 

22 Bioterrorism Preparedness and Response Act of 2002, is 

23 amended—

24 (1) by striking ‘‘and after 2005’’; and 
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1 (2) by striking ‘‘and 2005’’ and inserting ‘‘and 

2 each subsequent year’’. 

3 (d) REQUIRING PROVISION OF AVAILABLE INFORMA4 TION COMPARING PLAN OPTIONS.—The first sentence of sec5 tion 1851(d)(2)(A)(ii) (42 U.S.C. 1395w–21(d)(2)(A)(ii)) is 

6 amended by inserting before the period the following: ‘‘to 

7 the extent such information is available at the time of prep8 aration of materials for the mailing’’. 

9 SEC. 232. AVOIDING DUPLICATIVE STATE REGULATION. 

10 (a) IN GENERAL.—Section 1856(b)(3) (42 U.S.C. 

11 1395w–26(b)(3)) is amended to read as follows: 

12 ‘‘(3) RELATION TO STATE LAWS.—The standards 

13 established under this subsection shall supersede any 

14 State law or regulation (other than State licensing 

15 laws or State laws relating to plan solvency) with re16 spect to Medicare Advantage plans which are offered 

17 by Medicare Advantage organizations under this 

18 part.’’. 

19 (b) EFFECTIVE DATE.—The amendment made by sub20 section (a) shall take effect on the date of the enactment 

21 of this Act. 

22 SEC. 233. SPECIALIZED MEDICARE ADVANTAGE PLANS FOR 

23 SPECIAL NEEDS BENEFICIARIES. 

24 (a) TREATMENT AS COORDINATED CARE PLAN.—Sec25 tion 1851(a)(2)(A) (42 U.S.C. 1395w–21(a)(2)(A)) is 
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1 amended by adding at the end the following new sentence: 

2 ‘‘Specialized Medicare Advantage plans for special needs 

3 beneficiaries (as defined in section 1859(b)(4)) may be any 

4 type of coordinated care plan.’’. 

5 (b) SPECIALIZED MEDICARE ADVANTAGE PLAN FOR

6 SPECIAL NEEDS BENEFICIARIES DEFINED.—Section 

7 1859(b) (42 U.S.C. 1395w–29(b)) is amended by adding at 

8 the end the following new paragraph: 

9 ‘‘(4) SPECIALIZED MEDICARE ADVANTAGE PLANS

10 FOR SPECIAL NEEDS BENEFICIARIES.—

11 ‘‘(A) IN GENERAL.—The term ‘specialized 

12 Medicare Advantage plan for special needs bene13 ficiaries’ means a Medicare Advantage plan that 

14 exclusively serves special needs beneficiaries (as 

15 defined in subparagraph (B)). 

16 ‘‘(B) SPECIAL NEEDS BENEFICIARY.—The 

17 term ‘special needs beneficiary’ means a Medi18 care Advantage eligible individual who—

19 ‘‘(i) is institutionalized (as defined by 

20 the Secretary); 

21 ‘‘(ii) is entitled to medical assistance 

22 under a State plan under title XIX; or 

23 ‘‘(iii) meets such requirements as the 

24 Secretary may determine would benefit 

25 from enrollment in such a specialized Medi-
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1 care Advantage plan described in subpara2 graph (A) for individuals with severe or 

3 disabling chronic conditions.’’. 

4 (c) RESTRICTION ON ENROLLMENT PERMITTED.—Sec5 tion 1859 (42 U.S.C. 1395w–29) is amended by adding at 

6 the end the following new subsection: 

7 ‘‘(f) RESTRICTION ON ENROLLMENT FOR SPECIALIZED

8 MEDICARE ADVANTAGE PLANS FOR SPECIAL NEEDS BENE9 FICIARIES.—In the case of a specialized Medicare Advan10 tage plan (as defined in subsection (b)(4)), notwithstanding 

11 any other provision of this part and in accordance with 

12 regulations of the Secretary and for periods before January 

13 1, 2007, the plan may restrict the enrollment of individuals 

14 under the plan to individuals who are within one or more 

15 classes of special needs beneficiaries.’’. 

16 (d) AUTHORITY TO DESIGNATE OTHER PLANS AS

17 SPECIALIZED MEDICARE ADVANTAGE PLANS.—In promul18 gating regulations to carry out the last sentence of section 

19 1851(a)(2)(A) of the Social Security Act (as added by sub20 section (a)) and section 1859(b)(4) of such Act (as added 

21 by subsection (b)), the Secretary may provide (notwith22 standing section 1859(b)(4)(A) of such Act) for the offering 

23 of specialized Medicare Advantage plans by Medicare Ad24 vantage plans that disproportionately serve special needs 

25 beneficiaries who are frail, elderly medicare beneficiaries. 
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1 (e) REPORT TO CONGRESS.—Not later than December 

2 31, 2005, the Medicare Benefits Administrator shall submit 

3 to Congress a report that assesses the impact of specialized 

4 Medicare Advantage plans for special needs beneficiaries on 

5 the cost and quality of services provided to enrollees. Such 

6 report shall include an assessment of the costs and savings 

7 to the medicare program as a result of amendments made 

8 by subsections (a), (b), and (c). 

9 (f) EFFECTIVE DATES.—

10 (1) IN GENERAL.—The amendments made by 

11 subsections (a), (b), and (c) shall take effect upon the 

12 date of the enactment of this Act. 

13 (2) DEADLINE FOR ISSUANCE OF REQUIREMENTS

14 FOR SPECIAL NEEDS BENEFICIARIES; TRANSITION.—

15 No later than 6 months after the date of the enact16 ment of this Act, the Secretary shall issue interim 

17 final regulations to establish requirements for special 

18 needs beneficiaries under section 1859(b)(4)(B)(iii) of 

19 the Social Security Act, as added by subsection (b). 

20 SEC. 234. MEDICARE MSAS. 

21 (a) EXEMPTION FROM REPORTING ENROLLEE EN22 COUNTER DATA.—

23 (1) IN GENERAL.—Section 1852(e)(1) (42 U.S.C. 

24 1395w–22(e)(1)) is amended by inserting ‘‘(other than 

25 MSA plans)’’ after ‘‘plans’’. 
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1 (2) CONFORMING AMENDMENTS.—Section 1852 

2 (42 U.S.C. 1395w–22) is amended—

3 (A) in subsection (c)(1)(I), by inserting be4 fore the period at the end the following: ‘‘if re5 quired under such section’’; and 

6 (B) in subparagraphs (A) and (B) of sub7 section (e)(2), by striking ‘‘, a non-network MSA 

8 plan,’’ and ‘‘, NON-NETWORK MSA PLANS,’’ each 

9 place it appears. 

10 (b) MAKING PROGRAM PERMANENT AND ELIMINATING

11 CAP.—Section 1851(b)(4) (42 U.S.C. 1395w–21(b)(4)) is 

12 amended—

13 (1) in the heading, by striking ‘‘ON A DEM14 ONSTRATION BASIS’’; 

15 (2) by striking the first sentence of subparagraph 

16 (A); and 

17 (3) by striking the second sentence of subpara18 graph (C). 

19 (c) APPLYING LIMITATIONS ON BALANCE BILLING.—

20 Section 1852(k)(1) (42 U.S.C. 1395w–22(k)(1)) is amended 

21 by inserting ‘‘or with an organization offering a MSA 

22 plan’’ after ‘‘section 1851(a)(2)(A)’’. 

23 (d) ADDITIONAL AMENDMENT.—Section 1851(e)(5)(A) 

24 (42 U.S.C. 1395w–21(e)(5)(A)) is amended—

25 (1) by adding ‘‘or’’ at the end of clause (i); 
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1 (2) by striking ‘‘, or’’ at the end of clause (ii) 

2 and inserting a semicolon; and 

3 (3) by striking clause (iii). 

4 SEC. 235. EXTENSION OF REASONABLE COST CONTRACTS. 

5 Subparagraph (C) of section 1876(h)(5) (42 U.S.C. 

6 1395mm(h)(5)) is amended to read as follows: 

7 ‘‘(C)(i) Subject to clause (ii), may be extended or re8 newed under this subsection indefinitely. 

9 ‘‘(ii) For any period beginning on or after January 

10 1, 2008, a reasonable cost reimbursement contract under 

11 this subsection may not be extended or renewed for a service 

12 area insofar as such area, during the entire previous year, 

13 was within the service area of 2 or more plans which were 

14 coordinated care Medicare Advantage plans under part C 

15 or 2 or more enhanced fee-for-service plans under part E 

16 and each of which plan for that previous year for the area 

17 involved meets the following minimum enrollment require18 ments: 

19 ‘‘(I) With respect to any portion of the area in20 volved that is within a Metropolitan Statistical Area 

21 with a population of more than 250,000 and counties 

22 contiguous to such Metropolitan Statistical Area, 

23 5,000 individuals. 

24 ‘‘(II) With respect to any other portion of such 

25 area, 1,500 individuals.’’.
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1 Subtitle C—Application of FEHBP2 Style Competitive Reforms

3 SEC. 241. APPLICATION OF FEHBP-STYLE COMPETITIVE RE4 FORM BEGINNING IN 2010.

5 (a) IDENTIFICATION OF COMPETITIVE EFFS REGIONS; 

6 COMPUTATION OF COMPETITIVE EFFS NON-DRUG BENCH7 MARKS UNDER EFFS PROGRAM.—

8 (1) IN GENERAL.—Section 1860E–3, as added by 

9 section 201(a), is amended by adding at the end the 

10 following new subsection: 

11 ‘‘(e) APPLICATION OF COMPETITION.—

12 ‘‘(1) DETERMINATION OF COMPETITIVE EFFS RE13 GIONS.—

14 ‘‘(A) IN GENERAL.—For purposes of this 

15 part, the term ‘competitive EFFS region’ means, 

16 for a year beginning with 2010, an EFFS region 

17 that the Administrator finds—

18 ‘‘(i) there will be offered in the region 

19 during the annual, coordinated election pe20 riod under section 1851(e)(3)(B) (as ap21 plied under section 1860E–1(c)) before the 

22 beginning of the year at least 2 EFFS plans 

23 (in addition to the fee-for-service program 

24 under parts A and B), each offered by a dif25 ferent EFFS organization and each of 
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1 which met the minimum enrollment re2 quirements of paragraph (1) of section 

3 1857(b) (as applied without regard to para4 graph (3) thereof) as of March of the pre5 vious year; and 

6 ‘‘(ii) during March of the previous 

7 year at least the percentage specified in sub8 paragraph (C) of the number of EFFS eli9 gible individuals who reside in the region 

10 were enrolled in an EFFS plan. 

11 ‘‘(B) PERCENTAGE SPECIFIED.—

12 ‘‘(i) IN GENERAL.—For purposes of 

13 subparagraph (A), subject to clause (ii), the 

14 percentage specified in this subparagraph 

15 for a year is equal the lesser of 20 percent 

16 or to the sum of—

17 ‘‘(I) the percentage, as estimated 

18 by the Administrator, of EFFS eligible 

19 individuals in the United States who 

20 are enrolled in EFFS plans during 

21 March of the previous year; and 

22 ‘‘(II) the percentage, as estimated 

23 by the Administrator, of Medicare Ad24 vantage eligible individuals in the 

25 United States who are enrolled in 
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1 Medicare Advantage plans during 

2 March of the previous year. 

3 ‘‘(ii) EXCEPTION.—In the case of an 

4 EFFS region that was a competitive EFFS 

5 region for the previous year, the Medicare 

6 Benefits Administrator may continue to 

7 treat the region as meeting the requirement 

8 of subparagraph (A)(ii) if the region would 

9 meet such requirement but for a de minimis 

10 reduction below the percentage specified in 

11 clause (i). 

12 ‘‘(2) COMPETITIVE EFFS NON-DRUG MONTHLY

13 BENCHMARK AMOUNT.—For purposes of this part, the 

14 term ‘competitive EFFS non-drug monthly bench15 mark amount’ means, with respect to an EFFS re16 gion for a month in a year and subject to paragraph 

17 (8), the sum of the 2 components described in para18 graph (3) for the region and year. The Administrator 

19 shall compute such benchmark amount for each com20 petitive EFFS region before the beginning of each an21 nual, coordinated election period under section 

22 1851(e)(3)(B) for each year (beginning with 2010) in 

23 which it is designated as such a region. 

24 ‘‘(3) 2 COMPONENTS.—For purposes of para25 graph (2), the 2 components described in this para-
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1 graph for an EFFS region and a year are the fol2 lowing: 

3 ‘‘(A) EFFS COMPONENT.—The product of 

4 the following: 

5 ‘‘(i) WEIGHTED AVERAGE OF PLAN

6 BIDS IN REGION.—The weighted average of 

7 the EFFS plan bids for the region and year 

8 (as determined under paragraph (4)(A)). 

9 ‘‘(ii) NON-FFS MARKET SHARE.—1 

10 minus the fee-for-service market share per11 centage determined under paragraph (5) for 

12 the region and the year. 

13 ‘‘(B) FEE-FOR-SERVICE COMPONENT.—The 

14 product of the following: 

15 ‘‘(i) FEE-FOR-SERVICE REGION-SPE16 CIFIC NON-DRUG AMOUNT.—The fee-for-serv17 ice region-specific non-drug amount (as de18 fined in paragraph (6)) for the region and 

19 year. 

20 ‘‘(ii) FEE-FOR-SERVICE MARKET

21 SHARE.—The fee-for-service market share 

22 percentage (determined under paragraph 

23 (5)) for the region and the year. 

24 ‘‘(4) DETERMINATION OF WEIGHTED AVERAGE

25 EFFS PLAN BIDS FOR A REGION.—
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1 ‘‘(A) IN GENERAL.—For purposes of para2 graph (3)(A)(i), the weighted average of EFFS 

3 plan bids for an EFFS region and a year is the 

4 sum of the following products for EFFS plans 

5 described in subparagraph (C) in the region and 

6 year: 

7 ‘‘(i) UNADJUSTED EFFS STATUTORY

8 NON-DRUG MONTHLY BID AMOUNT.—The 

9 unadjusted EFFS statutory non-drug 

10 monthly bid amount (as defined in sub11 section (a)(3)(A)(ii)(I)) for the region and 

12 year. 

13 ‘‘(ii) PLAN’S SHARE OF EFFS ENROLL14 MENT IN REGION.—The number of individ15 uals described in subparagraph (B), divided 

16 by the total number of such individuals for 

17 all EFFS plans described in subparagraph 

18 (C) for that region and year. 

19 ‘‘(B) COUNTING OF INDIVIDUALS.—The Ad20 ministrator shall count, for each EFFS plan de21 scribed in subparagraph (C) for an EFFS region 

22 and year, the number of individuals who reside 

23 in the region and who were enrolled under such 

24 plan under this part during March of the pre25 vious year. 
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1 ‘‘(C) EXCLUSION OF PLANS NOT OFFERED

2 IN PREVIOUS YEAR.—For an EFFS region and 

3 year, the EFFS plans described in this subpara4 graph are plans that are offered in the region 

5 and year and were offered in the region in 

6 March of the previous year. 

7 ‘‘(5) COMPUTATION OF FEE-FOR-SERVICE MAR8 KET SHARE PERCENTAGE.—The Administrator shall 

9 determine, for a year and an EFFS region, the pro10 portion (in this subsection referred to as the ‘fee-for11 service market share percentage’) of the EFFS eligible 

12 individuals who are residents of the region during 

13 March of the previous year, of such individuals who 

14 were not enrolled in an EFFS plan or in a Medicare 

15 Advantage plan (or, if greater, such proportion deter16 mined for individuals nationally). 

17 ‘‘(6) FEE-FOR-SERVICE REGION-SPECIFIC NON18 DRUG AMOUNT.—

19 ‘‘(A) IN GENERAL.—For purposes of para20 graph (3)(B)(i) and section 1839(h)(2)(A), sub21 ject to subparagraph (B), the term ‘fee-for-service 

22 region-specific non-drug amount’ means, for a 

23 competitive EFFS region and a year, the ad24 justed average per capita cost for the year in25 volved, determined under section 1876(a)(4) for 
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1 such region for services covered under parts A 

2 and B for individuals entitled to benefits under 

3 part A and enrolled under this part who are not 

4 enrolled in an EFFS plan under part E or a 

5 Medicare Advantage plan under part C for the 

6 year, but adjusted to exclude costs attributable to 

7 payments under section 1886(h). 

8 ‘‘(B) INCLUSION OF COSTS OF VA AND DOD

9 MILITARY FACILITY SERVICES TO MEDICARE-ELI10 GIBLE BENEFICIARIES.—In determining the ad11 justed average per capita cost under subpara12 graph (A) for a year, such cost shall be adjusted 

13 to include the Administrator’s estimate, on a per 

14 capita basis, of the amount of additional pay15 ments that would have been made in the region 

16 involved under this title if individuals entitled to 

17 benefits under this title had not received services 

18 from facilities of the Department of Veterans Af19 fairs or the Department of Defense. 

20 ‘‘(7) APPLICATION OF COMPETITION.—In the case 

21 of an EFFS region that is a competitive EFFS re22 gion for a year, for purposes of applying subsections 

23 (b) and (c)(1) and section 1860E–4(a), any reference 

24 to an EFFS region-specific non-drug monthly bench25 mark amount shall be treated as a reference to the 
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1 competitive EFFS non-drug monthly benchmark 

2 amount under paragraph (2) for the region and year. 

3 ‘‘(8) PHASE-IN OF BENCHMARK FOR EACH RE4 GION.—

5 ‘‘(A) USE OF BLENDED BENCHMARK.—In 

6 the case of a region that has not been a competi7 tive EFFS region for each of the previous 4 

8 years, the competitive EFFS non-drug monthly 

9 benchmark amount shall be equal to the sum of 

10 the following: 

11 ‘‘(i) NEW COMPETITIVE COMPONENT.—

12 The product of—

13 ‘‘(I) the weighted average phase-in 

14 proportion for that area and year, as 

15 specified in subparagraph (B); and 

16 ‘‘(II) the competitive EFFS non17 drug monthly benchmark amount for 

18 the region and year, determined under 

19 paragraph (2) without regard to this 

20 paragraph. 

21 ‘‘(ii) OLD COMPETITIVE COMPONENT.—

22 The product of—

23 ‘‘(I) 1 minus the weighted average 

24 phase-in proportion for that region 

25 and year; and 
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1 ‘‘(II) the EFFS region-specific 

2 non-drug benchmark amount for the 

3 region and the year. 

4 ‘‘(B) COMPUTATION OF WEIGHTED AVERAGE

5 PHASE-IN PROPORTION.—For purposes of this 

6 paragraph, the ‘weighted average phase-in pro7 portion’ for an EFFS region for a year shall be 

8 determined as follows: 

9 ‘‘(i) FIRST YEAR (AND REGION NOT

10 COMPETITIVE REGION IN PREVIOUS

11 YEAR).—If the area was not a competitive 

12 EFFS region in the previous year, the 

13 weighted average phase-in proportion for 

the region for the year is equal to 1 14 ⁄5. 

15 ‘‘(ii) COMPETITIVE REGION IN PRE16 VIOUS YEAR.—If the region was a competi17 tive EFFS region in the previous year, the 

18 weighted average phase-in proportion for 

19 the region for the year is equal to the 

20 weighted average phase-in proportion deter21 mined under this subparagraph for the region for the previous year plus 1 22 ⁄5, but in 

23 no case more than 1.’’. 

24 (2) CONFORMING AMENDMENTS.—
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1 (A) Such section 1860E–3 is further amend2 ed—

3 (i) in subsection (b), by adding at the 

4 end the following new paragraph: 

5 ‘‘(4) APPLICATION IN COMPETITIVE RE6 GIONS.—For special rules applying this sub7 section in competitive EFFS regions, see sub8 section (e)(7).’’; 

9 (ii) in subsection (c)(1), by inserting 

10 ‘‘and subsection (e)(7)’’ after ‘‘(as made ap11 plicable under subsection (d))’’; and 

12 (iii) in subsection (d) , by striking 

13 ‘‘and (e)’’ and inserting ‘‘(e), and (k) ’’. 

14 (B) Section 1860E–4(a)(1), as inserted by 

15 section 201(a)(2), is amended by inserting ‘‘, ex16 cept as provided in section 1860E–3(e)(7)’’ after 

17 ‘‘paragraph (2)’’.

18 (b) IDENTIFICATION OF COMPETITIVE MEDICARE AD19 VANTAGE AREAS; APPLICATION OF COMPETITIVE MEDICARE

20 ADVANTAGE NON-DRUG BENCHMARKS UNDER MEDICARE

21 ADVANTAGE PROGRAM.—

22 (1) IN GENERAL.—Section 1853, as amended by 

23 section 221(b)(3), is amended by adding at the end 

24 the following new subsection: 

25 ‘‘(k) APPLICATION OF COMPETITION.—
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1 ‘‘(1) DETERMINATION OF COMPETITIVE MEDI2 CARE ADVANTAGE AREAS.—

3 ‘‘(A) IN GENERAL.—For purposes of this 

4 part, the terms ‘competitive Medicare Advantage 

5 area’ and ‘CMA area’ mean, for a year begin6 ning with 2010, an area (which is a metropoli7 tan statistical area or other area with a substan8 tial number of Medicare Advantage enrollees) 

9 that the Administrator finds—

10 ‘‘(i) there will be offered during the an11 nual, coordinated election period under sec12 tion 1851(e)(3)(B) under this part before 

13 the beginning of the year at least 2 Medi14 care Advantage plans (in addition to the 

15 fee-for-service program under parts A and 

16 B), each offered by a different Medicare Ad17 vantage organization and each of which met 

18 the minimum enrollment requirements of 

19 paragraph (1) of section 1857(b) (as ap20 plied without regard to paragraph (3) 

21 thereof) as of March of the previous year 

22 with respect to the area; and 

23 ‘‘(ii) during March of the previous 

24 year at least the percentage specified in sub25 paragraph (B) of the number of Medicare 
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1 Advantage eligible individuals who reside in 

2 the area were enrolled in a Medicare Ad3 vantage plan. 

4 ‘‘(B) PERCENTAGE SPECIFIED.—

5 ‘‘(i) IN GENERAL.—For purposes of 

6 subparagraph (A), subject to clause (ii), the 

7 percentage specified in this subparagraph 

8 for a year is equal the lesser of 20 percent 

9 or to the sum of—

10 ‘‘(I) the percentage, as estimated 

11 by the Administrator, of EFFS eligible 

12 individuals in the United States who 

13 are enrolled in EFFS plans during 

14 March of the previous year; and 

15 ‘‘(II) the percentage, as estimated 

16 by the Administrator, of Medicare Ad17 vantage eligible individuals in the 

18 United States who are enrolled in 

19 Medicare Advantage plans during 

20 March of the previous year. 

21 ‘‘(ii) EXCEPTION.—In the case of an 

22 area that was a competitive area for the 

23 previous year, the Medicare Benefits Ad24 ministrator may continue to treat the area 

25 as meeting the requirement of subparagraph 
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1 (A)(ii) if the area would meet such require2 ment but for a de minimis reduction below 

3 the percentage specified in clause (i). 

4 ‘‘(2) COMPETITIVE MEDICARE ADVANTAGE NON5 DRUG MONTHLY BENCHMARK AMOUNT.—For purposes 

6 of this part, the term ‘competitive Medicare Advan7 tage non-drug monthly benchmark amount’ means, 

8 with respect to a competitive Medicare Advantage 

9 area for a month in a year subject to paragraph (8), 

10 the sum of the 2 components described in paragraph 

11 (3) for the area and year. The Administrator shall 

12 compute such benchmark amount for each competitive 

13 Medicare Advantage area before the beginning of each 

14 annual, coordinated election period under section 

15 1851(e)(3)(B) for each year (beginning with 2010) in 

16 which it is designated as such an area. 

17 ‘‘(3) 2 COMPONENTS.—For purposes of para18 graph (2), the 2 components described in this para19 graph for a competitive Medicare Advantage area and 

20 a year are the following: 

21 ‘‘(A) MEDICARE ADVANTAGE COMPONENT.—

22 The product of the following: 

23 ‘‘(i) WEIGHTED AVERAGE OF MEDI24 CARE ADVANTAGE PLAN BIDS IN AREA.—The 

25 weighted average of the plan bids for the 
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1 area and year (as determined under para2 graph (4)(A)). 

3 ‘‘(ii) NON-FFS MARKET SHARE.—1 

4 minus the fee-for-service market share per5 centage, determined under paragraph (5) 

6 for the area and year. 

7 ‘‘(B) FEE-FOR-SERVICE COMPONENT.—The 

8 product of the following: 

9 ‘‘(i) FEE-FOR-SERVICE AREA-SPECIFIC

10 NON-DRUG AMOUNT.—The fee-for-service 

11 area-specific non-drug amount (as defined 

12 in paragraph (6)) for the area and year. 

13 ‘‘(ii) FEE-FOR-SERVICE MARKET

14 SHARE.—The fee-for-service market share 

15 percentage, determined under paragraph (5) 

16 for the area and year. 

17 ‘‘(4) DETERMINATION OF WEIGHTED AVERAGE

18 MEDICARE ADVANTAGE BIDS FOR AN AREA.—

19 ‘‘(A) IN GENERAL.—For purposes of para20 graph (3)(A)(i), the weighted average of plan 

21 bids for an area and a year is the sum of the 

22 following products for Medicare Advantage plans 

23 described in subparagraph (C) in the area and 

24 year: 
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1 ‘‘(i) MONTHLY MEDICARE ADVANTAGE

2 STATUTORY NON-DRUG BID AMOUNT.—The 

3 unadjusted Medicare Advantage statutory 

4 non-drug monthly bid amount. 

5 ‘‘(ii) PLAN’S SHARE OF MEDICARE AD6 VANTAGE ENROLLMENT IN AREA.—The 

7 number of individuals described in subpara8 graph (B), divided by the total number of 

9 such individuals for all Medicare Advantage 

10 plans described in subparagraph (C) for 

11 that area and year. 

12 ‘‘(B) COUNTING OF INDIVIDUALS.—The Ad13 ministrator shall count, for each Medicare Ad14 vantage plan described in subparagraph (C) for 

15 an area and year, the number of individuals 

16 who reside in the area and who were enrolled 

17 under such plan under this part during March 

18 of the previous year. 

19 ‘‘(C) EXCLUSION OF PLANS NOT OFFERED

20 IN PREVIOUS YEAR.—For an area and year, the 

21 Medicare Advantage plans described in this sub22 paragraph are plans described in the first sen23 tence of section 1851(a)(2)(A) that are offered in 

24 the area and year and were offered in the area 

25 in March of the previous year. 
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1 ‘‘(5) COMPUTATION OF FEE-FOR-SERVICE MAR2 KET SHARE PERCENTAGE.—The Administrator shall 

3 determine, for a year and a competitive Medicare Ad4 vantage area, the proportion (in this subsection re5 ferred to as the ‘fee-for-service market share percent6 age’) of Medicare Advantage eligible individuals re7 siding in the area who during March of the previous 

8 year were not enrolled in a Medicare Advantage plan 

9 or in an EFFS plan (or, if greater, such proportion 

10 determined for individuals nationally). 

11 ‘‘(6) FEE-FOR-SERVICE AREA-SPECIFIC NON12 DRUG AMOUNT.—

13 ‘‘(A) IN GENERAL.—For purposes of para14 graph (3)(B)(i) and section 1839(h)(1)(A), sub15 ject to subparagraph (B), the term ‘fee-for-service 

16 area-specific non-drug amount’ means, for a 

17 competitive Medicare Advantage area and a 

18 year, the adjusted average per capita cost for the 

19 year involved, determined under section 

20 1876(a)(4) for such area for services covered 

21 under parts A and B for individuals entitled to 

22 benefits under part A and enrolled under this 

23 part who are not enrolled in a Medicare Advan24 tage plan under part C or an EFFS plan under 
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1 part E for the year, but adjusted to exclude costs 

2 attributable to payments under section 1886(h). 

3 ‘‘(B) INCLUSION OF COSTS OF VA AND DOD

4 MILITARY FACILITY SERVICES TO MEDICARE-ELI5 GIBLE BENEFICIARIES.—In determining the ad6 justed average per capita cost under subpara7 graph (A) for a year, such cost shall be adjusted 

8 to include the Administrator’s estimate, on a per 

9 capita basis, of the amount of additional pay10 ments that would have been made in the area in11 volved under this title if individuals entitled to 

12 benefits under this title had not received services 

13 from facilities of the Department of Veterans Af14 fairs or the Department of Defense. 

15 ‘‘(7) APPLICATION OF COMPETITION.—In the case 

16 of an area that is a competitive Medicare Advantage 

17 area for a year, for purposes of applying subsection 

18 (a)(1)(A)(ii) and sections 1854(b)(2)(A)(ii) and 

19 1854(b)(3)(B)(i), any reference to a Medicare Advan20 tage area-specific non-drug monthly benchmark 

21 amount shall be treated as a reference to the competi22 tive Medicare Advantage non-drug monthly bench23 mark amount under paragraph (2) for the area and 

24 year. 
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1 ‘‘(8) PHASE-IN OF BENCHMARK FOR EACH

2 AREA.—

3 ‘‘(A) USE OF BLENDED BENCHMARK.—In 

4 the case of an area that has not been a competi5 tive Medicare Advantage area for each of the pre6 vious 4 years, the competitive Medicare Advan7 tage non-drug monthly benchmark amount shall 

8 be equal to the sum of the following: 

9 ‘‘(i) NEW COMPETITIVE COMPONENT.—

10 The product of—

11 ‘‘(I) the weighted average phase-in 

12 proportion for that area and year, as 

13 specified in subparagraph (B); and 

14 ‘‘(II) the competitive Medicare 

15 Advantage non-drug monthly bench16 mark amount for the area and year, 

17 determined under paragraph (2) with18 out regard to this paragraph. 

19 ‘‘(ii) OLD COMPETITIVE COMPONENT.—

20 The product of—

21 ‘‘(I) 1 minus the weighted average 

22 phase-in proportion for that area and 

23 year; and 
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1 ‘‘(II) the Medicare Advantage 

2 area-wide non-drug benchmark amount 

3 for the area and the year. 

4 ‘‘(B) COMPUTATION OF WEIGHTED AVERAGE

5 PHASE-IN PROPORTION.—For purposes of this 

6 paragraph, the ‘weighted average phase-in pro7 portion’ for a Medicare Advantage payment area 

8 for a year shall be determined as follows: 

9 ‘‘(i) FIRST YEAR (AND AREA NOT COM10 PETITIVE AREA IN PREVIOUS YEAR).—If the 

11 area was not a Medicare Advantage com12 petitive area in the previous year, the 

13 weighted average phase-in proportion for 

the area for the year is equal to 1 14 ⁄5. 

15 ‘‘(ii) COMPETITIVE AREA IN PREVIOUS

16 YEAR.—If the area was a competitive Medi17 care Advantage area in the previous year, 

18 the weighted average phase-in proportion 

19 for the area for the year is equal to the 

20 weighted average phase-in proportion deter21 mined under this subparagraph for the area 

for the previous year plus 1 22 ⁄5, but in no case 

23 more than 1. 

24 ‘‘(C) MEDICARE ADVANTAGE AREA-WIDE

25 NON-DRUG BENCHMARK AMOUNT.—For purposes 
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1 of subparagraph (A)(ii)(II), the term ‘Medicare 

2 Advantage area-wide non-drug benchmark 

3 amount’ means, for an area and year, the 

4 weighted average of the amounts described in sec5 tion 1853(j) for Medicare Advantage payment 

6 area or areas included in the area (based on the 

7 number of traditional fee-for-service enrollees in 

8 such payment area or areas) and year.’’. 

9 (2) APPLICATION.—Section 1854 (42 U.S.C. 

10 1395w–24) is amended—

11 (A) in subsection (b)(1)(C)(i), as added by 

12 section 221(b)(1)(A), by striking ‘‘(i) REQUIRE13 MENT.—The’’ and inserting ‘‘(i) REQUIREMENT

14 FOR NON-COMPETITIVE AREAS.—In the case of a 

15 Medicare Advantage payment area that is not a 

16 competitive Medicare Advantage area designated 

17 under section 1853(k)(1), the’’; 

18 (B) in subsection (b)(1)(C), as so added, by 

19 inserting after clause (i) the following new 

20 clause: 

21 ‘‘(ii) REQUIREMENT FOR COMPETITIVE

22 MEDICARE ADVANTAGE AREAS.—In the case 

23 of a Medicare Advantage payment area that 

24 is designated as a competitive Medicare Ad25 vantage area under section 1853(k)(1), if 
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1 there are average per capita monthly sav2 ings described in paragraph (6) for a Medi3 care Advantage plan and year, the Medicare 

4 Advantage plan shall provide to the enrollee 

5 a monthly rebate equal to 75 percent of such 

6 savings.’’; and 

7 (C) by adding at the end of subsection (b), 

8 as amended by sections 221(b)(1)(B) and 

9 221(b)(2), the following new paragraph: 

10 ‘‘(6) COMPUTATION OF AVERAGE PER CAPITA

11 MONTHLY SAVINGS FOR COMPETITIVE MEDICARE AD12 VANTAGE AREAS.—For purposes of paragraph 

13 (1)(C)(ii), the average per capita monthly savings re14 ferred to in such paragraph for a Medicare Advantage 

15 plan and year shall be computed in the same manner 

16 as the average per capita monthly savings is com17 puted under paragraph (3) except that the reference 

18 to the Medicare Advantage area-specific non-drug 

19 monthly benchmark amount in paragraph (3)(B)(i) 

20 (or to the benchmark amount as adjusted under para21 graph (3)(C)(i)) is deemed to be a reference to the 

22 competitive Medicare Advantage non-drug monthly 

23 benchmark amount (or such amount as adjusted in 

24 the manner described in paragraph (3)(B)(i)).’’. 

25 (3) ADDITIONAL CONFORMING AMENDMENTS.—
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1 (A) PAYMENT OF PLANS.—Section 

2 1853(a)(1)(A)(ii), as amended by section 

3 221(c)(1), is amended—

4 (i) in subclauses (I) and (II), by in5 serting ‘‘(or, insofar as such payment area 

6 is a competitive Medicare Advantage area, 

7 described in section 1854(b)(6))’’ after ‘‘sec8 tion 1854(b)(3)(C)’’; and 

9 (ii) in subclause (II), by inserting 

10 ‘‘(or, insofar as such payment area is a 

11 competitive Medicare Advantage area, the 

12 competitive Medicare Advantage non-drug 

13 monthly benchmark amount)’’ after ‘‘Medi14 care Advantage area-specific non-drug 

15 monthly benchmark amount’’; and 

16 (B) DISCLOSURE OF INFORMATION.—Sec17 tion 1853(b)(1)(B), as amended by section 

18 221(e)(1), is amended to read as follows: 

19 ‘‘(B) COMPETITION INFORMATION.—For 

20 years beginning with 2006, the following: 

21 ‘‘(i) BENCHMARKS.—The Medicare Ad22 vantage area-specific non-drug benchmark 

23 under section 1853(j) and, if applicable, the 

24 competitive Medicare Advantage non-drug 

25 benchmark under section 1853(k)(2), for the 
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1 year and competitive Medicare Advantage 

2 area involved and the national fee-for-serv3 ice market share percentage for the area 

4 and year. 

5 ‘‘(ii) ADJUSTMENT FACTORS.—The ad6 justment factors applied under section 

7 1853(a)(1)(A)(iv) (relating to demographic 

8 adjustment), section 1853(a)(1)(B) (relating 

9 to adjustment for end-stage renal disease), 

10 and section 1853(a)(3) (relating to health 

11 status adjustment). 

12 ‘‘(iii) CERTAIN BENCHMARKS AND

13 AMOUNTS.—In the case of a competitive 

14 Medicare Advantage area, the Medicare Ad15 vantage area-wide non-drug benchmark 

16 amount (as defined in subsection (k)(8)(C)) 

17 and the fee-for-service area-specific non18 drug amount (as defined in section 

19 1853(k)(6)) for the area. 

20 ‘‘(iv) INDIVIDUALS.—The number of 

21 individuals counted under subsection 

22 (k)(4)(B) and enrolled in each Medicare Ad23 vantage plan in the area.’’. 

24 (C) DEFINITION OF MONTHLY BASIC PRE25 MIUM.—Section 1854(b)(2)(A)(ii), as amended 
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1 by section 221(d)(2), is amended by inserting 

2 ‘‘(or, in the case of a competitive Medicare Ad3 vantage area, the competitive Medicare Advan4 tage non-drug monthly benchmark amount or, in 

5 applying this paragraph under part E in the 

6 case of a competitive EFFS region, the competi7 tive EFFS non-drug monthly benchmark 

8 amount)’’ after ‘‘benchmark amount’’. 

9 (c) PREMIUM ADJUSTMENT.—

10 (1) IN GENERAL.—Section 1839 (42 U.S.C. 

11 1395r) is amended by adding at the end the following 

12 new subsection: 

13 ‘‘(h)(1)(A) In the case of an individual who resides in 

14 a competitive Medicare Advantage area under section 

15 1853(k)(1) (regardless of whether such area is in a competi16 tive EFFS region under section 1860E–3(e)) and who is 

17 not enrolled in a Medicare Advantage plan under part C 

18 or in an EFFS plan under part E, the monthly premium 

19 otherwise applied under this part (determined without re20 gard to subsections (b) and (f) or any adjustment under 

21 this subsection) shall be adjusted as follows: If the fee-for22 service area-specific non-drug amount (as defined in section 

23 1853(k)(6)) for the competitive Medicare Advantage area in 

24 which the individual resides for a month—
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1 ‘‘(i) does not exceed the competitive Medicare Ad2 vantage non-drug benchmark (as determined under 

3 paragraph (2) of section 1853(k), without regard to 

4 paragraph (8) thereof) for such area, the amount of 

5 the premium for the individual for the month shall be 

6 reduced by an amount equal to the product of the ad7 justment factor under subparagraph (C) and 75 per8 cent of the amount by which such competitive bench9 mark exceeds such fee-for-service area-specific non10 drug amount; or 

11 ‘‘(ii) exceeds such competitive Medicare Advan12 tage non-drug benchmark, the amount of the premium 

13 for the individual for the month shall be adjusted to 

14 ensure, subject to subparagraph (B), that—

15 ‘‘(I) the sum of the amount of the adjusted 

16 premium and the competitive Medicare Advan17 tage non-drug benchmark for the area, is equal 

18 to 

19 ‘‘(II) the sum of the unadjusted premium 

20 plus amount of the fee-for-service area-specific 

21 non-drug amount for the area. 

22 ‘‘(B) In no case shall the actual amount of an adjust23 ment under subparagraph (A)(ii) exceed the product of the 

24 adjustment factor under subparagraph (C) and the amount 
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1 of the adjustment otherwise computed under subparagraph 

2 (A)(ii) without regard to this subparagraph. 

3 ‘‘(C) The adjustment factor under this subparagraph 

4 for an area for a year is equal to—

5 ‘‘(i) the number of consecutive years (in the 5-

6 year period ending with the year involved) in which 

7 such area was a competitive Medicare Advantage 

8 area; divided by 

9 ‘‘(ii) 5. 

10 ‘‘(2)(A) In the case of an individual who resides in 

11 an area that is within a competitive EFFS region under 

12 section 1860E–3(e) but is not within a competitive Medi13 care Advantage area under section 1853(k)(1) and who is 

14 not enrolled in a Medicare Advantage plan under part C 

15 or in an EFFS plan under part E, the monthly premium 

16 otherwise applied under this part (determined without re17 gard to subsections (b) and (f) or any adjustment under 

18 this subsection) shall be adjusted as follows: If the fee-for19 service region-specific non-drug amount (as defined in sec20 tion 1860E–3(e)(6)) for a region for a month—

21 ‘‘(i) does not exceed the competitive EFFS non22 drug monthly benchmark amount (as determined 

23 under paragraph (2) of section 1860E–3(e), without 

24 regard to paragraph (8) thereof) for such region, the 

25 amount of the premium for the individual for the 
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1 month shall be reduced by an amount equal to the 

2 product of the adjustment factor under subparagraph 

3 (C) and 75 percent of the amount by which such com4 petitive benchmark amount exceeds such fee-for-service 

5 region-specific non-drug benchmark amount; or 

6 ‘‘(ii) exceeds such competitive EFFS non-drug 

7 monthly benchmark amount, the amount of the pre8 mium for the individual for the month shall be ad9 justed to ensure, subject to subparagraph (B), that—

10 ‘‘(I) the sum of the amount of the adjusted 

11 premium and the competitive EFFS non-drug 

12 monthly benchmark amount for the region, is 

13 equal to 

14 ‘‘(II) the sum of the unadjusted premium 

15 plus the amount of the EFFS region-specific 

16 non-drug monthly bid for the region. 

17 ‘‘(B) In no case shall the actual amount of an adjust18 ment under subparagraph (A)(ii) exceed the product of the 

19 adjustment factor under subparagraph (C) and the amount 

20 of the adjustment otherwise computed under subparagraph 

21 (A)(ii) without regard to this subparagraph. 

22 ‘‘(C) The adjustment factor under this subparagraph 

23 for an EFFS region for a year is equal to—

24 ‘‘(i) the number of consecutive years (in the 5-

25 year period ending with the year involved) in which 
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1 such region was a competitive EFFS region; divided 

2 by 

3 ‘‘(ii) 5. 

4 ‘‘(3) Nothing in this subsection shall be construed as 

5 preventing a reduction under paragraph (1)(A) or para6 graph (2)(A) in the premium otherwise applicable under 

7 this part to zero or from requiring the provision of a rebate 

8 to the extent such premium would otherwise be required to 

9 be less than zero. 

10 ‘‘(4) The adjustment in the premium under this sub11 section shall be effected in such manner as the Medicare 

12 Benefits Administrator determines appropriate. 

13 ‘‘(5) In order to carry out this subsection (insofar as 

14 it is effected through the manner of collection of premiums 

15 under 1840(a)), the Medicare Benefits Administrator shall 

16 transmit to the Commissioner of Social Security—

17 ‘‘(A) at the beginning of each year, the name, so18 cial security account number, and the amount of the 

19 adjustment (if any) under this subsection for each in20 dividual enrolled under this part for each month dur21 ing the year; and 

22 ‘‘(B) periodically throughout the year, informa23 tion to update the information previously transmitted 

24 under this paragraph for the year.’’. 
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1 (2) CONFORMING AMENDMENT.—Section 1844(c) 

2 (42 U.S.C. 1395w(c)) is amended by inserting ‘‘and 

3 without regard to any premium adjustment effected 

4 under section 1839(h)’’ before the period at the end. 

5 (d) EFFECTIVE DATE.—The amendments made by this 

6 section shall take effect on January 1, 2010.

7 TITLE III—COMBATTING WASTE, 

8 FRAUD, AND ABUSE 

9 SEC. 301. MEDICARE SECONDARY PAYOR (MSP) PROVI10 SIONS. 

11 (a) TECHNICAL AMENDMENT CONCERNING SEC12 RETARY’S AUTHORITY TO MAKE CONDITIONAL PAYMENT

13 WHEN CERTAIN PRIMARY PLANS DO NOT PAY PROMPT14 LY.—

15 (1) IN GENERAL.—Section 1862(b)(2) (42 U.S.C. 

16 1395y(b)(2)) is amended—

17 (A) in subparagraph (A)(ii), by striking 

18 ‘‘promptly (as determined in accordance with 

19 regulations)’’; 

20 (B) in subparagraph (B)—

21 (i) by redesignating clauses (i) through 

22 (iii) as clauses (ii) through (iv), respec23 tively; and 

24 (ii) by inserting before clause (ii), as 

25 so redesignated, the following new clause: 
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1 ‘‘(i) AUTHORITY TO MAKE CONDI2 TIONAL PAYMENT.—The Secretary may 

3 make payment under this title with respect 

4 to an item or service if a primary plan de5 scribed in subparagraph (A)(ii) has not 

6 made or cannot reasonably be expected to 

7 make payment with respect to such item or 

8 service promptly (as determined in accord9 ance with regulations). Any such payment 

10 by the Secretary shall be conditioned on re11 imbursement to the appropriate Trust Fund 

12 in accordance with the succeeding provi13 sions of this subsection.’’. 

14 (2) EFFECTIVE DATE.—The amendments made 

15 by paragraph (1) shall be effective as if included in 

16 the enactment of title III of the Medicare and Med17 icaid Budget Reconciliation Amendments of 1984 

18 (Public Law 98-369). 

19 (b) CLARIFYING AMENDMENTS TO CONDITIONAL PAY20 MENT PROVISIONS.—Section 1862(b)(2) (42 U.S.C. 

21 1395y(b)(2)) is further amended—

22 (1) in subparagraph (A), in the matter following 

23 clause (ii), by inserting the following sentence at the 

24 end: ‘‘An entity that engages in a business, trade, or 

25 profession shall be deemed to have a self-insured plan 
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1 if it carries its own risk (whether by a failure to ob2 tain insurance, or otherwise) in whole or in part.’’; 

3 (2) in subparagraph (B)(ii), as redesignated by 

4 subsection (a)(2)(B)—

5 (A) by striking the first sentence and insert6 ing the following: ‘‘A primary plan, and an enti7 ty that receives payment from a primary plan, 

8 shall reimburse the appropriate Trust Fund for 

9 any payment made by the Secretary under this 

10 title with respect to an item or service if it is 

11 demonstrated that such primary plan has or had 

12 a responsibility to make payment with respect to 

13 such item or service. A primary plan’s responsi14 bility for such payment may be demonstrated by 

15 a judgment, a payment conditioned upon the re16 cipient’s compromise, waiver, or release (whether 

17 or not there is a determination or admission of 

18 liability) of payment for items or services in19 cluded in a claim against the primary plan or 

20 the primary plan’s insured, or by other means.’’; 

21 and 

22 (B) in the final sentence, by striking ‘‘on 

23 the date such notice or other information is re24 ceived’’ and inserting ‘‘on the date notice of, or 

25 information related to, a primary plan’s respon-
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1 sibility for such payment or other information is 

2 received’’; and 

3 (3) in subparagraph (B)(iii), as redesignated by 

4 subsection (a)(2)(B), by striking the first sentence and 

5 inserting the following: ‘‘In order to recover payment 

6 made under this title for an item or service, the 

7 United States may bring an action against any or all 

8 entities that are or were required or responsible (di9 rectly, as an insurer or self-insurer, as a third-party 

10 administrator, as an employer that sponsors or con11 tributes to a group health plan, or large group health 

12 plan, or otherwise) to make payment with respect to 

13 the same item or service (or any portion thereof) 

14 under a primary plan. The United States may, in ac15 cordance with paragraph (3)(A) collect double dam16 ages against any such entity. In addition, the United 

17 States may recover under this clause from any entity 

18 that has received payment from a primary plan or 

19 from the proceeds of a primary plan’s payment to 

20 any entity.’’. 

21 (c) CLERICAL AMENDMENTS.—Section 1862(b) (42 

22 U.S.C. 1395y(b)) is amended—

23 (1) in paragraph (1)(A), by moving the indenta24 tion of clauses (ii) through (v) 2 ems to the left; and 
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1 (2) in paragraph (3)(A), by striking ‘‘such’’ be2 fore ‘‘paragraphs’’. 

3 SEC. 302. COMPETITIVE ACQUISITION OF CERTAIN ITEMS 

4 AND SERVICES. 

5 (a) IN GENERAL.—Section 1847 (42 U.S.C. 1395w–

6 3) is amended to read as follows:

7 ‘‘COMPETITIVE ACQUISITION OF CERTAIN ITEMS AND

8 SERVICES

9 ‘‘SEC. 1847. (a) ESTABLISHMENT OF COMPETITIVE

10 ACQUISITION PROGRAMS.—

11 ‘‘(1) IMPLEMENTATION OF PROGRAMS.—

12 ‘‘(A) IN GENERAL.—The Secretary shall es13 tablish and implement programs under which 

14 competitive acquisition areas are established 

15 throughout the United States for contract award 

16 purposes for the furnishing under this part of 

17 competitively priced items and services (de18 scribed in paragraph (2)) for which payment is 

19 made under this part. Such areas may differ for 

20 different items and services. 

21 ‘‘(B) PHASED-IN IMPLEMENTATION.—The 

22 programs shall be phased-in—

23 ‘‘(i) among competitive acquisition 

24 areas over a period of not longer than 3 

25 years in a manner so that the competition 

26 under the programs occurs in—
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‘‘(I) at least 1 1 ⁄3 of such areas in 

2 2005; and 

‘‘(II) at least 2 3 ⁄3 of such areas in 

4 2006; and 

5 ‘‘(ii) among items and services in a 

6 manner such that the programs apply to the 

7 highest cost and highest volume items and 

8 services first. 

9 ‘‘(C) WAIVER OF CERTAIN PROVISIONS.—In 

10 carrying out the programs, the Secretary may 

11 waive such provisions of the Federal Acquisition 

12 Regulation as are necessary for the efficient im13 plementation of this section, other than provi14 sions relating to confidentiality of information 

15 and such other provisions as the Secretary deter16 mines appropriate. 

17 ‘‘(2) ITEMS AND SERVICES DESCRIBED.—The 

18 items and services referred to in paragraph (1) are 

19 the following: 

20 ‘‘(A) DURABLE MEDICAL EQUIPMENT AND

21 MEDICAL SUPPLIES.—Covered items (as defined 

22 in section 1834(a)(13)) for which payment is 

23 otherwise made under section 1834(a), including 

24 items used in infusion and drugs and supplies 

25 used in conjunction with durable medical equip-
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1 ment, but excluding class III devices under the 

2 Federal Food, Drug, and Cosmetic Act. 

3 ‘‘(B) OFF-THE-SHELF ORTHOTICS.—

4 Orthotics (described in section 1861(s)(9)) for 

5 which payment is otherwise made under section 

6 1834(h) which require minimal self-adjustment 

7 for appropriate use and does not require exper8 tise in trimming, bending, molding, assembling, 

9 or customizing to fit to the patient. 

10 ‘‘(3) EXCEPTION AUTHORITY.—In carrying out 

11 the programs under this section, the Secretary may 

12 exempt—

13 ‘‘(A) rural areas and areas with low popu14 lation density within urban areas that are not 

15 competitive, unless there is a significant national 

16 market through mail order for a particular item 

17 or service; and 

18 ‘‘(B) items and services for which the appli19 cation of competitive acquisition is not likely to 

20 result in significant savings. 

21 ‘‘(4) SPECIAL RULE FOR CERTAIN RENTED ITEMS

22 OF DURABLE MEDICAL EQUIPMENT.—In the case of a 

23 covered item for which payment is made on a rental 

24 basis under section 1834(a), the Secretary shall estab25 lish a process by which rental agreements for the cov-
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1 ered items entered into before the application of the 

2 competitive acquisition program under this section 

3 for the item may be continued notwithstanding this 

4 section. In the case of any such continuation, the sup5 plier involved shall provide for appropriate servicing 

6 and replacement, as required under section 1834(a). 

7 ‘‘(5) PHYSICIAN AUTHORIZATION.—The Sec8 retary may establish a process under which a physi9 cian may prescribe a particular brand or mode of de10 livery of an item or service if the item or service in11 volved is clinically more appropriate than other simi12 lar items or services. 

13 ‘‘(6) APPLICATION.—For each competitive acqui14 sition area in which the program is implemented 

15 under this subsection with respect to items and serv16 ices, the payment basis determined under the competi17 tion conducted under subsection (b) shall be sub18 stituted for the payment basis otherwise applied 

19 under section 1834(a). 

20 ‘‘(b) PROGRAM REQUIREMENTS.—

21 ‘‘(1) IN GENERAL.—The Secretary shall conduct 

22 a competition among entities supplying items and 

23 services described in subsection (a)(2) for each com24 petitive acquisition area in which the program is im-
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1 plemented under subsection (a) with respect to such 

2 items and services. 

3 ‘‘(2) CONDITIONS FOR AWARDING CONTRACT.—

4 ‘‘(A) IN GENERAL.—The Secretary may not 

5 award a contract to any entity under the com6 petition conducted in an competitive acquisition 

7 area pursuant to paragraph (1) to furnish such 

8 items or services unless the Secretary finds all of 

9 the following: 

10 ‘‘(i) The entity meets quality and fi11 nancial standards specified by the Secretary 

12 or developed by the Program Advisory and 

13 Oversight Committee established under sub14 section (c). 

15 ‘‘(ii) The total amounts to be paid 

16 under the contract (including costs associ17 ated with the administration of the con18 tract) are expected to be less than the total 

19 amounts that would otherwise be paid. 

20 ‘‘(iii) Beneficiary access to a choice of 

21 multiple suppliers in the area is main22 tained. 

23 ‘‘(iv) Beneficiary liability is limited to 

24 20 percent of the applicable contract award 

25 price, except in such cases where a supplier 
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1 has furnished an upgraded item and has ex2 ecuted an advanced beneficiary notice. 

3 ‘‘(B) DEVELOPMENT OF QUALITY STAND4 ARDS FOR DME PRODUCTS.—

5 ‘‘(i) IN GENERAL.—The quality stand6 ards specified under subparagraph (A)(i) 

7 shall not be less than the quality standards 

8 that would otherwise apply if this section 

9 did not apply and shall include consumer 

10 services standards. Not later than July 1, 

11 2004, the Secretary shall establish new 

12 quality standards for products subject to 

13 competitive acquisition under this section. 

14 Such standards shall be applied prospec15 tively and shall be published on the website 

16 of the Department of Health and Human 

17 Services. 

18 ‘‘(ii) CONSULTATION WITH PROGRAM

19 ADVISORY AND OVERSIGHT COMMITTEE.—

20 The Secretary shall consult with the Pro21 gram Advisory and Oversight Committee 

22 (established under subsection (c)) to review 

23 (and advise the Secretary concerning) the 

24 quality standards referred to in clause (i). 

25 ‘‘(3) CONTENTS OF CONTRACT.—
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1 ‘‘(A) IN GENERAL.—A contract entered into 

2 with an entity under the competition conducted 

3 pursuant to paragraph (1) is subject to terms 

4 and conditions that the Secretary may specify. 

5 ‘‘(B) TERM OF CONTRACTS.—The Secretary 

6 shall recompete contracts under this section not 

7 less often than once every 3 years. 

8 ‘‘(4) LIMIT ON NUMBER OF CONTRACTORS.—

9 ‘‘(A) IN GENERAL.—The Secretary may 

10 limit the number of contractors in a competitive 

11 acquisition area to the number needed to meet 

12 projected demand for items and services covered 

13 under the contracts. In awarding contracts, the 

14 Secretary shall take into account the ability of 

15 bidding entities to furnish items or services in 

16 sufficient quantities to meet the anticipated 

17 needs of beneficiaries for such items or services 

18 in the geographic area covered under the contract 

19 on a timely basis. 

20 ‘‘(B) MULTIPLE WINNERS.—The Secretary 

21 shall award contracts to multiple entities sub22 mitting bids in each area for an item or service. 

23 ‘‘(5) PAYMENT.—Payment under this part for 

24 competitively priced items and services described in 

25 subsection (a)(2) shall be based on the bids submitted 
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1 and accepted under this section for such items and 

2 services. 

3 ‘‘(6) PARTICIPATING CONTRACTORS.—Payment 

4 shall not be made for items and services described in 

5 subsection (a)(2) furnished by a contractor and for 

6 which competition is conducted under this section un7 less—

8 ‘‘(A) the contractor has submitted a bid for 

9 such items and services under this section; and 

10 ‘‘(B) the Secretary has awarded a contract 

11 to the contractor for such items and services 

12 under this section. 

13 In this section, the term ‘bid’ means a request for a 

14 proposal for an item or service that includes the cost 

15 of the item or service, and where appropriate, any 

16 services that are attendant to the provision of the 

17 item or service. 

18 ‘‘(7) CONSIDERATION IN DETERMINING CAT19 EGORIES FOR BIDS.—The Secretary shall consider the 

20 similarity of the clinical efficiency and value of spe21 cific codes and products, including products that may 

22 provide a therapeutic advantage to beneficiaries, be23 fore delineating the categories and products that will 

24 be subject to bidding. 
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1 ‘‘(8) AUTHORITY TO CONTRACT FOR EDUCATION, 

2 MONITORING, OUTREACH AND COMPLAINT SERV3 ICES.—The Secretary may enter into a contract with 

4 an appropriate entity to address complaints from 

5 beneficiaries who receive items and services from an 

6 entity with a contract under this section and to con7 duct appropriate education of and outreach to such 

8 beneficiaries and monitoring quality of services with 

9 respect to the program. 

10 ‘‘(c) PROGRAM ADVISORY AND OVERSIGHT COM11 MITTEE.—

12 ‘‘(1) ESTABLISHMENT.—There is established a 

13 Program Advisory and Oversight Committee (herein14 after in this section referred to as the ‘Committee’). 

15 ‘‘(2) MEMBERSHIP; TERMS.—The Committee 

16 shall consist of such members as the Secretary may 

17 appoint who shall serve for such term as the Secretary 

18 may specify. 

19 ‘‘(3) DUTIES.—

20 ‘‘(A) TECHNICAL ASSISTANCE.—The Com21 mittee shall provide advice and technical assist22 ance to the Secretary with respect to the fol23 lowing functions: 

24 ‘‘(i) The implementation of the pro25 gram under this section. 
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1 ‘‘(ii) The establishment of requirements 

2 for collection of data. 

3 ‘‘(iii) The development of proposals for 

4 efficient interaction among manufacturers 

5 and distributors of the items and services 

6 and providers and beneficiaries. 

7 ‘‘(B) ADDITIONAL DUTIES.—The Committee 

8 shall perform such additional functions to assist 

9 the Secretary in carrying out this section as the 

10 Secretary may specify. 

11 ‘‘(4) INAPPLICABILITY OF FACA.—The provisions 

12 of the Federal Advisory Committee Act (5 U.S.C. 

13 App.) shall not apply. 

14 ‘‘(d) ANNUAL REPORTS.—The Secretary shall submit 

15 to Congress an annual management report on the programs 

16 under this section. Each such report shall include informa17 tion on savings, reductions in beneficiary cost-sharing, ac18 cess to and quality of items and services, and beneficiary 

19 satisfaction. 

20 ‘‘(e) DEMONSTRATION PROJECT FOR CLINICAL LAB21 ORATORY SERVICES.—

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

23 a demonstration project on the application of com24 petitive acquisition under this section to clinical di25 agnostic laboratory tests—
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1 ‘‘(A) for which payment is otherwise made 

2 under section 1833(h) or 1834(d)(1) (relating to 

3 colorectal cancer screening tests); and 

4 ‘‘(B) which are furnished by entities that 

5 did not have a face-to-face encounter with the in6 dividual. 

7 ‘‘(2) TERMS AND CONDITIONS.—Such project 

8 shall be under the same conditions as are applicable 

9 to items and services described in subsection (a)(2). 

10 ‘‘(3) REPORT.—The Secretary shall submit to 

11 Congress—

12 ‘‘(A) an initial report on the project not 

13 later than December 31, 2005; and 

14 ‘‘(B) such progress and final reports on the 

15 project after such date as the Secretary deter16 mines appropriate.’’. 

17 (b) CONFORMING AMENDMENTS.—

18 (1) DURABLE MEDICAL EQUIPMENT; ELIMI19 NATION OF INHERENT REASONABLENESS AUTHOR20 ITY.—Section 1834(a) (42 U.S.C. 1395m(a)) is 

21 amended—

22 (A) in paragraph (1)(B), by striking ‘‘The 

23 payment basis’’ and inserting ‘‘Subject to sub24 paragraph (E)(i), the payment basis’’; 
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1 (B) in paragraph (1)(C), by striking ‘‘This 

2 subsection’’ and inserting ‘‘Subject to subpara3 graph (E)(ii), this subsection’’; 

4 (C) by adding at the end of paragraph (1) 

5 the following new subparagraph: 

6 ‘‘(E) APPLICATION OF COMPETITIVE ACQUI7 SITION; ELIMINATION OF INHERENT REASON8 ABLENESS AUTHORITY.—In the case of covered 

9 items and services that are included in a com10 petitive acquisition program in a competitive ac11 quisition area under section 1847(a)—

12 ‘‘(i) the payment basis under this sub13 section for such items and services furnished 

14 in such area shall be the payment basis de15 termined under such competitive acquisition 

16 program; and 

17 ‘‘(ii) the Secretary may use informa18 tion on the payment determined under such 

19 competitive acquisition programs to adjust 

20 the payment amount otherwise recognized 

21 under subparagraph (B)(ii) for an area 

22 that is not a competitive acquisition area 

23 under section 1847 and in the case of such 

24 adjustment, paragraph (10)(B) shall not be 

25 applied.’’; and 
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1 (D) in paragraph (10)(B), by inserting ‘‘in 

2 an area and with respect to covered items and 

3 services for which the Secretary does not make a 

4 payment amount adjustment under paragraph 

5 (1)(E)’’ after ‘‘under this subsection’’. 

6 (2) OFF-THE-SHELF ORTHOTICS; ELIMINATION

7 OF INHERENT REASONABLENESS AUTHORITY.—Sec8 tion 1834(h) (42 U.S.C. 1395m(h)) is amended—

9 (A) in paragraph (1)(B), by striking ‘‘and 

10 (E)’’ and inserting ‘‘, (E) , and (H)(i)’’; 

11 (B) in paragraph (1)(D), by striking ‘‘This 

12 subsection’’ and inserting ‘‘Subject to subpara13 graph (H)(ii), this subsection’’; 

14 (C) by adding at the end of paragraph (1) 

15 the following new subparagraph: 

16 ‘‘(H) APPLICATION OF COMPETITIVE ACQUI17 SITION TO ORTHOTICS; ELIMINATION OF INHER18 ENT REASONABLENESS AUTHORITY.—In the case 

19 of orthotics described in paragraph (2)(B) of sec20 tion 1847(a) that are included in a competitive 

21 acquisition program in a competitive acquisition 

22 area under such section—

23 ‘‘(i) the payment basis under this sub24 section for such orthotics furnished in such 

25 area shall be the payment basis determined 
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1 under such competitive acquisition pro2 gram; and 

3 ‘‘(ii) the Secretary may use informa4 tion on the payment determined under such 

5 competitive acquisition programs to adjust 

6 the payment amount otherwise recognized 

7 under subparagraph (B)(ii) for an area 

8 that is not a competitive acquisition area 

9 under section 1847, and in the case of such 

10 adjustment, paragraphs (8) and (9) of sec11 tion 1842(b) shall not be applied.’’. 

12 (c) REPORT ON ACTIVITIES OF SUPPLIERS.—The Sec13 retary shall conduct a study to determine the extent to 

14 which (if any) suppliers of covered items of durable medical 

15 equipment that are subject to the competitive acquisition 

16 program under section 1847 of the Social Security Act, as 

17 amended by subsection (a), are soliciting physicians to pre18 scribe certain brands or modes of delivery of covered items 

19 based on profitability.

20 (d) GAO STUDY ON SAFE AND EFFECTIVE HOME IN21 FUSION AND INHALATION THERAPY; STANDARDS.—

22 (1) STUDY.—The Comptroller General of the 

23 United States shall conduct a study of the standards, 

24 professional services, and related functions necessary 
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1 for the provision of safe and effective home infusion 

2 therapy and home inhalation therapy. 

3 (2) REPORT.—Not later than May 1, 2004, the 

4 Comptroller General shall submit to Congress a report 

5 on the study conducted under paragraph (1). 

6 (3) USE OF FINDINGS IN DEVELOPING STAND7 ARDS.—In promulgating regulations to carry out sec8 tion 1847 of the Social Security Act, as amended by 

9 subsection (a), the Secretary shall ensure that quality 

10 standards developed under subsection (b)(2)(B) of 

11 such section reflect the findings of the Comptroller 

12 General set forth in the report under paragraph (2).

13 SEC. 303. COMPETITIVE ACQUISITION OF COVERED OUT14 PATIENT DRUGS AND BIOLOGICALS.

15 (a) ADJUSTMENT TO PHYSICIAN FEE SCHEDULE.—

16 (1) ADJUSTMENT IN PRACTICE EXPENSE REL17 ATIVE VALUE UNITS.—Section 1848(c)(2) (42 U.S.C. 

18 1395w–4(c)(2)) is amended—

19 (A) in subparagraph (B)—

20 (i) in clause (ii)(II), by striking ‘‘The 

21 adjustments’’ and inserting ‘‘Subject to 

22 clause (iv), the adjustments’’; and 

23 (ii) by adding at the end of subpara24 graph (B), the following new clause: 
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1 ‘‘(iv) EXCEPTION TO BUDGET NEU2 TRALITY.—The additional expenditures at3 tributable to clause (ii) of subparagraph 

4 (H) shall not be taken into account in ap5 plying clause (ii)(II) for 2005.’’; and 

6 (B) by adding at the end the following new 

7 subparagraph: 

8 ‘‘(H) ADJUSTMENTS IN PRACTICE EXPENSE

9 RELATIVE VALUE UNITS FOR 2005.—

10 ‘‘(i) IN GENERAL.—As part of the an11 nual process of establishing the physician 

12 fee schedule under subsection (b) for 2005, 

13 the Secretary shall increase the practice ex14 pense relative value units for 2005 con15 sistent with clause (ii). 

16 ‘‘(ii) USE OF SUPPLEMENTAL SURVEY

17 DATA.—For 2005 for any specialty that 

18 submitted survey data that included ex19 penses for the administration of drugs and 

20 biologicals for which payment is made 

21 under section 1842(o) (or section 1847A), 

22 the Secretary shall use such supplemental 

23 survey data in carrying out this subpara24 graph insofar as they are collected and pro25 vided by entities and organizations con-
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1 sistent with the criteria established by the 

2 Secretary pursuant to section 212(a) of the 

3 Medicare, Medicaid, and SCHIP Balanced 

4 Budget Refinement Act of 1999 and insofar 

5 as such data are submitted to the Secretary 

6 by December 31, 2004. 

7 ‘‘(iii) SUBSEQUENT, BUDGET NEUTRAL

8 ADJUSTMENTS PERMITTED.—Nothing in 

9 this subparagraph shall be construed as pre10 venting the Secretary from providing for 

11 adjustments in practice expense relative 

12 value units under (and consistent with) 

13 subparagraph (B) for years after 2005. 

14 ‘‘(iv) CONSULTATION.—Before pub15 lishing the notice of proposed rulemaking to 

16 carry out this subparagraph, the Secretary 

17 shall consult with the Comptroller General 

18 of the United States and with groups rep19 resenting the physician specialties involved. 

20 ‘‘(v) TREATMENT AS CHANGE IN LAW

21 AND REGULATION IN SUSTAINABLE GROWTH

22 RATE DETERMINATION.—The enactment of 

23 subparagraph (B)(iv) and this subpara24 graph shall be treated as a change in law 
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1 for purposes of applying subsection 

2 (f)(2)(D).’’. 

3 (2) PROHIBITION OF ADMINISTRATIVE AND JUDI4 CIAL REVIEW.—Section 1848(i)(1) (42 U.S.C. 1395w–

5 4(i)(1)) is amended—

6 (A) by striking ‘‘and’’ at the end of subpara7 graph (D); 

8 (B) by striking the period at the end of subpara9 graph (E) and inserting ‘‘, and’’; and 

10 (C) by adding at the end the following new sub11 paragraph: 

12 ‘‘(F) adjustments in practice expense rel13 ative value units for 2005 under subsection 

14 (c)(2)(H).’’. 

15 (3) TREATMENT OF OTHER SERVICES CUR16 RENTLY IN THE NON-PHYSICIAN WORK POOL.—The 

17 Secretary shall make adjustments to the non-physi18 cian work pool methodology (as such term is used in 

19 the regulations promulgated by the Secretary in the 

20 Federal Register as of December 31, 2002) for deter21 mination of practice expense relative value units 

22 under the physician fee schedule described in section 

23 1848(c)(2)(C)(ii) of the Social Security Act so that 

24 the practice expense relative value units for services 

25 determined under such methodology are not dis-
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1 proportionately reduced relative to the practice ex2 pense relative value units of other services not deter3 mined under such non-physician work pool method4 ology, as the result of amendments made by para5 graph (1).

6 (b) PAYMENT BASED ON COMPETITION.—Title XVIII 

7 is amended by inserting after section 1847 (42 U.S.C. 

8 1395w–3), as amended by section 302, the following new 

9 sections: 

10 ‘‘COMPETITIVE ACQUISITION OF COVERED OUTPATIENT

11 DRUGS AND BIOLOGICALS

12 ‘‘SEC. 1847A. (a) IMPLEMENTATION OF COMPETITIVE

13 ACQUISITION.—

14 ‘‘(1) IMPLEMENTATION OF PROGRAM.—

15 ‘‘(A) IN GENERAL.—The Secretary shall es16 tablish and implement a competitive acquisition 

17 program under which—

18 ‘‘(i) competitive acquisition areas are 

19 established throughout the United States for 

20 contract award purposes for acquisition of 

21 and payment for categories of covered out22 patient drugs and biologicals (as defined in 

23 paragraph (2)) under this part; 

24 ‘‘(ii) each physician is given the op25 portunity annually to elect to obtain drugs 
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1 and biologicals under the program or under 

2 section 1847B; and 

3 ‘‘(iii) each physician who elects to ob4 tain drugs and biologicals under the pro5 gram makes an annual selection under 

6 paragraph (5) of the contractor through 

7 which drugs and biologicals within a cat8 egory of drugs and biologicals will be ac9 quired and delivered to the physician under 

10 this part. 

11 ‘‘(B) IMPLEMENTATION.—The Secretary 

12 shall implement the program so that the pro13 gram applies to—

14 ‘‘(i) the oncology category beginning in 

15 2005; and 

16 ‘‘(ii) the non-oncology category begin17 ning in 2006. 

18 This section shall not apply in the case of a phy19 sician who elects section 1847B to apply. 

20 ‘‘(C) EXCLUSION AUTHORITY.—The Sec21 retary may exclude covered outpatient drugs and 

22 biologicals (including a class of such drugs and 

23 biologicals) from the competitive bidding system 

24 under this section if the drugs or biologicals (or 

25 class) are not appropriate for competitive bid-
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1 ding due to low volume of utilization by bene2 ficiaries under this part or a unique mode or 

3 method of delivery.

4 ‘‘(2) COVERED OUTPATIENT DRUGS AND

5 BIOLOGICALS, CATEGORIES, PROGRAM DEFINED.—For 

6 purposes of this section—

7 ‘‘(A) COVERED OUTPATIENT DRUGS AND

8 BIOLOGICALS DEFINED.—The term ‘covered out9 patient drugs and biologicals’ means drugs and 

10 biologicals to which section 1842(o) applies and 

11 which are not covered under section 1847 (relat12 ing to competitive acquisition for items of dura13 ble medical equipment). Such term does not in14 clude the following: 

15 ‘‘(i) Blood clotting factors. 

16 ‘‘(ii) Drugs and biologicals furnished 

17 to individuals in connection with the treat18 ment of end stage renal disease. 

19 ‘‘(iii) Radiopharmaceuticals. 

20 ‘‘(B) 2 CATEGORIES.—Each of the following 

21 shall be a separate category of covered outpatient 

22 drugs and biologicals, as identified by the Sec23 retary: 

24 ‘‘(i) ONCOLOGY CATEGORY.—A cat25 egory (in this section referred to as the ‘on-
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1 cology category’) consisting of those covered 

2 outpatient drugs and biologicals that, as de3 termined by the Secretary, are typically 

4 primarily billed by oncologists or are other5 wise used to treat cancer. 

6 ‘‘(ii) NON-ONCOLOGY CATEGORIES.—

7 Such numbers of categories (in this section 

8 referred to as the ‘non-oncology categories’) 

9 consisting of covered outpatient drugs and 

10 biologicals not described in clause (i), and 

11 appropriate subcategories of such drugs and 

12 biologicals as the Secretary may specify. 

13 ‘‘(C) PROGRAM.—The term ‘program’ 

14 means the competitive acquisition program 

15 under this section. 

16 ‘‘(D) COMPETITIVE ACQUISITION AREA; 

17 AREA.—The terms ‘competitive acquisition area’ 

18 and ‘area’ mean an appropriate geographic re19 gion established by the Secretary under the pro20 gram. 

21 ‘‘(E) CONTRACTOR.—The term ‘contractor’ 

22 means an entity that has entered into a contract 

23 with the Secretary under this section. 

24 ‘‘(3) APPLICATION OF PROGRAM PAYMENT METH25 ODOLOGY.—With respect to covered outpatient drugs 
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1 and biologicals which are supplied under the program 

2 in an area and which are prescribed by a physician 

3 who has not elected section 1847B to apply—

4 ‘‘(A) the claim for such drugs and 

5 biologicals shall be submitted by the contractor 

6 that supplied the drugs and biologicals; 

7 ‘‘(B) collection of amounts of any deductible 

8 and coinsurance applicable with respect to such 

9 drugs and biologicals shall be the responsibility 

10 of such contractor and shall not be collected un11 less the drug or biological is administered to the 

12 beneficiary involved; and 

13 ‘‘(C) the payment under this section (and 

14 related coinsurance amounts) for such drugs and 

15 biologicals—

16 ‘‘(i) shall be made only to such con17 tractor; 

18 ‘‘(ii) shall be conditioned upon the ad19 ministration of such drugs and biologicals; 

20 and 

21 ‘‘(iii) shall be based on the average of 

22 the bid prices for such drugs and biologicals 

23 in the area, as computed under subsection 

24 (d). 
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1 The Secretary shall provide a process for 

2 recoupment in the case in which payment is 

3 made for drugs and biologicals which were billed 

4 at the time of dispensing but which were not ac5 tually administered. 

6 ‘‘(4) CONTRACT REQUIRED.—

7 ‘‘(A) IN GENERAL.—Payment may not be 

8 made under this part for covered outpatient 

9 drugs and biologicals prescribed by a physician 

10 who has not elected section 1847B to apply with11 in a category and a competitive acquisition area 

12 with respect to which the program applies un13 less—

14 ‘‘(i) the drugs or biologicals are sup15 plied by a contractor with a contract under 

16 this section for such category of drugs and 

17 biologicals and area; and 

18 ‘‘(ii) the physician has elected such 

19 contractor under paragraph (5) for such 

20 category and area. 

21 ‘‘(B) PHYSICIAN CHOICE.—Subparagraph 

22 (A) shall not apply for a category of drugs for 

23 an area if the physician prescribing the covered 

24 outpatient drug in such category and area has 
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1 elected to apply section 1847B instead of this 

2 section.

3 ‘‘(5) CONTRACTOR SELECTION PROCESS.—

4 ‘‘(A) IN GENERAL.—The Secretary shall 

5 provide a process for the selection of a con6 tractor, on an annual basis and in such exigent 

7 circumstances as the Secretary may provide and 

8 with respect to each category of covered out9 patient drugs and biologicals for an area, by 

10 physicians prescribing such drugs and 

11 biologicals in the area of the contractor under 

12 this section that will supply the drugs and 

13 biologicals within that category and area. Such 

14 selection shall also include the election described 

15 in section 1847B(a). 

16 ‘‘(B) INFORMATION ON CONTRACTORS.—The 

17 Secretary shall make available to physicians on 

18 an ongoing basis, through a directory posted on 

19 the Department’s Internet website or otherwise 

20 and upon request, a list of the contractors under 

21 this section in the different competitive acquisi22 tion areas. 

23 ‘‘(C) SELECTING PHYSICIAN DEFINED.—For 

24 purposes of this section, the term ‘selecting phy25 sician’ means, with respect to a contractor and 
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1 category and competitive acquisition area, a 

2 physician who has not elected section 1847B to 

3 apply and has selected to apply under this sec4 tion such contractor for such category and area. 

5 ‘‘(b) PROGRAM REQUIREMENTS.—

6 ‘‘(1) CONTRACT FOR COVERED OUTPATIENT

7 DRUGS AND BIOLOGICALS.—The Secretary shall con8 duct a competition among entities for the acquisition 

9 of a covered outpatient drug or biological within each 

10 HCPCS code within each category for each competi11 tive acquisition area. 

12 ‘‘(2) CONDITIONS FOR AWARDING CONTRACT.—

13 ‘‘(A) IN GENERAL.—The Secretary may not 

14 award a contract to any entity under the com15 petition conducted in a competitive acquisition 

16 area pursuant to paragraph (1) with respect to 

17 the acquisition of covered outpatient drugs and 

18 biologicals within a category unless the Secretary 

19 finds that the entity meets all of the following 

20 with respect to the contract period involved: 

21 ‘‘(i) CAPACITY TO SUPPLY COVERED

22 OUTPATIENT DRUG OR BIOLOGICAL WITHIN

23 CATEGORY.—

24 ‘‘(I) IN GENERAL.—The entity has 

25 sufficient arrangements to acquire and 
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1 to deliver covered outpatient drugs and 

2 biologicals within such category in the 

3 area specified in the contract at the bid 

4 price specified in the contract for all 

5 physicians that may elect such entity. 

6 ‘‘(II) SHIPMENT METHOD7 OLOGY.—The entity has arrangements 

8 in effect for the shipment at least 5 

9 days each week of covered outpatient 

10 drugs and biologicals under the con11 tract and for the timely delivery (in12 cluding for emergency situations) of 

13 such drugs and biologicals in the area 

14 under the contract. 

15 ‘‘(ii) QUALITY, SERVICE, FINANCIAL

16 PERFORMANCE AND SOLVENCY STAND17 ARDS.—The entity meets quality, service, fi18 nancial performance, and solvency stand19 ards specified by the Secretary, including—

20 ‘‘(I) the establishment of proce21 dures for the prompt response and res22 olution of physician and beneficiary 

23 complaints and inquiries regarding the 

24 shipment of covered outpatient drugs 

25 and biologicals; and 
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1 ‘‘(II) a grievance process for the 

2 resolution of disputes. 

3 ‘‘(B) ADDITIONAL CONSIDERATIONS.—The 

4 Secretary may refuse to award a contract under 

5 this section, and may terminate such a contract, 

6 with an entity based upon—

7 ‘‘(i) the suspension or revocation, by 

8 the Federal Government or a State govern9 ment, of the entity’s license for the distribu10 tion of drugs or biologicals (including con11 trolled substances); or 

12 ‘‘(ii) the exclusion of the entity under 

13 section 1128 from participation under this 

14 title. 

15 ‘‘(C) APPLICATION OF MEDICARE PROVIDER

16 OMBUDSMAN.—For provision providing for a 

17 program-wide Medicare Provider Ombudsman to 

18 review complaints, see section 1868(b), as added 

19 by section 923 of the Medicare Prescription Drug 

20 and Modernization Act of 2003. 

21 ‘‘(3) AWARDING MULTIPLE CONTRACTS FOR A

22 CATEGORY AND AREA.—In order to provide a choice 

23 of at least 2 contractors in each competitive acquisi24 tion area for a category of drugs and biologicals, the 

25 Secretary may limit (but not below 2) the number of 
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1 qualified entities that are awarded such contracts for 

2 any category and area. The Secretary shall select 

3 among qualified entities based on the following: 

4 ‘‘(A) The bid prices for covered outpatient 

5 drugs and biologicals within the category and 

6 area. 

7 ‘‘(B) Bid price for distribution of such 

8 drugs and biologicals. 

9 ‘‘(C) Ability to ensure product integrity. 

10 ‘‘(D) Customer service. 

11 ‘‘(E) Past experience in the distribution of 

12 drugs and biologicals, including controlled sub13 stances. 

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

15 may specify. 

16 ‘‘(4) TERMS OF CONTRACTS.—

17 ‘‘(A) IN GENERAL.—A contract entered into 

18 with an entity under the competition conducted 

19 pursuant to paragraph (1) is subject to terms 

20 and conditions that the Secretary may specify 

21 consistent with this section. 

22 ‘‘(B) PERIOD OF CONTRACTS.—A contract 

23 under this section shall be for a term of 2 years, 

24 but may be terminated by the Secretary or the 

25 entity with appropriate, advance notice. 
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1 ‘‘(C) INTEGRITY OF DRUG AND BIOLOGICAL

2 DISTRIBUTION SYSTEM.—The Secretary—

3 ‘‘(i) shall require that for all drug and 

4 biological products distributed by a con5 tractor under this section be acquired di6 rectly from the manufacturer or from a dis7 tributor that has acquired the products di8 rectly from the manufacturer; and 

9 ‘‘(ii) may require, in the case of such 

10 products that are particularly susceptible to 

11 counterfeit or diversion, that the contractor 

12 comply with such additional product integ13 rity safeguards as may be determined to be 

14 necessary. 

15 ‘‘(D) IMPLEMENTATION OF ANTI-COUNTER16 FEITING, QUALITY, SAFETY, AND RECORD KEEP17 ING REQUIREMENTS.—The Secretary shall re18 quire each contractor to implement (through its 

19 officers, agents, representatives, and employees) 

20 requirements relating to the storage and han21 dling of covered outpatient drugs and biologicals 

22 and for the establishment and maintenance of 

23 distribution records for such drugs and 

24 biologicals. A contract under this section may 

25 include requirements relating to the following: 
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1 ‘‘(i) Secure facilities. 

2 ‘‘(ii) Safe and appropriate storage of 

3 drugs and biologicals. 

4 ‘‘(iii) Examination of drugs and 

5 biologicals received and dispensed. 

6 ‘‘(iv) Disposition of damaged and out7 dated drugs and biologicals. 

8 ‘‘(v) Record keeping and written poli9 cies and procedures. 

10 ‘‘(vi) Compliance personnel. 

11 ‘‘(E) COMPLIANCE WITH CODE OF CONDUCT

12 AND FRAUD AND ABUSE RULES.—Under the con13 tract—

14 ‘‘(i) the contractor shall comply with a 

15 code of conduct, specified or recognized by 

16 the Secretary, that includes standards relat17 ing to conflicts of interest; and 

18 ‘‘(ii) the contractor shall comply with 

19 all applicable provisions relating to preven20 tion of fraud and abuse, including compli21 ance with applicable guidelines of the De22 partment of Justice and the Inspector Gen23 eral of the Department of Health and 

24 Human Services. 
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1 ‘‘(F) DIRECT DELIVERY OF DRUGS AND

2 BIOLOGICALS TO PHYSICIANS.—Under the con3 tract the contractor shall only supply covered 

4 outpatient drugs and biologicals directly to the 

5 selecting physicians and not directly to bene6 ficiaries, except under circumstances and settings 

7 where a beneficiary currently receives a drug or 

8 biological in the beneficiary’s home or other non9 physician office setting as the Secretary may 

10 provide. The contractor shall not deliver drugs 

11 and biologicals to a selecting physician except 

12 upon receipt of a prescription for such drugs and 

13 biologicals, and such necessary data as may be 

14 required by the Secretary to carry out this sec15 tion. This section permits a physician to submit 

16 a prescription for each individual treatment but 

17 does not change the physician’s flexibility in 

18 terms of writing a prescription for drugs for a 

19 single treatment or a course of treatment. 

20 ‘‘(5) PERMITTING ACCESS TO DRUGS AND

21 BIOLOGICALS.—The Secretary shall provide for the re22 imbursement at the average sales price under section 

23 1847B for drugs and biologicals if the physician dem24 onstrates all of the following: 
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1 ‘‘(A) The drugs or biologicals are imme2 diately required. 

3 ‘‘(B) The physician could not have reason4 ably anticipated the immediate requirement for 

5 the drugs or biologicals. 

6 ‘‘(C) The contractor could not deliver to the 

7 physician the drugs or biologicals in a timely 

8 manner. 

9 ‘‘(6) CONSTRUCTION.—Nothing in this section 

10 shall be construed as waiving applicable State re11 quirements relating to licensing of pharmacies.

12 ‘‘(c) BIDDING PROCESS.—

13 ‘‘(1) IN GENERAL.—In awarding a contract for 

14 a category of drugs and biologicals in an area under 

15 the program, the Secretary shall consider with respect 

16 to each entity seeking to be awarded a contract the 

17 prices bid to acquire and supply the covered out18 patient drugs and biologicals for that category and 

19 area and the other factors referred to in subsection 

20 (b)(3). 

21 ‘‘(2) PRICES BID.—The prices bid by an entity 

22 under paragraph (1) shall be the prices in effect and 

23 available for the supply of contracted drugs and 

24 biologicals in the area through the entity for the con25 tract period.
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1 ‘‘(3) REJECTION OF CONTRACT OFFER.—The Sec2 retary shall reject the contract offer of an entity with 

3 respect to a category of drugs and biologicals for an 

4 area if the Secretary estimates that the prices bid, in 

5 the aggregate on average, would exceed 120 percent of 

6 the average sales price (as determined under section 

7 1847B).

8 ‘‘(4) BIDDING ON A NATIONAL OR REGIONAL

9 BASIS.—Nothing in this section shall be construed as 

10 precluding a bidder from bidding for contracts in all 

11 areas of the United States or as requiring a bidder 

12 to submit a bid for all areas of the United States. 

13 ‘‘(5) UNIFORMITY OF BIDS WITHIN AREA.—The 

14 amount of the bid submitted under a contract offer for 

15 any covered outpatient drug or biological for an area 

16 shall be the same for that drug or biological for all 

17 portions of that area. 

18 ‘‘(6) CONFIDENTIALITY OF BIDS.—The provisions 

19 of subparagraph (D) of section 1927(b)(3) shall apply 

20 to a bid submitted in a contract offer for a covered 

21 outpatient drug or biological under this section in the 

22 same manner as it applies to information disclosed 

23 under such section, except that any reference—
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1 ‘‘(A) in that subparagraph to a ‘manufac2 turer or wholesaler’ is deemed a reference to a 

3 ‘bidder’ under this section; 

4 ‘‘(B) in that section to ‘prices charged for 

5 drugs’ is deemed a reference to a ‘bid’ submitted 

6 under this section; and 

7 ‘‘(C) in clause (i) of that section to ‘this sec8 tion’, is deemed a reference to ‘part B of title 

9 XVIII’. 

10 ‘‘(7) INCLUSION OF COSTS.—The bid price sub11 mitted in a contract offer for a covered outpatient 

12 drug or biological shall—

13 ‘‘(A) include all costs related to the delivery 

14 of the drug or biological to the selecting physi15 cian (or other point of delivery); and 

16 ‘‘(B) include the costs of dispensing (includ17 ing shipping) of such drug or biological and 

18 management fees, but shall not include any costs 

19 related to the administration of the drug or bio20 logical, or wastage, spillage, or spoilage. 

21 ‘‘(8) PRICE ADJUSTMENTS DURING CONTRACT

22 PERIOD; DISCLOSURE OF COSTS.—Each contract 

23 awarded shall provide for—

24 ‘‘(A) disclosure to the Secretary the contrac25 tor’s reasonable, net acquisition costs for periods 
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1 specified by the Secretary, not more often than 

2 quarterly, of the contract; and 

3 ‘‘(B) appropriate price adjustments over the 

4 period of the contract to reflect significant in5 creases or decreases in a contractor’s reasonable, 

6 net acquisition costs, as so disclosed.

7 ‘‘(d) COMPUTATION OF AVERAGE BID PRICES FOR A

8 CATEGORY AND AREA.—

9 ‘‘(1) IN GENERAL.—For each year or other con10 tract period for each covered outpatient drug or bio11 logical and area with respect to which a competition 

12 is conducted under the program, the Secretary shall 

13 compute an area average of the bid prices submitted, 

14 in contract offers accepted for the category and area, 

15 for that year or other contract period. 

16 ‘‘(2) SPECIAL RULES.—The Secretary shall es17 tablish rules regarding the use under this section of 

18 the alternative payment amount provided under sec19 tion 1847B to the use of a price for specific covered 

20 outpatient drugs and biologicals in the following 

21 cases: 

22 ‘‘(A) NEW DRUGS AND BIOLOGICALS.—A 

23 covered outpatient drug or biological for which 

24 an average bid price has not been previously de25 termined. 
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1 ‘‘(B) OTHER CASES.—Such other excep2 tional cases as the Secretary may specify in reg3 ulations. 

4 ‘‘(C) EXCLUSION CASES.—A covered out5 patient drug or biological that has been excluded 

6 under subsection (a)(1)(C). 

7 Such alternative payment amount shall be based 

8 upon actual market price information and in no case 

9 shall it exceed the average sales price (as determined 

10 under section 1847B). 

11 ‘‘(e) COINSURANCE.—

12 ‘‘(1) IN GENERAL.—Coinsurance under this part 

13 with respect to a covered outpatient drug or biological 

14 for which payment is payable under this section shall 

15 be based on 20 percent of the payment basis under 

16 this section. 

17 ‘‘(2) COLLECTION.—Such coinsurance shall be 

18 collected by the contractor that supplies the drug or 

19 biological involved and, subject to subsection 

20 (a)(3)(B), in the same manner as coinsurance is col21 lected for durable medical equipment under this part. 

22 ‘‘(f) SPECIAL PAYMENT RULES.—

23 ‘‘(1) IN GENERAL.—The Secretary may not pro24 vide for an adjustment to reimbursement for covered 

25 outpatient drugs and biologicals unless adjustments to 
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1 the practice expense payment adjustment are made on 

2 the basis of supplemental surveys under section 

3 1848(c)(2)(H)(ii) of the Social Security Act, as added 

4 by subsection (a)(1)(B). 

5 ‘‘(B) USE IN EXCLUSION CASES.—If the 

6 Secretary excludes a drug or biological (or class 

7 of drugs or biologicals) under subsection 

8 (a)(1)(D), the Secretary may provide for reim9 bursement to be made under this part for such 

10 drugs and biologicals (or class) using the pay11 ment methodology under section 1847B or other 

12 market based pricing system. 

13 ‘‘(2) COORDINATION RULES.—The provisions of 

14 section 1842(h)(3) shall apply to a contractor with re15 spect to covered outpatients drugs and biologicals sup16 plied by that contractor in the same manner as they 

17 apply to a participating supplier. In order to admin18 ister this section, the Secretary may condition pay19 ment under this part to a person for the administra20 tion of a drug or biological supplied under this sec21 tion upon person’s provision of information on such 

22 administration. 

23 ‘‘(3) APPLICATION OF REQUIREMENT FOR AS24 SIGNMENT.—For provision requiring assignment of 
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1 claims for covered outpatient drugs and biologicals, 

2 see section 1842(o)(3). 

3 ‘‘(4) PROTECTION FOR BENEFICIARY IN CASE OF

4 MEDICAL NECESSITY DENIAL.—For protection of bene5 ficiaries against liability in the case of medical neces6 sity determinations, see section 1842(b)(3)(B)(ii)(III). 

7 ‘‘(5) PHYSICIAN ROLE IN APPEALS PROCESS.—

8 The Secretary shall establish a procedure under which 

9 a physician who prescribes a drug or biological for 

10 which payment is made under this section has appeal 

11 rights that are similar to those provided to a physi12 cian who prescribes durable medical equipment or a 

13 laboratory test. 

14 ‘‘(g) ADVISORY COMMITTEE.—The Secretary shall es15 tablish an advisory committee that includes representatives 

16 of parties affected by the program under this section, in17 cluding physicians, specialty pharmacies, distributors, 

18 manufacturers, and beneficiaries. The committee shall ad19 vise the Secretary on issues relating to the effective imple20 mentation of this section. 

21 ‘‘OPTIONAL USE OF AVERAGE SALES PRICE PAYMENT

22 METHODOLOGY

23 ‘‘SEC. 1847B. (a) ELECTION AND IMPLEMENTATION.—

24 ‘‘(1) ELECTION.—In connection with the annual 

25 election made by a physician under section 

26 1847A(a)(5), the physician may elect to apply this 
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1 section to the payment for covered outpatient drugs 

2 and biologicals instead of the payment methodology 

3 under section 1847A. 

4 ‘‘(2) IMPLEMENTATION.—This section shall be 

5 implemented with respect to categories of covered out6 patient 

7 ‘‘(3) COVERED OUTPATIENT DRUGS AND

8 BIOLOGICALS DEFINED.—For purposes of this section, 

9 the term ‘covered outpatient drugs and biologicals’ 

10 has the meaning given such term in section 

11 1847A(a)(2)(A). 

12 ‘‘(b) COMPUTATION OF PAYMENT AMOUNT.—

13 ‘‘(1) IN GENERAL.—If this section applies with 

14 respect to a covered outpatient drug or biological, the 

15 amount payable for the drug or biological (based on 

16 a minimum dosage unit) is, subject to applicable de17 ductible and coinsurance—

18 ‘‘(A) in the case of a multiple source drug 

19 (as defined in subsection (c)(6)(C)), 112 percent 

20 of the amount determined under paragraph (3); 

21 or 

22 ‘‘(B) in the case of a single source drug (as 

23 defined in subsection (c)(6)(D)), 112 percent of 

24 the amount determined under paragraph (4). 

25 ‘‘(2) SPECIFICATION OF UNIT.—
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1 ‘‘(A) SPECIFICATION BY MANUFACTURER.—

2 The manufacturer of a covered outpatient drug 

3 or biological shall specify the unit associated 

4 with each National Drug Code as part of the 

5 submission of data under section 

6 1927(b)(3)(A)(iii). 

7 ‘‘(B) UNIT DEFINED.—In this section, the 

8 term ‘unit’ means, with respect to a covered out9 patient drug or biological, the lowest identifiable 

10 quantity (such as a capsule or tablet, milligram 

11 of molecules, or grams) of the drug or biological 

12 that is dispensed, exclusive of any diluent with13 out reference to volume measures pertaining to 

14 liquids. 

15 ‘‘(3) MULTIPLE SOURCE DRUG.—For all drug 

16 products included within the same multiple source 

17 drug, the amount specified in this paragraph is the 

18 volume-weighted average of the average sales prices 

19 reported under section 1927(b)(3)(A)(iii) computed as 

20 follows: 

21 ‘‘(A) Compute the sum of the products (for 

22 each national drug code assigned to such drug 

23 products) of—

24 ‘‘(i) the manufacturer’s average sales 

25 price (as defined in subsection (c)); and 
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1 ‘‘(ii) the total number of units specified 

2 under paragraph (2) sold, as reported under 

3 section 1927(b)(3)(A)(iii). 

4 ‘‘(B) Divide the sum computed under sub5 paragraph (A) by the sum of the total number 

6 of units under subparagraph (A)(ii) for all na7 tional drug codes assigned to such drug products. 

8 ‘‘(4) SINGLE SOURCE DRUG.—The amount speci9 fied in this paragraph for a single source drug is the 

10 lesser of the following: 

11 ‘‘(A) MANUFACTURER’S AVERAGE SALES

12 PRICE.—The manufacturer’s average sales price 

13 for a national drug code, as computed using the 

14 methodology applied under paragraph (3). 

15 ‘‘(B) WHOLESALE ACQUISITION COST

16 (WAC).—The wholesale acquisition cost (as de17 fined in subsection (c)(6)(B)) reported for the 

18 single source drug. 

19 ‘‘(5) BASIS FOR DETERMINATION.—The payment 

20 amount shall be determined under this subsection 

21 based on information reported under subsection (e) 

22 and without regard to any special packaging, label23 ing, or identifiers on the dosage form or product or 

24 package. 
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1 ‘‘(6) STUDY AND AUTHORIZATION.—Not later 

2 than 2 years after the date of the enactment of this 

3 section, the Secretary shall conduct and complete a 

4 study on the adequacy of the payment rates provided 

5 under this subsection, taking into account the acquisi6 tion costs for the covered outpatient drugs and 

7 biologicals as well as provider-related costs, in rural 

8 and urban areas. The Secretary shall submit the re9 sults of such study to Congress. For calendar years 

10 after the date such results are submitted, the Sec11 retary may adjust the percentage specified in para12 graphs (1)(A) and (1)(B) based upon such results. 

13 ‘‘(c) MANUFACTURER’S AVERAGE SALES PRICE.—

14 ‘‘(1) IN GENERAL.—For purposes of this sub15 section, subject to paragraphs (2) and (3), the manu16 facturer’s ‘average sales price’ means, of a covered 

17 outpatient drug or biological for a NDC code for a 

18 calendar quarter for a manufacturer for a unit—

19 ‘‘(A) the manufacturer’s total sales (as de20 fined by the Secretary in regulations for pur21 poses of section 1927(c)(1)) in the United States 

22 for such drug or biological in the calendar quar23 ter; divided by 
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1 ‘‘(B) the total number of such units of such 

2 drug or biological sold by the manufacturer in 

3 such quarter. 

4 ‘‘(2) CERTAIN SALES EXEMPTED FROM COMPUTA5 TION.—In calculating the manufacturer’s average 

6 sales price under this subsection, the following sales 

7 shall be excluded: 

8 ‘‘(A) SALES EXEMPT FROM BEST PRICE.—

9 Sales exempt from the inclusion in the deter10 mination of ‘best price’ under section 

11 1927(c)(1)(C)(i). 

12 ‘‘(B) SALES AT NOMINAL CHARGE.—Such 

13 other sales as the Secretary identifies by regula14 tion as sales to an entity that are nominal in 

15 price or do not reflect a market price paid by an 

16 entity to which payment is made under this sec17 tion. 

18 ‘‘(3) SALE PRICE NET OF DISCOUNTS.—In calcu19 lating the manufacturer’s average sales price under 

20 this subsection, such price shall be determined taking 

21 into account volume discounts, prompt pay discounts, 

22 cash discounts, the free goods that are contingent on 

23 any purchase requirement, chargebacks, and rebates 

24 (other than rebates under section 1927), that result in 

25 a reduction of the cost to the purchaser. A rebate to 
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1 a payor or other entity that does not take title to a 

2 covered outpatient drug or biological shall not be 

3 taken into account in determining such price unless 

4 the manufacturer has an agreement with the payor or 

5 other entity under which the purchaser’s price for the 

6 drug or biological is reduced as a consequence of such 

7 rebate. 

8 ‘‘(4) AUTHORITY TO DISREGARD AVERAGE SALES

9 PRICE DURING FIRST QUARTER OF SALES.—In the 

10 case of a covered outpatient drug or biological during 

11 an initial period (not to exceed a full calendar quar12 ter) in which data on the prices for sales for the drug 

13 or biological is not available from the manufacturer 

14 to compute an average sales price for the drug or bio15 logical, the Secretary may determine the amount pay16 able under this section for the drug or biological with17 out considering the manufacturer’s average sales price 

18 of that manufacturer for that drug or biological. 

19 ‘‘(5) FREQUENCY OF DETERMINATIONS.—

20 ‘‘(A) IN GENERAL ON A QUARTERLY

21 BASIS.—The manufacturer’s average sales price, 

22 for a covered outpatient drug or biological of a 

23 manufacturer, shall be determined by such man24 ufacturer under this subsection on a quarterly 

25 basis. In making such determination insofar as 
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1 there is a lag in the reporting of the information 

2 on rebates and chargebacks under paragraph (3) 

3 so that adequate data are not available on a 

4 timely basis, the manufacturer shall apply a 

5 methodology established by the Secretary based 

6 on a 12-month rolling average for the manufac7 turer to estimate costs attributable to rebates and 

8 chargebacks. 

9 ‘‘(B) UPDATES IN RATES.—The payment 

10 rates under subsection (b)(1) and (b)(2)(A) shall 

11 be updated by the Secretary on a quarterly basis 

12 and shall be applied based upon the manufactur13 er’s average sales price determined for the most 

14 recent calendar quarter. 

15 ‘‘(C) USE OF CONTRACTORS; IMPLEMENTA16 TION.—The Secretary may use a carrier, fiscal 

17 intermediary, or other contractor to determine 

18 the payment amount under subsection (b). Not19 withstanding any other provision of law, the 

20 Secretary may implement, by program memo21 randum or otherwise, any of the provisions of 

22 this section. 

23 ‘‘(6) DEFINITIONS AND OTHER RULES.—In this 

24 section: 
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1 ‘‘(A) MANUFACTURER.—The term ‘manufac2 turer’ means, with respect to a covered out3 patient drug or biological, the manufacturer (as 

4 defined in section 1927(k)(5)) whose national 

5 drug code appears on such drug or biological. 

6 ‘‘(ii) WHOLESALE ACQUISITION COST.—The 

7 term ‘wholesale acquisition cost’ means, with re8 spect to a covered outpatient drug or biological, 

9 the manufacturer’s list price for the drug or bio10 logical to wholesalers or direct purchasers in the 

11 United States, not including prompt pay or 

12 other discounts, rebates or reductions in price, 

13 for the most recent month for which the informa14 tion is available, as reported in wholesale price 

15 guides or other publications of drug pricing 

16 data. 

17 ‘‘(C) MULTIPLE SOURCE DRUG.—The term 

18 ‘multiple source drug’ means, for a calendar 

19 quarter, a covered outpatient drug or biological 

20 for which there are 2 or more drug products 

21 which—

22 ‘‘(i) are rated as therapeutically equiv23 alent (under the Food and Drug Adminis24 tration’s most recent publication of ‘Ap-
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1 proved Drug Products with Therapeutic 

2 Equivalence Evaluations’), 

3 ‘‘(ii) except as provided in subpara4 graph (E), are pharmaceutically equivalent 

5 and bioequivalent, as determined under sub6 paragraph (F) and as determined by the 

7 Food and Drug Administration, and 

8 ‘‘(iii) are sold or marketed in the 

9 United States during the quarter. 

10 ‘‘(D) SINGLE SOURCE DRUG.—The term 

11 ‘single source drug’ means a covered outpatient 

12 drug or biological which is not a multiple source 

13 drug and which is produced or distributed under 

14 an original new drug application approved by 

15 the Food and Drug Administration, including a 

16 drug product marketed by any cross-licensed pro17 ducers or distributors operating under the new 

18 drug application, or which is a biological. 

19 ‘‘(E) EXCEPTION FROM PHARMACEUTICAL

20 EQUIVALENCE AND BIOEQUIVALENCE REQUIRE21 MENT.—Subparagraph (C)(ii) shall not apply if 

22 the Food and Drug Administration changes by 

23 regulation the requirement that, for purposes of 

24 the publication described in subparagraph (C)(i), 

25 in order for drug products to be rated as thera-
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1 peutically equivalent, they must be pharmaceuti2 cally equivalent and bioequivalent, as defined in 

3 subparagraph (F). 

4 ‘‘(F) DETERMINATION OF PHARMACEUTICAL

5 EQUIVALENCE AND BIOEQUIVALENCE.—For pur6 poses of this paragraph—

7 ‘‘(i) drug products are pharmaceuti8 cally equivalent if the products contain 

9 identical amounts of the same active drug 

10 ingredient in the same dosage form and 

11 meet compendial or other applicable stand12 ards of strength, quality, purity, and iden13 tity; and 

14 ‘‘(ii) drugs are bioequivalent if they do 

15 not present a known or potential bioequiva16 lence problem, or, if they do present such a 

17 problem, they are shown to meet an appro18 priate standard of bioequivalence. 

19 ‘‘(G) INCLUSION OF VACCINES.—In apply20 ing provisions of section 1927 under this section, 

21 ‘other than a vaccine’ is deemed deleted from sec22 tion 1927(k)(2)(B). 

23 ‘‘(d) AUTHORITY TO USE ALTERNATIVE PAYMENT IN

24 RESPONSE TO PUBLIC HEALTH EMERGENCY.—In the case 

25 of a public health emergency under section 319 of the Public 
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1 Health Service Act in which there is a documented inability 

2 to access covered outpatient drugs and biologicals, and a 

3 concomitant increase in the price, of a drug or biological 

4 which is not reflected in the manufacturer’s average sales 

5 price for one or more quarters, the Secretary may use the 

6 wholesale acquisition cost (or other reasonable measure of 

7 drug price) instead of the manufacturer’s average sales 

8 price for such quarters and for subsequent quarters until 

9 the price and availability of the drug or biological has sta10 bilized and is substantially reflected in the applicable man11 ufacturer’s average sales price. 

12 ‘‘(e) REPORTS.—

13 ‘‘(1) QUARTERLY REPORT ON AVERAGE SALES

14 PRICE.—For requirements for reporting the manufac15 turer’s average sales price (and, if required to make 

16 payment, the manufacturer’s wholesale acquisition 

17 cost) for the covered outpatient drug or biological, see 

18 section 1927(b)(3). 

19 ‘‘(2) ANNUAL REPORT TO CONGRESS.—The Sec20 retary shall submit to the Committees on Energy and 

21 Commerce and Ways and Means of the House of Rep22 resentatives and the Committee on Finance of the 

23 Senate an annual report on the operation of this sec24 tion and section 1847A. Such report shall include in25 formation on the following: 
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1 ‘‘(A) Information on savings, reductions in 

2 cost-sharing, access to covered outpatient drugs 

3 and biologicals. 

4 ‘‘(B) In the case of section 1847A, the range 

5 of choices of contractors available to providers, 

6 and beneficiary and provider satisfaction. 

7 ‘‘(C) Trends in average sales price under 

8 subsection (b). 

9 ‘‘(D) Administrative costs associated with 

10 compliance with this section. 

11 ‘‘(E) Total value of payments made under 

12 this section. 

13 ‘‘(F) Comparison of the average manufac14 turer price as applied under section 1927 for a 

15 covered outpatient drug or biological with the 

16 manufacturer’s average sales price for the drug 

17 or biological under this section. 

18 ‘‘(f) RESTRICTION ON ADMINISTRATIVE AND JUDICIAL

19 REVIEW.—There shall be no administrative or judicial re20 view under section 1869, section 1878, or otherwise, of de21 terminations of manufacturer’s average sales price under 

22 subsection (c).’’. 

23 (c) CONTINUATION OF PAYMENT METHODOLOGY FOR

24 RADIOPHARMACEUTICALS.—Nothing in the amendments 

25 made by this section shall be construed as changing the pay-
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1 ment methodology under part B of title XVIII of the Social 

2 Security Act for radiopharmaceuticals, including the use by 

3 carriers of invoice pricing methodology.

4 (d) CONFORMING AMENDMENTS.—

5 (1) IN GENERAL.—Section 1842(o) (42 U.S.C. 

6 1395u(o)) is amended—

7 (A) in paragraph (1), by inserting ‘‘, sub8 ject to section 1847A and 1847B,’’ before ‘‘the 

9 amount payable for the drug or biological’’; and 

10 (B) by adding at the end of paragraph (2) 

11 the following: ‘‘This paragraph shall not apply 

12 in the case of payment under section 1847A or 

13 1847B.’’. 

14 (2) NO CHANGE IN COVERAGE BASIS.—Section 

15 1861(s)(2)(A) (42 U.S.C. 1395x(s)(2)(A)) is amended 

16 by inserting ‘‘(or would have been so included but for 

17 the application of section 1847A or 1847B)’’ after 

18 ‘‘included in the physicians’ bills’’. 

19 (3) PAYMENT.—Section 1833(a)(1)(S) (42 

20 U.S.C. 1395l(a)(1)(S)) is amended by inserting ‘‘(or, 

21 if applicable, under section 1847A or 1847B)’’ after 

22 ‘‘1842(o)’’. 

23 (4) CONSOLIDATED REPORTING OF PRICING IN24 FORMATION.—Section 1927 (42 U.S.C. 1396r–8) is 

25 amended—
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1 (A) in subsection (a)(1), by inserting ‘‘or 

2 under part B of title XVIII’’ after ‘‘section 

3 1903(a)’’; 

4 (B) in subsection (b)(3)(A)—

5 (i) in clause (i), by striking ‘‘and’’ at 

6 the end; 

7 (ii) in clause (ii), by striking the pe8 riod and inserting ‘‘; and’’; and 

9 (iii) by adding at the end the following 

10 new clause: 

11 ‘‘(iii) for calendar quarters beginning 

12 on or after April 1, 2004, in conjunction 

13 with reporting required under clause (i) 

14 and by national drug code (NDC)—

15 ‘‘(I) the manufacturer’s average 

16 sales price (as defined in section 

17 1847B(c)) and the total number of 

18 units specified under section 

19 1847B(b)(2)(A); 

20 ‘‘(II) if required to make payment 

21 under section 1847B, the manufactur22 er’s wholesale acquisition cost, as de23 fined in subsection (c)(6) of such sec24 tion; and 
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1 ‘‘(III) information on those sales 

2 that were made at a nominal price or 

3 otherwise described in section 

4 1847B(c)(2)(B), which information is 

5 subject to audit by the Inspector Gen6 eral of the Department of Health and 

7 Human Services; 

8 for a covered outpatient drug or biological 

9 for which payment is made under section 

10 1847B.’’; 

11 (C) in subsection (b)(3)(B)—

12 (i) in the heading, by inserting ‘‘AND

13 MANUFACTURER’S AVERAGE SALES PRICE’’ 

14 after ‘‘PRICE’’; and 

15 (ii) by inserting ‘‘and manufacturer’s 

16 average sales prices (including wholesale ac17 quisition cost) if required to make pay18 ment’’ after ‘‘manufacturer prices’’; and 

19 (D) in subsection (b)(3)(D)(i), by inserting 

20 ‘‘and section 1847B’’ after ‘‘this section’’. 

21 (e) GAO STUDY.—

22 (1) STUDY.—The Comptroller General of the 

23 United States shall conduct a study to assess the im24 pact of the amendments made by this section on the 

25 delivery of services, including their impact on—
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1 (A) beneficiary access to drugs and 

2 biologicals for which payment is made under 

3 part B of title XVIII of the Social Security Act; 

4 and 

5 (B) the site of delivery of such services. 

6 (2) REPORT.—Not later than 2 years after the 

7 year in which the amendment made by subsection 

8 (a)(1) first takes effect, the Comptroller General shall 

9 submit to Congress a report on the study conducted 

10 under paragraph (1). 

11 (f) MEDPAC RECOMMENDATIONS ON BLOOD CLOT12 TING FACTORS.—The Medicare Payment Advisory Commis13 sion shall submit to Congress, in its annual report in 2004, 

14 specific recommendations regarding a payment amount (or 

15 amounts) for blood clotting factors and its administration 

16 under the medicare program. 

17 (g) ESTABLISHMENT OF PHARMACEUTICAL MANAGE18 MENT FEE WHERE DRUGS PROVIDED THROUGH A CON19 TRACTOR.—Section 1848(a) (42 U.S.C. 1395w–4(a)) is 

20 amended by adding at the end the following new paragraph: 

21 ‘‘(5) RECOGNITION OF PHARMACEUTICAL MAN22 AGEMENT FEE IN CERTAIN CASES.—In establishing 

23 the fee schedule under this section, the Secretary shall 

24 provide for a separate payment with respect to physi25 cians’ services consisting of the unique administrative 
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1 and management costs associated with covered drugs 

2 and biologicals which are furnished to physicians 

3 through a contractor under section 1847A (compared 

4 with such costs if such drugs and biologicals were ac5 quired directly by such physicians).’’. 

6 (h) STUDY ON CODES FOR NON-ONCOLOGY CODES.—

7 (1) STUDY.—The Secretary shall conduct a study 

8 to determine the appropriateness of establishing and 

9 implementing separate CPT codes for non-oncology 

10 infusions that are based on the level of complexity of 

11 the administration and resource consumption. 

12 (2) REPORT.—Not later than 1 year after the 

13 date of the enactment of this Act, the Secretary shall 

14 submit a report to Congress on the study. To the ex15 tent the Secretary determines it to be appropriate, the 

16 Secretary may implement appropriate changes in the 

17 payment methodology for such codes. 

18 SEC. 304. DEMONSTRATION PROJECT FOR USE OF RECOV19 ERY AUDIT CONTRACTORS. 

20 (a) IN GENERAL.—The Secretary of Health and 

21 Human Services shall conduct a demonstration project 

22 under this section (in this section referred to as the 

23 ‘‘project’’) to demonstrate the use of recovery audit contrac24 tors under the Medicare Integrity Program in identifying 

25 underpayments and overpayments and recouping overpay-
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1 ments under the medicare program for services for which 

2 payment is made under part A or part B of title XVIII 

3 of the Social Security Act. Under the project—

4 (1) payment may be made to such a contractor 

5 on a contingent basis; 

6 (2) a percentage of the amount recovered may be 

7 retained by the Secretary and shall be available to the 

8 program management account of the Centers for 

9 Medicare & Medicaid Services; and 

10 (3) the Secretary shall examine the efficacy of 

11 such use with respect to duplicative payments, accu12 racy of coding, and other payment policies in which 

13 inaccurate payments arise. 

14 (b) SCOPE AND DURATION.—

15 (1) SCOPE.—The project shall cover at least 2 

16 States that are among the States with—

17 (A) the highest per capita utilization rates 

18 of medicare services, and 

19 (B) at least 3 contractors. 

20 (2) DURATION.—The project shall last for not 

21 longer than 3 years. 

22 (c) WAIVER.—The Secretary of Health and Human 

23 Services shall waive such provisions of title XVIII of the 

24 Social Security Act as may be necessary to provide for pay-
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1 ment for services under the project in accordance with sub2 section (a). 

3 (d) QUALIFICATIONS OF CONTRACTORS.—

4 (1) IN GENERAL.—The Secretary shall enter into 

5 a recovery audit contract under this section with an 

6 entity only if the entity has staff that has the appro7 priate clinical knowledge of and experience with the 

8 payment rules and regulations under the medicare 

9 program or the entity has or will contract with an10 other entity that has such knowledgeable and experi11 enced staff. 

12 (2) INELIGIBILITY OF CERTAIN CONTRACTORS.—

13 The Secretary may not enter into a recovery audit 

14 contract under this section with an entity to the ex15 tent that the entity is a fiscal intermediary under sec16 tion 1816 of the Social Security Act (42 U.S.C. 

17 1395h), a carrier under section 1842 of such Act (42 

18 U.S.C. 1395u), or a Medicare Administrative Con19 tractor under section 1874A of such Act. 

20 (3) PREFERENCE FOR ENTITIES WITH DEM21 ONSTRATED PROFICIENCY WITH PRIVATE INSURERS.—

22 In awarding contracts to recovery audit contractors 

23 under this section, the Secretary shall give preference 

24 to those risk entities that the Secretary determines 

25 have demonstrated more than 3 years direct manage-
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1 ment experience and a proficiency in recovery audits 

2 with private insurers or under the medicaid program 

3 under title XIX of such Act. 

4 (e) CONSTRUCTION RELATING TO CONDUCT OF INVES5 TIGATION OF FRAUD.—A recovery of an overpayment to a 

6 provider by a recovery audit contractor shall not be con7 strued to prohibit the Secretary or the Attorney General 

8 from investigating and prosecuting, if appropriate, allega9 tions of fraud or abuse arising from such overpayment. 

10 (f) REPORT.—The Secretary of Health and Human 

11 Services shall submit to Congress a report on the project 

12 not later than 6 months after the date of its completion. 

13 Such reports shall include information on the impact of the 

14 project on savings to the medicare program and rec15 ommendations on the cost-effectiveness of extending or ex16 panding the project.

17 TITLE IV—RURAL HEALTH CARE 

18 IMPROVEMENTS 

19 SEC. 401. ENHANCED DISPROPORTIONATE SHARE HOS20 PITAL (DSH) TREATMENT FOR RURAL HOS21 PITALS AND URBAN HOSPITALS WITH FEWER 

22 THAN 100 BEDS. 

23 (a) DOUBLING THE CAP.—
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1 (1) IN GENERAL.—Section 1886(d)(5)(F) (42 

2 U.S.C. 1395ww(d)(5)(F)) is amended by adding at 

3 the end the following new clause: 

4 ‘‘(xiv)(I) In the case of discharges in a fiscal year be5 ginning on or after October 1, 2003, subject to subclause 

6 (II), there shall be substituted for the disproportionate share 

7 adjustment percentage otherwise determined under clause 

8 (iv) (other than subclause (I)) or under clause (viii), (x), 

9 (xi), (xii), or (xiii), the disproportionate share adjustment 

10 percentage determined under clause (vii) (relating to large, 

11 urban hospitals). 

12 ‘‘(II) Under subclause (I), the disproportionate share 

13 adjustment percentage shall not exceed 10 percent for a hos14 pital that is not classified as a rural referral center under 

15 subparagraph (C).’’. 

16 (2) CONFORMING AMENDMENTS.—Section 

17 1886(d)(5)(F) (42 U.S.C. 1395ww(d)(5)(F)) is 

18 amended—

19 (A) in each of subclauses (II), (III), (IV), 

20 (V), and (VI) of clause (iv), by inserting ‘‘subject 

21 to clause (xiv) and’’ before ‘‘for discharges occur22 ring’’; 

23 (B) in clause (viii), by striking ‘‘The for24 mula’’ and inserting ‘‘Subject to clause (xiv), the 

25 formula’’; and 
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1 (C) in each of clauses (x), (xi), (xii), and 

2 (xiii), by striking ‘‘For purposes’’ and inserting 

3 ‘‘Subject to clause (xiv), for purposes’’. 

4 (b) EFFECTIVE DATE.—The amendments made by this 

5 section shall apply with respect to discharges occurring on 

6 or after October 1, 2003.

7 SEC. 402. IMMEDIATE ESTABLISHMENT OF UNIFORM 

8 STANDARDIZED AMOUNT IN RURAL AND 

9 SMALL URBAN AREAS. 

10 (a) IN GENERAL.—Section 1886(d)(3)(A) (42 U.S.C. 

11 1395ww(d)(3)(A)) is amended—

12 (1) in clause (iv), by inserting ‘‘and ending on 

13 or before September 30, 2003,’’ after ‘‘October 1, 

14 1995,’’; and 

15 (2) by redesignating clauses (v) and (vi) as 

16 clauses (vii) and (viii), respectively, and inserting 

17 after clause (iv) the following new clauses: 

18 ‘‘(v) For discharges occurring in the fiscal year 

19 beginning on October 1, 2003, the average standard20 ized amount for hospitals located in areas other than 

21 a large urban area shall be equal to the average 

22 standardized amount for hospitals located in a large 

23 urban area.’’. 

24 (b) CONFORMING AMENDMENTS.—
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1 (1) COMPUTING DRG-SPECIFIC RATES.—Section 

2 1886(d)(3)(D) (42 U.S.C. 1395ww(d)(3)(D)) is 

3 amended—

4 (A) in the heading, by striking ‘‘IN DIF5 FERENT AREAS’’; 

6 (B) in the matter preceding clause (i), by 

7 striking ‘‘, each of’’; 

8 (C) in clause (i)—

9 (i) in the matter preceding subclause 

10 (I), by inserting ‘‘for fiscal years before fis11 cal year 2004,’’ before ‘‘for hospitals’’; and 

12 (ii) in subclause (II), by striking 

13 ‘‘and’’ after the semicolon at the end; 

14 (D) in clause (ii)—

15 (i) in the matter preceding subclause 

16 (I), by inserting ‘‘for fiscal years before fis17 cal year 2004,’’ before ‘‘for hospitals’’; and 

18 (ii) in subclause (II), by striking the 

19 period at the end and inserting ‘‘; and’’; 

20 and 

21 (E) by adding at the end the following new 

22 clause: 

23 ‘‘(iii) for a fiscal year beginning after fiscal 

24 year 2003, for hospitals located in all areas, to 

25 the product of—
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1 ‘‘(I) the applicable standardized 

2 amount (computed under subparagraph 

3 (A)), reduced under subparagraph (B), and 

4 adjusted or reduced under subparagraph (C) 

5 for the fiscal year; and 

6 ‘‘(II) the weighting factor (determined 

7 under paragraph (4)(B)) for that diagnosis8 related group.’’. 

9 (2) TECHNICAL CONFORMING SUNSET.—Section 

10 1886(d)(3) (42 U.S.C. 1395ww(d)(3)) is amended—

11 (A) in the matter preceding subparagraph 

12 (A), by inserting ‘‘, for fiscal years before fiscal 

13 year 1997,’’ before ‘‘a regional adjusted DRG 

14 prospective payment rate’’; and 

15 (B) in subparagraph (D), in the matter 

16 preceding clause (i), by inserting ‘‘, for fiscal 

17 years before fiscal year 1997,’’ before ‘‘a regional 

18 DRG prospective payment rate for each region,’’.

19 SEC. 403. ESTABLISHMENT OF ESSENTIAL RURAL HOSPITAL 

20 CLASSIFICATION. 

21 (a) CLASSIFICATION.—Section 1861(mm) (42 U.S.C. 

22 1395x(mm)) is amended—

23 (1) in the heading by adding ‘‘ESSENTIAL

24 RURAL HOSPITALS’’ at the end; and 
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1 (2) by adding at the end the following new para2 graphs: 

3 ‘‘(4)(A) The term ‘essential rural hospital’ means a 

4 subsection (d) hospital (as defined in section 1886(d)(1)(B)) 

5 that is located in a rural area (as defined for purposes of 

6 section 1886(d)), has more than 25 licensed acute care inpa7 tient beds, has applied to the Secretary for classification 

8 as such a hospital, and with respect to which the Secretary 

9 has determined that the closure of the hospital would sig10 nificantly diminish the ability of medicare beneficiaries to 

11 obtain essential health care services. 

12 ‘‘(B) The determination under subparagraph (A) shall 

13 be based on the following criteria: 

14 ‘‘(i) HIGH PROPORTION OF MEDICARE BENE15 FICIARIES RECEIVING CARE FROM HOSPITAL.—(I) A 

16 high percentage of such beneficiaries residing in the 

17 area of the hospital who are hospitalized (during the 

18 most recent year for which complete data are avail19 able) receive basic inpatient medical care at the hos20 pital. 

21 ‘‘(II) For a hospital with more than 200 licensed 

22 beds, a high percentage of such beneficiaries residing 

23 in such area who are hospitalized (during such recent 

24 year) receive specialized surgical inpatient care at the 

25 hospital. 
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1 ‘‘(III) Almost all physicians described in section 

2 1861(r)(1) in such area have privileges at the hospital 

3 and provide their inpatient services primarily at the 

4 hospital. 

5 ‘‘(ii) SIGNIFICANT ADVERSE IMPACT IN ABSENCE

6 OF HOSPITAL.—If the hospital were to close—

7 ‘‘(I) there would be a significant amount of 

8 time needed for residents to reach emergency 

9 treatment, resulting in a potential significant 

10 harm to beneficiaries with critical illnesses or 

11 injuries; 

12 ‘‘(II) there would be an inability in the 

13 community to stablize emergency cases for trans14 fers to another acute care setting, resulting in a 

15 potential for significant harm to medicare bene16 ficiaries; and 

17 ‘‘(III) any other nearby hospital lacks the 

18 physical and clinical capacity to take over the 

19 hospital’s typical admissions. 

20 ‘‘(C) In making such determination, the Secretary 

21 may also consider the following: 

22 ‘‘(i) Free-standing ambulatory surgery centers, 

23 office-based oncology care, and imaging center services 

24 are insufficient in the hospital’s area to handle the 

25 outpatient care of the hospital. 
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1 ‘‘(ii) Beneficiaries in nearby areas would be ad2 versely affected if the hospital were to close as the hos3 pital provides specialized knowledge and services to a 

4 network of smaller hospitals and critical access hos5 pitals. 

6 ‘‘(iii) Medicare beneficiaries would have dif7 ficulty in accessing care if the hospital were to close 

8 as the hospital provides significant subsidies to sup9 port ambulatory care in local clinics, including men10 tal health clinics and to support post acute care. 

11 ‘‘(iv) The hospital has a committment to provide 

12 graduate medical education in a rural area. 

13 ‘‘(C) QUALITY CARE.—The hospital inpatient 

14 score for quality of care is not less than the median 

15 hospital score for qualify of care for hospitals in the 

16 State, as established under standards of the utiliza17 tion and quality control peer review organization 

18 under part B of title XI or other quality standards 

19 recognized by the Secretary. 

20 A hospital classified as an essential rural hospital may not 

21 change such classification and a hospital so classified shall 

22 not be treated as a sole community hospital, medicare de23 pendent hospital, or rural referral center for purposes of 

24 section 1886.’’. 
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1 (b) PAYMENT BASED ON 102 PERCENT OF ALLOWED

2 COSTS.—

3 (1) INPATIENT HOSPITAL SERVICES.—Section 

4 1886(d) (42 U.S.C. 1395ww(d)) is amended by add5 ing at the end the following: 

6 ‘‘(11) In the case of a hospital classified as an essential 

7 rural hospital under section 1861(mm)(4) for a cost report8 ing period, the payment under this subsection for inpatient 

9 hospital services for discharges occurring during the period 

10 shall be based on 102 percent of the reasonable costs for such 

11 services. Nothing in this paragraph shall be construed as 

12 affecting the application or amount of deductibles or copay13 ments otherwise applicable to such services under part A 

14 or as waiving any requirement for billing for such serv15 ices.’’. 

16 (2) HOSPITAL OUTPATIENT SERVICES.—Section 

17 1833(t)(13) (42 U.S.C. 1395l(t)(13)) is amended by 

18 adding at the end the following new subparagraph: 

19 ‘‘(B) SPECIAL RULE FOR ESSENTIAL RURAL

20 HOSPITALS.—In the case of a hospital classified 

21 as an essential rural hospital under section 

22 1861(mm)(4) for a cost reporting period, the 

23 payment under this subsection for covered OPD 

24 services during the period shall be based on 102 

25 percent of the reasonable costs for such services. 
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1 Nothing in this subparagraph shall be construed 

2 as affecting the application or amount of 

3 deductibles or copayments otherwise applicable 

4 to such services under this part or as waiving 

5 any requirement for billing for such services.’’. 

6 (c) EFFECTIVE DATE.—The amendments made by this 

7 section shall apply to cost reporting periods beginning on 

8 or after October 1, 2004. 

9 SEC. 404. MORE FREQUENT UPDATE IN WEIGHTS USED IN 

10 HOSPITAL MARKET BASKET. 

11 (a) MORE FREQUENT UPDATES IN WEIGHTS.—After 

12 revising the weights used in the hospital market basket 

13 under section 1886(b)(3)(B)(iii) of the Social Security Act 

14 (42 U.S.C. 1395ww(b)(3)(B)(iii)) to reflect the most current 

15 data available, the Secretary shall establish a frequency for 

16 revising such weights, including the labor share, in such 

17 market basket to reflect the most current data available 

18 more frequently than once every 5 years. 

19 (b) REPORT.—Not later than October 1, 2004, the Sec20 retary shall submit a report to Congress on the frequency 

21 established under subsection (a), including an explanation 

22 of the reasons for, and options considered, in determining 

23 such frequency. 
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1 SEC. 405. IMPROVEMENTS TO CRITICAL ACCESS HOSPITAL 

2 PROGRAM. 

3 (a) INCREASE IN PAYMENT AMOUNTS.—

4 (1) IN GENERAL.—Sections 1814(l), 1834(g)(1), 

5 and 1883(a)(3) (42 U.S.C. 1395f(l); 1395m(g)(1); 42 

6 U.S.C. 1395tt(a)(3)) are each amended by inserting 

7 ‘‘equal to 102 percent of’’ before ‘‘the reasonable 

8 costs’’. 

9 (2) EFFECTIVE DATE.—The amendments made 

10 by paragraph (1) shall apply to payments for services 

11 furnished during cost reporting periods beginning on 

12 or after October 1, 2003. 

13 (b) COVERAGE OF COSTS FOR CERTAIN EMERGENCY

14 ROOM ON-CALL PROVIDERS.—

15 (1) IN GENERAL.—Section 1834(g)(5) (42 U.S.C. 

16 1395m(g)(5)) is amended—

17 (A) in the heading—

18 (i) by inserting ‘‘CERTAIN’’ before 

19 ‘‘EMERGENCY’’; and 

20 (ii) by striking ‘‘PHYSICIANS’’ and in21 serting ‘‘PROVIDERS’’; 

22 (B) by striking ‘‘emergency room physicians 

23 who are on-call (as defined by the Secretary)’’ 

24 and inserting ‘‘physicians, physician assistants, 

25 nurse practitioners, and clinical nurse specialists 
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1 who are on-call (as defined by the Secretary) to 

2 provide emergency services’’; and 

3 (C) by striking ‘‘physicians’ services’’ and 

4 inserting ‘‘services covered under this title’’. 

5 (2) EFFECTIVE DATE.—The amendment made by 

6 paragraph (1) shall apply with respect to costs in7 curred for services provided on or after January 1, 

8 2004. 

9 (c) MODIFICATION OF THE ISOLATION TEST FOR

10 COST-BASED CAH AMBULANCE SERVICES.—

11 (1) IN GENERAL.—Section 1834(l)(8) (42 U.S.C. 

12 1395m(l)), as added by section 205(a) of BIPA (114 

13 Stat. 2763A–482), is amended by adding at the end 

14 the following: ‘‘The limitation described in the matter 

15 following subparagraph (B) in the previous sentence 

16 shall not apply if the ambulance services are fur17 nished by such a provider or supplier of ambulance 

18 services who is a first responder to emergencies (as de19 termined by the Secretary).’’. 

20 (2) EFFECTIVE DATE.—The amendment made by 

21 paragraph (1) shall apply to ambulances services fur22 nished on or after the first cost reporting period that 

23 begins after the date of the enactment of this Act. 

24 (d) REINSTATEMENT OF PERIODIC INTERIM PAYMENT

25 (PIP).—
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1 (1) IN GENERAL.—Section 1815(e)(2) (42 U.S.C. 

2 1395g(e)(2)) is amended—

3 (A) in the matter before subparagraph (A), 

4 by inserting ‘‘, in the cases described in subpara5 graphs (A) through (D)’’ after ‘‘1986’’; and 

6 (B) by striking ‘‘and’’ at the end of sub7 paragraph (C); 

8 (C) by adding ‘‘and’’ at the end of subpara9 graph (D); and 

10 (D) by inserting after subparagraph (D) the 

11 following new subparagraph: 

12 ‘‘(E) inpatient critical access hospital services;’’. 

13 (2) DEVELOPMENT OF ALTERNATIVE METHODS

14 OF PERIODIC INTERIM PAYMENTS.—With respect to 

15 periodic interim payments to critical access hospitals 

16 for inpatient critical access hospital services under 

17 section 1815(e)(2)(E) of the Social Security Act, as 

18 added by paragraph (1), the Secretary shall develop 

19 alternative methods for such payments that are based 

20 on expenditures of the hospital. 

21 (3) REINSTATEMENT OF PIP.—The amendments 

22 made by paragraph (1) shall apply to payments 

23 made on or after January 1, 2004. 

24 (e) CONDITION FOR APPLICATION OF SPECIAL PHYSI25 CIAN PAYMENT ADJUSTMENT.—
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1 (1) IN GENERAL.—Section 1834(g)(2) (42 U.S.C. 

2 1395m(g)(2)) is amended by adding after and below 

3 subparagraph (B) the following: 

4 ‘‘The Secretary may not require, as a condition for 

5 applying subparagraph (B) with respect to a critical 

6 access hospital, that each physician providing profes7 sional services in the hospital must assign billing 

8 rights with respect to such services, except that such 

9 subparagraph shall not apply to those physicians who 

10 have not assigned such billing rights.’’. 

11 (2) EFFECTIVE DATE.—The amendment made by 

12 paragraph (1) shall be effective as if included in the 

13 enactment of section 403(d) of the Medicare, Med14 icaid, and SCHIP Balanced Budget Refinement Act 

15 of 1999 (113 Stat. 1501A–371). 

16 (f) FLEXIBILITY IN BED LIMITATION FOR HOS17 PITALS.—Section 1820 (42 U.S.C. 1395i–4) is amended—

18 (1) in subsection (c)(2)(B)(iii), by inserting 

19 ‘‘subject to paragraph (3)’’ after ‘‘(iii) provides’’; 

20 (2) by adding at the end of subsection (c) the fol21 lowing new paragraph: 

22 ‘‘(3) INCREASE IN MAXIMUM NUMBER OF BEDS

23 FOR HOSPITALS WITH STRONG SEASONAL CENSUS

24 FLUCTUATIONS.—
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1 ‘‘(A) IN GENERAL.—Subject to subpara2 graph (C), in the case of a hospital that dem3 onstrates that it meets the standards established 

4 under subparagraph (B) and has not made the 

5 election described in subsection (f)(2)(A), the bed 

6 limitations otherwise applicable under para7 graph (2)(B)(iii) and subsection (f) shall be in8 creased by 5 beds. 

9 ‘‘(B) STANDARDS.—The Secretary shall 

10 specify standards for determining whether a crit11 ical access hospital has sufficiently strong sea12 sonal variations in patient admissions to justify 

13 the increase in bed limitation provided under 

14 subparagraph (A).’’; and 

15 (3) in subsection (f)—

16 (A) by inserting ‘‘(1)’’ after ‘‘(f)’’; and 

17 (B) by adding at the end the following new 

18 paragraph: 

19 ‘‘(2)(A) A hospital may elect to treat the reference in 

20 paragraph (1) to ‘15 beds’ as a reference to ‘25 beds’, but 

21 only if no more than 10 beds in the hospital are at any 

22 time used for non-acute care services. A hospital that makes 

23 such an election is not eligible for the increase provided 

24 under subsection (c)(3)(A). 
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1 ‘‘(B) The limitations in numbers of beds under the first 

2 sentence of paragraph (1) are subject to adjustment under 

3 subsection (c)(3).’’. 

4 (4) EFFECTIVE DATE.—The amendments made 

5 by this subsection shall apply to designations made 

6 before, on, or after January 1, 2004. 

7 (g) ADDITIONAL 5-YEAR PERIOD OF FUNDING FOR

8 GRANT PROGRAM.—

9 (1) IN GENERAL.—Section 1820(g) (42 U.S.C. 

10 1395i–4(g)) is amended by adding at the end the fol11 lowing new paragraph: 

12 ‘‘(4) FUNDING.—

13 ‘‘(A) IN GENERAL.—Subject to subpara14 graph (B), payment for grants made under this 

15 subsection during fiscal years 2004 through 2008 

16 shall be made from the Federal Hospital Insur17 ance Trust Fund. 

18 ‘‘(B) ANNUAL AGGREGATE LIMITATION.—In 

19 no case may the amount of payment provided for 

20 under subparagraph (A) for a fiscal year exceed 

21 $25,000,000.’’. 

22 (2) CONFORMING AMENDMENT.—Section 1820 

23 (42 U.S.C. 1395i–4) is amended by striking sub24 section (j).
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1 SEC. 406. REDISTRIBUTION OF UNUSED RESIDENT POSI2 TIONS. 

3 (a) IN GENERAL.—Section 1886(h)(4) (42 U.S.C. 

4 1395ww(h)(4)) is amended—

5 (1) in subparagraph (F)(i), by inserting ‘‘subject 

6 to subparagraph (I),’’ after ‘‘October 1, 1997,’’; 

7 (2) in subparagraph (H)(i), by inserting ‘‘subject 

8 to subparagraph (I),’’ after ‘‘subparagraphs (F) and 

9 (G),’’; and 

10 (3) by adding at the end the following new sub11 paragraph: 

12 ‘‘(I) REDISTRIBUTION OF UNUSED RESI13 DENT POSITIONS.—

14 ‘‘(i) REDUCTION IN LIMIT BASED ON

15 UNUSED POSITIONS.—

16 ‘‘(I) IN GENERAL.—If a hospital’s 

17 resident level (as defined in clause 

18 (iii)(I)) is less than the otherwise ap19 plicable resident limit (as defined in 

20 clause (iii)(II)) for each of the ref21 erence periods (as defined in subclause 

22 (II)), effective for cost reporting peri23 ods beginning on or after January 1, 

24 2004, the otherwise applicable resident 

25 limit shall be reduced by 75 percent of 

26 the difference between such limit and 
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1 the reference resident level specified in 

2 subclause (III) (or subclause (IV) if 

3 applicable). 

4 ‘‘(II) REFERENCE PERIODS DE5 FINED.—In this clause, the term ‘ref6 erence periods’ means, for a hospital, 

7 the 3 most recent consecutive cost re8 porting periods of the hospital for 

9 which cost reports have been settled (or, 

10 if not, submitted) on or before Sep11 tember 30, 2002. 

12 ‘‘(III) REFERENCE RESIDENT

13 LEVEL.—Subject to subclause (IV), the 

14 reference resident level specified in this 

15 subclause for a hospital is the highest 

16 resident level for the hospital during 

17 any of the reference periods. 

18 ‘‘(IV) ADJUSTMENT PROCESS.—

19 Upon the timely request of a hospital, 

20 the Secretary may adjust the reference 

21 resident level for a hospital to be the 

22 resident level for the hospital for the 

23 cost reporting period that includes 

24 July 1, 2003. 
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1 ‘‘(V) AFFILIATION.—With respect 

2 to hospitals which are members of the 

3 same affiliated group (as defined by 

4 the Secretary under subparagraph 

5 (H)(ii)), the provisions of this section 

6 shall be applied with respect to such an 

7 affiliated group by deeming the affili8 ated group to be a single hospital. 

9 ‘‘(ii) REDISTRIBUTION.—

10 ‘‘(I) IN GENERAL.—The Secretary 

11 is authorized to increase the otherwise 

12 applicable resident limits for hospitals 

13 by an aggregate number estimated by 

14 the Secretary that does not exceed the 

15 aggregate reduction in such limits at16 tributable to clause (i) (without taking 

17 into account any adjustment under 

18 subclause (IV) of such clause). 

19 ‘‘(II) EFFECTIVE DATE.—No in20 crease under subclause (I) shall be per21 mitted or taken into account for a hos22 pital for any portion of a cost report23 ing period that occurs before July 1, 

24 2004, or before the date of the hos25 pital’s application for an increase 
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1 under this clause. No such increase 

2 shall be permitted for a hospital unless 

3 the hospital has applied to the Sec4 retary for such increase by December 

5 31, 2005. 

6 ‘‘(III) CONSIDERATIONS IN REDIS7 TRIBUTION.—In determining for which 

8 hospitals the increase in the otherwise 

9 applicable resident limit is provided 

10 under subclause (I), the Secretary shall 

11 take into account the need for such an 

12 increase by specialty and location in13 volved, consistent with subclause (IV). 

14 ‘‘(IV) PRIORITY FOR RURAL AND

15 SMALL URBAN AREAS.—In determining 

16 for which hospitals and residency 

17 training programs an increase in the 

18 otherwise applicable resident limit is 

19 provided under subclause (I), the Sec20 retary shall first distribute the increase 

21 to programs of hospitals located in 

22 rural areas or in urban areas that are 

23 not large urban areas (as defined for 

24 purposes of subsection (d)) and to pro25 grams that have no other program of 
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1 the same specialty in the same state, 

2 on a first-come-first-served basis (as 

3 determined by the Secretary) based on 

4 a demonstration that the hospital will 

5 fill the positions made available under 

6 this clause and not to exceed an in7 crease of 25 full-time equivalent posi8 tions with respect to any hospital. 

9 ‘‘(V) APPLICATION OF LOCALITY

10 ADJUSTED NATIONAL AVERAGE PER

11 RESIDENT AMOUNT.—With respect to 

12 additional residency positions in a 

13 hospital attributable to the increase 

14 provided under this clause, notwith15 standing any other provision of this 

16 subsection, the approved FTE resident 

17 amount is deemed to be equal to the lo18 cality adjusted national average per 

19 resident amount computed under sub20 paragraph (E) for that hospital. 

21 ‘‘(VI) CONSTRUCTION.—Nothing 

22 in this clause shall be construed as per23 mitting the redistribution of reductions 

24 in residency positions attributable to 

25 voluntary reduction programs under 
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1 paragraph (6) or as affecting the abil2 ity of a hospital to establish new med3 ical residency training programs 

4 under subparagraph (H). 

5 ‘‘(iii) RESIDENT LEVEL AND LIMIT DE6 FINED.—In this subparagraph: 

7 ‘‘(I) RESIDENT LEVEL.—The term 

8 ‘resident level’ means, with respect to a 

9 hospital, the total number of full-time 

10 equivalent residents, before the applica11 tion of weighting factors (as deter12 mined under this paragraph), in the 

13 fields of allopathic and osteopathic 

14 medicine for the hospital. 

15 ‘‘(II) OTHERWISE APPLICABLE

16 RESIDENT LIMIT.—The term ‘otherwise 

17 applicable resident limit’ means, with 

18 respect to a hospital, the limit other19 wise applicable under subparagraphs 

20 (F)(i) and (H) on the resident level for 

21 the hospital determined without regard 

22 to this subparagraph.’’. 

23 (b) CONFORMING AMENDMENT TO IME.—Section 

24 1886(d)(5)(B)(v) (42 U.S.C. 1395ww(d)(5)(B)(v)) is 

25 amended by adding at the end the following: ‘‘The provi-
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1 sions of subparagraph (I) of subsection (h)(4) shall apply 

2 with respect to the first sentece of this clause in the same 

3 manner as it applies with respect to subparagraph (F) of 

4 such subsection.’’. 

5 (c) REPORT ON EXTENSION OF APPLICATIONS UNDER

6 REDISTRIBUTION PROGRAM.—Not later than July 1, 2005, 

7 the Secretary shall submit to Congress a report containing 

8 recommendations regarding whether to extend the deadline 

9 for applications for an increase in resident limits under 

10 section 1886(h)(4)(I)(ii)(II) of the Social Security Act (as 

11 added by subsection (a)). 

12 SEC. 407. TWO-YEAR EXTENSION OF HOLD HARMLESS PRO13 VISIONS FOR SMALL RURAL HOSPITALS AND 

14 SOLE COMMUNITY HOSPITALS UNDER PRO15 SPECTIVE PAYMENT SYSTEM FOR HOSPITAL 

16 OUTPATIENT DEPARTMENT SERVICES. 

17 (a) HOLD HARMLESS PROVISIONS.—

18 (1) IN GENERAL.—Section 1833(t)(7)(D)(i) (42 

19 U.S.C. 1395l(t)(7)(D)(i)) is amended—

20 (A) in the heading, by striking ‘‘SMALL’’ 

21 and inserting ‘‘CERTAIN’’; 

22 (B) by inserting ‘‘or a sole community hos23 pital (as defined in section 1886(d)(5)(D)(iii)) 

24 located in a rural area’’ after ‘‘100 beds’’; and 
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1 (C) by striking ‘‘2004’’ and inserting 

2 ‘‘2006’’. 

3 (2) EFFECTIVE DATE.—The amendment made by 

4 subsection (a)(2) shall apply with respect to payment 

5 for OPD services furnished on and after January 1, 

6 2004. 

7 (b) STUDY; ADJUSTMENT.—

8 (1) STUDY.—The Secretary shall conduct a study 

9 to determine if, under the prospective payment system 

10 for hospital outpatient department services under sec11 tion 1833(t) of the Social Security Act (42 U.S.C. 

12 1395l(t)), costs incurred by rural providers of services 

13 by ambulatory payment classification groups (APCs) 

14 exceed those costs incurred by urban providers of serv15 ices. 

16 (2) ADJUSTMENT.—Insofar as the Secretary de17 termines under paragraph (1) that costs incurred by 

18 rural providers exceed those costs incurred by urban 

19 providers of services, the Secretary shall provide for 

20 an appropriate adjustment under such section 1833(t) 

21 to reflect those higher costs by January 1, 2005. 
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1 SEC. 408. EXCLUSION OF CERTAIN RURAL HEALTH CLINIC 

2 AND FEDERALLY QUALIFIED HEALTH CENTER 

3 SERVICES FROM THE PROSPECTIVE PAYMENT 

4 SYSTEM FOR SKILLED NURSING FACILITIES. 

5 (a) IN GENERAL.—Section 1888(e)(2)(A) (42 U.S.C. 

6 1395yy(e)(2)(A)) is amended—

7 (1) in clause (i)(II), by striking ‘‘clauses (ii) and 

8 (iii)’’ and inserting ‘‘clauses (ii), (iii), and (iv)’’; and 

9 (2) by adding at the end the following new 

10 clause: 

11 ‘‘(iv) EXCLUSION OF CERTAIN RURAL

12 HEALTH CLINIC AND FEDERALLY QUALIFIED

13 HEALTH CENTER SERVICES.—Services de14 scribed in this clause are—

15 ‘‘(I) rural health clinic services 

16 (as defined in paragraph (1) of section 

17 1861(aa)); and 

18 ‘‘(II) Federally qualified health 

19 center services (as defined in para20 graph (3) of such section); 

21 that would be described in clause (ii) if such 

22 services were not furnished by an individual 

23 affiliated with a rural health clinic or a 

24 Federally qualified health center.’’. 
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1 (b) EFFECTIVE DATE.—The amendments made by sub2 section (a) shall apply to services furnished on or after Jan3 uary 1, 2004. 

4 SEC. 409. RECOGNITION OF ATTENDING NURSE PRACTI5 TIONERS AS ATTENDING PHYSICIANS TO 

6 SERVE HOSPICE PATIENTS. 

7 (a) IN GENERAL.—Section 1861(dd)(3)(B) (42 U.S.C. 

8 1395x(dd)(3)(B)) is amended by inserting ‘‘or nurse practi9 tioner (as defined in subsection (aa)(5))’’ after ‘‘the physi10 cian (as defined in subsection (r)(1))’’. 

11 (b) PROHIBITION ON NURSE PRACTITIONER CERTI12 FYING NEED FOR HOSPICE.—Section 1814(a)(7)(A)(i)(I) 

13 (42 U.S.C. 1395f(a)(7)(A)(i)(I)) is amended by inserting 

14 ‘‘(which for purposes of this subparagraph does not include 

15 a nurse practitioner)’’ after ‘‘attending physician (as de16 fined in section 1861(dd)(3)(B))’’. 

17 SEC. 410. IMPROVEMENT IN PAYMENTS TO RETAIN EMER18 GENCY CAPACITY FOR AMBULANCE SERVICES 

19 IN RURAL AREAS. 

20 Section 1834(l) (42 U.S.C. 1395m(l)) is amended—

21 (1) by redesignating paragraph (8), as added by 

22 section 221(a) of BIPA (114 Stat. 2763A–486), as 

23 paragraph (9); and 

24 (2) by adding at the end the following new para25 graph: 
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1 ‘‘(10) ASSISTANCE FOR RURAL PROVIDERS FUR2 NISHING SERVICES IN LOW MEDICARE POPULATION

3 DENSITY AREAS.—

4 ‘‘(A) IN GENERAL.—In the case of ground 

5 ambulance services furnished on or after Janu6 ary 1, 2004, for which the transportation origi7 nates in a qualified rural area (as defined in 

8 subparagraph (B)), the Secretary shall provide 

9 for an increase in the base rate of the fee sched10 ule for mileage for a trip established under this 

11 subsection. In establishing such increase, the Sec12 retary shall, based on the relationship of cost 

13 and volume, estimate the average increase in cost 

14 per trip for such services as compared with the 

15 cost per trip for the average ambulance service. 

16 ‘‘(B) QUALIFIED RURAL AREA DEFINED.—

17 For purposes of subparagraph (A), the term 

18 ‘qualified rural area’ is a rural area (as defined 

19 in section 1886(d)(2)(D)) with a population den20 sity of medicare beneficiaries residing in the 

21 area that is in the lowest quartile of all rural 

22 county populations.’’. 
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1 SEC. 411. PROVIDING SAFE HARBOR FOR CERTAIN COL2 LABORATIVE EFFORTS THAT BENEFIT MEDI3 CALLY UNDERSERVED POPULATIONS. 

4 (a) IN GENERAL.—Section 1128B(b)(3) (42 U.S.C. 

5 1320a–7(b)(3)), as amended by section 101(b)(2), is amend6 ed—

7 (1) in subparagraph (F), by striking ‘‘and’’ after 

8 the semicolon at the end; 

9 (2) in subparagraph (G), by striking the period 

10 at the end and inserting ‘‘; and’’; and 

11 (3) by adding at the end the following new sub12 paragraph: 

13 ‘‘(H) any remuneration between a public or 

14 nonprofit private health center entity described 

15 under clause (i) or (ii) of section 1905(l)(2)(B) 

16 and any individual or entity providing goods, 

17 items, services, donations or loans, or a combina18 tion thereof, to such health center entity pursu19 ant to a contract, lease, grant, loan, or other 

20 agreement, if such agreement contributes to the 

21 ability of the health center entity to maintain or 

22 increase the availability, or enhance the quality, 

23 of services provided to a medically underserved 

24 population served by the health center entity.’’. 

25 (b) RULEMAKING FOR EXCEPTION FOR HEALTH CEN26 TER ENTITY ARRANGEMENTS.—
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1 (1) ESTABLISHMENT.—

2 (A) IN GENERAL.—The Secretary of Health 

3 and Human Services (in this subsection referred 

4 to as the ‘‘Secretary’’) shall establish, on an ex5 pedited basis, standards relating to the exception 

6 described in section 1128B(b)(3)(H) of the Social 

7 Security Act, as added by subsection (a), for 

8 health center entity arrangements to the 

9 antikickback penalties. 

10 (B) FACTORS TO CONSIDER.—The Secretary 

11 shall consider the following factors, among oth12 ers, in establishing standards relating to the ex13 ception for health center entity arrangements 

14 under subparagraph (A): 

15 (i) Whether the arrangement between 

16 the health center entity and the other party 

17 results in savings of Federal grant funds or 

18 increased revenues to the health center enti19 ty. 

20 (ii) Whether the arrangement between 

21 the health center entity and the other party 

22 restricts or limits a patient’s freedom of 

23 choice. 

24 (iii) Whether the arrangement between 

25 the health center entity and the other party 
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1 protects a health care professional’s inde2 pendent medical judgment regarding medi3 cally appropriate treatment. 

4 The Secretary may also include other standards 

5 and criteria that are consistent with the intent 

6 of Congress in enacting the exception established 

7 under this section. 

8 (2) INTERIM FINAL EFFECT.—No later than 180 

9 days after the date of enactment of this Act, the Sec10 retary shall publish a rule in the Federal Register 

11 consistent with the factors under paragraph (1)(B). 

12 Such rule shall be effective and final immediately on 

13 an interim basis, subject to such change and revision, 

14 after public notice and opportunity (for a period of 

15 not more than 60 days) for public comment, as is 

16 consistent with this subsection. 

17 SEC. 412. GAO STUDY OF GEOGRAPHIC DIFFERENCES IN 

18 PAYMENTS FOR PHYSICIANS’ SERVICES. 

19 (a) STUDY.—The Comptroller General of the United 

20 States shall conduct a study of differences in payment 

21 amounts under the physician fee schedule under section 

22 1848 of the Social Security Act (42 U.S.C. 1395w–4) for 

23 physicians’ services in different geographic areas. Such 

24 study shall include—
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1 (1) an assessment of the validity of the geo2 graphic adjustment factors used for each component of 

3 the fee schedule; 

4 (2) an evaluation of the measures used for such 

5 adjustment, including the frequency of revisions; and 

6 (3) an evaluation of the methods used to deter7 mine professional liability insurance costs used in 

8 computing the malpractice component, including a 

9 review of increases in professional liability insurance 

10 premiums and variation in such increases by State 

11 and physician specialty and methods used to update 

12 the geographic cost of practice index and relative 

13 weights for the malpractice component. 

14 (b) REPORT.—Not later than 1 year after the date of 

15 the enactment of this Act, the Comptroller General shall 

16 submit to Congress a report on the study conducted under 

17 subsection (a). The report shall include recommendations 

18 regarding the use of more current data in computing geo19 graphic cost of practice indices as well as the use of data 

20 directly representative of physicians’ costs (rather than 

21 proxy measures of such costs). 
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1 SEC. 413. TREATMENT OF MISSING COST REPORTING PERI2 ODS FOR SOLE COMMUNITY HOSPITALS. 

3 (a) IN GENERAL.—Section 1886(b)(3)(I) (42 U.S.C. 

4 1395ww(b)(3)(I)) is amended by adding at the end the fol5 lowing new clause: 

6 ‘‘(iii) In no case shall a hospital be denied treatment 

7 as a sole community hospital or payment (on the basis of 

8 a target rate as such as a hospital) because data are un9 available for any cost reporting period due to changes in 

10 ownership, changes in fiscal intermediaries, or other ex11 traordinary circumstances, so long as data for at least one 

12 applicable base cost reporting period is available.’’. 

13 (b) EFFECTIVE DATE.—The amendment made by sub14 section (a) shall apply to cost reporting periods beginning 

15 on or after January 1, 2004. 

16 SEC. 414. EXTENSION OF TELEMEDICINE DEMONSTRATION 

17 PROJECT. 

18 Section 4207 of Balanced Budget Act of 1997 (Public 

19 Law 105–33) is amended—

20 (1) in subsection (a)(4), by striking ‘‘4-year’’ 

21 and inserting ‘‘8-year’’; and 

22 (2) in subsection (d)(3), by striking 

23 ‘‘$30,000,000’’ and inserting ‘‘$60,000,000’’. 
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1 SEC. 415. TWO-YEAR INCREASE FOR HOME HEALTH SERV2 ICES FURNISHED IN A RURAL AREA. 

3 (a) IN GENERAL.—In the case of home health services 

4 furnished in a rural area (as defined in section 

5 1886(d)(2)(D) of the Social Security Act (42 U.S.C. 

6 1395ww(d)(2)(D))) during 2004 and 2005, the Secretary 

7 shall increase the payment amount otherwise made under 

8 section 1895 of such Act (42 U.S.C. 1395fff ) for such serv9 ices by 5 percent. 

10 (b) WAIVING BUDGET NEUTRALITY.—The Secretary 

11 shall not reduce the standard prospective payment amount 

12 (or amounts) under section 1895 of the Social Security Act 

13 (42 U.S.C. 1395fff ) applicable to home health services fur14 nished during a period to offset the increase in payments 

15 resulting from the application of subsection (a).

16 TITLE V—PROVISIONS RELATING 

17 TO PART A 

18 Subtitle A—Inpatient Hospital 

19 Services 

20 SEC. 501. REVISION OF ACUTE CARE HOSPITAL PAYMENT 

21 UPDATES. 

22 Section 1886(b)(3)(B)(i) (42 U.S.C. 

23 1395ww(b)(3)(B)(i)) is amended—

24 (1) by striking ‘‘and’’ at the end of subclause 

25 (XVIII); 

26 (2) by striking subclause (XIX); and 
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1 (3) by inserting after subclause (XVIII) the fol2 lowing new subclauses: 

3 ‘‘(XIX) for each of fiscal years 2004 through 

4 2006, the market basket percentage increase minus 0.4 

5 percentage points for hospitals in all areas; and 

6 ‘‘(XX) for fiscal year 2007 and each subsequent 

7 fiscal year, the market basket percentage increase for 

8 hospitals in all areas.’’.

9 SEC. 502. RECOGNITION OF NEW MEDICAL TECHNOLOGIES 

10 UNDER INPATIENT HOSPITAL PPS. 

11 (a) IMPROVING TIMELINESS OF DATA COLLECTION.—

12 Section 1886(d)(5)(K) (42 U.S.C. 1395ww(d)(5)(K)) is 

13 amended by adding at the end the following new clause: 

14 ‘‘(vii) Under the mechanism under this subparagraph, 

15 the Secretary shall provide for the addition of new diagnosis 

16 and procedure codes in April 1 of each year, but the addi17 tion of such codes shall not require the Secretary to adjust 

18 the payment (or diagnosis-related group classification) 

19 under this subsection until the fiscal year that begins after 

20 such date.’’. 

21 (b) ELIGIBILITY STANDARD FOR TECHNOLOGY

22 OUTLIERS.—

23 (1) MINIMUM PERIOD FOR RECOGNITION OF NEW

24 TECHNOLOGIES.—Section 1886(d)(5)(K)(vi) (42 

25 U.S.C. 1395ww(d)(5)(K)(vi)) is amended—
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1 (A) by inserting ‘‘(I)’’ after ‘‘(vi)’’; and 

2 (B) by adding at the end the following new 

3 subclause: 

4 ‘‘(II) Under such criteria, a service or technology shall 

5 not be denied treatment as a new service or technology on 

6 the basis of the period of time in which the service or tech7 nology has been in use if such period ends before the end 

8 of the 2-to-3-year period that begins on the effective date 

9 of implementation of a code under ICD–9–CM (or a suc10 cessor coding methodology) that enables the identification 

11 of specific discharges in which the service or technology has 

12 been used.’’. 

13 (2) ADJUSTMENT OF THRESHOLD.—Section 

14 1886(d)(5)(K)(ii)(I) (42 U.S.C. 

15 1395ww(d)(5)(K)(ii)(I)) is amended by inserting 

16 ‘‘(applying a threshold specified by the Secretary that 

17 is 75 percent of one standard deviation for the diag18 nosis-related group involved)’’ after ‘‘is inadequate’’. 

19 (3) CRITERION FOR SUBSTANTIAL IMPROVE20 MENT.—Section 1886(d)(5)(K)(vi) (42 U.S.C. 

21 1395ww(d)(5)(K)(vi)), as amended by paragraph (1), 

22 is further amended by adding at the end the following 

23 subclause: 

24 ‘‘(III) The Secretary shall by regulation provide for 

25 further clarification of the criteria applied to determine 
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1 whether a new service or technology represents an advance 

2 in medical technology that substantially improves the diag3 nosis or treatment of beneficiaries. Under such criteria, in 

4 determining whether a new service or technology represents 

5 an advance in medical technology that substantially im6 proves the diagnosis or treatment of beneficiaries, the Sec7 retary shall deem a service or technology as meeting such 

8 requirement if the service or technology is a drug or biologi9 cal that is designated under section 506 of the Federal Food, 

10 Drug, and Cosmetic Act, approved under section 314.510 

11 or 601.41 of title 21, Code of Federal Regulations, or des12 ignated for priority review when the marketing application 

13 for such drug or biological was filed or is a medical device 

14 for which an exemption has been granted under section 

15 520(m) of such Act, or for which priority review has been 

16 provided under section 515(d)(5) of such Act. Nothing in 

17 this subclause shall be construed as effecting the authority 

18 of the Secretary to determine whether items and services 

19 are medically necessary and appropriate under section 

20 1862(a)(1).’’. 

21 (4) PROCESS FOR PUBLIC INPUT.—Section 

22 1886(d)(5)(K) (42 U.S.C. 1395ww(d)(5)(K)), as 

23 amended by paragraph (1), is amended—
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1 (A) in clause (i), by adding at the end the 

2 following: ‘‘Such mechanism shall be modified to 

3 meet the requirements of clause (viii).’’; and 

4 (B) by adding at the end the following new 

5 clause: 

6 ‘‘(viii) The mechanism established pursuant to clause 

7 (i) shall be adjusted to provide, before publication of a pro8 posed rule, for public input regarding whether a new service 

9 or technology not described in the second sentence of clause 

10 (vi)(III) represents an advance in medical technology that 

11 substantially improves the diagnosis or treatment of bene12 ficiaries as follows: 

13 ‘‘(I) The Secretary shall make public and peri14 odically update a list of all the services and tech15 nologies for which an application for additional pay16 ment under this subparagraph is pending. 

17 ‘‘(II) The Secretary shall accept comments, rec18 ommendations, and data from the public regarding 

19 whether the service or technology represents a substan20 tial improvement. 

21 ‘‘(III) The Secretary shall provide for a meeting 

22 at which organizations representing hospitals, physi23 cians, medicare beneficiaries, manufacturers, and any 

24 other interested party may present comments, rec25 ommendations, and data to the clinical staff of the 
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1 Centers for Medicare & Medicaid Services before pub2 lication of a notice of proposed rulemaking regarding 

3 whether service or technology represents a substantial 

4 improvement.’’. 

5 (c) PREFERENCE FOR USE OF DRG ADJUSTMENT.—

6 Section 1886(d)(5)(K) (42 U.S.C. 1395ww(d)(5)(K)) is fur7 ther amended by adding at the end the following new clause: 

8 ‘‘(ix) Before establishing any add-on payment under 

9 this subparagraph with respect to a new technology, the 

10 Secretary shall seek to identify one or more diagnosis-re11 lated groups associated with such technology, based on simi12 lar clinical or anatomical characteristics and the cost of 

13 the technology. Within such groups the Secretary shall as14 sign an eligible new technology into a diagnosis-related 

15 group where the average costs of care most closely approxi16 mate the costs of care of using the new technology. In such 

17 case, the new technology would no longer meet the threshold 

18 of exceeding 75 percent of the standard deviation for the 

19 diagnosis-related group involved under clause (ii)(I). No 

20 add-on payment under this subparagraph shall be made 

21 with respect to such new technology and this clause shall 

22 not affect the application of paragraph (4)(C)(iii).’’. 

23 (d) IMPROVEMENT IN PAYMENT FOR NEW TECH24 NOLOGY.—Section 1886(d)(5)(K)(ii)(III) (42 U.S.C. 

25 1395ww(d)(5)(K)(ii)(III)) is amended by inserting after 
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1 ‘‘the estimated average cost of such service or technology’’ 

2 the following: ‘‘(based on the marginal rate applied to costs 

3 under subparagraph (A))’’. 

4 (e) ESTABLISHMENT OF NEW FUNDING FOR HOSPITAL

5 INPATIENT TECHNOLOGY.—Section 1886(d)(5)(K)(ii)(III) 

6 (42 U.S.C. 1395ww(d)(5)(K)(ii)(III)) is amended by strik7 ing ‘‘subject to paragraph (4)(C)(iii),’’. 

8 (f) EFFECTIVE DATE.—

9 (1) IN GENERAL.—The Secretary shall imple10 ment the amendments made by this section so that 

11 they apply to classification for fiscal years beginning 

12 with fiscal year 2005. 

13 (2) RECONSIDERATIONS OF APPLICATIONS FOR

14 FISCAL YEAR 2003 THAT ARE DENIED.—In the case of 

15 an application for a classification of a medical serv16 ice or technology as a new medical service or tech17 nology under section 1886(d)(5)(K) of the Social Se18 curity Act (42 U.S.C. 1395ww(d)(5)(K)) that was 

19 filed for fiscal year 2004 and that is denied—

20 (A) the Secretary shall automatically recon21 sider the application as an application for fiscal 

22 year 2005 under the amendments made by this 

23 section; and 
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1 (B) the maximum time period otherwise 

2 permitted for such classification of the service or 

3 technology shall be extended by 12 months. 

4 SEC. 503. INCREASE IN FEDERAL RATE FOR HOSPITALS IN 

5 PUERTO RICO. 

6 Section 1886(d)(9) (42 U.S.C. 1395ww(d)(9)) is 

7 amended—

8 (1) in subparagraph (A)—

9 (A) in clause (i), by striking ‘‘for discharges 

10 beginning on or after October 1, 1997, 50 percent 

11 (and for discharges between October 1, 1987, and 

12 September 30, 1997, 75 percent)’’ and inserting 

13 ‘‘the applicable Puerto Rico percentage (specified 

14 in subparagraph (E))’’; and 

15 (B) in clause (ii), by striking ‘‘for dis16 charges beginning in a fiscal year beginning on 

17 or after October 1, 1997, 50 percent (and for dis18 charges between October 1, 1987, and September 

19 30, 1997, 25 percent)’’ and inserting ‘‘the appli20 cable Federal percentage (specified in subpara21 graph (E))’’; and 

22 (2) by adding at the end the following new sub23 paragraph: 

24 ‘‘(E) For purposes of subparagraph (A), for discharges 

25 occurring—
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1 ‘‘(i) on or after October 1, 1987, and before Octo2 ber 1, 1997, the applicable Puerto Rico percentage is 

3 75 percent and the applicable Federal percentage is 

4 25 percent; 

5 ‘‘(ii) on or after October 1, 1997, and before Oc6 tober 1, 2003, the applicable Puerto Rico percentage 

7 is 50 percent and the applicable Federal percentage is 

8 50 percent; 

9 ‘‘(iii) during fiscal year 2004, the applicable 

10 Puerto Rico percentage is 41 percent and the applica11 ble Federal percentage is 59 percent; 

12 ‘‘(iv) during fiscal year 2005, the applicable 

13 Puerto Rico percentage is 33 percent and the applica14 ble Federal percentage is 67 percent; and 

15 ‘‘(v) on or after October 1, 2005, the applicable 

16 Puerto Rico percentage is 25 percent and the applica17 ble Federal percentage is 75 percent.’’. 

18 SEC. 504. WAGE INDEX ADJUSTMENT RECLASSIFICATION 

19 REFORM . 

20 (a) IN GENERAL.—Section 1886(d) (42 U.S.C. 

21 1395ww(d)) is amended by adding at the end the following: 

22 ‘‘(11)(A) In order to recognize commuting patterns 

23 among Metropolitan Statistical Areas and between such 

24 Areas and rural areas, the Secretary shall establish a proc25 ess, upon application of a subsection (d) hospital that estab-
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1 lishes that it is a qualifying hospital described in subpara2 graph (B), for an increase of the wage index applied under 

3 paragraph (3)(E) for the hospital in the amount computed 

4 under subparagraph (D). 

5 ‘‘(B) A qualifying hospital described in this subpara6 graph is a subsection (d) hospital—

7 ‘‘(i) the average wages of which exceed the aver8 age wages for the area in which the hospital is lo9 cated; and 

10 ‘‘(ii) which has at least 10 percent of its employ11 ees who reside in one or more higher wage index 

12 areas. 

13 ‘‘(C) For purposes of this paragraph, the term ‘higher 

14 wage index area’ means, with respect to a hospital, an area 

15 with a wage index that exceeds that of the area in which 

16 the hospital is located. 

17 ‘‘(D) The increase in the wage index under subpara18 graph (A) for a hospital shall be equal to the percentage 

19 of the employees of the hospital that resides in any higher 

20 wage index area multiplied by the sum of the products, for 

21 each higher wage index area of—

22 ‘‘(i) the difference between (I) the wage index for 

23 such area, and (II) the wage index of the area in 

24 which the hospital is located (before the application of 

25 this paragraph); and 
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1 ‘‘(ii) the number of employees of the hospital that 

2 reside in such higher wage index area divided by the 

3 total number of such employees that reside in all high 

4 wage index areas. 

5 ‘‘(E) The process under this paragraph shall be based 

6 upon the process used by the Medicare Geographic Classi7 fication Review Board under paragraph (10) with respect 

8 to data submitted by hospitals to the Board on the location 

9 of residence of hospital employees and wages under the ap10 plicable schedule established for geographic reclassification. 

11 ‘‘(F) A reclassification under this paragraph shall be 

12 effective for a period of 3 fiscal years, except that the Sec13 retary shall establish procedures under which a subsection 

14 (d) hospital may elect to terminate such reclassification be15 fore the end of such period. 

16 ‘‘(G) A hospital that is reclassified under this para17 graph for a period is not eligible for reclassification under 

18 paragraphs (8) or (10) during that period. 

19 ‘‘(H) Any increase in a wage index under this para20 graph for a hospital shall not be taken into account for pur21 poses of—

22 ‘‘(i) computing the wage index for the area in 

23 which the hospital is located or any other area; or 

24 ‘‘(ii) applying any budget neutrality adjustment 

25 with respect to such index under paragraph (8)(D).’’. 
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1 (b) EFFECTIVE DATE.—The amendment made by sub2 section (a) shall first apply to the wage index for cost re3 porting period beginning on or after October 1, 2004. 

4 SEC. 505. MEDPAC REPORT ON SPECIALTY HOSPITALS. 

5 (a) MEDPAC STUDY.—The Medicare Payment Advi6 sory Commission shall conduct a study of specialty hos7 pitals compared with other similar general acute care hos8 pitals under the medicare program. Such study shall exam9 ine—

10 (1) whether there are excessive self-referrals; 

11 (2) quality of care furnished; 

12 (3) the impact of specialty hospitals on such gen13 eral acute care hospitals; and 

14 (4) differences in the scope of services, medicaid 

15 utilization, and uncompensated care furnished. 

16 (b) REPORT.—Not later than 1 year after the date of 

17 the enactment of this Act, the Secretary shall submit to Con18 gress a report on the study conducted under subsection (a), 

19 and shall include any recommendations for legislation or 

20 administrative change as the Secretary determines appro21 priate. 
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1 Subtitle B—Other Provisions 

2 SEC. 511. PAYMENT FOR COVERED SKILLED NURSING FA3 CILITY SERVICES. 

4 (a) ADJUSTMENT TO RUGS FOR AIDS RESIDENTS.—

5 Paragraph (12) of section 1888(e) (42 U.S.C. 1395yy(e)) 

6 is amended to read as follows: 

7 ‘‘(12) ADJUSTMENT FOR RESIDENTS WITH

8 AIDS.—

9 ‘‘(A) IN GENERAL.—Subject to subpara10 graph (B), in the case of a resident of a skilled 

11 nursing facility who is afflicted with acquired 

12 immune deficiency syndrome (AIDS), the per 

13 diem amount of payment otherwise applicable 

14 shall be increased by 128 percent to reflect in15 creased costs associated with such residents. 

16 ‘‘(B) SUNSET.—Subparagraph (A) shall not 

17 apply on and after such date as the Secretary 

18 certifies that there is an appropriate adjustment 

19 in the case mix under paragraph (4)(G)(i) to 

20 compensate for the increased costs associated 

21 with residents described in such subparagraph.’’. 

22 (b) EFFECTIVE DATE.—The amendment made by 

23 paragraph (1) shall apply to services furnished on or after 

24 October 1, 2003. 
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1 SEC. 512. COVERAGE OF HOSPICE CONSULTATION SERV2 ICES. 

3 (a) COVERAGE OF HOSPICE CONSULTATION SERV4 ICES.—Section 1812(a) (42 U.S.C. 1395d(a)) is amended—

5 (1) by striking ‘‘and’’ at the end of paragraph 

6 (3); 

7 (2) by striking the period at the end of para8 graph (4) and inserting ‘‘; and’’; and 

9 (3) by inserting after paragraph (4) the fol10 lowing new paragraph: 

11 ‘‘(5) for individuals who are terminally ill, have 

12 not made an election under subsection (d)(1), and 

13 have not previously received services under this para14 graph, services that are furnished by a physician who 

15 is either the medical director or an employee of a hos16 pice program and that consist of—

17 ‘‘(A) an evaluation of the individual’s need 

18 for pain and symptom management; 

19 ‘‘(B) counseling the individual with respect 

20 to end-of-life issues and care options; and 

21 ‘‘(C) advising the individual regarding ad22 vanced care planning.’’. 

23 (b) PAYMENT.—Section 1814(i) (42 U.S.C. l395f(i)) is 

24 amended by adding at the end the following new paragraph: 

25 ‘‘(4) The amount paid to a hospice program with re26 spect to the services under section 1812(a)(5) for which pay-
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1 ment may be made under this part shall be equal to an 

2 amount equivalent to the amount established for an office 

3 or other outpatient visit for evaluation and management 

4 associated with presenting problems of moderate severity 

5 under the fee schedule established under section 1848(b), 

6 other than the portion of such amount attributable to the 

7 practice expense component.’’. 

8 (c) CONFORMING AMENDMENT.—Section 

9 1861(dd)(2)(A)(i) (42 U.S.C. 1395x(dd)(2)(A)(i)) is 

10 amended by inserting before the comma at the end the fol11 lowing: ‘‘and services described in section 1812(a)(5)’’. 

12 (d) EFFECTIVE DATE.—The amendments made by this 

13 section shall apply to services provided by a hospice pro14 gram on or after January 1, 2004.

15 TITLE VI—PROVISIONS 

16 RELATING TO PART B 

17 Subtitle A—Physicians’ Services

18 SEC. 601. REVISION OF UPDATES FOR PHYSICIANS’ SERV19 ICES. 

20 (a) UPDATE FOR 2004 AND 2005.—

21 (1) IN GENERAL.—Section 1848(d) (42 U.S.C. 

22 1395w–4(d)) is amended by adding at the end the fol23 lowing new paragraph: 

24 ‘‘(5) UPDATE FOR 2004 AND 2005.—The update to 

25 the single conversion factor established in paragraph 
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1 (1)(C) for each of 2004 and 2005 shall be not less 

2 than 1.5 percent.’’. 

3 (2) CONFORMING AMENDMENT.—Paragraph 

4 (4)(B) of such section is amended, in the matter be5 fore clause (i), by inserting ‘‘and paragraph (5)’’ 

6 after ‘‘subparagraph (D)’’. 

7 (3) NOT TREATED AS CHANGE IN LAW AND REG8 ULATION IN SUSTAINABLE GROWTH RATE DETERMINA9 TION.—The amendments made by this subsection shall 

10 not be treated as a change in law for purposes of ap11 plying section 1848(f)(2)(D) of the Social Security 

12 Act (42 U.S.C. 1395w–4(f)(2)(D)). 

13 (b) USE OF 10-YEAR ROLLING AVERAGE IN COM14 PUTING GROSS DOMESTIC PRODUCT.—

15 (1) IN GENERAL.—Section 1848(f)(2)(C) (42 

16 U.S.C. 1395w–4(f)(2)(C)) is amended—

17 (A) by striking ‘‘projected’’ and inserting 

18 ‘‘annual average’’; and 

19 (B) by striking ‘‘from the previous applica20 ble period to the applicable period involved’’ and 

21 inserting ‘‘during the 10-year period ending with 

22 the applicable period involved’’.

23 (2) EFFECTIVE DATE.—The amendment made by 

24 paragraph (1) shall apply to computations of the sus25 tainable growth rate for years beginning with 2003. 
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1 SEC. 602. STUDIES ON ACCESS TO PHYSICIANS’ SERVICES. 

2 (a) GAO STUDY ON BENEFICIARY ACCESS TO PHYSI3 CIANS’ SERVICES.—

4 (1) STUDY.—The Comptroller General of the 

5 United States shall conduct a study on access of 

6 medicare beneficiaries to physicians’ services under 

7 the medicare program. The study shall include—

8 (A) an assessment of the use by beneficiaries 

9 of such services through an analysis of claims 

10 submitted by physicians for such services under 

11 part B of the medicare program; 

12 (B) an examination of changes in the use 

13 by beneficiaries of physicians’ services over time; 

14 (C) an examination of the extent to which 

15 physicians are not accepting new medicare bene16 ficiaries as patients. 

17 (2) REPORT.—Not later than 18 months after the 

18 date of the enactment of this Act, the Comptroller 

19 General shall submit to Congress a report on the 

20 study conducted under paragraph (1). The report 

21 shall include a determination whether—

22 (A) data from claims submitted by physi23 cians under part B of the medicare program in24 dicate potential access problems for medicare 

25 beneficiaries in certain geographic areas; and 
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1 (B) access by medicare beneficiaries to phy2 sicians’ services may have improved, remained 

3 constant, or deteriorated over time.

4 (b) STUDY AND REPORT ON SUPPLY OF PHYSICIANS.—

5 (1) STUDY.—The Secretary shall request the In6 stitute of Medicine of the National Academy of 

7 Sciences to conduct a study on the adequacy of the 

8 supply of physicians (including specialists) in the 

9 United States and the factors that affect such supply. 

10 (2) REPORT TO CONGRESS.—Not later than 2 

11 years after the date of enactment of this section, the 

12 Secretary shall submit to Congress a report on the re13 sults of the study described in paragraph (1), includ14 ing any recommendations for legislation. 

15 (c) GAO STUDY OF MEDICARE PAYMENT FOR INHALA16 TION THERAPY.—

17 (1) STUDY.—The Comptroller General of the 

18 United States shall conduct a study to examine the 

19 adequacy of current reimbursements for inhalation 

20 therapy under the medicare program. 

21 (2) REPORT.—Not later than May 1, 2004, the 

22 Comptroller General shall submit to Congress a report 

23 on the study conducted under paragraph (1). 
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1 SEC. 603. MEDPAC REPORT ON PAYMENT FOR PHYSICIANS’

2 SERVICES. 

3 (a) PRACTICE EXPENSE COMPONENT.—Not later than 

4 1 year after the date of the enactment of this Act, the Medi5 care Payment Advisory Commission shall submit to Con6 gress a report on the effect of refinements to the practice 

7 expense component of payments for physicians’ services, 

8 after the transition to a full resource-based payment system 

9 in 2002, under section 1848 of the Social Security Act (42 

10 U.S.C. 1395w–4). Such report shall examine the following 

11 matters by physician specialty: 

12 (1) The effect of such refinements on payment for 

13 physicians’ services. 

14 (2) The interaction of the practice expense com15 ponent with other components of and adjustments to 

16 payment for physicians’ services under such section. 

17 (3) The appropriateness of the amount of com18 pensation by reason of such refinements. 

19 (4) The effect of such refinements on access to 

20 care by medicare beneficiaries to physicians’ services. 

21 (5) The effect of such refinements on physician 

22 participation under the medicare program. 

23 (b) VOLUME OF PHYSICIAN SERVICES.—The Medicare 

24 Payment Advisory Commission shall submit to Congress a 

25 report on the extent to which increases in the volume of 

26 physicians’ services under part B of the medicare program 
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1 are a result of care that improves the health and well-being 

2 of medicare beneficiaries. The study shall include the fol3 lowing: 

4 (1) An analysis of recent and historic growth in 

5 the components that the Secretary includes under the 

6 sustainable growth rate (under section 1848(f) of the 

7 Social Security Act). 

8 (2) An examination of the relative growth of vol9 ume in physician services between medicare bene10 ficiaries and other populations. 

11 (3) An analysis of the degree to which new tech12 nology, including coverage determinations of the Cen13 ters for Medicare & Medicaid Services, has affected 

14 the volume of physicians’ services. 

15 (4) An examination of the impact on volume of 

16 demographic changes. 

17 (5) An examination of shifts in the site of service 

18 of services that influence the number and intensity of 

19 services furnished in physicians’ offices and the extent 

20 to which changes in reimbursement rates to other pro21 viders have affected these changes. 

22 (6) An evaluation of the extent to which the Cen23 ters for Medicare & Medicaid Services takes into ac24 count the impact of law and regulations on the sus25 tainable growth rate. 
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1 SEC. 604. INCLUSION OF PODIATRISTS AND DENTISTS 

2 UNDER PRIVATE CONTRACTING AUTHORITY. 

3 Section 1802(b)(5)(B) (42 U.S.C. 1395a(b)(5)(B)) is 

4 amended by striking ‘‘section 1861(r)(1)’’ and inserting 

5 ‘‘paragraphs (1), (2), and (3) of section 1861(r)’’. 

6 SEC. 605. ESTABLISHMENT OF FLOOR ON WORK GEO7 GRAPHIC ADJUSTMENT. 

8 (a) MINIMUM INDEX.—

9 (1) IN GENERAL.—Section 1848(e)(1) (42 U.S.C. 

10 1395w–4(e)(1)) is amended by adding at the end the 

11 following new subparagraph: 

12 ‘‘(E) FLOOR AT 1.0 ON WORK GEOGRAPHIC

13 INDICES.—Subject to section 605(a)(2) of the 

14 Medicare Prescription Drug and Modernization 

15 Act of 2003, after calculating the work geo16 graphic indices in subparagraph (A)(iii), for 

17 purposes of payment for services furnished on or 

18 after January 1, 2004, and before January 1, 

19 2006, the Secretary shall increase the work geo20 graphic index to 1.00 for any locality for which 

21 such geographic index is less than 1.00.’’. 

22 (2) SECRETARIAL DISCRETION.—Section 

23 1848(e)(1)(E), as added by paragraph (1) shall have 

24 no force or effect in law if the Secretary determines, 

25 taking into account the report of the Comptroller Gen26 eral under subsection (b)(2), that there is no sound 
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1 economic rationale for the implementation of that sec2 tion. 

3 (b) GAO REPORT.—

4 (1) EVALUATION.—As part of the study on geo5 graphic differences in payments for physicians’ serv6 ices conducted under section 412, the Comptroller 

7 General of the United States shall evaluate the fol8 lowing: 

9 (A) Whether there is a sound economic basis 

10 for the implementation of the amendment to sec11 tion 1848(e)(1) under subsection (a)(1) in those 

12 areas in which the adjustment applies. 

13 (B) The effect of such adjustment on physi14 cian location and retention in areas affected by 

15 such adjustment, taking into account—

16 (i) differences in recruitment costs and 

17 retention rates for physicians, including 

18 specialists, between large urban areas and 

19 other areas; and 

20 (ii) the mobility of physicians, includ21 ing specialists, over the last decade. 

22 (C) The appropriateness of establishing a 

23 floor of 1.0 for the work geographic index. 

24 (2) REPORT.—By not later than September 1, 

25 2004, the Comptroller General shall submit to Con-
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1 gress and to the Secretary a report on the evaluation 

2 conducted under paragraph (1). 

3 Subtitle B—Preventive Services

4 SEC. 611. COVERAGE OF AN INITIAL PREVENTIVE PHYSICAL 

5 EXAMINATION. 

6 (a) COVERAGE.—Section 1861(s)(2) (42 U.S.C. 

7 1395x(s)(2)) is amended—

8 (1) in subparagraph (U), by striking ‘‘and’’ at 

9 the end; 

10 (2) in subparagraph (V), by inserting ‘‘and’’ at 

11 the end; and 

12 (3) by adding at the end the following new sub13 paragraph: 

14 ‘‘(W) an initial preventive physical examination 

15 (as defined in subsection (ww));’’. 

16 (b) SERVICES DESCRIBED.—Section 1861 (42 U.S.C. 

17 1395x) is amended by adding at the end the following new 

18 subsection: 

19 ‘‘Initial Preventive Physical Examination 

20 ‘‘(ww) The term ‘initial preventive physical examina21 tion’ means physicians’ services consisting of a physical ex22 amination with the goal of health promotion and disease 

23 detection and includes items and services (excluding clinical 

24 laboratory tests), as determined by the Secretary, consistent 
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1 with the recommendations of the United States Preventive 

2 Services Task Force.’’. 

3 (c) WAIVER OF DEDUCTIBLE AND COINSURANCE.—

4 (1) DEDUCTIBLE.—The first sentence of section 

5 1833(b) (42 U.S.C. 1395l(b)) is amended—

6 (A) by striking ‘‘and’’ before ‘‘(6)’’, and 

7 (B) by inserting before the period at the end 

8 the following: ‘‘, and (7) such deductible shall not 

9 apply with respect to an initial preventive phys10 ical examination (as defined in section 

11 1861(ww))’’. 

12 (2) COINSURANCE.—Section 1833(a)(1) (42 

13 U.S.C. 1395l(a)(1)) is amended—

14 (A) in clause (N), by inserting ‘‘(or 100 

15 percent in the case of an initial preventive phys16 ical examination, as defined in section 

17 1861(ww))’’ after ‘‘80 percent’’; and 

18 (B) in clause (O), by inserting ‘‘(or 100 

19 percent in the case of an initial preventive phys20 ical examination, as defined in section 

21 1861(ww))’’ after ‘‘80 percent’’. 

22 (d) PAYMENT AS PHYSICIANS’ SERVICES.—Section 

23 1848(j)(3) (42 U.S.C. 1395w–4(j)(3)) is amended by insert24 ing ‘‘(2)(W),’’ after ‘‘(2)(S),’’. 
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1 (e) OTHER CONFORMING AMENDMENTS.—Section 

2 1862(a) (42 U.S.C. 1395y(a)) is amended—

3 (1) in paragraph (1)—

4 (A) by striking ‘‘and’’ at the end of sub5 paragraph (H); 

6 (B) by striking the semicolon at the end of 

7 subparagraph (I) and inserting ‘‘, and’’; and 

8 (C) by adding at the end the following new 

9 subparagraph: 

10 ‘‘(J) in the case of an initial preventive physical 

11 examination, which is performed not later than 6 

12 months after the date the individual’s first coverage 

13 period begins under part B;’’; and 

14 (2) in paragraph (7), by striking ‘‘or (H)’’ and 

15 inserting ‘‘(H), or (J)’’. 

16 (f) EFFECTIVE DATE.—The amendments made by this 

17 section shall apply to services furnished on or after January 

18 1, 2004, but only for individuals whose coverage period be19 gins on or after such date. 

20 SEC. 612. COVERAGE OF CHOLESTEROL AND BLOOD LIPID 

21 SCREENING. 

22 (a) COVERAGE.—Section 1861(s)(2) (42 U.S.C. 

23 1395x(s)(2)), as amended by section 611(a), is amended—

24 (1) in subparagraph (V), by striking ‘‘and’’ at 

25 the end; 
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1 (2) in subparagraph (W), by inserting ‘‘and’’ at 

2 the end; and 

3 (3) by adding at the end the following new sub4 paragraph: 

5 ‘‘(X) cholesterol and other blood lipid 

6 screening tests (as defined in subsection (XX));’’. 

7 (b) SERVICES DESCRIBED.—Section 1861 (42 U.S.C. 

8 1395x), as amended by section 611(b), is amended by add9 ing at the end the following new subsection: 

10 ‘‘Cholesterol and Other Blood Lipid Screening Test 

11 ‘‘(xx)(1) The term ‘cholesterol and other blood lipid 

12 screening test’ means diagnostic testing of cholesterol and 

13 other lipid levels of the blood for the purpose of early detec14 tion of abnormal cholesterol and other lipid levels. 

15 ‘‘(2) The Secretary shall establish standards, in con16 sultation with appropriate organizations, regarding the fre17 quency and type of cholesterol and other blood lipid screen18 ing tests, except that such frequency may not be more often 

19 than once every 2 years.’’. 

20 (c) FREQUENCY.—Section 1862(a)(1) (42 U.S.C. 

21 1395y(a)(1)), as amended by section 611(e), is amended—

22 (1) by striking ‘‘and’’ at the end of subpara23 graph (I); 

24 (2) by striking the semicolon at the end of sub25 paragraph (J) and inserting ‘‘; and’’; and 
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1 (3) by adding at the end the following new sub2 paragraph: 

3 ‘‘(K) in the case of a cholesterol and other blood 

4 lipid screening test (as defined in section 

5 1861(xx)(1)), which is performed more frequently 

6 than is covered under section 1861(xx)(2).’’. 

7 (d) EFFECTIVE DATE.—The amendments made by this 

8 section shall apply to tests furnished on or after January 

9 1, 2005. 

10 SEC. 613. WAIVER OF DEDUCTIBLE FOR COLORECTAL CAN11 CER SCREENING TESTS. 

12 (a) IN GENERAL.—The first sentence of section 1833(b) 

13 (42 U.S.C. 1395l(b)), as amended by section 611(c)(1), is 

14 amended—

15 (1) by striking ‘‘and’’ before ‘‘(7)’’; and 

16 (2) by inserting before the period at the end the 

17 following: ‘‘, and (8) such deductible shall not apply 

18 with respect to colorectal cancer screening tests (as de19 scribed in section 1861(pp)(1))’’. 

20 (b) CONFORMING AMENDMENTS.—Paragraphs 

21 (2)(C)(ii) and (3)(C)(ii) of section 1834(d) (42 U.S.C. 

22 1395m(d)) are each amended—

23 (1) by striking ‘‘DEDUCTIBLE AND’’ in the head24 ing; and 
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1 (2) in subclause (I), by striking ‘‘deductible or’’ 

2 each place it appears. 

3 (c) EFFECTIVE DATE.—The amendment made by this 

4 section shall apply to items and services furnished on or 

5 after January 1, 2004.

6 SEC. 614. IMPROVED PAYMENT FOR CERTAIN MAMMOG7 RAPHY SERVICES. 

8 (a) EXCLUSION FROM OPD FEE SCHEDULE.—Section 

9 1833(t)(1)(B)(iv) (42 U.S.C. 1395l(t)(1)(B)(iv)) is amend10 ed by inserting before the period at the end the following: 

11 ‘‘and does not include screening mammography (as defined 

12 in section 1861(jj)) and unilateral and bilateral diagnostic 

13 mammography’’. 

14 (b) ADJUSTMENT TO TECHNICAL COMPONENT.—For 

15 diagnostic mammography performed on or after January 

16 1, 2004, for which payment is made under the physician 

17 fee schedule under section 1848 of the Social Security Act 

18 (42 U.S.C. 1395w–4), the Secretary, based on the most re19 cent cost data available, shall provide for an appropriate 

20 adjustment in the payment amount for the technical compo21 nent of the diagnostic mammography. 

22 (c) EFFECTIVE DATE.—The amendment made by sub23 section (a) shall apply to mammography performed on or 

24 after January 1, 2004. 
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1 SEC. 615. MEDICARE COVERAGE OF DIABETES LABORATORY 

2 DIAGNOSTIC TESTS. 

3 (a) COVERAGE.—Section 1861(s)(2) (42 U.S.C. 

4 1395x(s)(2)), as amended by sections 611 and 612, is 

5 amended—

6 (1) in subparagraph (W), by striking ‘‘and’’ at 

7 the end; 

8 (2) in subparagraph (X), by adding ‘‘and’’ at 

9 the end; and 

10 (3) by adding at the end the following new sub11 paragraph: 

12 ‘‘(Y) diabetes screening tests and services (as de13 fined in subsection (yy));’’. 

14 (b) SERVICES DESCRIBED.—Section 1861 (42 U.S.C. 

15 1395x), as amended by sections 611 and 612, is further 

16 amended by adding at the end the following new subsection: 

17 ‘‘Diabetes Screening Tests and Services 

18 ‘‘(yy)(1) The term ‘diabetes screening tests’ means di19 agnostic testing furnished to an individual at risk for dia20 betes (as defined in paragraph (2)) for the purpose of early 

21 detection of diabetes, including—

22 ‘‘(A) a fasting plasma glucose test; and 

23 ‘‘(B) such other tests, and modifications to tests, 

24 as the Secretary determines appropriate, in consulta25 tion with appropriate organizations. 
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1 ‘‘(2) For purposes of paragraph (1), the term ‘indi2 vidual at risk for diabetes’ means an individual who has 

3 any, a combination of, or all of the following risk factors 

4 for diabetes: 

5 ‘‘(A) A family history of diabetes. 

6 ‘‘(B) Overweight defined as a body mass index 

7 greater than or equal to 25 kg/m2. 

8 ‘‘(C) Habitual physical inactivity. 

9 ‘‘(D) Belonging to a high-risk ethnic or racial 

10 group. 

11 ‘‘(E) Previous identification of an elevated im12 paired fasting glucose. 

13 ‘‘(F) Identification of impaired glucose tolerance. 

14 ‘‘(G) Hypertension. 

15 ‘‘(H) Dyslipidemia. 

16 ‘‘(I) History of gestational diabetes mellitus or 

17 delivery of a baby weighing greater than 9 pounds. 

18 ‘‘(J) Polycystic ovary syndrome. 

19 ‘‘(3) The Secretary shall establish standards, in con20 sultation with appropriate organizations, regarding the fre21 quency of diabetes screening tests, except that such fre22 quency may not be more often than twice within the 12-

23 month period following the date of the most recent diabetes 

24 screening test of that individual.’’. 
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1 (c) FREQUENCY.—Section 1862(a)(1) (42 U.S.C. 

2 1395y(a)(1)), as amended by sections 611 and 612, is 

3 amended—

4 (1) by striking ‘‘and’’ at the end of subpara5 graph (J); 

6 (2) by striking the semicolon at the end of sub7 paragraph (K) and inserting ‘‘; and’’; and 

8 (3) by adding at the end the following new sub9 paragraph: 

10 ‘‘(L) in the case of a diabetes screening tests or 

11 service (as defined in section 1861(yy)(1)), which is 

12 performed more frequently than is covered under sec13 tion 1861(yy)(3).’’. 

14 (d) EFFECTIVE DATE.—The amendments made by this 

15 section shall apply to tests furnished on or after the date 

16 that is 90 days after the date of enactment of this Act.

17 Subtitle C—Other Services 

18 SEC. 621. HOSPITAL OUTPATIENT DEPARTMENT (HOPD) 

19 PAYMENT REFORM. 

20 (a) PAYMENT FOR DRUGS.—

21 (1) MODIFICATION OF AMBULATORY PAYMENT

22 CLASSIFICATION (APC)GROUPS.—Section 1833(t) (42 

23 U.S.C. 1395l(t)) is amended—

24 (A) by redesignating paragraph (13) as 

25 paragraph (14); and 
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1 (B) by inserting after paragraph (12) the 

2 following new paragraph: 

3 ‘‘(13) DRUG APC PAYMENT RATES.—

4 ‘‘(A) IN GENERAL.—With respect to pay5 ment for covered OPD services that includes a 

6 specified covered outpatient drug (defined in sub7 paragraph (B)), the amount provided for pay8 ment for such drug under the payment system 

9 under this subsection for services furnished in—

10 ‘‘(i) 2004, 2005, or 2006, shall in no 

11 case—

12 ‘‘(I) exceed 95 percent of the aver13 age wholesale price for the drug; or 

14 ‘‘(II) be less than the transition 

15 percentage (under subparagraph (C)) 

16 of the average wholesale price for the 

17 drug; or 

18 ‘‘(ii) a subsequent year, shall be equal 

19 to the average price for the drug for that 

20 area and year established under the com21 petitive acquisition program under section 

22 1847A as calculated and applied by the Sec23 retary for purposes of this paragraph. 

24 ‘‘(B) SPECIFIED COVERED OUTPATIENT

25 DRUG DEFINED.—
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1 ‘‘(i) IN GENERAL.—In this paragraph, 

2 the term ‘specified covered outpatient drug’ 

3 means, subject to clause (ii), a covered out4 patient drug (as defined in 1927(k)(2), that 

5 is—

6 ‘‘(I) a radiopharmaceutical; or 

7 ‘‘(II) a drug or biological for 

8 which payment was made under para9 graph (6) (relating to pass-through 

10 payments) on or before December 31, 

11 2002. 

12 ‘‘(ii) EXCEPTION.—Such term does not 

13 include—

14 ‘‘(I) a drug for which payment is 

15 first made on or after January 1, 

16 2003, under paragraph (6); or 

17 ‘‘(II) a drug for a which a tem18 porary HCPCS code has not been as19 signed. 

20 ‘‘(C) TRANSITION TOWARDS HISTORICAL AV21 ERAGE ACQUISITION COST.—The transition per22 centage under this subparagraph for drugs fur23 nished in a year is determined in accordance 

24 with the following table:
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For the year—

The transition percentage for—

Single source 

drugs are—

Innovator multiple source 

drugs are—

Generic drugs 

are—

2004 ...................................... 83% 81.5% 46%

2005 ...................................... 77% 75% 46%

2006 ...................................... 71% 68% 46%

1 ‘‘(D) PAYMENT FOR NEW DRUGS UNTIL

2 TEMPORARY HCPCS CODE ASSIGNED.—With re3 spect to payment for covered OPD services that 

4 includes a covered outpatient drug (as defined in 

5 1927(k)) for a which a temporary HCPCS code 

6 has not been assigned, the amount provided for 

7 payment for such drug under the payment sys8 tem under this subsection shall be equal to 95 

9 percent of the average wholesale price for the 

10 drug. 

11 ‘‘(E) CLASSES OF DRUGS.—For purposes of 

12 this paragraph, each of the following shall be 

13 treated as a separate class of drugs: 

14 ‘‘(i) SOLE SOURCE DRUGS.—A sole 

15 source drug which for purposes of this para16 graph means a drug or biological that is 

17 not a multiple source drug (as defined in 

18 subclauses (I) and (II) of section 

19 1927(k)(7)(A)(i)) and is not a drug ap20 proved under an abbreviated new drug ap-
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1 plication under section 355(j) of the Federal 

2 Food, Drug, and Cosmetic Act. 

3 ‘‘(ii) INNOVATOR MULTIPLE SOURCE

4 DRUGS.—Innovator multiple source drugs 

5 (as defined in section 1927(k)(7)(A)(ii)). 

6 ‘‘(iii) NONINNOVATOR MULTIPLE

7 SOURCE DRUGS.—Noninnovator multiple 

8 source drugs (as defined in section 

9 1927(k)(7)(A)(iii)). 

10 ‘‘(F) INAPPLICABILITY OF EXPENDITURES

11 IN DETERMINING CONVERSION FACTORS.—Addi12 tional expenditures resulting from this para13 graph and paragraph (14)(C) in a year shall not 

14 be taken into account in establishing the conver15 sion factor for that year.’’. 

16 (2) REDUCTION IN THRESHOLD FOR SEPARATE

17 APCS FOR DRUGS.—Section 1833(t)(14), as redesig18 nated by paragraph (1)(A), is amended by adding at 

19 the end the following new subparagraph: 

20 ‘‘(B) THRESHOLD FOR ESTABLISHMENT OF

21 SEPARATE APCS FOR DRUGS.—The Secretary 

22 shall reduce the threshold for the establishment of 

23 separate ambulatory procedure classification 

24 groups (APCs) with respect to drugs to $50 per 

25 administration.’’. 
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1 (3) EXCLUSION OF SEPARATE DRUG APCS FROM

2 OUTLIER PAYMENTS.—Section 1833(t)(5) is amended 

3 by adding at the end the following new subparagraph: 

4 ‘‘(E) EXCLUSION OF SEPARATE DRUG APCS

5 FROM OUTLIER PAYMENTS.—No additional pay6 ment shall be made under subparagraph (A) in 

7 the case of ambulatory procedure codes estab8 lished separately for drugs.’’. 

9 (4) PAYMENT FOR PASS THROUGH DRUGS.—

10 Clause (i) of section 1833(t)(6)(D) (42 U.S.C. 

11 1395l(t)(6)(D)) is amended by inserting after ‘‘under 

12 section 1842(o)’’ the following: ‘‘(or if the drug is cov13 ered under a competitive acquisition contract under 

14 section 1847A for an area, an amount determined by 

15 the Secretary equal to the average price for the drug 

16 for that area and year established under such section 

17 as calculated and applied by the Secretary for pur18 poses of this paragraph)’’. 

19 (5) EFFECTIVE DATE.—The amendments made 

20 by this subsection shall apply to services furnished on 

21 or after January 1, 2004. 

22 (b) SPECIAL PAYMENT FOR BRACHYTHERAPY.—

23 (1) IN GENERAL.—Section 1833(t)(14), as so re24 designated and amended by subsection (a)(2), is 
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1 amended by adding at the end the following new sub2 paragraph: 

3 ‘‘(C) PAYMENT FOR DEVICES OF

4 BRACHYTHERAPY AT CHARGES ADJUSTED TO

5 COST.—Notwithstanding the preceding provi6 sions of this subsection, for a device of 

7 brachytherapy furnished on or after January 1, 

8 2004, and before January 1, 2007, the payment 

9 basis for the device under this subsection shall be 

10 equal to the hospital’s charges for each device 

11 furnished, adjusted to cost.’’. 

12 (2) SPECIFICATION OF GROUPS FOR

13 BRACHYTHERAPY DEVICES.—Section 1833(t)(2) (42 

14 U.S.C. 1395l(t)(2) is amended—

15 (A) in subparagraph (F), by striking ‘‘and’’ 

16 at the end; 

17 (B) in subparagraph (G), by striking the 

18 period at the end and inserting ‘‘; and’’; and 

19 (C) by adding at the end the following new 

20 subparagraph: 

21 ‘‘(H) with respect to devices of 

22 brachytherapy, the Secretary shall create addi23 tional groups of covered OPD services that clas24 sify such devices separately from the other serv25 ices (or group of services) paid for under this 
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1 subsection in a manner reflecting the number, 

2 isotope, and radioactive intensity of such devices 

3 furnished, including separate groups for palla4 dium-103 and iodine-125 devices.’’. 

5 (3) GAO REPORT.—The Comptroller General of 

6 the United States shall conduct a study to determine 

7 appropriate payment amounts under section 

8 1833(t)(13)(B) of the Social Security Act, as added 

9 by paragraph (1), for devices of brachytherapy. Not 

10 later than January 1, 2005, the Comptroller General 

11 shall submit to Congress and the Secretary a report 

12 on the study conducted under this paragraph, and 

13 shall include specific recommendations for appro14 priate payments for such devices. 

15 (c) APPLICATION OF FUNCTIONAL EQUIVALENCE

16 TEST.—

17 (1) IN GENERAL.—Section 1833(t)(6) (42 U.S.C. 

18 1395l(t)(6)) is amended by adding at the end the fol19 lowing new subparagraph: 

20 ‘‘(F) LIMITATION ON APPLICATION OF FUNC21 TIONAL EQUIVALENCE STANDARD.—

22 ‘‘(i) IN GENERAL.—The Secretary may 

23 not apply a ‘functional equivalence’ or 

24 similar standard to a drug or biological 

25 under this paragraph. 
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1 ‘‘(ii) LIMITED APPLICATION.—Clause 

2 (i) shall apply to the application of a ‘func3 tional equivalent’ or similar standard to a 

4 drug or biological on or after the date of the 

5 enactment of this subparagraph, unless—

6 ‘‘(I) such application was being 

7 made to such drug or biological before 

8 such date; and 

9 ‘‘(II) the Secretary applies, or has 

10 applied, such ‘functional equivalent’ or 

11 similar standard to such drug or bio12 logical only for the purpose of deter13 mining the eligibility of such drug or 

14 biological for additional payments 

15 under this paragraph and not for the 

16 purpose of any other payments under 

17 this title. 

18 ‘‘(iii) RULE OF CONSTRUCTION.—Noth19 ing in this subparagraph shall be construed 

20 as affecting the Secretary’s authority to 

21 deem a particular drug or biological to be 

22 identical to another drug or biological if the 

23 two drugs or biologicals are pharmaceuti24 cally equivalent and bioequivalent, as deter-
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1 mined by the Commissioner of Food and 

2 Drugs.’’. 

3 (d) HOSPITAL ACQUISITION COST STUDY.—

4 (1) IN GENERAL.—The Secretary shall conduct a 

5 study on the costs incurred by hospitals in acquiring 

6 covered outpatient drugs for which payment is made 

7 under section 1833(t) of the Social Security Act (42 

8 U.S.C. 1395l(t)). 

9 (2) DRUGS COVERED.—The study in paragraph 

10 (1) shall not include those drugs for which the acqui11 sition costs is less than $50 per administration. 

12 (3) REPRESENTATIVE SAMPLE OF HOSPITALS.—

13 In conducting the study under paragraph (1), the 

14 Secretary shall collect data from a statistically valid 

15 sample of hospitals with an urban/rural stratifica16 tion. 

17 (4) REPORT.—Not later than January 1, 2006, 

18 the Secretary shall submit to Congress a report on the 

19 study conducted under paragraph (1), and shall in20 clude recommendations with respect to the following: 

21 (A) Whether the study should be repeated, 

22 and if so, how frequently. 

23 (B) Whether the study produced useful data 

24 on hospital acquisition cost. 
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1 (C) Whether data produced in the study is 

2 appropriate for use in making adjustments to 

3 payments for drugs and biologicals under section 

4 1847A of the Social Security Act. 

5 (D) Whether separate estimates can made of 

6 overhead costs, including handing and admin7 istering costs for drugs.

8 SEC. 622. PAYMENT FOR AMBULANCE SERVICES. 

9 (a) PHASE-IN PROVIDING FLOOR USING BLEND OF

10 FEE SCHEDULE AND REGIONAL FEE SCHEDULES.—Sec11 tion 1834(l) (42 U.S.C. 1395m(l)), as amended by section 

12 410(a), is amended—

13 (1) in paragraph (2)(E), by inserting ‘‘consistent 

14 with paragraph (11)’’ after ‘‘in an efficient and fair 

15 manner’’; and 

16 (2) by adding at the end the following new para17 graph: 

18 ‘‘(11) PHASE-IN PROVIDING FLOOR USING BLEND

19 OF FEE SCHEDULE AND REGIONAL FEE SCHED20 ULES.—In carrying out the phase-in under para21 graph (2)(E) for each level of service furnished in a 

22 year, the portion of the payment amount that is based 

23 on the fee schedule shall be the greater of the amount 

24 determined under such fee schedule (without regard to 

25 this paragraph) or the following blended rate of the 
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1 fee schedule under paragraph (1) and of a regional fee 

2 schedule for the region involved: 

3 ‘‘(A) For 2004, the blended rate shall be 

4 based 20 percent on the fee schedule under para5 graph (1) and 80 percent on the regional fee 

6 schedule. 

7 ‘‘(B) For 2005, the blended rate shall be 

8 based 40 percent on the fee schedule under para9 graph (1) and 60 percent on the regional fee 

10 schedule. 

11 ‘‘(C) For 2006, the blended rate shall be 

12 based 60 percent on the fee schedule under para13 graph (1) and 40 percent on the regional fee 

14 schedule. 

15 ‘‘(D) For 2007, 2008, and 2009, the blended 

16 rate shall be based 80 percent on the fee schedule 

17 under paragraph (1) and 20 percent on the re18 gional fee schedule. 

19 ‘‘(E) For 2010 and each succeeding year, 

20 the blended rate shall be based 100 percent on the 

21 fee schedule under paragraph (1). 

22 For purposes of this paragraph, the Secretary shall 

23 establish a regional fee schedule for each of the 9 Cen24 sus divisions using the methodology (used in estab25 lishing the fee schedule under paragraph (1)) to cal-
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1 culate a regional conversion factor and a regional 

2 mileage payment rate and using the same payment 

3 adjustments and the same relative value units as used 

4 in the fee schedule under such paragraph.’’. 

5 (b) ADJUSTMENT IN PAYMENT FOR CERTAIN LONG

6 TRIPS.—Section 1834(l), as amended by subsection (a), is 

7 further amended by adding at the end the following new 

8 paragraph: 

9 ‘‘(12) ADJUSTMENT IN PAYMENT FOR CERTAIN

10 LONG TRIPS.—In the case of ground ambulance serv11 ices furnished on or after January 1, 2004, and before 

12 January 1, 2009, regardless of where the transpor13 tation originates, the fee schedule established under 

14 this subsection shall provide that, with respect to the 

15 payment rate for mileage for a trip above 50 miles 

16 the per mile rate otherwise established shall be increased by 1 17 ⁄4 of the payment per mile otherwise ap18 plicable to such miles.’’. 

19 (c) GAO REPORT ON COSTS AND ACCESS.—Not later 

20 than December 31, 2005, the Comptroller General of the 

21 United States shall submit to Congress an initial report 

22 on how costs differ among the types of ambulance providers 

23 and on access, supply, and quality of ambulance services 

24 in those regions and States that have a reduction in pay25 ment under the medicare ambulance fee schedule (under sec-
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1 tion 1834(l) of the Social Security Act, as amended by this 

2 section). Not later than December 31, 2007, the Comptroller 

3 General shall submit to Congress a final report on such ac4 cess and supply. 

5 (d) EFFECTIVE DATE.—The amendments made by this 

6 section shall apply to ambulance services furnished on or 

7 after January 1, 2004.

8 SEC. 623. RENAL DIALYSIS SERVICES. 

9 (a) DEMONSTRATION OF ALTERNATIVE DELIVERY

10 MODELS.—

11 (1) USE OF ADVISORY BOARD.—In carrying out 

12 the demonstration project relating to improving care 

13 for people with end-stage renal disease through alter14 native delivery models (as published in the Federal 

15 Register of June 4, 2003), the Secretary shall estab16 lish an advisory board comprised of representatives 

17 described in paragraph (2) to provide advice and rec18 ommendations with respect to the establishment and 

19 operation of such demonstration project. 

20 (2) REPRESENTATIVES.—Representatives re21 ferred to in paragraph (1) include representatives of 

22 the following: 

23 (A) Patient organizations. 

24 (B) Clinicians. 
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1 (C) The medicare payment advisory com2 mission, established under section 1805 of the 

3 Social Security Act (42 U.S.C. 1395b–6). 

4 (D) The National Kidney Foundation. 

5 (E) The National Institute of Diabetes and 

6 Digestive and Kidney Diseases of National Insti7 tutes of Health. 

8 (F) End-stage renal disease networks. 

9 (G) Medicare contractors to monitor quality 

10 of care. 

11 (I) providers of services and renal dialysis 

12 facilities furnishing end-stage renal disease serv13 ices. 

14 (J) Economists. 

15 (K) Researchers. 

16 (b) RESTORING COMPOSITE RATE EXCEPTIONS FOR

17 PEDIATRIC FACILITIES.—

18 (1) IN GENERAL.—Section 422(a)(2) of BIPA is 

19 amended—

20 (A) in subparagraph (A), by striking ‘‘and 

21 (C)’’ and inserting ‘‘, (C), and (D)’’; 

22 (B) in subparagraph (B), by striking ‘‘In 

23 the case’’ and inserting ‘‘Subject to subpara24 graph (D), in the case’’; and 
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1 (C) by adding at the end the following new 

2 subparagraph: 

3 ‘‘(D) INAPPLICABILITY TO PEDIATRIC FA4 CILITIES.—Subparagraphs (A) and (B) shall not 

5 apply, as of October 1, 2002, to pediatric facili6 ties that do not have an exception rate described 

7 in subparagraph (C) in effect on such date. For 

8 purposes of this subparagraph, the term ‘pedi9 atric facility’ means a renal facility at least 50 

10 percent of whose patients are individuals under 

11 18 years of age.’’. 

12 (2) CONFORMING AMENDMENT.—The fourth sen13 tence of section 1881(b)(7) (42 U.S.C. 1395rr(b)(7)), 

14 as amended by subsection (b), is further amended by 

15 striking ‘‘Until’’ and inserting ‘‘Subject to section 

16 422(a)(2) of the Medicare, Medicaid, and SCHIP 

17 Benefits Improvement and Protection Act of 2000, 

18 and until’’. 

19 (c) INCREASE IN RENAL DIALYSIS COMPOSITE RATE

20 FOR SERVICES FURNISHED IN 2004.—Notwithstanding any 

21 other provision of law, with respect to payment under part 

22 B of title XVIII of the Social Security Act for renal dialysis 

23 services furnished in 2004, the composite payment rate oth24 erwise established under section 1881(b)(7) of such Act (42 

25 U.S.C. 1395rr(b)(7)) shall be increased by 1.6 percent. 
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1 SEC. 624. ONE-YEAR MORATORIUM ON THERAPY CAPS; PRO2 VISIONS RELATING TO REPORTS. 

3 (a) 1-YEAR MORATORIUM ON THERAPY CAPS.—Sec4 tion 1833(g)(4) (42 U.S.C. 1395l(g)(4)) is amended by 

5 striking ‘‘and 2002’’ and inserting ‘‘2002, and 2004’’. 

6 (b) PROMPT SUBMISSION OF OVERDUE REPORTS ON

7 PAYMENT AND UTILIZATION OF OUTPATIENT THERAPY

8 SERVICES.—Not later than December 31, 2003, the Sec9 retary shall submit to Congress the reports required under 

10 section 4541(d)(2) of the Balanced Budget Act of 1997 (re11 lating to alternatives to a single annual dollar cap on out12 patient therapy) and under section 221(d) of the Medicare, 

13 Medicaid, and SCHIP Balanced Budget Refinement Act of 

14 1999 (relating to utilization patterns for outpatient ther15 apy).

16 (c) IDENTIFICATION OF CONDITIONS AND DISEASES

17 JUSTIFYING WAIVER OF THERAPY CAP.—

18 (1) STUDY.—The Secretary shall request the In19 stitute of Medicine of the National Academy of 

20 Sciences to identify conditions or diseases that should 

21 justify conducting an assessment of the need to waive 

22 the therapy caps under section 1833(g)(4) of the So23 cial Security Act (42 U.S.C. 1395l(g)(4)). 

24 (2) REPORTS TO CONGRESS.—

25 (A) PRELIMINARY REPORT.—Not later than 

26 July 1, 2004, the Secretary shall submit to Con-
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1 gress a preliminary report on the conditions and 

2 diseases identified under paragraph (1). 

3 (B) FINAL REPORT.—Not later than Sep4 tember 1, 2004, the Secretary shall submit to 

5 Congress a final report on such conditions and 

6 diseases. 

7 (C) RECOMMENDATIONS.—Not later than 

8 October 1, 2004, the Secretary shall submit to 

9 Congress a recommendation of criteria, with re10 spect to such conditions and disease, under 

11 which a waiver of the therapy caps would apply. 

12 (d) GAO STUDY OF PATIENT ACCESS TO PHYSICAL

13 THERAPIST SERVICES.—

14 (1) STUDY.—The Comptroller General of the 

15 United States shall conduct a study on access to phys16 ical therapist services in States authorizing such serv17 ices without a physician referral and in States that 

18 require such a physician referral. The study shall—

19 (A) examine the use of and referral patterns 

20 for physical therapist services for patients age 50 

21 and older in States that authorize such services 

22 without a physician referral and in States that 

23 require such a physician referral; 
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1 (B) examine the use of and referral patterns 

2 for physical therapist services for patients who 

3 are medicare beneficiaries; 

4 (C) examine the potential effect of prohib5 iting a physician from referring patients to 

6 physical therapy services owned by the physician 

7 and provided in the physician’s office; 

8 (D) examine the delivery of physical thera9 pists’ services within the facilities of Department 

10 of Defense; and 

11 (E) analyze the potential impact on medi12 care beneficiaries and on expenditures under the 

13 medicare program of eliminating the need for a 

14 physician referral and physician certification for 

15 physical therapist services under the medicare 

16 program. 

17 (2) REPORT.—The Comptroller General shall 

18 submit to Congress a report on the study conducted 

19 under paragraph (1) by not later than 1 year after 

20 the date of the enactment of this Act. 

21 SEC. 625. ADJUSTMENT TO PAYMENTS FOR SERVICES FUR22 NISHED IN AMBULATORY SURGICAL CEN23 TERS. 

24 Section 1833(i)(2)(C) (42 U.S.C. 1395l(i)(2)(C)) is 

25 amended in the last sentence by inserting ‘‘and each of fis-
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1 cal years 2004 through 2008’’ after ‘‘In each of the fiscal 

2 years 1998 through 2002’’. 

3 SEC. 626. PAYMENT FOR CERTAIN SHOES AND INSERTS 

4 UNDER THE FEE SCHEDULE FOR ORTHOTICS 

5 AND PROSTHETICS. 

6 (a) IN GENERAL.—Section 1833(o) (42 U.S.C. 

7 1395l(o)) is amended—

8 (1) in paragraph (1), by striking ‘‘no more than 

9 the limits established under paragraph (2)’’ and in10 serting ‘‘no more than the amount of payment appli11 cable under paragraph (2)’’; and 

12 (2) in paragraph (2), to read as follows: 

13 ‘‘(2)(A) Except as provided by the Secretary under 

14 subparagraphs (B) and (C), the amount of payment under 

15 this paragraph for custom molded shoes, extra depth shoes, 

16 and inserts shall be the amount determined for such items 

17 by the Secretary under section 1834(h). 

18 ‘‘(B) The Secretary or a carrier may establish pay19 ment amounts for shoes and inserts that are lower than the 

20 amount established under section 1834(h) if the Secretary 

21 finds that shoes and inserts of an appropriate quality are 

22 readily available at or below the amount established under 

23 such section. 

24 ‘‘(C) In accordance with procedures established by the 

25 Secretary, an individual entitled to benefits with respect 
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1 to shoes described in section 1861(s)(12) may substitute 

2 modification of such shoes instead of obtaining one (or 

3 more, as specified by the Secretary) pair of inserts (other 

4 than the original pair of inserts with respect to such shoes). 

5 In such case, the Secretary shall substitute, for the payment 

6 amount established under section 1834(h), a payment 

7 amount that the Secretary estimates will assure that there 

8 is no net increase in expenditures under this subsection as 

9 a result of this subparagraph.’’. 

10 (b) CONFORMING AMENDMENTS.—(1) Section 

11 1834(h)(4)(C) (42 U.S.C. 1395m(h)(4)(C)) is amended by 

12 inserting ‘‘(and includes shoes described in section 

13 1861(s)(12))’’ after ‘‘in section 1861(s)(9)’’. 

14 (2) Section 1842(s)(2) (42 U.S.C. 1395u(s)(2)) is 

15 amended by striking subparagraph (C). 

16 (c) EFFECTIVE DATE.—The amendments made by this 

17 section shall apply to items furnished on or after January 

18 1, 2004.

19 SEC. 627. WAIVER OF PART B LATE ENROLLMENT PENALTY 

20 FOR CERTAIN MILITARY RETIREES; SPECIAL 

21 ENROLLMENT PERIOD. 

22 (a) WAIVER OF PENALTY.—

23 (1) IN GENERAL.—Section 1839(b) (42 U.S.C. 

24 1395r(b)) is amended by adding at the end the fol25 lowing new sentence: ‘‘No increase in the premium 
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1 shall be effected for a month in the case of an indi2 vidual who is 65 years of age or older, who enrolls 

3 under this part during 2001, 2002, 2003, or 2004 and 

4 who demonstrates to the Secretary before December 

5 31, 2004, that the individual is a covered beneficiary 

6 (as defined in section 1072(5) of title 10, United 

7 States Code). The Secretary of Health and Human 

8 Services shall consult with the Secretary of Defense in 

9 identifying individuals described in the previous sen10 tence.’’. 

11 (2) EFFECTIVE DATE.—The amendment made by 

12 paragraph (1) shall apply to premiums for months 

13 beginning with January 2003. The Secretary of 

14 Health and Human Services shall establish a method 

15 for providing rebates of premium penalties paid for 

16 months on or after January 2004 for which a penalty 

17 does not apply under such amendment but for which 

18 a penalty was previously collected. 

19 (b) MEDICARE PART B SPECIAL ENROLLMENT PE20 RIOD.—

21 (1) IN GENERAL.—In the case of any individual 

22 who, as of the date of the enactment of this Act, is 

23 65 years of age or older, is eligible to enroll but is not 

24 enrolled under part B of title XVIII of the Social Se25 curity Act, and is a covered beneficiary (as defined 
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1 in section 1072(5) of title 10, United States Code), the 

2 Secretary of Health and Human Services shall pro3 vide for a special enrollment period during which the 

4 individual may enroll under such part. Such period 

5 shall begin as soon as possible after the date of the en6 actment of this Act and shall end on December 31, 

7 2004. 

8 (2) COVERAGE PERIOD.—In the case of an indi9 vidual who enrolls during the special enrollment pe10 riod provided under paragraph (1), the coverage pe11 riod under part B of title XVIII of the Social Secu12 rity Act shall begin on the first day of the month fol13 lowing the month in which the individual enrolls. 

14 SEC. 628. PART B DEDUCTIBLE. 

15 Section 1833(b) (42 U.S.C. 1395l(b)) is amended—

16 (1) by striking ‘‘1991 and’’ and inserting 

17 ‘‘1991,’’; and 

18 (2) by striking ‘‘and subsequent years’’ and in19 serting ‘‘and each subsequent year through 2003, and 

20 for a subsequent year after 2003 the amount of such 

21 deductible for the previous year increased by the an22 nual percentage increase in the monthly actuarial 

23 rate under section 1839(a)(1) ending with such subse24 quent year (rounded to the nearest $1)’’. 
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1 SEC. 629. DEMONSTRATION PROJECT FOR COVERAGE OF 

2 SELF-INJECTED BIOLOGICS FOR RHEU3 MATOID ARTHRITIS. 

4 (a) DEMONSTRATION PROJECT.—The Secretary shall 

5 conduct a demonstration project under part B of title XVIII 

6 of the Social Security Act under which payment is made 

7 for self-injected biologics (approved by the Food and Drug 

8 Administration) prescribed for the treatment of rheumatoid 

9 arthritis that are prescribed as replacements for drugs and 

10 biologicals described in section 1861(s)(2)(A) of such Act 

11 (42 U.S.C. 1395x(s)(2)(A)) for which payment is made 

12 under such part. 

13 (b) DEMONSTRATION PROJECT SITES.—The project es14 tablished under this section shall be conducted in 3 States 

15 selected by the Secretary. 

16 (c) DURATION.—The Secretary shall conduct the dem17 onstration project for the 2-year period beginning on the 

18 date that is 90 days after the date of the enactment of this 

19 Act. 

20 (d) REPORT.—(1) Not later than January 1, 2006, the 

21 Secretary shall submit to Congress a report on the project. 

22 The report shall include an evaluation of patient access to 

23 care and patient outcomes under the project, as well as an 

24 analysis of the cost effectiveness of the project, including an 

25 evaluation of the costs savings (if any) to the medicare pro26 gram attributable to reduced physicians’ services and hos-
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1 pital outpatient departments services for administration of 

2 the biological. 

3 (2) The Secretary may use findings from the report 

4 under paragraph (1) in determining appropriate settings 

5 for the administration of biologics (approved by the Food 

6 and Drug Administration) prescribed for medicare bene7 ficiaries for the treatment of rheumatoid arthritis.

8 TITLE VII—PROVISIONS 

9 RELATING TO PARTS A AND B 

10 Subtitle A—Home Health Services 

11 SEC. 701. UPDATE IN HOME HEALTH SERVICES. 

12 (a) CHANGE TO CALENDER YEAR UPDATE.—

13 (1) IN GENERAL.—Section 1895(b) (42 U.S.C. 

14 1395fff(b)(3)) is amended—

15 (A) in paragraph (3)(B)(i)—

16 (i) by striking ‘‘each fiscal year (begin17 ning with fiscal year 2002)’’ and inserting 

18 ‘‘fiscal year 2002 and for fiscal year 2003 

19 and for each subsequent year (beginning 

20 with 2004)’’; and 

21 (ii) by inserting ‘‘or year’’ after ‘‘the 

22 fiscal year’’; 

23 (B) in paragraph (3)(B)(ii)(II), by striking 

24 ‘‘any subsequent fiscal year’’ and inserting 

25 ‘‘2004 and any subsequent year’’; 
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1 (C) in paragraph (3)(B)(iii), by inserting 

2 ‘‘or year’’ after ‘‘fiscal year’’ each place it ap3 pears; 

4 (D) in paragraph (3)(B)(iv)—

5 (i) by inserting ‘‘or year’’ after ‘‘fiscal 

6 year’’ each place it appears; and 

7 (ii) by inserting ‘‘or years’’ after ‘‘fis8 cal years’’; and 

9 (E) in paragraph (5), by inserting ‘‘or 

10 year’’ after ‘‘fiscal year’’. 

11 (2) TRANSITION RULE.—The standard prospec12 tive payment amount (or amounts) under section 

13 1895(b)(3) of the Social Security Act for the calendar 

14 quarter beginning on October 1, 2003, shall be such 

15 amount (or amounts) for the previous calendar quar16 ter. 

17 (b) CHANGES IN UPDATES FOR 2004, 2005, AND

18 2006.—Section 1895(b)(3)(B)(ii) (42 U.S.C. 

19 1395fff(b)(3)(B)(ii)), as amended by subsection (a)(1)(B), 

20 is amended—

21 (1) by striking ‘‘or’’ at the end of subclause (I); 

22 (2) by redesignating subclause (II) as subclause 

23 (III); 

24 (3) in subclause (III), as so redesignated, by 

25 striking ‘‘2004’’ and inserting ‘‘2007’’; and 
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1 (4) by inserting after subclause (I) the following 

2 new subclause: 

3 ‘‘(II) each of 2004, 2005, and 

4 2006 the home health market basket 

5 percentage increase minus 0.4 percent6 age points; or’’. 

7 SEC. 702. MEDPAC STUDY ON MEDICARE MARGINS OF HOME 

8 HEALTH AGENCIES. 

9 (a) STUDY.—The Medicare Payment Advisory Com10 mission shall conduct a study of payment margins of home 

11 health agencies under the home health prospective payment 

12 system under section 1895 of the Social Security Act (42 

13 U.S.C. 1395fff). Such study shall examine whether system14 atic differences in payment margins are related to dif15 ferences in case mix (as measured by home health resource 

16 groups (HHRGs)) among such agencies. The study shall use 

17 the partial or full-year cost reports filed by home health 

18 agencies. 

19 (b) REPORT.—Not later than 2 years after the date 

20 of the enactment of this Act, the Commission shall submit 

21 to Congress a report on the study under subsection (a). 

22 SEC. 703. DEMONSTRATION PROJECT TO CLARIFY THE DEF23 INITION OF HOMEBOUND. 

24 (a) DEMONSTRATION PROJECT.—Not later than 180 

25 days after the date of the enactment of this Act, the Sec-
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1 retary shall conduct a two-year demonstration project 

2 under part B of title XVIII of the Social Security Act under 

3 which medicare beneficiaries with chronic conditions de4 scribed in subsection (b) are deemed to be homebound for 

5 purposes of receiving home health services under the medi6 care program. 

7 (b) MEDICARE BENEFICIARY DESCRIBED.—For pur8 poses of subsection (a), a medicare beneficiary is eligible 

9 to be deemed to be homebound, without regard to the pur10 pose, frequency, or duration of absences from the home, if 

11 the beneficiary—

12 (1) has been certified by one physician as an in13 dividual who has a permanent and severe condition 

14 that will not improve; 

15 (2) requires the individual to receive assistance 

16 from another individual with at least 3 out of the 5 

17 activities of daily living for the rest of the individ18 ual’s life; 

19 (3) requires 1 or more home health services to 

20 achieve a functional condition that gives the indi21 vidual the ability to leave home; and 

22 (4) requires technological assistance or the assist23 ance of another person to leave the home. 

24 (c) DEMONSTRATION PROJECT SITES.—The dem25 onstration project established under this section shall be 
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1 conducted in 3 States selected by the Secretary to represent 

2 the Northeast, Midwest, and Western regions of the United 

3 States. 

4 (d) LIMITATION ON NUMBER OF PARTICIPANTS.—The 

5 aggregate number of such beneficiaries that may participate 

6 in the project may not exceed 15,000. 

7 (e) DATA.—The Secretary shall collect such data on 

8 the demonstration project with respect to the provision of 

9 home health services to medicare beneficiaries that relates 

10 to quality of care, patient outcomes, and additional costs, 

11 if any, to the medicare program. 

12 (f) REPORT TO CONGRESS.—Not later than 1 year 

13 after the date of the completion of the demonstration project 

14 under this section, the Secretary shall submit to Congress 

15 a report on the project using the data collected under sub16 section (e) and shall include—

17 (1) an examination of whether the provision of 

18 home health services to medicare beneficiaries under 

19 the project—

20 (A) adversely effects the provision of home 

21 health services under the medicare program; or 

22 (B) directly causes an unreasonable increase 

23 of expenditures under the medicare program for 

24 the provision of such services that is directly at25 tributable to such clarification; 
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1 (2) the specific data evidencing the amount of 

2 any increase in expenditures that is a directly attrib3 utable to the demonstration project (expressed both in 

4 absolute dollar terms and as a percentage) above ex5 penditures that would otherwise have been incurred 

6 for home health services under the medicare program; 

7 and 

8 (3) specific recommendations to exempt perma9 nently and severely disabled homebound beneficiaries 

10 from restrictions on the length, frequency and purpose 

11 of their absences from the home to qualify for home 

12 health services without incurring additional unrea13 sonable costs to the medicare program. 

14 (g) WAIVER AUTHORITY.—The Secretary shall waive 

15 compliance with the requirements of title XVIII of the So16 cial Security Act (42 U.S.C. 1395 et seq.) to such extent 

17 and for such period as the Secretary determines is necessary 

18 to conduct demonstration projects. 

19 (h) CONSTRUCTION.—Nothing in this section shall be 

20 construed as waiving any applicable civil monetary pen21 alty, criminal penalty, or other remedy available to the Sec22 retary under title XI or title XVIII of the Social Security 

23 Act for acts prohibited under such titles, including penalties 

24 for false certifications for purposes of receipt of items or 

25 services under the medicare program. 
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1 (i) AUTHORIZATION OF APPROPRIATIONS.—Payments 

2 for the costs of carrying out the demonstration project under 

3 this section shall be made from the Federal Supplementary 

4 Insurance Trust Fund under section 1841 of such Act (42 

5 U.S.C. 1395t). 

6 (j) DEFINITIONS.—In this section: 

7 (1) MEDICARE BENEFICIARY.—The term ‘‘medi8 care beneficiary’’ means an individual who is enrolled 

9 under part B of title XVIII of the Social Security 

10 Act. 

11 (2) HOME HEALTH SERVICES.—The term ‘‘home 

12 health services’’ has the meaning given such term in 

13 section 1861(m) of the Social Security Act (42 U.S.C. 

14 1395x(m)). 

15 (3) ACTIVITIES OF DAILY LIVING DEFINED.—The 

16 term ‘‘activities of daily living’’ means eating, 

17 toileting, transferring, bathing, and dressing. 

18 (4) SECRETARY.—The term ‘‘Secretary’’ means 

19 the Secretary of Health and Human Services.

20 Subtitle B—Direct Graduate 

21 Medical Education 

22 SEC. 711. EXTENSION OF UPDATE LIMITATION ON HIGH 

23 COST PROGRAMS. 

24 Section 1886(h)(2)(D)(iv) (42 U.S.C. 

25 1395ww(h)(2)(D)(iv)) is amended—
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1 (1) in subclause (I)—

2 (A) by inserting ‘‘AND 2004 THROUGH 2013’’ 

3 after ‘‘AND 2002’’; and 

4 (B) by inserting ‘‘or during the period be5 ginning with fiscal year 2004 and ending with 

6 fiscal year 2013’’ after ‘‘during fiscal year 2001 

7 or fiscal year 2002’’; and 

8 (2) in subclause (II)—

9 (A) by striking ‘‘fiscal year 2004, or fiscal 

10 year 2005,’’ and 

11 (B) by striking ‘‘For a’’ and inserting ‘‘For 

12 the’’.

13 Subtitle C—Chronic Care 

14 Improvement 

15 SEC. 721. VOLUNTARY CHRONIC CARE IMPROVEMENT 

16 UNDER TRADITIONAL FEE-FOR-SERVICE. 

17 Title XVIII, as amended by section 105(a), is amended 

18 by inserting after section 1807 the following new section: 

19 ‘‘CHRONIC CARE IMPROVEMENT

20 ‘‘SEC. 1808. (a) IN GENERAL.—

21 ‘‘(1) IN GENERAL.—The Secretary shall establish 

22 a process for providing chronic care improvement 

23 programs in each CCIA region for medicare bene24 ficiaries who are not enrolled under part C or E and 

25 who have certain chronic conditions, such as conges26 tive heart failure, diabetes, chronic obstructive pul-
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1 monary disease (COPD), stroke, prostate and colon 

2 cancer, hypertension, or other disease as identified by 

3 the Secretary as appropriate for chronic care im4 provement. Such a process shall begin to be imple5 mented no later than 1 year after the date of the en6 actment of this section. 

7 ‘‘(2) TERMINOLOGY.—For purposes of this sec8 tion: 

9 ‘‘(A) CCIA REGION.—The term ‘CCIA re10 gion’ means a chronic care improvement admin11 istrative region delineated under subsection 

12 (b)(2). 

13 ‘‘(B) CHRONIC CARE IMPROVEMENT PRO14 GRAM.—The terms ‘chronic care improvement 

15 program’ and ‘program’ means such a program 

16 provided by a contractor under this section. 

17 ‘‘(C) CONTRACTOR.—The term ‘contractor’ 

18 means an entity with a contract to provide a 

19 chronic care improvement program in a CCIA 

20 region under this section. 

21 ‘‘(D) INDIVIDUAL PLAN.—The term ‘indi22 vidual plan’ means a chronic care improvement 

23 plan established under subsection (c)(5) for an 

24 individual. 
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1 ‘‘(3) CONSTRUCTION.—Nothing in this section 

2 shall be construed as expanding the amount, dura3 tion, or scope of benefits under this title. 

4 ‘‘(b) COMPETITIVE BIDDING PROCESS.—

5 ‘‘(1) IN GENERAL.—Under this section the Sec6 retary shall award contracts to qualified entities for 

7 chronic care improvement programs for each CCIA 

8 region under this section through a competitive bid9 ding process. 

10 ‘‘(2) PROCESS.—Under such process—

11 ‘‘(A) the Secretary shall delineate the 

12 United States into multiple chronic care im13 provement administrative regions; and 

14 ‘‘(B) the Secretary shall select at least 2 

15 winning bidders in each CCIA region on the 

16 basis of the ability of each bidder to carry out 

17 a chronic care improvement program in accord18 ance with this section, in order to achieve im19 proved health and financial outcomes. 

20 ‘‘(3) ELIGIBLE CONTRACTOR.—A contractor may 

21 be a disease improvement organization, health in22 surer, provider organization, a group of physicians, 

23 or any other legal entity that the Secretary deter24 mines appropriate. 

25 ‘‘(c) CHRONIC CARE IMPROVEMENT PROGRAMS.—
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1 ‘‘(1) IN GENERAL.—Each contract under this 

2 section shall provide for the operation of a chronic 

3 care improvement program by a contractor in a 

4 CCIA region consistent with this subsection. 

5 ‘‘(2) IDENTIFICATION OF PROSPECTIVE PROGRAM

6 PARTICIPANTS.—Each contractor shall have a method 

7 for identifying medicare beneficiaries in the region to 

8 whom it will offer services under its program. The 

9 contractor shall identify such beneficiaries through 

10 claims or other data and other means permitted con11 sistent with applicable disclosure provisions. 

12 ‘‘(3) INITIAL CONTACT BY SECRETARY.—The Sec13 retary shall communicate with each beneficiary iden14 tified under paragraph (2) as a prospective partici15 pant in one or more programs concerning participa16 tion in a program. Such communication may be 

17 made by the Secretary (or on behalf of the Secretary) 

18 and shall include information on the following: 

19 ‘‘(A) A description of the advantages to the 

20 beneficiary in participating in a program. 

21 ‘‘(B) Notification that the contractor offer22 ing a program may contact the beneficiary di23 rectly concerning such participation. 

24 ‘‘(C) Notification that participation in a 

25 program is voluntary. 
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1 ‘‘(D) A description of the method for the 

2 beneficiary to select the single program in which 

3 the beneficiary wishes to participate and for de4 clining to participate and a method for obtain5 ing additional information concerning such par6 ticipation. 

7 ‘‘(4) PARTICIPATION.—A medicare beneficiary 

8 may participate in only one program under this sec9 tion and may terminate participation at any time in 

10 a manner specified by the Secretary. 

11 ‘‘(5) INDIVIDUAL CHRONIC CARE IMPROVEMENT

12 PLANS.—

13 ‘‘(A) IN GENERAL.—For each beneficiary 

14 participating in a program of a contractor 

15 under this section, the contractor shall develop 

16 with the beneficiary an individualized, goal-ori17 ented chronic care improvement plan. 

18 ‘‘(B) ELEMENTS OF INDIVIDUAL PLAN.—

19 Each individual plan developed under subpara20 graph (A) shall include a single point of contact 

21 to coordinate care and the following, as appro22 priate: 

23 ‘‘(i) Self-improvement education for 

24 the beneficiary (such as education for dis25 ease management through medical nutrition 
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1 therapy) and support education for health 

2 care providers, primary caregivers, and 

3 family members. 

4 ‘‘(ii) Coordination of health care serv5 ices, such as application of a prescription 

6 drug regimen and home health services. 

7 ‘‘(iii) Collaboration with physicians 

8 and other providers to enhance communica9 tion of relevant clinical information. 

10 ‘‘(iv) The use of monitoring tech11 nologies that enable patient guidance 

12 through the exchange of pertinent clinical 

13 information, such as vital signs, sympto14 matic information, and health self-assess15 ment. 

16 ‘‘(v) The provision of information 

17 about hospice care, pain and palliative 

18 care, and end-of-life care. 

19 ‘‘(C) CONTRACTOR RESPONSIBILITIES.—In 

20 establishing and carrying out individual plans 

21 under a program, a contractor shall, directly or 

22 through subcontractors—

23 ‘‘(i) guide participants in managing 

24 their health, including all their co-
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1 morbidities, and in performing activities as 

2 specified under the elements of the plan; 

3 ‘‘(ii) use decision support tools such as 

4 evidence-based practice guidelines or other 

5 criteria as determined by the Secretary; and 

6 ‘‘(iii) develop a clinical information 

7 database to track and monitor each partici8 pant across settings and to evaluate out9 comes. 

10 ‘‘(6) ADDITIONAL REQUIREMENTS.—The Sec11 retary may establish additional requirements for pro12 grams and contractors under this section. 

13 ‘‘(7) ACCREDITATION.—The Secretary may pro14 vide that programs that are accredited by qualified 

15 organizations may be deemed to meet such require16 ments under this section as the Secretary may speci17 fy. 

18 ‘‘(c) CONTRACT TERMS.—

19 ‘‘(1) IN GENERAL.—A contract under this section 

20 shall contain such terms and conditions as the Sec21 retary may specify consistent with this section. The 

22 Secretary may not enter into a contract with an enti23 ty under this section unless the entity meets such clin24 ical, quality improvement, financial, and other re-
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1 quirements as the Secretary deems to be appropriate 

2 for the population to be served. 

3 ‘‘(2) USE OF SUBCONTRACTORS PERMITTED.—A 

4 contractor may carry out a program directly or 

5 through contracts with subcontractors. 

6 ‘‘(3) BUDGET NEUTRAL PAYMENT CONDITION.—

7 In entering into a contract with an entity under this 

8 subsection, the Secretary shall establish payment rates 

9 that assure that there will be no net aggregate in10 crease in payments under this title over any period 

11 of 3 years or longer, as agreed to by the Secretary. 

12 Under this section, the Secretary shall assure that 

13 medicare program outlays plus administrative ex14 penses (that would not have been paid under this title 

15 without implementation of this section), including 

16 contractor fees, shall not exceed the expenditures that 

17 would have been incurred under this title for a com18 parable population in the absence of the program 

19 under this section for the 3-year contract period. 

20 ‘‘(4) AT RISK RELATIONSHIP.—For purposes of 

21 section 1128B(b)(3)(F), a contract under this section 

22 shall be treated as a risk-sharing arrangement re23 ferred to in such section. 

24 ‘‘(5) PERFORMANCE STANDARDS.—Payment to 

25 contractors under this section shall be subject to the 
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1 contractor’s meeting of clinical and financial per2 formance standards set by the Secretary. 

3 ‘‘(6) CONTRACTOR OUTCOMES REPORT.—Each 

4 contractor offering a program shall monitor and re5 port to the Secretary, in a manner specified by the 

6 Secretary, the quality of care and efficacy of such 

7 program in terms of—

8 ‘‘(A) process measures, such as reductions 

9 in errors of treatment and rehospitalization 

10 rates; 

11 ‘‘(B) beneficiary and provider satisfaction; 

12 ‘‘(C) health outcomes; and 

13 ‘‘(D) financial outcomes. 

14 ‘‘(7) PHASED IN IMPLEMENTATION.—Nothing in 

15 this section shall be construed as preventing the Sec16 retary from phasing in the implementation of pro17 grams. 

18 ‘‘(d) BIANNUAL OUTCOMES REPORTS.—The Secretary 

19 shall submit to the Congress biannual reports on the imple20 mentation of this section. Each such report shall include 

21 information on—

22 ‘‘(1) the scope of implementation (in terms of 

23 both regions and chronic conditions); 

24 ‘‘(2) program design; and 
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1 ‘‘(3) improvements in health outcomes and fi2 nancial efficiencies that result from such implementa3 tion. 

4 ‘‘(e) CLINICAL TRIALS.—The Secretary shall conduct 

5 randomized clinical trials, that compare program partici6 pants with medicare beneficiaries who are offered, but de7 cline, to participate, in order to assess the potential of pro8 grams to—

9 ‘‘(1) reduce costs under this title; and 

10 ‘‘(2) improve health outcomes under this title. 

11 ‘‘(f) AUTHORIZATION OF APPROPRIATIONS.—There are 

12 authorized to be appropriated to the Secretary, in appro13 priate part from the Hospital Insurance Trust Fund and 

14 the Supplementary Medical Insurance Trust Fund, such 

15 sums as may be necessary to provide for contracts with 

16 chronic care improvement programs under this section. 

17 ‘‘(g) LIMITATION ON FUNDING.—In no case shall the 

18 funding under this section exceed $100,000,000 over a pe19 riod of 3 years.’’. 

20 SEC. 722. CHRONIC CARE IMPROVEMENT UNDER MEDICARE 

21 ADVANTAGE AND ENHANCED FEE-FOR-SERV22 ICE PROGRAMS. 

23 (a) UNDER MEDICARE ADVANTAGE PROGRAM.—Sec24 tion 1852 (42 U.S.C. 1395w–22) is amended—
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1 (1) by amending subsection (e) to read as fol2 lows: 

3 ‘‘(e) IMPLEMENTATION OF CHRONIC CARE IMPROVE4 MENT PROGRAMS FOR BENEFICIARIES WITH MULTIPLE OR

5 SUFFICIENTLY SEVERE CHRONIC CONDITIONS.—

6 ‘‘(1) IN GENERAL.—Each Medicare Advantage 

7 organization with respect to each Medicare Advantage 

8 plan it offers shall have in effect, for enrollees with 

9 multiple or sufficiently severe chronic conditions, a 

10 chronic care improvement program that is designed to 

11 manage the needs of such enrollees and that meets the 

12 requirements of this subsection. 

13 ‘‘(2) ENROLLEE WITH MULTIPLE OR SUFFI14 CIENTLY SEVERE CHRONIC CONDITIONS.—For pur15 poses of this subsection, the term ‘enrollee with mul16 tiple or sufficiently severe chronic conditions’ means, 

17 with respect to an enrollee in a Medicare Advantage 

18 plan of a Medicare Advantage organization, an en19 rollee in the plan who has one or more chronic condi20 tions, such as congestive heart failure, diabetes, 

21 COPD, stroke, prostate and colon cancer, hyper22 tension, or other disease as identified by the organiza23 tion as appropriate for chronic care improvement. 

24 ‘‘(3) GENERAL REQUIREMENTS.—
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1 ‘‘(A) IN GENERAL.—Each chronic care im2 provement program under this subsection shall 

3 be conducted consistent with this subsection. 

4 ‘‘(B) IDENTIFICATION OF ENROLLEES.—

5 Each such program shall have a method for 

6 monitoring and identifying enrollees with mul7 tiple or sufficiently severe chronic conditions 

8 that meet the organization’s criteria for partici9 pation under the program. 

10 ‘‘(C) DEVELOPMENT OF PLANS.—For an en11 rollee identified under subparagraph (B) for par12 ticipation in a program, the program shall de13 velop, with the enrollee’s consent, an individual14 ized, goal-oriented chronic care improvement 

15 plan for chronic care improvement. 

16 ‘‘(D) ELEMENTS OF PLANS.—Each chronic 

17 care improvement plan developed under subpara18 graph (C) shall include a single point of contact 

19 to coordinate care and the following, as appro20 priate: 

21 ‘‘(i) Self-improvement education for 

22 the enrollee (such as education for disease 

23 management through medical nutrition 

24 therapy) and support education for health 
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1 care providers, primary caregivers, and 

2 family members. 

3 ‘‘(ii) Coordination of health care serv4 ices, such as application of a prescription 

5 drug regimen and home health services. 

6 ‘‘(iii) Collaboration with physicians 

7 and other providers to enhance communica8 tion of relevant clinical information. 

9 ‘‘(iv) The use of monitoring tech10 nologies that enable patient guidance 

11 through the exchange of pertinent clinical 

12 information, such as vital signs, sympto13 matic information, and health self-assess14 ment. 

15 ‘‘(v) The provision of information 

16 about hospice care, pain and palliative 

17 care, and end-of-life care. 

18 ‘‘(E) ORGANIZATION RESPONSIBILITIES.—

19 In establishing and carrying out chronic care 

20 improvement plans for participants under this 

21 paragraph, a Medicare Advantage organization 

22 shall, directly or through subcontractors—

23 ‘‘(i) guide participants in managing 

24 their health, including all their co25 morbidities, and in performing the activi-
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1 ties as specified under the elements of the 

2 plan; 

3 ‘‘(ii) use decision support tools such as 

4 evidence-based practice guidelines or other 

5 criteria as determined by the Secretary; and 

6 ‘‘(iii) develop a clinical information 

7 database to track and monitor each partici8 pant across settings and to evaluate out9 comes. 

10 ‘‘(3) ADDITIONAL REQUIREMENTS.—The Sec11 retary may establish additional requirements for 

12 chronic care improvement programs under this sec13 tion. 

14 ‘‘(4) ACCREDITATION.—The Secretary may pro15 vide that chronic care improvement programs that 

16 are accredited by qualified organizations may be 

17 deemed to meet such requirements under this sub18 section as the Secretary may specify. 

19 ‘‘(5) OUTCOMES REPORT.—Each Medicare Ad20 vantage organization with respect to its chronic care 

21 improvement program under this subsection shall 

22 monitor and report to the Secretary information on 

23 the quality of care and efficacy of such program as 

24 the Secretary may require.’’; and 
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1 (2) by amending subparagraph (I) of subsection 

2 (c)(1) to read as follows: 

3 ‘‘(I) CHRONIC CARE IMPROVEMENT PRO4 GRAM.—A description of the organization’s 

5 chronic care improvement program under sub6 section (e).’’. 

7 (b) APPLICATION UNDER ENHANCED FEE-FOR-SERV8 ICE PROGRAM.—Section 1860E–2(c)(3), as inserted by sec9 tion 201(a), is amended by inserting ‘‘, including subsection 

10 (e) (relating to implementation of chronic care improve11 ment programs)’’ after ‘‘The provisions of section 1852’’. 

12 (c) EFFECTIVE DATE.—The amendments made by this 

13 section shall apply for contract years beginning on or after 

14 1 year after the date of the enactment of this Act. 

15 SEC. 723. INSTITUTE OF MEDICINE REPORT. 

16 (a) STUDY.—

17 (1) IN GENERAL.—The Secretary of Health and 

18 Human Services shall contract with the Institute of 

19 Medicine of the National Academy of Sciences to con20 duct a study of the barriers to effective integrated care 

21 improvement for medicare beneficiaries with multiple 

22 or severe chronic conditions across settings and over 

23 time and to submit a report under subsection (b). 

24 (2) SPECIFIC ITEMS.—The study shall examine 

25 the statutory and regulatory barriers to coordinating 
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1 care across settings for medicare beneficiaries in tran2 sition from one setting to another (such as between 

3 hospital, nursing facility, home health, hospice, and 

4 home). The study shall specifically identify the fol5 lowing: 

6 (A) Clinical, financial, or administrative 

7 requirements in the medicare program that 

8 present barriers to effective, seamless transitions 

9 across care settings. 

10 (B) Policies that impede the establishment 

11 of administrative and clinical information sys12 tems to track health status, utilization, cost, and 

13 quality data across settings. 

14 (C) State-level requirements that may 

15 present barriers to better care for medicare bene16 ficiaries. 

17 (3) CONSULTATION.—The study under this sub18 section shall be conducted in consultation with experts 

19 in the field of chronic care, consumers, and family 

20 caregivers, working to integrate care delivery and cre21 ate more seamless transitions across settings and over 

22 time. 

23 (b) REPORT.—The report under this subsection shall 

24 be submitted to the Secretary and Congress not later than 

25 18 months after the date of the enactment of this Act. 
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1 SEC. 724. MEDPAC REPORT. 

2 (a) EVALUATION.—shall conduct an evaluation that 

3 includes a description of the status of the implementation 

4 of chronic care improvement programs under section 1808 

5 of the Social Security Act, the quality of health care services 

6 provided to individuals in such program, the health status 

7 of the participants of such program, and the cost savings 

8 attributed to implementation of such program. 

9 (b) REPORT.—Not later than 2 years after the date 

10 of implementation of such chronic care improvement pro11 grams, the Commission shall submit a report on such eval12 uation.

13 Subtitle D—Other Provisions 

14 SEC. 731. MODIFICATIONS TO MEDICARE PAYMENT ADVI15 SORY COMMISSION (MEDPAC). 

16 (a) EXAMINATION OF BUDGET CONSEQUENCES.—Sec17 tion 1805(b) (42 U.S.C. 1395b–6(b)) is amended by adding 

18 at the end the following new paragraph: 

19 ‘‘(8) EXAMINATION OF BUDGET CON20 SEQUENCES.—Before making any recommendations, 

21 the Commission shall examine the budget con22 sequences of such recommendations, directly or 

23 through consultation with appropriate expert enti24 ties.’’. 

25 (b) CONSIDERATION OF EFFICIENT PROVISION OF

26 SERVICES.—Section 1805(b)(2)(B)(i) (42 U.S.C. 1395b–
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1 6(b)(2)(B)(i)) is amended by inserting ‘‘the efficient provi2 sion of’’ after ‘‘expenditures for’’. 

3 (c) APPLICATION OF DISCLOSURE REQUIREMENTS.—

4 (1) IN GENERAL.—Section 1805(c)(2)(D) (42 

5 U.S.C. 1395b–6(c)(2)(D)) is amended by adding at 

6 the end the following: ‘‘Members of the Commission 

7 shall be treated as employees of the Congress for pur8 poses of applying title I of the Ethics in Government 

9 Act of 1978 (Public Law 95-521).’’. 

10 (2) EFFECTIVE DATE.—The amendment made by 

11 paragraph (1) shall take effect on January 1, 2004. 

12 (d) ADDITIONAL REPORTS.—

13 (1) DATA NEEDS AND SOURCES.—The Medicare 

14 Payment Advisory Commission shall conduct a study, 

15 and submit a report to Congress by not later than 

16 June 1, 2004, on the need for current data, and 

17 sources of current data available, to determine the sol18 vency and financial circumstances of hospitals and 

19 other medicare providers of services. The Commission 

20 shall examine data on uncompensated care, as well as 

21 the share of uncompensated care accounted for by the 

22 expenses for treating illegal aliens. 

23 (2) USE OF TAX-RELATED RETURNS.—Using re24 turn information provided under Form 990 of the In25 ternal Revenue Service, the Commission shall submit 
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1 to Congress, by not later than June 1, 2004, a report 

2 on the following: 

3 (A) Investments, endowments, and fund4 raising of hospitals participating under the 

5 medicare program and related foundations. 

6 (B) Access to capital financing for private 

7 and for not-for-profit hospitals. 

8 SEC. 732. DEMONSTRATION PROJECT FOR MEDICAL ADULT 

9 DAY CARE SERVICES. 

10 (a) ESTABLISHMENT.—Subject to the succeeding provi11 sions of this section, the Secretary of Health and Human 

12 Services shall establish a demonstration project (in this sec13 tion referred to as the ‘‘demonstration project’’) under 

14 which the Secretary shall, as part of a plan of an episode 

15 of care for home health services established for a medicare 

16 beneficiary, permit a home health agency, directly or under 

17 arrangements with a medical adult day care facility, to 

18 provide medical adult day care services as a substitute for 

19 a portion of home health services that would otherwise be 

20 provided in the beneficiary’s home. 

21 (b) PAYMENT.—

22 (1) IN GENERAL.—The amount of payment for 

23 an episode of care for home health services, a portion 

24 of which consists of substitute medical adult day care 

25 services, under the demonstration project shall be 
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1 made at a rate equal to 95 percent of the amount that 

2 would otherwise apply for such home health services 

3 under section 1895 of the Social Security Act (42 

4 u.s.c. 1395fff). In no case may a home health agency, 

5 or a medical adult day care facility under arrange6 ments with a home health agency, separately charge 

7 a beneficiary for medical adult day care services fur8 nished under the plan of care. 

9 (2) BUDGET NEUTRALITY FOR DEMONSTRATION

10 PROJECT.—Notwithstanding any other provision of 

11 law, the Secretary shall provide for an appropriate 

12 reduction in the aggregate amount of additional pay13 ments made under section 1895 of the Social Security 

14 Act (42 U.S.C. 1395fff) to reflect any increase in 

15 amounts expended from the Trust Funds as a result 

16 of the demonstration project conducted under this sec17 tion. 

18 (c) DEMONSTRATION PROJECT SITES.—The project es19 tablished under this section shall be conducted in not more 

20 than 5 States selected by the Secretary that license or certify 

21 providers of services that furnish medical adult day care 

22 services. 

23 (d) DURATION.—The Secretary shall conduct the dem24 onstration project for a period of 3 years. 
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1 (e) VOLUNTARY PARTICIPATION.—Participation of 

2 medicare beneficiaries in the demonstration project shall be 

3 voluntary. The total number of such beneficiaries that may 

4 participate in the project at any given time may not exceed 

5 15,000. 

6 (f) PREFERENCE IN SELECTING AGENCIES.—In select7 ing home health agencies to participate under the dem8 onstration project, the Secretary shall give preference to 

9 those agencies that are currently licensed or certified 

10 through common ownership and control to furnish medical 

11 adult day care services. 

12 (g) WAIVER AUTHORITY.—The Secretary may waive 

13 such requirements of title XVIII of the Social Security Act 

14 as may be necessary for the purposes of carrying out the 

15 demonstration project, other than waiving the requirement 

16 that an individual be homebound in order to be eligible for 

17 benefits for home health services. 

18 (h) EVALUATION AND REPORT.—The Secretary shall 

19 conduct an evaluation of the clinical and cost effectiveness 

20 of the demonstration project. Not later 30 months after the 

21 commencement of the project, the Secretary shall submit to 

22 Congress a report on the evaluation, and shall include in 

23 the report the following: 

24 (1) An analysis of the patient outcomes and costs 

25 of furnishing care to the medicare beneficiaries par-
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1 ticipating in the project as compared to such out2 comes and costs to beneficiaries receiving only home 

3 health services for the same health conditions. 

4 (2) Such recommendations regarding the exten5 sion, expansion, or termination of the project as the 

6 Secretary determines appropriate. 

7 (i) DEFINITIONS.—In this section: 

8 (1) HOME HEALTH AGENCY.—The term ‘‘home 

9 health agency’’ has the meaning given such term in 

10 section 1861(o) of the Social Security Act (42 U.S.C. 

11 1395x(o)). 

12 (2) MEDICAL ADULT DAY CARE FACILITY.—The 

13 term ‘‘medical adult day care facility’’ means a facil14 ity that—

15 (A) has been licensed or certified by a State 

16 to furnish medical adult day care services in the 

17 State for a continuous 2-year period; 

18 (B) is engaged in providing skilled nursing 

19 services and other therapeutic services directly or 

20 under arrangement with a home health agency; 

21 (C) meets such standards established by the 

22 Secretary to assure quality of care and such 

23 other requirements as the Secretary finds nec24 essary in the interest of the health and safety of 
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1 individuals who are furnished services in the fa2 cility; and 

3 (D) provides medical adult day care serv4 ices. 

5 (3) MEDICAL ADULT DAY CARE SERVICES.—The 

6 term ‘‘medical adult day care services’’ means—

7 (A) home health service items and services 

8 described in paragraphs (1) through (7) of sec9 tion 1861(m) furnished in a medical adult day 

10 care facility; 

11 (B) a program of supervised activities fur12 nished in a group setting in the facility that—

13 (i) meet such criteria as the Secretary 

14 determines appropriate; and 

15 (ii) is designed to promote physical 

16 and mental health of the individuals; and 

17 (C) such other services as the Secretary may 

18 specify. 

19 (4) MEDICARE BENEFICIARY.—The term ‘‘medi20 care beneficiary’’ means an individual entitled to 

21 benefits under part A of this title, enrolled under part 

22 B of this title, or both. 
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1 SEC. 733. IMPROVEMENTS IN NATIONAL AND LOCAL COV2 ERAGE DETERMINATION PROCESS TO RE3 SPOND TO CHANGES IN TECHNOLOGY. 

4 (a) NATIONAL AND LOCAL COVERAGE DETERMINATION

5 PROCESS.—

6 (1) IN GENERAL.—Section 1862 (42 U.S.C. 

7 1395y) is amended—

8 (A) in the third sentence of subsection (a) 

9 by inserting ‘‘consistent with subsection (k)’’ 

10 after ‘‘the Secretary shall ensure’’; and 

11 (B) by adding at the end the following new 

12 subsection: 

13 ‘‘(k) NATIONAL AND LOCAL COVERAGE DETERMINA14 TION PROCESS.—

15 ‘‘(1) CRITERIA AND EVIDENCE USED IN MAKING

16 NATIONAL COVERAGE DETERMINATIONS.—The Sec17 retary shall make available to the public the criteria 

18 the Secretary uses in making national coverage deter19 minations, including how evidence to demonstrate 

20 that a procedure or device is reasonable and necessary 

21 is considered. 

22 ‘‘(2) TIMEFRAME FOR DECISIONS ON REQUESTS

23 FOR NATIONAL COVERAGE DETERMINATIONS.—In the 

24 case of a request for a national coverage determina25 tion that—
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1 ‘‘(A) does not require a technology assess2 ment from an outside entity or deliberation from 

3 the Medicare Coverage Advisory Committee, the 

4 decision on the request shall be made not later 

5 than 6 months after the date of the request; or 

6 ‘‘(B) requires such an assessment or delib7 eration and in which a clinical trial is not re8 quested, the decision on the request shall be made 

9 not later than 12 months after the date of the re10 quest. 

11 ‘‘(3) PROCESS FOR PUBLIC COMMENT IN NA12 TIONAL COVERAGE DETERMINATIONS.—At the end of 

13 the 6-month period that begins on the date a request 

14 for a national coverage determination is made, the 

15 Secretary shall—

16 ‘‘(A) make a draft of proposed decision on 

17 the request available to the public through the 

18 Medicare Internet site of the Department of 

19 Health and Human Services or other appro20 priate means; 

21 ‘‘(B) provide a 30-day period for public 

22 comment on such draft; 

23 ‘‘(C) make a final decision on the request 

24 within 60 days of the conclusion of the 30-day 

25 period referred to under subparagraph (B); 
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1 ‘‘(D) include in such final decision sum2 maries of the public comments received and re3 sponses thereto; 

4 ‘‘(E) make available to the public the clin5 ical evidence and other data used in making 

6 such a decision when the decision differs from 

7 the recommendations of the Medicare Coverage 

8 Advisory Committee; and 

9 ‘‘(F) in the case of a decision to grant the 

10 coverage determination, assign a temporary or 

11 permanent code during the 60-day period re12 ferred to in subparagraph (C). 

13 ‘‘(4) CONSULTATION WITH OUTSIDE EXPERTS IN

14 CERTAIN NATIONAL COVERAGE DETERMINATIONS.—

15 With respect to a request for a national coverage de16 termination for which there is not a review by the 

17 Medicare Coverage Advisory Committee, the Secretary 

18 shall consult with appropriate outside clinical ex19 perts. 

20 ‘‘(5) LOCAL COVERAGE DETERMINATION PROC21 ESS.—With respect to local coverage determinations 

22 made on or after January 1, 2004—

23 ‘‘(A) PLAN TO PROMOTE CONSISTENCY OF

24 COVERAGE DETERMINATIONS.—The Secretary 

25 shall develop a plan to evaluate new local cov-
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1 erage determinations to determine which deter2 minations should be adopted nationally and to 

3 what extent greater consistency can be achieved 

4 among local coverage determinations. 

5 ‘‘(B) CONSULTATION.—The Secretary shall 

6 require the fiscal intermediaries or carriers pro7 viding services within the same area to consult 

8 on all new local coverage determinations within 

9 the area. 

10 ‘‘(C) DISSEMINATION OF INFORMATION.—

11 The Secretary should serve as a center to dis12 seminate information on local coverage deter13 minations among fiscal intermediaries and car14 riers to reduce duplication of effort. 

15 ‘‘(6) NATIONAL AND LOCAL COVERAGE DETER16 MINATION DEFINED.—For purposes of this subsection, 

17 the terms ‘national coverage determination’ and ‘local 

18 coverage determination’ have the meaning given such 

19 terms in paragraphs (1)(B) and (2)(B), respectively, 

20 of section 1869(f).’’. 

21 (2) EFFECTIVE DATE.—The amendments made 

22 by paragraph (1) shall apply to national and local 

23 coverage determinations as of January 1, 2004. 

24 (b) MEDICARE COVERAGE OF ROUTINE COSTS ASSOCI25 ATED WITH CERTAIN CLINICAL TRIALS.—
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1 (1) IN GENERAL.—With respect to the coverage of 

2 routine costs of care for beneficiaries participating in 

3 a qualifying clinical trial, as set forth on the date of 

4 the enactment of this Act in National Coverage Deter5 mination 30-1 of the Medicare Coverage Issues Man6 ual, the Secretary shall deem clinical trials conducted 

7 in accordance with an investigational device exemp8 tion approved under section 520(g) of the Federal 

9 Food, Drug, and Cosmetic Act (42 U.S.C. 360j(g)) to 

10 be automatically qualified for such coverage. 

11 (2) RULE OF CONSTRUCTION.—Nothing in this 

12 subsection shall be construed as authorizing or requir13 ing the Secretary to modify the regulations set forth 

14 on the date of the enactment of this Act at subpart 

15 B of part 405 of title 42, Code of Federal Regulations, 

16 or subpart A of part 411 of such title, relating to cov17 erage of, and payment for, a medical device that is 

18 the subject of an investigational device exemption by 

19 the Food and Drug Administration (except as may be 

20 necessary to implement paragraph (1)). 

21 (3) EFFECTIVE DATE.—This subsection shall 

22 apply to clinical trials begun before, on, or after the 

23 date of the enactment of this Act and to items and 

24 services furnished on or after such date. 
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1 (c) ISSUANCE OF TEMPORARY NATIONAL CODES.—Not 

2 later than January 1, 2004, the Secretary shall implement 

3 revised procedures for the issuance of temporary national 

4 HCPCS codes under part B of title XVIII of the Social Se5 curity Act. 

6 SEC. 734. TREATMENT OF CERTAIN PHYSICIAN PATHOLOGY 

7 SERVICES. 

8 (a) IN GENERAL.—Section 1848(i) (42 U.S.C. 1395w–

9 4(i)) is amended by adding at the end the following new 

10 paragraph: 

11 ‘‘(4) TREATMENT OF CERTAIN INPATIENT PHYSI12 CIAN PATHOLOGY SERVICES.—

13 ‘‘(A) IN GENERAL.—With respect to services 

14 furnished on or after January 1, 2001, if an 

15 independent laboratory furnishes the technical 

16 component of a physician pathology service to a 

17 fee-for-service medicare beneficiary who is an in18 patient of a covered hospital, the Secretary shall 

19 treat such component as a service for which pay20 ment shall be made to the laboratory under this 

21 section and not as an inpatient hospital service 

22 for which payment is made to the hospital under 

23 section 1886(d). 

24 ‘‘(B) DEFINITIONS.—In this paragraph: 

25 ‘‘(i) COVERED HOSPITAL.—
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1 ‘‘(I) IN GENERAL.—The term ‘cov2 ered hospital’ means, with respect to 

3 an inpatient or outpatient, a hospital 

4 that had an arrangement with an 

5 independent laboratory that was in ef6 fect as of July 22, 1999, under which 

7 a laboratory furnished the technical 

8 component of physician pathology serv9 ices to fee-for-service medicare bene10 ficiaries who were hospital inpatients 

11 or outpatients, respectively, and sub12 mitted claims for payment for such 

13 component to a carrier with a contract 

14 under section 1842 and not to the hos15 pital. 

16 ‘‘(II) CHANGE IN OWNERSHIP

17 DOES NOT AFFECT DETERMINATION.—

18 A change in ownership with respect to 

19 a hospital on or after the date referred 

20 to in subclause (I) shall not affect the 

21 determination of whether such hospital 

22 is a covered hospital for purposes of 

23 such subclause. 

24 ‘‘(ii) FEE-FOR-SERVICE MEDICARE

25 BENEFICIARY.—The term ‘fee-for-service 
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1 medicare beneficiary’ means an individual 

2 who is entitled to benefits under part A, or 

3 enrolled under this part, or both, but is not 

4 enrolled in any of the following: 

5 ‘‘(I) A Medicare+Choice plan 

6 under part C. 

7 ‘‘(II) A plan offered by an eligible 

8 organization under section 1876. 

9 ‘‘(III) A program of all-inclusive 

10 care for the elderly (PACE) under sec11 tion 1894. 

12 ‘‘(IV) A social health maintenance 

13 organization (SHMO) demonstration 

14 project established under section 

15 4018(b) of the Omnibus Budget Rec16 onciliation Act of 1987 (Public Law 

17 100–203).’’. 

18 (b) CONFORMING AMENDMENT.—Section 542 of the 

19 Medicare, Medicaid, and SCHIP Benefits Improvement 

20 and Protection Act of 2000 (114 Stat. 2763A–550), as en21 acted into law by section 1(a)(6) of Public Law 106–554, 

22 is repealed. 

23 (c) EFFECTIVE DATES.—The amendments made by 

24 this section shall take effect as if included in the enactment 

25 of the Medicare, Medicaid, and SCHIP Benefits Improve-
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1 ment and Protection Act of 2000 (Appendix F, 114 Stat. 

2 2763A–463), as enacted into law by section 1(a)(6) of Pub3 lic Law 106–554. 

4 SEC. 735. MEDICARE PANCREATIC ISLET CELL TRANSPLANT 

5 DEMONSTRATION PROJECT. 

6 (a) ESTABLISHMENT.—In order to test the appro7 priateness of pancreatic islet cell transplantation, not later 

8 than 120 days after the date of the enactment of this Act, 

9 the Secretary shall establish a demonstration project which 

10 the Secretary, provides for payment under the medicare 

11 program under title XVIII of the Social Security Act for 

12 pancreatic islet cell transplantation and related items and 

13 services in the case of medicare beneficiaries who have type 

14 I (juvenile) diabetes and have end stage renal disease. 

15 (b) DURATION OF PROJECT.—The authority of the Sec16 retary to conduct the demonstration project under this sec17 tion shall terminate on the date that is 5 years after the 

18 date of the establishment of the project. 

19 (c) EVALUATION AND REPORT.—The Secretary shall 

20 conduct an evaluation of the outcomes of the demonstration 

21 project. Not later than 120 days after the date of the termi22 nation of the demonstration project under subsection (b), 

23 the Secretary shall submit to Congress a report on the 

24 project, including recommendations for such legislative and 

25 administrative action as the Secretary deems appropriate. 
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1 (d) PAYMENT METHODOLOGY.—The Secretary shall es2 tablish an appropriate payment methodology for the provi3 sion of items and services under the demonstration project, 

4 which may include a payment methodology that bundles, 

5 to the maximum extent feasible, payment for all such items 

6 and services. 

7 (e) WAIVER AUTHORITY.—The Secretary may waive 

8 compliance with the requirements of title XVIII of the So9 cial Security Act to such extent and for such period as the 

10 Secretary determines is necessary to conduct the demonstra11 tion project. 

12 SEC. 736. DEMONSTRATION PROJECT FOR CONSUMER-DI13 RECTED CHRONIC OUTPATIENT SERVICES. 

14 (a) ESTABLISHMENT.—

15 (1) IN GENERAL.—Subject to the succeeding pro16 visions of this section, the Secretary shall establish 

17 demonstration projects (in this section referred to as 

18 ‘‘demonstration projects’’) under which the Secretary 

19 shall evaluate methods that improve the quality of 

20 care provided to medicare beneficiaries with chronic 

21 conditions and that reduce expenditures that would 

22 otherwise be made under the medicare program on be23 half of such individuals for such chronic conditions, 

24 such methods to include permitting those beneficiaries 

25 to direct their own health care needs and services. 
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1 (2) MEDICARE BENEFICIARIES WITH CHRONIC

2 CONDITIONS DEFINED.—In this section, the term 

3 ‘‘medicare beneficiaries with chronic conditions’’ 

4 means an individual entitled to benefits under part 

5 A of title XVIII of the Social Security Act, and en6 rolled under part B of such title, but who is not en7 rolled under part C of such title who is diagnosed as 

8 having one or more chronic conditions (as defined by 

9 the Secretary), such as diabetes. 

10 (b) DESIGN OF PROJECTS.—

11 (1) IN GENERAL.—In establishing the demonstra12 tion projects under this section, the Secretary shall 

13 evaluate practices employed by group health plans 

14 and practices under State plans for medical assist15 ance under the medicaid program under title XIX of 

16 the Social Security Act that permit patients to self17 direct the provision of personal care services. 

18 (2) SCOPE OF SERVICES.—The Secretary shall 

19 determine the appropriate scope of personal care serv20 ices that would apply under the demonstration 

21 projects. 

22 (c) VOLUNTARY PARTICIPATION.—Participation of 

23 medicare beneficiaries in the demonstration projects shall 

24 be voluntary. 
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1 (d) DEMONSTRATION PROJECTS SITES.—Not later 

2 than 2 years after the date of the enactment of this Act, 

3 the Secretary shall conduct no fewer than 3 demonstration 

4 projects established under this section. Of those demonstra5 tion projects, the Secretary shall conduct at least one in 

6 each of the following areas: 

7 (1) An urban area. 

8 (2) A rural area. 

9 (3) An area that the Secretary determines has a 

10 medicare population with rate of incidence of diabetes 

11 that significantly exceeds the national average rate of 

12 all areas. 

13 (e) EVALUATION AND REPORT.—

14 (1) EVALUATIONS.—The Secretary shall conduct 

15 evaluations of the clinical and cost effectiveness of the 

16 demonstration projects. 

17 (2) REPORTS.—Not later than 2 years after the 

18 commencement of the demonstration projects, and bi19 annually thereafter, the Secretary shall submit to 

20 Congress a report on the evaluation, and shall include 

21 in the report the following: 

22 (A) An analysis of the patient outcomes and 

23 costs of furnishing care to the medicare bene24 ficiaries participating in the projects as com-
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1 pared to such outcomes and costs to other bene2 ficiaries for the same health conditions. 

3 (B) Evaluation of patient satisfaction 

4 under the demonstration projects. 

5 (C) Such recommendations regarding the 

6 extension, expansion, or termination of the 

7 projects as the Secretary determines appropriate.

8 TITLE VIII—MEDICARE 

9 BENEFITS ADMINISTRATION

10 SEC. 801. ESTABLISHMENT OF MEDICARE BENEFITS ADMIN11 ISTRATION. 

12 (a) IN GENERAL.—Title XVIII (42 U.S.C. 1395 et 

13 seq.), as amended by sections 105 and 721, is amended by 

14 inserting after 1808 the following new section: 

15 ‘‘MEDICARE BENEFITS ADMINISTRATION

16 ‘‘SEC. 1809. (a) ESTABLISHMENT.—There is estab17 lished within the Department of Health and Human Serv18 ices an agency to be known as the Medicare Benefits Admin19 istration. 

20 ‘‘(b) ADMINISTRATOR; DEPUTY ADMINISTRATOR; 

21 CHIEF ACTUARY.—

22 ‘‘(1) ADMINISTRATOR.—

23 ‘‘(A) IN GENERAL.—The Medicare Benefits 

24 Administration shall be headed by an adminis25 trator to be known as the ‘Medicare Benefits Ad26 ministrator’ (in this section referred to as the 
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1 ‘Administrator’) who shall be appointed by the 

2 President, by and with the advice and consent of 

3 the Senate. The Administrator shall be in direct 

4 line of authority to the Secretary. 

5 ‘‘(B) COMPENSATION.—The Administrator 

6 shall be paid at the rate of basic pay payable for 

7 level III of the Executive Schedule under section 

8 5314 of title 5, United States Code. 

9 ‘‘(C) TERM OF OFFICE.—The Administrator 

10 shall be appointed for a term of 4 years. In any 

11 case in which a successor does not take office at 

12 the end of an Administrator’s term of office, that 

13 Administrator may continue in office until the 

14 entry upon office of such a successor. An Admin15 istrator appointed to a term of office after the 

16 commencement of such term may serve under 

17 such appointment only for the remainder of such 

18 term. 

19 ‘‘(D) GENERAL AUTHORITY.—The Adminis20 trator shall be responsible for the exercise of all 

21 powers and the discharge of all duties of the Ad22 ministration, and shall have authority and con23 trol over all personnel and activities thereof. 

24 ‘‘(E) RULEMAKING AUTHORITY.—The Ad25 ministrator may prescribe such rules and regula-
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1 tions as the Administrator determines necessary 

2 or appropriate to carry out the functions of the 

3 Administration. The regulations prescribed by 

4 the Administrator shall be subject to the rule5 making procedures established under section 553 

6 of title 5, United States Code. The Administrator 

7 shall provide for the issuance of new regulations 

8 to carry out parts C, D, and E. 

9 ‘‘(F) AUTHORITY TO ESTABLISH ORGANIZA10 TIONAL UNITS.—The Administrator may estab11 lish, alter, consolidate, or discontinue such orga12 nizational units or components within the Ad13 ministration as the Administrator considers nec14 essary or appropriate, except as specified in this 

15 section. 

16 ‘‘(G) AUTHORITY TO DELEGATE.—The Ad17 ministrator may assign duties, and delegate, or 

18 authorize successive redelegations of, authority to 

19 act and to render decisions, to such officers and 

20 employees of the Administration as the Adminis21 trator may find necessary. Within the limita22 tions of such delegations, redelegations, or as23 signments, all official acts and decisions of such 

24 officers and employees shall have the same force 
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1 and effect as though performed or rendered by 

2 the Administrator. 

3 ‘‘(2) DEPUTY ADMINISTRATOR.—

4 ‘‘(A) IN GENERAL.—There shall be a Dep5 uty Administrator of the Medicare Benefits Ad6 ministration who shall be appointed by the 

7 President, by and with the advice and consent of 

8 the Senate. 

9 ‘‘(B) COMPENSATION.—The Deputy Admin10 istrator shall be paid at the rate of basic pay 

11 payable for level IV of the Executive Schedule 

12 under section 5315 of title 5, United States Code. 

13 ‘‘(C) TERM OF OFFICE.—The Deputy Ad14 ministrator shall be appointed for a term of 4 

15 years. In any case in which a successor does not 

16 take office at the end of a Deputy Administra17 tor’s term of office, such Deputy Administrator 

18 may continue in office until the entry upon of19 fice of such a successor. A Deputy Administrator 

20 appointed to a term of office after the commence21 ment of such term may serve under such ap22 pointment only for the remainder of such term. 

23 ‘‘(D) DUTIES.—The Deputy Administrator 

24 shall perform such duties and exercise such pow25 ers as the Administrator shall from time to time 
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1 assign or delegate. The Deputy Administrator 

2 shall be Acting Administrator of the Administra3 tion during the absence or disability of the Ad4 ministrator and, unless the President designates 

5 another officer of the Government as Acting Ad6 ministrator, in the event of a vacancy in the of7 fice of the Administrator. 

8 ‘‘(3) CHIEF ACTUARY.—

9 ‘‘(A) IN GENERAL.—There is established in 

10 the Administration the position of Chief Actu11 ary. The Chief Actuary shall be appointed by, 

12 and in direct line of authority to, the Adminis13 trator of such Administration. The Chief Actu14 ary shall be appointed from among individuals 

15 who have demonstrated, by their education and 

16 experience, superior expertise in the actuarial 

17 sciences. The Chief Actuary may be removed only 

18 for cause. 

19 ‘‘(B) COMPENSATION.—The Chief Actuary 

20 shall be compensated at the highest rate of basic 

21 pay for the Senior Executive Service under sec22 tion 5382(b) of title 5, United States Code. 

23 ‘‘(C) DUTIES.—The Chief Actuary shall ex24 ercise such duties as are appropriate for the of-
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1 fice of the Chief Actuary and in accordance with 

2 professional standards of actuarial independence. 

3 ‘‘(4) SECRETARIAL COORDINATION OF PROGRAM

4 ADMINISTRATION.—The Secretary shall ensure appro5 priate coordination between the Administrator and 

6 the Administrator of the Centers for Medicare & Med7 icaid Services in carrying out the programs under 

8 this title. 

9 ‘‘(c) DUTIES; ADMINISTRATIVE PROVISIONS.—

10 ‘‘(1) DUTIES.—

11 ‘‘(A) GENERAL DUTIES.—The Adminis12 trator shall carry out parts C, D, and E, includ13 ing—

14 ‘‘(i) negotiating, entering into, and en15 forcing, contracts with plans for the offering 

16 of Medicare Advantage plans under part C 

17 and EFFS plans under part E, including 

18 the offering of qualified prescription drug 

19 coverage under such plans; and 

20 ‘‘(ii) negotiating, entering into, and 

21 enforcing, contracts with PDP sponsors for 

22 the offering of prescription drug plans 

23 under part D. 

24 ‘‘(B) OTHER DUTIES.—The Administrator 

25 shall carry out any duty provided for under part 
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1 C, part D, or part E, including demonstration 

2 projects carried out in part or in whole under 

3 such parts, the programs of all-inclusive care for 

4 the elderly (PACE program) under section 1894, 

5 the social health maintenance organization 

6 (SHMO) demonstration projects (referred to in 

7 section 4104(c) of the Balanced Budget Act of 

8 1997), medicare cost contractors under section 

9 1876(h), and through a Medicare Advantage 

10 project that demonstrates the application of capi11 tation payment rates for frail elderly medicare 

12 beneficiaries through the use of a interdiscipli13 nary team and through the provision of primary 

14 care services to such beneficiaries by means of 

15 such a team at the nursing facility involved). 

16 ‘‘(C) PRESCRIPTION DRUG CARD.—The Ad17 ministrator shall carry out section 1807 (relat18 ing to the medicare prescription drug discount 

19 card endorsement program). 

20 ‘‘(D) NONINTERFERENCE.—In carrying out 

21 its duties with respect to the provision of quali22 fied prescription drug coverage to beneficiaries 

23 under this title, the Administrator may not—
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1 ‘‘(i) require a particular formulary or 

2 institute a price structure for the reimburse3 ment of covered outpatient drugs; 

4 ‘‘(ii) interfere in any way with nego5 tiations between PDP sponsors and Medi6 care Advantage organizations and EFFS 

7 organizations and drug manufacturers, 

8 wholesalers, or other suppliers of covered 

9 outpatient drugs; and 

10 ‘‘(iii) otherwise interfere with the com11 petitive nature of providing such coverage 

12 through such sponsors and organizations. 

13 ‘‘(E) ANNUAL REPORTS.—Not later March 

14 31 of each year, the Administrator shall submit 

15 to Congress and the President a report on the 

16 administration of parts C, D, and E during the 

17 previous fiscal year. 

18 ‘‘(2) STAFF.—

19 ‘‘(A) IN GENERAL.—The Administrator, 

20 with the approval of the Secretary, may employ, 

21 without regard to chapter 31 of title 5, United 

22 States Code, other than sections 3102 through 

23 3113, 3131, 3133, 3136, 3151, and 3161, such of24 ficers and employees as are necessary to admin25 ister the activities to be carried out through the 
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1 Medicare Benefits Administration. The Adminis2 trator shall employ staff with appropriate and 

3 necessary expertise in negotiating contracts in 

4 the private sector. 

5 ‘‘(B) FLEXIBILITY WITH RESPECT TO COM6 PENSATION.—

7 ‘‘(i) IN GENERAL.—The staff of the 

8 Medicare Benefits Administration shall, 

9 subject to clause (ii), be paid without regard 

10 to the provisions of chapter 51 (other than 

11 section 5101) and chapter 53 (other than 

12 section 5301, sections 5303 through 5305, 

13 5311, and 5372 of such title (relating to 

14 classification and schedule pay rates). 

15 ‘‘(ii) MAXIMUM RATE.—In no case 

16 may the rate of compensation determined 

17 under clause (i) exceed the rate of basic pay 

18 payable for level IV of the Executive Sched19 ule under section 5315 of title 5, United 

20 States Code. 

21 ‘‘(C) LIMITATION ON FULL-TIME EQUIVA22 LENT STAFFING FOR CURRENT CMS FUNCTIONS

23 BEING TRANSFERRED.—The Administrator may 

24 not employ under this paragraph a number of 

25 full-time equivalent employees, to carry out func-
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1 tions that were previously conducted by the Cen2 ters for Medicare & Medicaid Services and that 

3 are conducted by the Administrator by reason of 

4 this section, that exceeds the number of such full5 time equivalent employees authorized to be em6 ployed by the Centers for Medicare & Medicaid 

7 Services to conduct such functions as of the date 

8 of the enactment of this Act. 

9 ‘‘(3) REDELEGATION OF CERTAIN FUNCTIONS OF

10 THE CENTERS FOR MEDICARE & MEDICAID SERV11 ICES.—

12 ‘‘(A) IN GENERAL.—The Secretary, the Ad13 ministrator, and the Administrator of the Cen14 ters for Medicare & Medicaid Services shall es15 tablish an appropriate transition of responsi16 bility in order to redelegate the administration 

17 of part C from the Secretary and the Adminis18 trator of the Centers for Medicare & Medicaid 

19 Services to the Administrator as is appropriate 

20 to carry out the purposes of this section. 

21 ‘‘(B) TRANSFER OF DATA AND INFORMA22 TION.—The Secretary shall ensure that the Ad23 ministrator of the Centers for Medicare & Med24 icaid Services transfers to the Administrator of 

25 the Medicare Benefits Administration such infor-
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1 mation and data in the possession of the Admin2 istrator of the Centers for Medicare & Medicaid 

3 Services as the Administrator of the Medicare 

4 Benefits Administration requires to carry out the 

5 duties described in paragraph (1). 

6 ‘‘(C) CONSTRUCTION.—Insofar as a respon7 sibility of the Secretary or the Administrator of 

8 the Centers for Medicare & Medicaid Services is 

9 redelegated to the Administrator under this sec10 tion, any reference to the Secretary or the Ad11 ministrator of the Centers for Medicare & Med12 icaid Services in this title or title XI with re13 spect to such responsibility is deemed to be a ref14 erence to the Administrator.

15 ‘‘(d) OFFICE OF BENEFICIARY ASSISTANCE.—

16 ‘‘(1) ESTABLISHMENT.—The Secretary shall es17 tablish within the Medicare Benefits Administration 

18 an Office of Beneficiary Assistance to coordinate 

19 functions relating to outreach and education of medi20 care beneficiaries under this title, including the func21 tions described in paragraph (2). The Office shall be 

22 separate operating division within the Administra23 tion. 

24 ‘‘(2) DISSEMINATION OF INFORMATION ON BENE25 FITS AND APPEALS RIGHTS.—
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1 ‘‘(A) DISSEMINATION OF BENEFITS INFOR2 MATION.—The Office of Beneficiary Assistance 

3 shall disseminate, directly or through contract, to 

4 medicare beneficiaries, by mail, by posting on 

5 the Internet site of the Medicare Benefits Admin6 istration and through a toll-free telephone num7 ber, information with respect to the following: 

8 ‘‘(i) Benefits, and limitations on pay9 ment (including cost-sharing, stop-loss pro10 visions, and formulary restrictions) under 

11 parts C, D, and E. 

12 ‘‘(ii) Benefits, and limitations on pay13 ment under parts A and B, including infor14 mation on medicare supplemental policies 

15 under section 1882. 

16 Such information shall be presented in a manner 

17 so that medicare beneficiaries may compare ben18 efits under parts A, B, D, and medicare supple19 mental policies with benefits under Medicare Ad20 vantage plans under part C and EFFS plans 

21 under part E. 

22 ‘‘(B) DISSEMINATION OF APPEALS RIGHTS

23 INFORMATION.—The Office of Beneficiary Assist24 ance shall disseminate to medicare beneficiaries 

25 in the manner provided under subparagraph (A) 
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1 a description of procedural rights (including 

2 grievance and appeals procedures) of bene3 ficiaries under the original medicare fee-for-serv4 ice program under parts A and B, the Medicare 

5 Advantage program under part C, the Voluntary 

6 Prescription Drug Benefit Program under part 

7 D, and the Enhanced Fee-for-Service program 

8 under part E. 

9 ‘‘(e) MEDICARE POLICY ADVISORY BOARD.—

10 ‘‘(1) ESTABLISHMENT.—There is established 

11 within the Medicare Benefits Administration the 

12 Medicare Policy Advisory Board (in this section re13 ferred to the ‘Board’). The Board shall advise, consult 

14 with, and make recommendations to the Adminis15 trator of the Medicare Benefits Administration with 

16 respect to the administration of parts C, D, and E, 

17 including the review of payment policies under such 

18 parts. 

19 ‘‘(2) REPORTS.—

20 ‘‘(A) IN GENERAL.—With respect to matters 

21 of the administration of parts C, D, and E the 

22 Board shall submit to Congress and to the Ad23 ministrator of the Medicare Benefits Administra24 tion such reports as the Board determines appro25 priate. Each such report may contain such rec-
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1 ommendations as the Board determines appro2 priate for legislative or administrative changes 

3 to improve the administration of such parts, in4 cluding the topics described in subparagraph 

5 (B). Each such report shall be published in the 

6 Federal Register. 

7 ‘‘(B) TOPICS DESCRIBED.—Reports required 

8 under subparagraph (A) may include the fol9 lowing topics: 

10 ‘‘(i) FOSTERING COMPETITION.—Rec11 ommendations or proposals to increase com12 petition under parts C, D, and E for serv13 ices furnished to medicare beneficiaries. 

14 ‘‘(ii) EDUCATION AND ENROLLMENT.—

15 Recommendations for the improvement to 

16 efforts to provide medicare beneficiaries in17 formation and education on the program 

18 under this title, and specifically parts C, D, 

19 and E, and the program for enrollment 

20 under the title. 

21 ‘‘(iii) IMPLEMENTATION OF RISK-AD22 JUSTMENT.—Evaluation of the implementa23 tion under section 1853(a)(3)(C) of the risk 

24 adjustment methodology to payment rates 

25 under that section to Medicare Advantage 
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1 organizations offering Medicare Advantage 

2 plans (and the corresponding payment pro3 visions under part E) that accounts for 

4 variations in per capita costs based on 

5 health status, geography, and other demo6 graphic factors. 

7 ‘‘(iv) RURAL ACCESS.—Recommenda8 tions to improve competition and access to 

9 plans under parts C, D, and E in rural 

10 areas. 

11 ‘‘(C) MAINTAINING INDEPENDENCE OF

12 BOARD.—The Board shall directly submit to 

13 Congress reports required under subparagraph 

14 (A). No officer or agency of the United States 

15 may require the Board to submit to any officer 

16 or agency of the United States for approval, 

17 comments, or review, prior to the submission to 

18 Congress of such reports. 

19 ‘‘(3) DUTY OF ADMINISTRATOR OF MEDICARE

20 BENEFITS ADMINISTRATION.—With respect to any re21 port submitted by the Board under paragraph (2)(A), 

22 not later than 90 days after the report is submitted, 

23 the Administrator of the Medicare Benefits Adminis24 tration shall submit to Congress and the President an 

25 analysis of recommendations made by the Board in 
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1 such report. Each such analysis shall be published in 

2 the Federal Register. 

3 ‘‘(4) MEMBERSHIP.—

4 ‘‘(A) APPOINTMENT.—Subject to the suc5 ceeding provisions of this paragraph, the Board 

6 shall consist of seven members to be appointed as 

7 follows: 

8 ‘‘(i) Three members shall be appointed 

9 by the President. 

10 ‘‘(ii) Two members shall be appointed 

11 by the Speaker of the House of Representa12 tives, with the advice of the chairmen and 

13 the ranking minority members of the Com14 mittees on Ways and Means and on Energy 

15 and Commerce of the House of Representa16 tives. 

17 ‘‘(iii) Two members shall be appointed 

18 by the President pro tempore of the Senate 

19 with the advice of the chairman and the 

20 ranking minority member of the Senate 

21 Committee on Finance. 

22 ‘‘(B) QUALIFICATIONS.—The members shall 

23 be chosen on the basis of their integrity, impar24 tiality, and good judgment, and shall be individ25 uals who are, by reason of their education and 
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1 experience in health care benefits management, 

2 exceptionally qualified to perform the duties of 

3 members of the Board. 

4 ‘‘(C) PROHIBITION ON INCLUSION OF FED5 ERAL EMPLOYEES.—No officer or employee of the 

6 United States may serve as a member of the 

7 Board. 

8 ‘‘(5) COMPENSATION.—Members of the Board 

9 shall receive, for each day (including travel time) they 

10 are engaged in the performance of the functions of the 

11 board, compensation at rates not to exceed the daily 

12 equivalent to the annual rate in effect for level IV of 

13 the Executive Schedule under section 5315 of title 5, 

14 United States Code. 

15 ‘‘(6) TERMS OF OFFICE.—

16 ‘‘(A) IN GENERAL.—The term of office of 

17 members of the Board shall be 3 years. 

18 ‘‘(B) TERMS OF INITIAL APPOINTEES.—As 

19 designated by the President at the time of ap20 pointment, of the members first appointed—

21 ‘‘(i) one shall be appointed for a term 

22 of 1 year; 

23 ‘‘(ii) three shall be appointed for terms 

24 of 2 years; and 
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1 ‘‘(iii) three shall be appointed for 

2 terms of 3 years. 

3 ‘‘(C) REAPPOINTMENTS.—Any person ap4 pointed as a member of the Board may not serve 

5 for more than 8 years. 

6 ‘‘(D) VACANCY.—Any member appointed to 

7 fill a vacancy occurring before the expiration of 

8 the term for which the member’s predecessor was 

9 appointed shall be appointed only for the re10 mainder of that term. A member may serve after 

11 the expiration of that member’s term until a suc12 cessor has taken office. A vacancy in the Board 

13 shall be filled in the manner in which the origi14 nal appointment was made. 

15 ‘‘(7) CHAIR.—The Chair of the Board shall be 

16 elected by the members. The term of office of the Chair 

17 shall be 3 years. 

18 ‘‘(8) MEETINGS.—The Board shall meet at the 

19 call of the Chair, but in no event less than three times 

20 during each fiscal year. 

21 ‘‘(9) DIRECTOR AND STAFF.—

22 ‘‘(A) APPOINTMENT OF DIRECTOR.—The 

23 Board shall have a Director who shall be ap24 pointed by the Chair. 
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1 ‘‘(B) IN GENERAL.—With the approval of 

2 the Board, the Director may appoint, without re3 gard to chapter 31 of title 5, United States Code, 

4 such additional personnel as the Director con5 siders appropriate. 

6 ‘‘(C) FLEXIBILITY WITH RESPECT TO COM7 PENSATION.—

8 ‘‘(i) IN GENERAL.—The Director and 

9 staff of the Board shall, subject to clause 

10 (ii), be paid without regard to the provi11 sions of chapter 51 and chapter 53 of such 

12 title (relating to classification and schedule 

13 pay rates). 

14 ‘‘(ii) MAXIMUM RATE.—In no case 

15 may the rate of compensation determined 

16 under clause (i) exceed the rate of basic pay 

17 payable for level IV of the Executive Sched18 ule under section 5315 of title 5, United 

19 States Code. 

20 ‘‘(D) ASSISTANCE FROM THE ADMINIS21 TRATOR OF THE MEDICARE BENEFITS ADMINIS22 TRATION.—The Administrator of the Medicare 

23 Benefits Administration shall make available to 

24 the Board such information and other assistance 

25 as it may require to carry out its functions. 
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1 ‘‘(10) CONTRACT AUTHORITY.—The Board may 

2 contract with and compensate government and pri3 vate agencies or persons to carry out its duties under 

4 this subsection, without regard to section 3709 of the 

5 Revised Statutes (41 U.S.C. 5). 

6 ‘‘(f) FUNDING.—There is authorized to be appro7 priated, in appropriate part from the Federal Hospital In8 surance Trust Fund and from the Federal Supplementary 

9 Medical Insurance Trust Fund (including the Medicare 

10 Prescription Drug Account), such sums as are necessary to 

11 carry out this section.’’. 

12 (b) EFFECTIVE DATE.—

13 (1) IN GENERAL.—The amendment made by sub14 section (a) shall take effect on the date of the enact15 ment of this Act. 

16 (2) DUTIES WITH RESPECT TO ELIGIBILITY DE17 TERMINATIONS AND ENROLLMENT.—The Adminis18 trator of the Medicare Benefits Administration shall 

19 carry out enrollment under title XVIII of the Social 

20 Security Act, make eligibility determinations under 

21 such title, and carry out parts C and E of such title 

22 for years beginning or after January 1, 2006. 

23 (3) TRANSITION.—Before the date the Adminis24 trator of the Medicare Benefits Administration is ap25 pointed and assumes responsibilities under this sec-
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1 tion and section 1807 of the Social Security Act, the 

2 Secretary of Health and Human Services shall pro3 vide for the conduct of any responsibilities of such 

4 Administrator that are otherwise provided under law. 

5 (c) MISCELLANEOUS ADMINISTRATIVE PROVISIONS.—

6 (1) ADMINISTRATOR AS MEMBER OF THE BOARD

7 OF TRUSTEES OF THE MEDICARE TRUST FUNDS.—

8 Section 1817(b) and section 1841(b) (42 U.S.C. 

9 1395i(b), 1395t(b)) are each amended by striking 

10 ‘‘and the Secretary of Health and Human Services, 

11 all ex officio,’’ and inserting ‘‘the Secretary of Health 

12 and Human Services, and the Administrator of the 

13 Medicare Benefits Administration, all ex officio,’’. 

14 (2) INCREASE IN GRADE TO EXECUTIVE LEVEL

15 III FOR THE ADMINISTRATOR OF THE CENTERS FOR

16 MEDICARE & MEDICAID SERVICES; LEVEL FOR MEDI17 CARE BENEFITS ADMINISTRATOR.—

18 (A) IN GENERAL.—Section 5314 of title 5, 

19 United States Code, by adding at the end the fol20 lowing: 

21 ‘‘Administrator of the Centers for Medicare & 

22 Medicaid Services. 

23 ‘‘Administrator of the Medicare Benefits Admin24 istration.’’. 
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1 (B) CONFORMING AMENDMENT.—Section 

2 5315 of such title is amended by striking ‘‘Ad3 ministrator of the Health Care Financing Ad4 ministration.’’. 

5 (C) EFFECTIVE DATE.—The amendments 

6 made by this paragraph take effect on January 

7 1, 2004.

8 TITLE IX—REGULATORY REDUC9 TION AND CONTRACTING RE10 FORM 

11 Subtitle A—Regulatory Reform 

12 SEC. 901. CONSTRUCTION; DEFINITION OF SUPPLIER. 

13 (a) CONSTRUCTION.—Nothing in this title shall be con14 strued—

15 (1) to compromise or affect existing legal rem16 edies for addressing fraud or abuse, whether it be 

17 criminal prosecution, civil enforcement, or adminis18 trative remedies, including under sections 3729 

19 through 3733 of title 31, United States Code (known 

20 as the False Claims Act); or 

21 (2) to prevent or impede the Department of 

22 Health and Human Services in any way from its on23 going efforts to eliminate waste, fraud, and abuse in 

24 the medicare program. 
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1 Furthermore, the consolidation of medicare administrative 

2 contracting set forth in this Act does not constitute consoli3 dation of the Federal Hospital Insurance Trust Fund and 

4 the Federal Supplementary Medical Insurance Trust Fund 

5 or reflect any position on that issue. 

6 (b) DEFINITION OF SUPPLIER.—Section 1861 (42 

7 U.S.C. 1395x) is amended by inserting after subsection (c) 

8 the following new subsection: 

9 ‘‘Supplier 

10 ‘‘(d) The term ‘supplier’ means, unless the context oth11 erwise requires, a physician or other practitioner, a facility, 

12 or other entity (other than a provider of services) that fur13 nishes items or services under this title.’’. 

14 SEC. 902. ISSUANCE OF REGULATIONS. 

15 (a) REGULAR TIMELINE FOR PUBLICATION OF FINAL

16 RULES.—

17 (1) IN GENERAL.—Section 1871(a) (42 U.S.C. 

18 1395hh(a)) is amended by adding at the end the fol19 lowing new paragraph: 

20 ‘‘(3)(A) The Secretary, in consultation with the Direc21 tor of the Office of Management and Budget, shall establish 

22 and publish a regular timeline for the publication of final 

23 regulations based on the previous publication of a proposed 

24 regulation or an interim final regulation. 
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1 ‘‘(B) Such timeline may vary among different regula2 tions based on differences in the complexity of the regula3 tion, the number and scope of comments received, and other 

4 relevant factors, but shall not be longer than 3 years except 

5 under exceptional circumstances. If the Secretary intends 

6 to vary such timeline with respect to the publication of a 

7 final regulation, the Secretary shall cause to have published 

8 in the Federal Register notice of the different timeline by 

9 not later than the timeline previously established with re10 spect to such regulation. Such notice shall include a brief 

11 explanation of the justification for such variation. 

12 ‘‘(C) In the case of interim final regulations, upon the 

13 expiration of the regular timeline established under this 

14 paragraph for the publication of a final regulation after 

15 opportunity for public comment, the interim final regula16 tion shall not continue in effect unless the Secretary pub17 lishes (at the end of the regular timeline and, if applicable, 

18 at the end of each succeeding 1-year period) a notice of con19 tinuation of the regulation that includes an explanation of 

20 why the regular timeline (and any subsequent 1-year exten21 sion) was not complied with. If such a notice is published, 

22 the regular timeline (or such timeline as previously ex23 tended under this paragraph) for publication of the final 

24 regulation shall be treated as having been extended for 1 

25 additional year. 
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1 ‘‘(D) The Secretary shall annually submit to Congress 

2 a report that describes the instances in which the Secretary 

3 failed to publish a final regulation within the applicable 

4 regular timeline under this paragraph and that provides 

5 an explanation for such failures.’’. 

6 (2) EFFECTIVE DATE.—The amendment made by 

7 paragraph (1) shall take effect on the date of the en8 actment of this Act. The Secretary shall provide for 

9 an appropriate transition to take into account the 

10 backlog of previously published interim final regula11 tions. 

12 (b) LIMITATIONS ON NEW MATTER IN FINAL REGULA13 TIONS.—

14 (1) IN GENERAL.—Section 1871(a) (42 U.S.C. 

15 1395hh(a)), as amended by subsection (a), is amended 

16 by adding at the end the following new paragraph: 

17 ‘‘(4) If the Secretary publishes a final regulation that 

18 includes a provision that is not a logical outgrowth of a 

19 previously published notice of proposed rulemaking or in20 terim final rule, such provision shall be treated as a pro21 posed regulation and shall not take effect until there is the 

22 further opportunity for public comment and a publication 

23 of the provision again as a final regulation.’’. 

24 (2) EFFECTIVE DATE.—The amendment made by 

25 paragraph (1) shall apply to final regulations pub-
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1 lished on or after the date of the enactment of this 

2 Act. 

3 SEC. 903. COMPLIANCE WITH CHANGES IN REGULATIONS 

4 AND POLICIES. 

5 (a) NO RETROACTIVE APPLICATION OF SUBSTANTIVE

6 CHANGES.—

7 (1) IN GENERAL.—Section 1871 (42 U.S.C. 

8 1395hh), as amended by section 902(a), is amended 

9 by adding at the end the following new subsection: 

10 ‘‘(e)(1)(A) A substantive change in regulations, man11 ual instructions, interpretative rules, statements of policy, 

12 or guidelines of general applicability under this title shall 

13 not be applied (by extrapolation or otherwise) retroactively 

14 to items and services furnished before the effective date of 

15 the change, unless the Secretary determines that—

16 ‘‘(i) such retroactive application is necessary to 

17 comply with statutory requirements; or 

18 ‘‘(ii) failure to apply the change retroactively 

19 would be contrary to the public interest.’’. 

20 (2) EFFECTIVE DATE.—The amendment made by 

21 paragraph (1) shall apply to substantive changes 

22 issued on or after the date of the enactment of this 

23 Act. 

24 (b) TIMELINE FOR COMPLIANCE WITH SUBSTANTIVE

25 CHANGES AFTER NOTICE.—
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1 (1) IN GENERAL.—Section 1871(e)(1), as added 

2 by subsection (a), is amended by adding at the end 

3 the following: 

4 ‘‘(B)(i) Except as provided in clause (ii), a substantive 

5 change referred to in subparagraph (A) shall not become 

6 effective before the end of the 30-day period that begins on 

7 the date that the Secretary has issued or published, as the 

8 case may be, the substantive change. 

9 ‘‘(ii) The Secretary may provide for such a substantive 

10 change to take effect on a date that precedes the end of the 

11 30-day period under clause (i) if the Secretary finds that 

12 waiver of such 30-day period is necessary to comply with 

13 statutory requirements or that the application of such 30-

14 day period is contrary to the public interest. If the Sec15 retary provides for an earlier effective date pursuant to this 

16 clause, the Secretary shall include in the issuance or publi17 cation of the substantive change a finding described in the 

18 first sentence, and a brief statement of the reasons for such 

19 finding. 

20 ‘‘(C) No action shall be taken against a provider of 

21 services or supplier with respect to noncompliance with 

22 such a substantive change for items and services furnished 

23 before the effective date of such a change.’’. 

24 (2) EFFECTIVE DATE.—The amendment made by 

25 paragraph (1) shall apply to compliance actions un-
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1 dertaken on or after the date of the enactment of this 

2 Act. 

3 (c) RELIANCE ON GUIDANCE.—

4 (1) IN GENERAL.—Section 1871(e), as added by 

5 subsection (a), is further amended by adding at the 

6 end the following new paragraph: 

7 ‘‘(2)(A) If—

8 ‘‘(i) a provider of services or supplier follows the 

9 written guidance (which may be transmitted elec10 tronically) provided by the Secretary or by a medi11 care contractor (as defined in section 1889(g)) acting 

12 within the scope of the contractor’s contract authority, 

13 with respect to the furnishing of items or services and 

14 submission of a claim for benefits for such items or 

15 services with respect to such provider or supplier; 

16 ‘‘(ii) the Secretary determines that the provider 

17 of services or supplier has accurately presented the 

18 circumstances relating to such items, services, and 

19 claim to the contractor in writing; and 

20 ‘‘(iii) the guidance was in error; 

21 the provider of services or supplier shall not be subject to 

22 any sanction (including any penalty or requirement for re23 payment of any amount) if the provider of services or sup24 plier reasonably relied on such guidance. 
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1 ‘‘(B) Subparagraph (A) shall not be construed as pre2 venting the recoupment or repayment (without any addi3 tional penalty) relating to an overpayment insofar as the 

4 overpayment was solely the result of a clerical or technical 

5 operational error.’’. 

6 (2) EFFECTIVE DATE.—The amendment made by 

7 paragraph (1) shall take effect on the date of the en8 actment of this Act but shall not apply to any sanc9 tion for which notice was provided on or before the 

10 date of the enactment of this Act. 

11 SEC. 904. REPORTS AND STUDIES RELATING TO REGU12 LATORY REFORM. 

13 (a) GAO STUDY ON ADVISORY OPINION AUTHORITY.—

14 (1) STUDY.—The Comptroller General of the 

15 United States shall conduct a study to determine the 

16 feasibility and appropriateness of establishing in the 

17 Secretary authority to provide legally binding advi18 sory opinions on appropriate interpretation and ap19 plication of regulations to carry out the medicare pro20 gram under title XVIII of the Social Security Act. 

21 Such study shall examine the appropriate timeframe 

22 for issuing such advisory opinions, as well as the need 

23 for additional staff and funding to provide such opin24 ions. 
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1 (2) REPORT.—The Comptroller General shall 

2 submit to Congress a report on the study conducted 

3 under paragraph (1) by not later than one year after 

4 the date of the enactment of this Act. 

5 (b) REPORT ON LEGAL AND REGULATORY INCONSIST6 ENCIES.—Section 1871 (42 U.S.C. 1395hh), as amended by 

7 section 2(a), is amended by adding at the end the following 

8 new subsection: 

9 ‘‘(f)(1) Not later than 2 years after the date of the en10 actment of this subsection, and every 2 years thereafter, the 

11 Secretary shall submit to Congress a report with respect 

12 to the administration of this title and areas of inconsistency 

13 or conflict among the various provisions under law and reg14 ulation. 

15 ‘‘(2) In preparing a report under paragraph (1), the 

16 Secretary shall collect—

17 ‘‘(A) information from individuals entitled to 

18 benefits under part A or enrolled under part B, or 

19 both, providers of services, and suppliers and from the 

20 Medicare Beneficiary Ombudsman and the Medicare 

21 Provider Ombudsman with respect to such areas of 

22 inconsistency and conflict; and 

23 ‘‘(B) information from medicare contractors that 

24 tracks the nature of written and telephone inquiries. 
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1 ‘‘(3) A report under paragraph (1) shall include a de2 scription of efforts by the Secretary to reduce such inconsist3 ency or conflicts, and recommendations for legislation or 

4 administrative action that the Secretary determines appro5 priate to further reduce such inconsistency or conflicts.’’. 

6 Subtitle B—Contracting Reform 

7 SEC. 911. INCREASED FLEXIBILITY IN MEDICARE ADMINIS8 TRATION. 

9 (a) CONSOLIDATION AND FLEXIBILITY IN MEDICARE

10 ADMINISTRATION.—

11 (1) IN GENERAL.—Title XVIII is amended by in12 serting after section 1874 the following new section: 

13 ‘‘CONTRACTS WITH MEDICARE ADMINISTRATIVE

14 CONTRACTORS

15 ‘‘SEC. 1874A. (a) AUTHORITY.—

16 ‘‘(1) AUTHORITY TO ENTER INTO CONTRACTS.—

17 The Secretary may enter into contracts with any eli18 gible entity to serve as a medicare administrative 

19 contractor with respect to the performance of any or 

20 all of the functions described in paragraph (4) or 

21 parts of those functions (or, to the extent provided in 

22 a contract, to secure performance thereof by other en23 tities). 

24 ‘‘(2) ELIGIBILITY OF ENTITIES.—An entity is el25 igible to enter into a contract with respect to the per-
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1 formance of a particular function described in para2 graph (4) only if—

3 ‘‘(A) the entity has demonstrated capability 

4 to carry out such function; 

5 ‘‘(B) the entity complies with such conflict 

6 of interest standards as are generally applicable 

7 to Federal acquisition and procurement; 

8 ‘‘(C) the entity has sufficient assets to fi9 nancially support the performance of such func10 tion; and 

11 ‘‘(D) the entity meets such other require12 ments as the Secretary may impose. 

13 ‘‘(3) MEDICARE ADMINISTRATIVE CONTRACTOR

14 DEFINED.—For purposes of this title and title XI—

15 ‘‘(A) IN GENERAL.—The term ‘medicare ad16 ministrative contractor’ means an agency, orga17 nization, or other person with a contract under 

18 this section. 

19 ‘‘(B) APPROPRIATE MEDICARE ADMINISTRA20 TIVE CONTRACTOR.—With respect to the perform21 ance of a particular function in relation to an 

22 individual entitled to benefits under part A or 

23 enrolled under part B, or both, a specific pro24 vider of services or supplier (or class of such pro25 viders of services or suppliers), the ‘appropriate’ 
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1 medicare administrative contractor is the medi2 care administrative contractor that has a con3 tract under this section with respect to the per4 formance of that function in relation to that in5 dividual, provider of services or supplier or class 

6 of provider of services or supplier. 

7 ‘‘(4) FUNCTIONS DESCRIBED.—The functions re8 ferred to in paragraphs (1) and (2) are payment 

9 functions, provider services functions, and functions 

10 relating to services furnished to individuals entitled 

11 to benefits under part A or enrolled under part B, or 

12 both, as follows: 

13 ‘‘(A) DETERMINATION OF PAYMENT

14 AMOUNTS.—Determining (subject to the provi15 sions of section 1878 and to such review by the 

16 Secretary as may be provided for by the con17 tracts) the amount of the payments required pur18 suant to this title to be made to providers of 

19 services, suppliers and individuals. 

20 ‘‘(B) MAKING PAYMENTS.—Making pay21 ments described in subparagraph (A) (including 

22 receipt, disbursement, and accounting for funds 

23 in making such payments). 

24 ‘‘(C) BENEFICIARY EDUCATION AND ASSIST25 ANCE.—Providing education and outreach to in-
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1 dividuals entitled to benefits under part A or en2 rolled under part B, or both, and providing as3 sistance to those individuals with specific issues, 

4 concerns or problems. 

5 ‘‘(D) PROVIDER CONSULTATIVE SERV6 ICES.—Providing consultative services to institu7 tions, agencies, and other persons to enable them 

8 to establish and maintain fiscal records nec9 essary for purposes of this title and otherwise to 

10 qualify as providers of services or suppliers. 

11 ‘‘(E) COMMUNICATION WITH PROVIDERS.—

12 Communicating to providers of services and sup13 pliers any information or instructions furnished 

14 to the medicare administrative contractor by the 

15 Secretary, and facilitating communication be16 tween such providers and suppliers and the Sec17 retary. 

18 ‘‘(F) PROVIDER EDUCATION AND TECHNICAL

19 ASSISTANCE.—Performing the functions relating 

20 to provider education, training, and technical 

21 assistance. 

22 ‘‘(G) ADDITIONAL FUNCTIONS.—Performing 

23 such other functions as are necessary to carry 

24 out the purposes of this title. 

25 ‘‘(5) RELATIONSHIP TO MIP CONTRACTS.—
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1 ‘‘(A) NONDUPLICATION OF DUTIES.—In en2 tering into contracts under this section, the Sec3 retary shall assure that functions of medicare 

4 administrative contractors in carrying out ac5 tivities under parts A and B do not duplicate 

6 activities carried out under the Medicare Integ7 rity Program under section 1893. The previous 

8 sentence shall not apply with respect to the ac9 tivity described in section 1893(b)(5) (relating to 

10 prior authorization of certain items of durable 

11 medical equipment under section 1834(a)(15)). 

12 ‘‘(B) CONSTRUCTION.—An entity shall not 

13 be treated as a medicare administrative con14 tractor merely by reason of having entered into 

15 a contract with the Secretary under section 

16 1893. 

17 ‘‘(6) APPLICATION OF FEDERAL ACQUISITION

18 REGULATION.—Except to the extent inconsistent with 

19 a specific requirement of this title, the Federal Acqui20 sition Regulation applies to contracts under this title. 

21 ‘‘(b) CONTRACTING REQUIREMENTS.—

22 ‘‘(1) USE OF COMPETITIVE PROCEDURES.—

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

24 laws with general applicability to Federal acqui25 sition and procurement or in subparagraph (B), 
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1 the Secretary shall use competitive procedures 

2 when entering into contracts with medicare ad3 ministrative contractors under this section, tak4 ing into account performance quality as well as 

5 price and other factors. 

6 ‘‘(B) RENEWAL OF CONTRACTS.—The Sec7 retary may renew a contract with a medicare 

8 administrative contractor under this section 

9 from term to term without regard to section 5 of 

10 title 41, United States Code, or any other provi11 sion of law requiring competition, if the medi12 care administrative contractor has met or ex13 ceeded the performance requirements applicable 

14 with respect to the contract and contractor, ex15 cept that the Secretary shall provide for the ap16 plication of competitive procedures under such a 

17 contract not less frequently than once every five 

18 years. 

19 ‘‘(C) TRANSFER OF FUNCTIONS.—The Sec20 retary may transfer functions among medicare 

21 administrative contractors consistent with the 

22 provisions of this paragraph. The Secretary shall 

23 ensure that performance quality is considered in 

24 such transfers. The Secretary shall provide pub25 lic notice (whether in the Federal Register or 
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1 otherwise) of any such transfer (including a de2 scription of the functions so transferred, a de3 scription of the providers of services and sup4 pliers affected by such transfer, and contact in5 formation for the contractors involved). 

6 ‘‘(D) INCENTIVES FOR QUALITY.—The Sec7 retary shall provide incentives for medicare ad8 ministrative contractors to provide quality serv9 ice and to promote efficiency. 

10 ‘‘(2) COMPLIANCE WITH REQUIREMENTS.—No 

11 contract under this section shall be entered into with 

12 any medicare administrative contractor unless the 

13 Secretary finds that such medicare administrative 

14 contractor will perform its obligations under the con15 tract efficiently and effectively and will meet such re16 quirements as to financial responsibility, legal au17 thority, quality of services provided, and other mat18 ters as the Secretary finds pertinent. 

19 ‘‘(3) PERFORMANCE REQUIREMENTS.—

20 ‘‘(A) DEVELOPMENT OF SPECIFIC PERFORM21 ANCE REQUIREMENTS.—In developing contract 

22 performance requirements, the Secretary shall 

23 develop performance requirements applicable to 

24 functions described in subsection (a)(4). 
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1 ‘‘(B) CONSULTATION.— In developing such 

2 requirements, the Secretary may consult with 

3 providers of services and suppliers, organizations 

4 representing individuals entitled to benefits 

5 under part A or enrolled under part B, or both, 

6 and organizations and agencies performing func7 tions necessary to carry out the purposes of this 

8 section with respect to such performance require9 ments. 

10 ‘‘(C) INCLUSION IN CONTRACTS.—All con11 tractor performance requirements shall be set 

12 forth in the contract between the Secretary and 

13 the appropriate medicare administrative con14 tractor. Such performance requirements—

15 ‘‘(i) shall reflect the performance re16 quirements developed under subparagraph 

17 (A), but may include additional perform18 ance requirements; 

19 ‘‘(ii) shall be used for evaluating con20 tractor performance under the contract; and 

21 ‘‘(iii) shall be consistent with the writ22 ten statement of work provided under the 

23 contract. 

24 ‘‘(4) INFORMATION REQUIREMENTS.—The Sec25 retary shall not enter into a contract with a medicare 
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1 administrative contractor under this section unless 

2 the contractor agrees—

3 ‘‘(A) to furnish to the Secretary such timely 

4 information and reports as the Secretary may 

5 find necessary in performing his functions under 

6 this title; and 

7 ‘‘(B) to maintain such records and afford 

8 such access thereto as the Secretary finds nec9 essary to assure the correctness and verification 

10 of the information and reports under subpara11 graph (A) and otherwise to carry out the pur12 poses of this title. 

13 ‘‘(5) SURETY BOND.—A contract with a medi14 care administrative contractor under this section may 

15 require the medicare administrative contractor, and 

16 any of its officers or employees certifying payments or 

17 disbursing funds pursuant to the contract, or other18 wise participating in carrying out the contract, to 

19 give surety bond to the United States in such amount 

20 as the Secretary may deem appropriate. 

21 ‘‘(c) TERMS AND CONDITIONS.—

22 ‘‘(1) IN GENERAL.—A contract with any medi23 care administrative contractor under this section may 

24 contain such terms and conditions as the Secretary 

25 finds necessary or appropriate and may provide for 
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1 advances of funds to the medicare administrative con2 tractor for the making of payments by it under sub3 section (a)(4)(B). 

4 ‘‘(2) PROHIBITION ON MANDATES FOR CERTAIN

5 DATA COLLECTION.—The Secretary may not require, 

6 as a condition of entering into, or renewing, a con7 tract under this section, that the medicare adminis8 trative contractor match data obtained other than in 

9 its activities under this title with data used in the ad10 ministration of this title for purposes of identifying 

11 situations in which the provisions of section 1862(b) 

12 may apply. 

13 ‘‘(d) LIMITATION ON LIABILITY OF MEDICARE ADMIN14 ISTRATIVE CONTRACTORS AND CERTAIN OFFICERS.—

15 ‘‘(1) CERTIFYING OFFICER.—No individual des16 ignated pursuant to a contract under this section as 

17 a certifying officer shall, in the absence of the reckless 

18 disregard of the individual’s obligations or the intent 

19 by that individual to defraud the United States, be 

20 liable with respect to any payments certified by the 

21 individual under this section. 

22 ‘‘(2) DISBURSING OFFICER.—No disbursing offi23 cer shall, in the absence of the reckless disregard of the 

24 officer’s obligations or the intent by that officer to de25 fraud the United States, be liable with respect to any 
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1 payment by such officer under this section if it was 

2 based upon an authorization (which meets the appli3 cable requirements for such internal controls estab4 lished by the Comptroller General) of a certifying offi5 cer designated as provided in paragraph (1) of this 

6 subsection. 

7 ‘‘(3) LIABILITY OF MEDICARE ADMINISTRATIVE

8 CONTRACTOR.—

9 ‘‘(A) IN GENERAL.—No medicare administrative 

10 contractor shall be liable to the United States for a 

11 payment by a certifying or disbursing officer unless, 

12 in connection with such payment, the medicare ad13 ministrative contractor acted with reckless disregard 

14 of its obligations under its medicare administrative 

15 contract or with intent to defraud the United States. 

16 ‘‘(B) RELATIONSHIP TO FALSE CLAIMS ACT.—

17 Nothing in this subsection shall be construed to limit 

18 liability for conduct that would constitute a violation 

19 of sections 3729 through 3731 of title 31, United 

20 States Code (commonly known as the ‘False Claims 

21 Act’). 

22 ‘‘(4) INDEMNIFICATION BY SECRETARY.—

23 ‘‘(A) IN GENERAL.—Subject to subpara24 graphs (B) and (D), in the case of a medicare 

25 administrative contractor (or a person who is a 
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1 director, officer, or employee of such a contractor 

2 or who is engaged by the contractor to partici3 pate directly in the claims administration proc4 ess) who is made a party to any judicial or ad5 ministrative proceeding arising from or relating 

6 directly to the claims administration process 

7 under this title, the Secretary may, to the extent 

8 the Secretary determines to be appropriate and 

9 as specified in the contract with the contractor, 

10 indemnify the contractor and such persons. 

11 ‘‘(B) CONDITIONS.—The Secretary may not 

12 provide indemnification under subparagraph (A) 

13 insofar as the liability for such costs arises di14 rectly from conduct that is determined by the ju15 dicial proceeding or by the Secretary to be crimi16 nal in nature, fraudulent, or grossly negligent. If 

17 indemnification is provided by the Secretary 

18 with respect to a contractor before a determina19 tion that such costs arose directly from such con20 duct, the contractor shall reimburse the Secretary 

21 for costs of indemnification. 

22 ‘‘(C) SCOPE OF INDEMNIFICATION.—Indem23 nification by the Secretary under subparagraph 

24 (A) may include payment of judgments, settle-
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1 ments (subject to subparagraph (D)), awards, 

2 and costs (including reasonable legal expenses). 

3 ‘‘(D) WRITTEN APPROVAL FOR SETTLE4 MENTS.—A contractor or other person described 

5 in subparagraph (A) may not propose to nego6 tiate a settlement or compromise of a proceeding 

7 described in such subparagraph without the 

8 prior written approval of the Secretary to nego9 tiate such settlement or compromise. Any indem10 nification under subparagraph (A) with respect 

11 to amounts paid under a settlement or com12 promise of a proceeding described in such sub13 paragraph are conditioned upon prior written 

14 approval by the Secretary of the final settlement 

15 or compromise. 

16 ‘‘(E) CONSTRUCTION.—Nothing in this 

17 paragraph shall be construed—

18 ‘‘(i) to change any common law immu19 nity that may be available to a medicare 

20 administrative contractor or person de21 scribed in subparagraph (A); or 

22 ‘‘(ii) to permit the payment of costs 

23 not otherwise allowable, reasonable, or allo24 cable under the Federal Acquisition Regula25 tions.’’. 
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1 (2) CONSIDERATION OF INCORPORATION OF CUR2 RENT LAW STANDARDS.—In developing contract per3 formance requirements under section 1874A(b) of the 

4 Social Security Act, as inserted by paragraph (1), the 

5 Secretary shall consider inclusion of the performance 

6 standards described in sections 1816(f)(2) of such Act 

7 (relating to timely processing of reconsiderations and 

8 applications for exemptions) and section 

9 1842(b)(2)(B) of such Act (relating to timely review 

10 of determinations and fair hearing requests), as such 

11 sections were in effect before the date of the enactment 

12 of this Act. 

13 (b) CONFORMING AMENDMENTS TO SECTION 1816 (RE14 LATING TO FISCAL INTERMEDIARIES).—Section 1816 (42 

15 U.S.C. 1395h) is amended as follows: 

16 (1) The heading is amended to read as follows: 

17 ‘‘PROVISIONS RELATING TO THE ADMINISTRATION OF PART

18 A’’. 

19 (2) Subsection (a) is amended to read as follows: 

20 ‘‘(a) The administration of this part shall be conducted 

21 through contracts with medicare administrative contractors 

22 under section 1874A.’’. 

23 (3) Subsection (b) is repealed. 

24 (4) Subsection (c) is amended—

25 (A) by striking paragraph (1); and 
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1 (B) in each of paragraphs (2)(A) and 

2 (3)(A), by striking ‘‘agreement under this sec3 tion’’ and inserting ‘‘contract under section 

4 1874A that provides for making payments under 

5 this part’’. 

6 (5) Subsections (d) through (i) are repealed. 

7 (6) Subsections (j) and (k) are each amended—

8 (A) by striking ‘‘An agreement with an 

9 agency or organization under this section’’ and 

10 inserting ‘‘A contract with a medicare adminis11 trative contractor under section 1874A with re12 spect to the administration of this part’’; and 

13 (B) by striking ‘‘such agency or organiza14 tion’’ and inserting ‘‘such medicare administra15 tive contractor’’ each place it appears. 

16 (7) Subsection (l) is repealed. 

17 (c) CONFORMING AMENDMENTS TO SECTION 1842 (RE18 LATING TO CARRIERS).—Section 1842 (42 U.S.C. 1395u) 

19 is amended as follows: 

20 (1) The heading is amended to read as follows: 

21 ‘‘PROVISIONS RELATING TO THE ADMINISTRATION OF PART

22 B’’. 

23 (2) Subsection (a) is amended to read as follows: 

24 ‘‘(a) The administration of this part shall be conducted 

25 through contracts with medicare administrative contractors 

26 under section 1874A.’’. 
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1 (3) Subsection (b) is amended—

2 (A) by striking paragraph (1); 

3 (B) in paragraph (2)—

4 (i) by striking subparagraphs (A) and 

5 (B); 

6 (ii) in subparagraph (C), by striking 

7 ‘‘carriers’’ and inserting ‘‘medicare admin8 istrative contractors’’; and 

9 (iii) by striking subparagraphs (D) 

10 and (E); 

11 (C) in paragraph (3)—

12 (i) in the matter before subparagraph 

13 (A), by striking ‘‘Each such contract shall 

14 provide that the carrier’’ and inserting 

15 ‘‘The Secretary’’; 

16 (ii) by striking ‘‘will’’ the first place it 

17 appears in each of subparagraphs (A), (B), 

18 (F), (G), (H), and (L) and inserting 

19 ‘‘shall’’; 

20 (iii) in subparagraph (B), in the mat21 ter before clause (i), by striking ‘‘to the pol22 icyholders and subscribers of the carrier’’ 

23 and inserting ‘‘to the policyholders and sub24 scribers of the medicare administrative con25 tractor’’; 
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1 (iv) by striking subparagraphs (C), 

2 (D), and (E); 

3 (v) in subparagraph (H)—

4 (I) by striking ‘‘if it makes deter5 minations or payments with respect to 

6 physicians’ services,’’ in the matter 

7 preceding clause (i); and 

8 (II) by striking ‘‘carrier’’ and in9 serting ‘‘medicare administrative con10 tractor’’ in clause (i); 

11 (vi) by striking subparagraph (I); 

12 (vii) in subparagraph (L), by striking 

13 the semicolon and inserting a period; 

14 (viii) in the first sentence, after sub15 paragraph (L), by striking ‘‘and shall con16 tain’’ and all that follows through the pe17 riod; and 

18 (ix) in the seventh sentence, by insert19 ing ‘‘medicare administrative contractor,’’ 

20 after ‘‘carrier,’’; and 

21 (D) by striking paragraph (5); 

22 (E) in paragraph (6)(D)(iv), by striking 

23 ‘‘carrier’’ and inserting ‘‘medicare administra24 tive contractor’’; and 
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1 (F) in paragraph (7), by striking ‘‘the car2 rier’’ and inserting ‘‘the Secretary’’ each place it 

3 appears. 

4 (4) Subsection (c) is amended—

5 (A) by striking paragraph (1); 

6 (B) in paragraph (2)(A), by striking ‘‘con7 tract under this section which provides for the 

8 disbursement of funds, as described in subsection 

9 (a)(1)(B),’’ and inserting ‘‘contract under section 

10 1874A that provides for making payments under 

11 this part’’; 

12 (C) in paragraph (3)(A), by striking ‘‘sub13 section (a)(1)(B)’’ and inserting ‘‘section 

14 1874A(a)(3)(B)’’; 

15 (D) in paragraph (4), in the matter pre16 ceding subparagraph (A), by striking ‘‘carrier’’ 

17 and inserting ‘‘medicare administrative con18 tractor’’; and 

19 (E) by striking paragraphs (5) and (6). 

20 (5) Subsections (d), (e), and (f) are repealed. 

21 (6) Subsection (g) is amended by striking ‘‘car22 rier or carriers’’ and inserting ‘‘medicare administra23 tive contractor or contractors’’. 

24 (7) Subsection (h) is amended—

25 (A) in paragraph (2)—
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1 (i) by striking ‘‘Each carrier having 

2 an agreement with the Secretary under sub3 section (a)’’ and inserting ‘‘The Secretary’’; 

4 and 

5 (ii) by striking ‘‘Each such carrier’’ 

6 and inserting ‘‘The Secretary’’; 

7 (B) in paragraph (3)(A)—

8 (i) by striking ‘‘a carrier having an 

9 agreement with the Secretary under sub10 section (a)’’ and inserting ‘‘medicare ad11 ministrative contractor having a contract 

12 under section 1874A that provides for mak13 ing payments under this part’’; and 

14 (ii) by striking ‘‘such carrier’’ and in15 serting ‘‘such contractor’’; 

16 (C) in paragraph (3)(B)—

17 (i) by striking ‘‘a carrier’’ and insert18 ing ‘‘a medicare administrative contractor’’ 

19 each place it appears; and 

20 (ii) by striking ‘‘the carrier’’ and in21 serting ‘‘the contractor’’ each place it ap22 pears; and 

23 (D) in paragraphs (5)(A) and (5)(B)(iii), 

24 by striking ‘‘carriers’’ and inserting ‘‘medicare 
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1 administrative contractors’’ each place it ap2 pears. 

3 (8) Subsection (l) is amended—

4 (A) in paragraph (1)(A)(iii), by striking 

5 ‘‘carrier’’ and inserting ‘‘medicare administra6 tive contractor’’; and 

7 (B) in paragraph (2), by striking ‘‘carrier’’ 

8 and inserting ‘‘medicare administrative con9 tractor’’. 

10 (9) Subsection (p)(3)(A) is amended by striking 

11 ‘‘carrier’’ and inserting ‘‘medicare administrative 

12 contractor’’. 

13 (10) Subsection (q)(1)(A) is amended by striking 

14 ‘‘carrier’’. 

15 (d) EFFECTIVE DATE; TRANSITION RULE.—

16 (1) EFFECTIVE DATE.—

17 (A) IN GENERAL.—Except as otherwise pro18 vided in this subsection, the amendments made 

19 by this section shall take effect on October 1, 

20 2005, and the Secretary is authorized to take 

21 such steps before such date as may be necessary 

22 to implement such amendments on a timely 

23 basis. 

24 (B) CONSTRUCTION FOR CURRENT CON25 TRACTS.—Such amendments shall not apply to 
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1 contracts in effect before the date specified under 

2 subparagraph (A) that continue to retain the 

3 terms and conditions in effect on such date (ex4 cept as otherwise provided under this Act, other 

5 than under this section) until such date as the 

6 contract is let out for competitive bidding under 

7 such amendments. 

8 (C) DEADLINE FOR COMPETITIVE BID9 DING.—The Secretary shall provide for the let10 ting by competitive bidding of all contracts for 

11 functions of medicare administrative contractors 

12 for annual contract periods that begin on or 

13 after October 1, 2010. 

14 (D) WAIVER OF PROVIDER NOMINATION

15 PROVISIONS DURING TRANSITION.—During the 

16 period beginning on the date of the enactment of 

17 this Act and before the date specified under sub18 paragraph (A), the Secretary may enter into 

19 new agreements under section 1816 of the Social 

20 Security Act (42 U.S.C. 1395h) without regard 

21 to any of the provider nomination provisions of 

22 such section. 

23 (2) GENERAL TRANSITION RULES.—The Sec24 retary shall take such steps, consistent with para25 graph (1)(B) and (1)(C), as are necessary to provide 
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1 for an appropriate transition from contracts under 

2 section 1816 and section 1842 of the Social Security 

3 Act (42 U.S.C. 1395h, 1395u) to contracts under sec4 tion 1874A, as added by subsection (a)(1). 

5 (3) AUTHORIZING CONTINUATION OF MIP FUNC6 TIONS UNDER CURRENT CONTRACTS AND AGREE7 MENTS AND UNDER ROLLOVER CONTRACTS.—The pro8 visions contained in the exception in section 

9 1893(d)(2) of the Social Security Act (42 U.S.C. 

10 1395ddd(d)(2)) shall continue to apply notwith11 standing the amendments made by this section, and 

12 any reference in such provisions to an agreement or 

13 contract shall be deemed to include a contract under 

14 section 1874A of such Act, as inserted by subsection 

15 (a)(1), that continues the activities referred to in such 

16 provisions. 

17 (e) REFERENCES.—On and after the effective date pro18 vided under subsection (d)(1), any reference to a fiscal 

19 intermediary or carrier under title XI or XVIII of the So20 cial Security Act (or any regulation, manual instruction, 

21 interpretative rule, statement of policy, or guideline issued 

22 to carry out such titles) shall be deemed a reference to a 

23 medicare administrative contractor (as provided under sec24 tion 1874A of the Social Security Act). 

25 (f) REPORTS ON IMPLEMENTATION.—
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1 (1) PLAN FOR IMPLEMENTATION.—By not later 

2 than October 1, 2004, the Secretary shall submit a re3 port to Congress and the Comptroller General of the 

4 United States that describes the plan for implementa5 tion of the amendments made by this section. The 

6 Comptroller General shall conduct an evaluation of 

7 such plan and shall submit to Congress, not later 

8 than 6 months after the date the report is received, a 

9 report on such evaluation and shall include in such 

10 report such recommendations as the Comptroller Gen11 eral deems appropriate. 

12 (2) STATUS OF IMPLEMENTATION.—The Sec13 retary shall submit a report to Congress not later 

14 than October 1, 2008, that describes the status of im15 plementation of such amendments and that includes 

16 a description of the following: 

17 (A) The number of contracts that have been 

18 competitively bid as of such date. 

19 (B) The distribution of functions among 

20 contracts and contractors. 

21 (C) A timeline for complete transition to 

22 full competition. 

23 (D) A detailed description of how the Sec24 retary has modified oversight and management 
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1 of medicare contractors to adapt to full competi2 tion. 

3 SEC. 912. REQUIREMENTS FOR INFORMATION SECURITY 

4 FOR MEDICARE ADMINISTRATIVE CONTRAC5 TORS. 

6 (a) IN GENERAL.—Section 1874A, as added by section 

7 911(a)(1), is amended by adding at the end the following 

8 new subsection: 

9 ‘‘(e) REQUIREMENTS FOR INFORMATION SECURITY.—

10 ‘‘(1) DEVELOPMENT OF INFORMATION SECURITY

11 PROGRAM.—A medicare administrative contractor 

12 that performs the functions referred to in subpara13 graphs (A) and (B) of subsection (a)(4) (relating to 

14 determining and making payments) shall implement 

15 a contractor-wide information security program to 

16 provide information security for the operation and 

17 assets of the contractor with respect to such functions 

18 under this title. An information security program 

19 under this paragraph shall meet the requirements for 

20 information security programs imposed on Federal 

21 agencies under paragraphs (1) through (8) of section 

22 3544(b) of title 44, United States Code (other than the 

23 requirements under paragraphs (2)(D)(i), (5)(A), and 

24 (5)(B) of such section). 

25 ‘‘(2) INDEPENDENT AUDITS.—
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1 ‘‘(A) PERFORMANCE OF ANNUAL EVALUA2 TIONS.—Each year a medicare administrative 

3 contractor that performs the functions referred to 

4 in subparagraphs (A) and (B) of subsection 

5 (a)(4) (relating to determining and making pay6 ments) shall undergo an evaluation of the infor7 mation security of the contractor with respect to 

8 such functions under this title. The evaluation 

9 shall—

10 ‘‘(i) be performed by an entity that 

11 meets such requirements for independence as 

12 the Inspector General of the Department of 

13 Health and Human Services may establish; 

14 and 

15 ‘‘(ii) test the effectiveness of informa16 tion security control techniques of an ap17 propriate subset of the contractor’s informa18 tion systems (as defined in section 3502(8) 

19 of title 44, United States Code) relating to 

20 such functions under this title and an as21 sessment of compliance with the require22 ments of this subsection and related infor23 mation security policies, procedures, stand24 ards and guidelines, including policies and 

25 procedures as may be prescribed by the Di-
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1 rector of the Office of Management and 

2 Budget and applicable information security 

3 standards promulgated under section 11331 

4 of title 40, United States Code. 

5 ‘‘(B) DEADLINE FOR INITIAL EVALUA6 TION.—

7 ‘‘(i) NEW CONTRACTORS.—In the case 

8 of a medicare administrative contractor 

9 covered by this subsection that has not pre10 viously performed the functions referred to 

11 in subparagraphs (A) and (B) of subsection 

12 (a)(4) (relating to determining and making 

13 payments) as a fiscal intermediary or car14 rier under section 1816 or 1842, the first 

15 independent evaluation conducted pursuant 

16 subparagraph (A) shall be completed prior 

17 to commencing such functions. 

18 ‘‘(ii) OTHER CONTRACTORS.—In the 

19 case of a medicare administrative con20 tractor covered by this subsection that is not 

21 described in clause (i), the first independent 

22 evaluation conducted pursuant subpara23 graph (A) shall be completed within 1 year 

24 after the date the contractor commences 
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1 functions referred to in clause (i) under this 

2 section. 

3 ‘‘(C) REPORTS ON EVALUATIONS.—

4 ‘‘(i) TO THE DEPARTMENT OF HEALTH

5 AND HUMAN SERVICES.—The results of 

6 independent evaluations under subpara7 graph (A) shall be submitted promptly to 

8 the Inspector General of the Department of 

9 Health and Human Services and to the Sec10 retary. 

11 ‘‘(ii) TO CONGRESS.—The Inspector 

12 General of Department of Health and 

13 Human Services shall submit to Congress 

14 annual reports on the results of such eval15 uations, including assessments of the scope 

16 and sufficiency of such evaluations. 

17 ‘‘(iii) AGENCY REPORTING.—The Sec18 retary shall address the results of such eval19 uations in reports required under section 

20 3544(c) of title 44, United States Code.’’. 

21 (b) APPLICATION OF REQUIREMENTS TO FISCAL

22 INTERMEDIARIES AND CARRIERS.—

23 (1) IN GENERAL.—The provisions of section 

24 1874A(e)(2) of the Social Security Act (other than 

25 subparagraph (B)), as added by subsection (a), shall 
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1 apply to each fiscal intermediary under section 1816 

2 of the Social Security Act (42 U.S.C. 1395h) and 

3 each carrier under section 1842 of such Act (42 

4 U.S.C. 1395u) in the same manner as they apply to 

5 medicare administrative contractors under such pro6 visions. 

7 (2) DEADLINE FOR INITIAL EVALUATION.—In the 

8 case of such a fiscal intermediary or carrier with an 

9 agreement or contract under such respective section in 

10 effect as of the date of the enactment of this Act, the 

11 first evaluation under section 1874A(e)(2)(A) of the 

12 Social Security Act (as added by subsection (a)), pur13 suant to paragraph (1), shall be completed (and a re14 port on the evaluation submitted to the Secretary) by 

15 not later than 1 year after such date. 

16 Subtitle C—Education and 

17 Outreach 

18 SEC. 921. PROVIDER EDUCATION AND TECHNICAL ASSIST19 ANCE. 

20 (a) COORDINATION OF EDUCATION FUNDING.—

21 (1) IN GENERAL.—Title XVIII is amended by in22 serting after section 1888 the following new section: 

23 ‘‘PROVIDER EDUCATION AND TECHNICAL ASSISTANCE

24 ‘‘SEC. 1889. (a) COORDINATION OF EDUCATION FUND25 ING.—The Secretary shall coordinate the educational activi26 ties provided through medicare contractors (as defined in 
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1 subsection (g), including under section 1893) in order to 

2 maximize the effectiveness of Federal education efforts for 

3 providers of services and suppliers.’’. 

4 (2) EFFECTIVE DATE.—The amendment made by 

5 paragraph (1) shall take effect on the date of the en6 actment of this Act. 

7 (3) REPORT.—Not later than October 1, 2004, 

8 the Secretary shall submit to Congress a report that 

9 includes a description and evaluation of the steps 

10 taken to coordinate the funding of provider education 

11 under section 1889(a) of the Social Security Act, as 

12 added by paragraph (1). 

13 (b) INCENTIVES TO IMPROVE CONTRACTOR PERFORM14 ANCE.—

15 (1) IN GENERAL.—Section 1874A, as added by 

16 section 911(a)(1) and as amended by section 912(a), 

17 is amended by adding at the end the following new 

18 subsection: 

19 ‘‘(f) INCENTIVES TO IMPROVE CONTRACTOR PERFORM20 ANCE IN PROVIDER EDUCATION AND OUTREACH.—The Sec21 retary shall use specific claims payment error rates or simi22 lar methodology of medicare administrative contractors in 

23 the processing or reviewing of medicare claims in order to 

24 give such contractors an incentive to implement effective 
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1 education and outreach programs for providers of services 

2 and suppliers.’’. 

3 (2) APPLICATION TO FISCAL INTERMEDIARIES

4 AND CARRIERS.—The provisions of section 1874A(f) of 

5 the Social Security Act, as added by paragraph (1), 

6 shall apply to each fiscal intermediary under section 

7 1816 of the Social Security Act (42 U.S.C. 1395h) 

8 and each carrier under section 1842 of such Act (42 

9 U.S.C. 1395u) in the same manner as they apply to 

10 medicare administrative contractors under such pro11 visions. 

12 (3) GAO REPORT ON ADEQUACY OF METHOD13 OLOGY.—Not later than October 1, 2004, the Comp14 troller General of the United States shall submit to 

15 Congress and to the Secretary a report on the ade16 quacy of the methodology under section 1874A(f) of 

17 the Social Security Act, as added by paragraph (1), 

18 and shall include in the report such recommendations 

19 as the Comptroller General determines appropriate 

20 with respect to the methodology. 

21 (4) REPORT ON USE OF METHODOLOGY IN AS22 SESSING CONTRACTOR PERFORMANCE.—Not later 

23 than October 1, 2004, the Secretary shall submit to 

24 Congress a report that describes how the Secretary in25 tends to use such methodology in assessing medicare 
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1 contractor performance in implementing effective edu2 cation and outreach programs, including whether to 

3 use such methodology as a basis for performance bo4 nuses. The report shall include an analysis of the 

5 sources of identified errors and potential changes in 

6 systems of contractors and rules of the Secretary that 

7 could reduce claims error rates. 

8 (c) PROVISION OF ACCESS TO AND PROMPT RE9 SPONSES FROM MEDICARE ADMINISTRATIVE CONTRAC10 TORS.—

11 (1) IN GENERAL.—Section 1874A, as added by 

12 section 911(a)(1) and as amended by section 912(a) 

13 and subsection (b), is further amended by adding at 

14 the end the following new subsection: 

15 ‘‘(g) COMMUNICATIONS WITH BENEFICIARIES, PRO16 VIDERS OF SERVICES AND SUPPLIERS.—

17 ‘‘(1) COMMUNICATION STRATEGY.—The Secretary 

18 shall develop a strategy for communications with in19 dividuals entitled to benefits under part A or enrolled 

20 under part B, or both, and with providers of services 

21 and suppliers under this title. 

22 ‘‘(2) RESPONSE TO WRITTEN INQUIRIES.—Each 

23 medicare administrative contractor shall, for those 

24 providers of services and suppliers which submit 

25 claims to the contractor for claims processing and for 
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1 those individuals entitled to benefits under part A or 

2 enrolled under part B, or both, with respect to whom 

3 claims are submitted for claims processing, provide 

4 general written responses (which may be through elec5 tronic transmission) in a clear, concise, and accurate 

6 manner to inquiries of providers of services, suppliers 

7 and individuals entitled to benefits under part A or 

8 enrolled under part B, or both, concerning the pro9 grams under this title within 45 business days of the 

10 date of receipt of such inquiries. 

11 ‘‘(3) RESPONSE TO TOLL-FREE LINES.—The Sec12 retary shall ensure that each medicare administrative 

13 contractor shall provide, for those providers of services 

14 and suppliers which submit claims to the contractor 

15 for claims processing and for those individuals enti16 tled to benefits under part A or enrolled under part 

17 B, or both, with respect to whom claims are submitted 

18 for claims processing, a toll-free telephone number at 

19 which such individuals, providers of services and sup20 pliers may obtain information regarding billing, cod21 ing, claims, coverage, and other appropriate informa22 tion under this title. 

23 ‘‘(4) MONITORING OF CONTRACTOR RE24 SPONSES.—
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1 ‘‘(A) IN GENERAL.—Each medicare admin2 istrative contractor shall, consistent with stand3 ards developed by the Secretary under subpara4 graph (B)—

5 ‘‘(i) maintain a system for identifying 

6 who provides the information referred to in 

7 paragraphs (2) and (3); and 

8 ‘‘(ii) monitor the accuracy, consist9 ency, and timeliness of the information so 

10 provided. 

11 ‘‘(B) DEVELOPMENT OF STANDARDS.—

12 ‘‘(i) IN GENERAL.—The Secretary shall 

13 establish and make public standards to 

14 monitor the accuracy, consistency, and 

15 timeliness of the information provided in 

16 response to written and telephone inquiries 

17 under this subsection. Such standards shall 

18 be consistent with the performance require19 ments established under subsection (b)(3). 

20 ‘‘(ii) EVALUATION.—In conducting 

21 evaluations of individual medicare admin22 istrative contractors, the Secretary shall 

23 take into account the results of the moni24 toring conducted under subparagraph (A) 

25 taking into account as performance require-
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1 ments the standards established under 

2 clause (i). The Secretary shall, in consulta3 tion with organizations representing pro4 viders of services, suppliers, and individuals 

5 entitled to benefits under part A or enrolled 

6 under part B, or both, establish standards 

7 relating to the accuracy, consistency, and 

8 timeliness of the information so provided. 

9 ‘‘(C) DIRECT MONITORING.—Nothing in this 

10 paragraph shall be construed as preventing the 

11 Secretary from directly monitoring the accuracy, 

12 consistency, and timeliness of the information so 

13 provided.’’. 

14 (2) EFFECTIVE DATE.—The amendment made by 

15 paragraph (1) shall take effect October 1, 2004. 

16 (3) APPLICATION TO FISCAL INTERMEDIARIES

17 AND CARRIERS.—The provisions of section 1874A(g) 

18 of the Social Security Act, as added by paragraph 

19 (1), shall apply to each fiscal intermediary under sec20 tion 1816 of the Social Security Act (42 U.S.C. 

21 1395h) and each carrier under section 1842 of such 

22 Act (42 U.S.C. 1395u) in the same manner as they 

23 apply to medicare administrative contractors under 

24 such provisions. 
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1 (d) IMPROVED PROVIDER EDUCATION AND TRAIN2 ING.—

3 (1) IN GENERAL.—Section 1889, as added by 

4 subsection (a), is amended by adding at the end the 

5 following new subsections: 

6 ‘‘(b) ENHANCED EDUCATION AND TRAINING.—

7 ‘‘(1) ADDITIONAL RESOURCES.—There are au8 thorized to be appropriated to the Secretary (in ap9 propriate part from the Federal Hospital Insurance 

10 Trust Fund and the Federal Supplementary Medical 

11 Insurance Trust Fund) $25,000,000 for each of fiscal 

12 years 2005 and 2006 and such sums as may be nec13 essary for succeeding fiscal years. 

14 ‘‘(2) USE.—The funds made available under 

15 paragraph (1) shall be used to increase the conduct by 

16 medicare contractors of education and training of 

17 providers of services and suppliers regarding billing, 

18 coding, and other appropriate items and may also be 

19 used to improve the accuracy, consistency, and timeli20 ness of contractor responses. 

21 ‘‘(c) TAILORING EDUCATION AND TRAINING ACTIVI22 TIES FOR SMALL PROVIDERS OR SUPPLIERS.—

23 ‘‘(1) IN GENERAL.—Insofar as a medicare con24 tractor conducts education and training activities, it 

25 shall tailor such activities to meet the special needs 
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1 of small providers of services or suppliers (as defined 

2 in paragraph (2)). 

3 ‘‘(2) SMALL PROVIDER OF SERVICES OR SUP4 PLIER.—In this subsection, the term ‘small provider 

5 of services or supplier’ means—

6 ‘‘(A) a provider of services with fewer than 

7 25 full-time-equivalent employees; or 

8 ‘‘(B) a supplier with fewer than 10 full9 time-equivalent employees.’’. 

10 (2) EFFECTIVE DATE.—The amendment made by 

11 paragraph (1) shall take effect on October 1, 2004. 

12 (e) REQUIREMENT TO MAINTAIN INTERNET SITES.—

13 (1) IN GENERAL.—Section 1889, as added by 

14 subsection (a) and as amended by subsection (d), is 

15 further amended by adding at the end the following 

16 new subsection: 

17 ‘‘(d) INTERNET SITES; FAQS.—The Secretary, and 

18 each medicare contractor insofar as it provides services (in19 cluding claims processing) for providers of services or sup20 pliers, shall maintain an Internet site which—

21 ‘‘(1) provides answers in an easily accessible for22 mat to frequently asked questions, and 

23 ‘‘(2) includes other published materials of the 

24 contractor, 
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1 that relate to providers of services and suppliers under the 

2 programs under this title (and title XI insofar as it relates 

3 to such programs).’’. 

4 (2) EFFECTIVE DATE.—The amendment made by 

5 paragraph (1) shall take effect on October 1, 2004. 

6 (f) ADDITIONAL PROVIDER EDUCATION PROVISIONS.—

7 (1) IN GENERAL.—Section 1889, as added by 

8 subsection (a) and as amended by subsections (d) and 

9 (e), is further amended by adding at the end the fol10 lowing new subsections: 

11 ‘‘(e) ENCOURAGEMENT OF PARTICIPATION IN EDU12 CATION PROGRAM ACTIVITIES.—A medicare contractor 

13 may not use a record of attendance at (or failure to attend) 

14 educational activities or other information gathered during 

15 an educational program conducted under this section or 

16 otherwise by the Secretary to select or track providers of 

17 services or suppliers for the purpose of conducting any type 

18 of audit or prepayment review. 

19 ‘‘(f) CONSTRUCTION.—Nothing in this section or sec20 tion 1893(g) shall be construed as providing for disclosure 

21 by a medicare contractor of information that would com22 promise pending law enforcement activities or reveal find23 ings of law enforcement-related audits. 

24 ‘‘(g) DEFINITIONS.—For purposes of this section, the 

25 term ‘medicare contractor’ includes the following: 
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1 ‘‘(1) A medicare administrative contractor with 

2 a contract under section 1874A, including a fiscal 

3 intermediary with a contract under section 1816 and 

4 a carrier with a contract under section 1842. 

5 ‘‘(2) An eligible entity with a contract under sec6 tion 1893. 

7 Such term does not include, with respect to activities of a 

8 specific provider of services or supplier an entity that has 

9 no authority under this title or title IX with respect to such 

10 activities and such provider of services or supplier.’’. 

11 (2) EFFECTIVE DATE.—The amendment made by 

12 paragraph (1) shall take effect on the date of the en13 actment of this Act. 

14 SEC. 922. SMALL PROVIDER TECHNICAL ASSISTANCE DEM15 ONSTRATION PROGRAM. 

16 (a) ESTABLISHMENT.—

17 (1) IN GENERAL.—The Secretary shall establish 

18 a demonstration program (in this section referred to 

19 as the ‘‘demonstration program’’) under which tech20 nical assistance described in paragraph (2) is made 

21 available, upon request and on a voluntary basis, to 

22 small providers of services or suppliers in order to 

23 improve compliance with the applicable requirements 

24 of the programs under medicare program under title 

25 XVIII of the Social Security Act (including provi-
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1 sions of title XI of such Act insofar as they relate to 

2 such title and are not administered by the Office of 

3 the Inspector General of the Department of Health 

4 and Human Services). 

5 (2) FORMS OF TECHNICAL ASSISTANCE.—The 

6 technical assistance described in this paragraph is—

7 (A) evaluation and recommendations re8 garding billing and related systems; and 

9 (B) information and assistance regarding 

10 policies and procedures under the medicare pro11 gram, including coding and reimbursement. 

12 (3) SMALL PROVIDERS OF SERVICES OR SUP13 PLIERS.—In this section, the term ‘‘small providers of 

14 services or suppliers’’ means—

15 (A) a provider of services with fewer than 

16 25 full-time-equivalent employees; or 

17 (B) a supplier with fewer than 10 full-time18 equivalent employees. 

19 (b) QUALIFICATION OF CONTRACTORS.—In conducting 

20 the demonstration program, the Secretary shall enter into 

21 contracts with qualified organizations (such as peer review 

22 organizations or entities described in section 1889(g)(2) of 

23 the Social Security Act, as inserted by section 5(f)(1)) with 

24 appropriate expertise with billing systems of the full range 

25 of providers of services and suppliers to provide the tech-
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1 nical assistance. In awarding such contracts, the Secretary 

2 shall consider any prior investigations of the entity’s work 

3 by the Inspector General of Department of Health and 

4 Human Services or the Comptroller General of the United 

5 States. 

6 (c) DESCRIPTION OF TECHNICAL ASSISTANCE.—The 

7 technical assistance provided under the demonstration pro8 gram shall include a direct and in-person examination of 

9 billing systems and internal controls of small providers of 

10 services or suppliers to determine program compliance and 

11 to suggest more efficient or effective means of achieving such 

12 compliance. 

13 (d) AVOIDANCE OF RECOVERY ACTIONS FOR PROB14 LEMS IDENTIFIED AS CORRECTED.—The Secretary shall 

15 provide that, absent evidence of fraud and notwithstanding 

16 any other provision of law, any errors found in a compli17 ance review for a small provider of services or supplier that 

18 participates in the demonstration program shall not be sub19 ject to recovery action if the technical assistance personnel 

20 under the program determine that—

21 (1) the problem that is the subject of the compli22 ance review has been corrected to their satisfaction 

23 within 30 days of the date of the visit by such per24 sonnel to the small provider of services or supplier; 

25 and 
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1 (2) such problem remains corrected for such pe2 riod as is appropriate. 

3 The previous sentence applies only to claims filed as part 

4 of the demonstration program and lasts only for the dura5 tion of such program and only as long as the small provider 

6 of services or supplier is a participant in such program. 

7 (e) GAO EVALUATION.—Not later than 2 years after 

8 the date of the date the demonstration program is first im9 plemented, the Comptroller General, in consultation with 

10 the Inspector General of the Department of Health and 

11 Human Services, shall conduct an evaluation of the dem12 onstration program. The evaluation shall include a deter13 mination of whether claims error rates are reduced for 

14 small providers of services or suppliers who participated 

15 in the program and the extent of improper payments made 

16 as a result of the demonstration program. The Comptroller 

17 General shall submit a report to the Secretary and the Con18 gress on such evaluation and shall include in such report 

19 recommendations regarding the continuation or extension 

20 of the demonstration program. 

21 (f) FINANCIAL PARTICIPATION BY PROVIDERS.—The 

22 provision of technical assistance to a small provider of serv23 ices or supplier under the demonstration program is condi24 tioned upon the small provider of services or supplier pay25 ing an amount estimated (and disclosed in advance of a 
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1 provider’s or supplier’s participation in the program) to 

2 be equal to 25 percent of the cost of the technical assistance. 

3 (g) AUTHORIZATION OF APPROPRIATIONS.—There are 

4 authorized to be appropriated to the Secretary (in appro5 priate part from the Federal Hospital Insurance Trust 

6 Fund and the Federal Supplementary Medical Insurance 

7 Trust Fund) to carry out the demonstration program— 

8 (1) for fiscal year 2005, $1,000,000, and 

9 (2) for fiscal year 2006, $6,000,000. 

10 SEC. 923. MEDICARE PROVIDER OMBUDSMAN; MEDICARE 

11 BENEFICIARY OMBUDSMAN. 

12 (a) MEDICARE PROVIDER OMBUDSMAN.—Section 1868 

13 (42 U.S.C. 1395ee) is amended—

14 (1) by adding at the end of the heading the fol15 lowing: ‘‘; MEDICARE PROVIDER OMBUDSMAN’’; 

16 (2) by inserting ‘‘PRACTICING PHYSICIANS ADVI17 SORY COUNCIL.—(1)’’ after ‘‘(a)’’; 

18 (3) in paragraph (1), as so redesignated under 

19 paragraph (2), by striking ‘‘in this section’’ and in20 serting ‘‘in this subsection’’; 

21 (4) by redesignating subsections (b) and (c) as 

22 paragraphs (2) and (3), respectively; and 

23 (5) by adding at the end the following new sub24 section: 
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1 ‘‘(b) MEDICARE PROVIDER OMBUDSMAN.—The Sec2 retary shall appoint within the Department of Health and 

3 Human Services a Medicare Provider Ombudsman. The 

4 Ombudsman shall—

5 ‘‘(1) provide assistance, on a confidential basis, 

6 to providers of services and suppliers with respect to 

7 complaints, grievances, and requests for information 

8 concerning the programs under this title (including 

9 provisions of title XI insofar as they relate to this 

10 title and are not administered by the Office of the In11 spector General of the Department of Health and 

12 Human Services) and in the resolution of unclear or 

13 conflicting guidance given by the Secretary and medi14 care contractors to such providers of services and sup15 pliers regarding such programs and provisions and 

16 requirements under this title and such provisions; 

17 and 

18 ‘‘(2) submit recommendations to the Secretary 

19 for improvement in the administration of this title 

20 and such provisions, including—

21 ‘‘(A) recommendations to respond to recur22 ring patterns of confusion in this title and such 

23 provisions (including recommendations regard24 ing suspending imposition of sanctions where 
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1 there is widespread confusion in program ad2 ministration), and 

3 ‘‘(B) recommendations to provide for an ap4 propriate and consistent response (including not 

5 providing for audits) in cases of self-identified 

6 overpayments by providers of services and sup7 pliers. 

8 The Ombudsman shall not serve as an advocate for any in9 creases in payments or new coverage of services, but may 

10 identify issues and problems in payment or coverage poli11 cies.’’. 

12 (b) MEDICARE BENEFICIARY OMBUDSMAN.—Title 

13 XVIII, as previously amended, is amended by inserting 

14 after section 1809 the following new section: 

15 ‘‘MEDICARE BENEFICIARY OMBUDSMAN

16 ‘‘SEC. 1810. (a) IN GENERAL.—The Secretary shall 

17 appoint within the Department of Health and Human 

18 Services a Medicare Beneficiary Ombudsman who shall 

19 have expertise and experience in the fields of health care 

20 and education of (and assistance to) individuals entitled 

21 to benefits under this title. 

22 ‘‘(b) DUTIES.—The Medicare Beneficiary Ombudsman 

23 shall—

24 ‘‘(1) receive complaints, grievances, and requests 

25 for information submitted by individuals entitled to 

26 benefits under part A or enrolled under part B, or 
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1 both, with respect to any aspect of the medicare pro2 gram; 

3 ‘‘(2) provide assistance with respect to com4 plaints, grievances, and requests referred to in para5 graph (1), including—

6 ‘‘(A) assistance in collecting relevant infor7 mation for such individuals, to seek an appeal of 

8 a decision or determination made by a fiscal 

9 intermediary, carrier, Medicare+Choice organi10 zation, or the Secretary; 

11 ‘‘(B) assistance to such individuals with 

12 any problems arising from disenrollment from a 

13 Medicare+Choice plan under part C; and 

14 ‘‘(C) assistance to such individuals in pre15 senting information under section 1860D–

16 2(b)(4)(D)(v); and 

17 ‘‘(3) submit annual reports to Congress and the 

18 Secretary that describe the activities of the Office and 

19 that include such recommendations for improvement 

20 in the administration of this title as the Ombudsman 

21 determines appropriate. 

22 The Ombudsman shall not serve as an advocate for any in23 creases in payments or new coverage of services, but may 

24 identify issues and problems in payment or coverage poli25 cies. 
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1 ‘‘(c) WORKING WITH HEALTH INSURANCE COUN2 SELING PROGRAMS.—To the extent possible, the Ombuds3 man shall work with health insurance counseling programs 

4 (receiving funding under section 4360 of Omnibus Budget 

5 Reconciliation Act of 1990) to facilitate the provision of in6 formation to individuals entitled to benefits under part A 

7 or enrolled under part B, or both regarding 

8 Medicare+Choice plans and changes to those plans. Noth9 ing in this subsection shall preclude further collaboration 

10 between the Ombudsman and such programs.’’. 

11 (c) DEADLINE FOR APPOINTMENT.—The Secretary 

12 shall appoint the Medicare Provider Ombudsman and the 

13 Medicare Beneficiary Ombudsman, under the amendments 

14 made by subsections (a) and (b), respectively, by not later 

15 than 1 year after the date of the enactment of this Act. 

16 (d) FUNDING.—There are authorized to be appro17 priated to the Secretary (in appropriate part from the Fed18 eral Hospital Insurance Trust Fund and the Federal Sup19 plementary Medical Insurance Trust Fund) to carry out 

20 the provisions of subsection (b) of section 1868 of the Social 

21 Security Act (relating to the Medicare Provider Ombuds22 man), as added by subsection (a)(5) and section 1807 of 

23 such Act (relating to the Medicare Beneficiary Ombuds24 man), as added by subsection (b), such sums as are nec25 essary for fiscal year 2004 and each succeeding fiscal year. 
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1 (e) USE OF CENTRAL, TOLL-FREE NUMBER (1–800–

2 MEDICARE).—

3 (1) PHONE TRIAGE SYSTEM; LISTING IN MEDI4 CARE HANDBOOK INSTEAD OF OTHER TOLL-FREE

5 NUMBERS.—Section 1804(b) (42 U.S.C. 1395b–2(b)) 

6 is amended by adding at the end the following: ‘‘The 

7 Secretary shall provide, through the toll-free number 

8 1–800–MEDICARE, for a means by which individ9 uals seeking information about, or assistance with, 

10 such programs who phone such toll-free number are 

11 transferred (without charge) to appropriate entities 

12 for the provision of such information or assistance. 

13 Such toll-free number shall be the toll-free number 

14 listed for general information and assistance in the 

15 annual notice under subsection (a) instead of the list16 ing of numbers of individual contractors.’’. 

17 (2) MONITORING ACCURACY.—

18 (A) STUDY.—The Comptroller General of 

19 the United States shall conduct a study to mon20 itor the accuracy and consistency of information 

21 provided to individuals entitled to benefits under 

22 part A or enrolled under part B, or both, 

23 through the toll-free number 1–800–MEDICARE, 

24 including an assessment of whether the informa25 tion provided is sufficient to answer questions of 
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1 such individuals. In conducting the study, the 

2 Comptroller General shall examine the education 

3 and training of the individuals providing infor4 mation through such number. 

5 (B) REPORT.—Not later than 1 year after 

6 the date of the enactment of this Act, the Comp7 troller General shall submit to Congress a report 

8 on the study conducted under subparagraph (A). 

9 SEC. 924. BENEFICIARY OUTREACH DEMONSTRATION PRO10 GRAM. 

11 (a) IN GENERAL.—The Secretary shall establish a 

12 demonstration program (in this section referred to as the 

13 ‘‘demonstration program’’) under which medicare special14 ists employed by the Department of Health and Human 

15 Services provide advice and assistance to individuals enti16 tled to benefits under part A of title XVIII of the Social 

17 Security Act, or enrolled under part B of such title, or both, 

18 regarding the medicare program at the location of existing 

19 local offices of the Social Security Administration. 

20 (b) LOCATIONS.—

21 (1) IN GENERAL.—The demonstration program 

22 shall be conducted in at least 6 offices or areas. Sub23 ject to paragraph (2), in selecting such offices and 

24 areas, the Secretary shall provide preference for offices 
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1 with a high volume of visits by individuals referred 

2 to in subsection (a). 

3 (2) ASSISTANCE FOR RURAL BENEFICIARIES.—

4 The Secretary shall provide for the selection of at 

5 least 2 rural areas to participate in the demonstra6 tion program. In conducting the demonstration pro7 gram in such rural areas, the Secretary shall provide 

8 for medicare specialists to travel among local offices 

9 in a rural area on a scheduled basis. 

10 (c) DURATION.—The demonstration program shall be 

11 conducted over a 3-year period. 

12 (d) EVALUATION AND REPORT.—

13 (1) EVALUATION.—The Secretary shall provide 

14 for an evaluation of the demonstration program. Such 

15 evaluation shall include an analysis of—

16 (A) utilization of, and satisfaction of those 

17 individuals referred to in subsection (a) with, the 

18 assistance provided under the program; and 

19 (B) the cost-effectiveness of providing bene20 ficiary assistance through out-stationing medi21 care specialists at local offices of the Social Secu22 rity Administration. 

23 (2) REPORT.—The Secretary shall submit to 

24 Congress a report on such evaluation and shall in25 clude in such report recommendations regarding the 
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1 feasibility of permanently out-stationing medicare 

2 specialists at local offices of the Social Security Ad3 ministration. 

4 SEC. 925. INCLUSION OF ADDITIONAL INFORMATION IN NO5 TICES TO BENEFICIARIES ABOUT SKILLED 

6 NURSING FACILITY BENEFITS. 

7 (a) IN GENERAL.—The Secretary shall provide that in 

8 medicare beneficiary notices provided (under section 

9 1806(a) of the Social Security Act, 42 U.S.C. 1395b–7(a)) 

10 with respect to the provision of post-hospital extended care 

11 services under part A of title XVIII of the Social Security 

12 Act, there shall be included information on the number of 

13 days of coverage of such services remaining under such part 

14 for the medicare beneficiary and spell of illness involved. 

15 (b) EFFECTIVE DATE.—Subsection (a) shall apply to 

16 notices provided during calendar quarters beginning more 

17 than 6 months after the date of the enactment of this Act. 

18 SEC. 926. INFORMATION ON MEDICARE-CERTIFIED SKILLED 

19 NURSING FACILITIES IN HOSPITAL DIS20 CHARGE PLANS. 

21 (a) AVAILABILITY OF DATA.—The Secretary shall pub22 licly provide information that enables hospital discharge 

23 planners, medicare beneficiaries, and the public to identify 

24 skilled nursing facilities that are participating in the medi25 care program. 
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1 (b) INCLUSION OF INFORMATION IN CERTAIN HOS2 PITAL DISCHARGE PLANS.—

3 (1) IN GENERAL.—Section 1861(ee)(2)(D) (42 

4 U.S.C. 1395x(ee)(2)(D)) is amended—

5 (A) by striking ‘‘hospice services’’ and in6 serting ‘‘hospice care and post-hospital extended 

7 care services’’; and 

8 (B) by inserting before the period at the end 

9 the following: ‘‘and, in the case of individuals 

10 who are likely to need post-hospital extended care 

11 services, the availability of such services through 

12 facilities that participate in the program under 

13 this title and that serve the area in which the 

14 patient resides’’. 

15 (2) EFFECTIVE DATE.—The amendments made 

16 by paragraph (1) shall apply to discharge plans made 

17 on or after such date as the Secretary shall specify, 

18 but not later than 6 months after the date the Sec19 retary provides for availability of information under 

20 subsection (a). 

21 Subtitle D—Appeals and Recovery 

22 SEC. 931. TRANSFER OF RESPONSIBILITY FOR MEDICARE 

23 APPEALS. 

24 (a) TRANSITION PLAN.—
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1 (1) IN GENERAL.—Not later than October 1, 

2 2004, the Commissioner of Social Security and the 

3 Secretary shall develop and transmit to Congress and 

4 the Comptroller General of the United States a plan 

5 under which the functions of administrative law 

6 judges responsible for hearing cases under title XVIII 

7 of the Social Security Act (and related provisions in 

8 title XI of such Act) are transferred from the responsi9 bility of the Commissioner and the Social Security 

10 Administration to the Secretary and the Department 

11 of Health and Human Services. 

12 (2) GAO EVALUATION.—The Comptroller Gen13 eral of the United States shall evaluate the plan and, 

14 not later than the date that is 6 months after the date 

15 on which the plan is received by the Comptroller Gen16 eral, shall submit to Congress a report on such eval17 uation. 

18 (b) TRANSFER OF ADJUDICATION AUTHORITY.—

19 (1) IN GENERAL.—Not earlier than July 1, 2005, 

20 and not later than October 1, 2005, the Commissioner 

21 of Social Security and the Secretary shall implement 

22 the transition plan under subsection (a) and transfer 

23 the administrative law judge functions described in 

24 such subsection from the Social Security Administra25 tion to the Secretary. 
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1 (2) ASSURING INDEPENDENCE OF JUDGES.—The 

2 Secretary shall assure the independence of adminis3 trative law judges performing the administrative law 

4 judge functions transferred under paragraph (1) from 

5 the Centers for Medicare & Medicaid Services and its 

6 contractors. In order to assure such independence, the 

7 Secretary shall place such judges in an administra8 tive office that is organizationally and functionally 

9 separate from such Centers. Such judges shall report 

10 to, and be under the general supervision of, the Sec11 retary, but shall not report to, or be subject to super12 vision by, another other officer of the Department. 

13 (3) GEOGRAPHIC DISTRIBUTION.—The Secretary 

14 shall provide for an appropriate geographic distribu15 tion of administrative law judges performing the ad16 ministrative law judge functions transferred under 

17 paragraph (1) throughout the United States to ensure 

18 timely access to such judges. 

19 (4) HIRING AUTHORITY.—Subject to the amounts 

20 provided in advance in appropriations Act, the Sec21 retary shall have authority to hire administrative law 

22 judges to hear such cases, giving priority to those 

23 judges with prior experience in handling medicare 

24 appeals and in a manner consistent with paragraph 

25 (3), and to hire support staff for such judges. 
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1 (5) FINANCING.—Amounts payable under law to 

2 the Commissioner for administrative law judges per3 forming the administrative law judge functions trans4 ferred under paragraph (1) from the Federal Hospital 

5 Insurance Trust Fund and the Federal Supple6 mentary Medical Insurance Trust Fund shall become 

7 payable to the Secretary for the functions so trans8 ferred. 

9 (6) SHARED RESOURCES.—The Secretary shall 

10 enter into such arrangements with the Commissioner 

11 as may be appropriate with respect to transferred 

12 functions of administrative law judges to share office 

13 space, support staff, and other resources, with appro14 priate reimbursement from the Trust Funds described 

15 in paragraph (5). 

16 (c) INCREASED FINANCIAL SUPPORT.—In addition to 

17 any amounts otherwise appropriated, to ensure timely ac18 tion on appeals before administrative law judges and the 

19 Departmental Appeals Board consistent with section 1869 

20 of the Social Security Act (as amended by section 521 of 

21 BIPA, 114 Stat. 2763A–534), there are authorized to be ap22 propriated (in appropriate part from the Federal Hospital 

23 Insurance Trust Fund and the Federal Supplementary 

24 Medical Insurance Trust Fund) to the Secretary such sums 
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1 as are necessary for fiscal year 2005 and each subsequent 

2 fiscal year to—

3 (1) increase the number of administrative law 

4 judges (and their staffs) under subsection (b)(4); 

5 (2) improve education and training opportuni6 ties for administrative law judges (and their staffs); 

7 and 

8 (3) increase the staff of the Departmental Ap9 peals Board. 

10 (d) CONFORMING AMENDMENT.—Section 

11 1869(f)(2)(A)(i) (42 U.S.C. 1395ff(f)(2)(A)(i)), as added by 

12 section 522(a) of BIPA (114 Stat. 2763A–543), is amended 

13 by striking ‘‘of the Social Security Administration’’. 

14 SEC. 932. PROCESS FOR EXPEDITED ACCESS TO REVIEW. 

15 (a) EXPEDITED ACCESS TO JUDICIAL REVIEW.—Sec16 tion 1869(b) (42 U.S.C. 1395ff(b)) as amended by BIPA, 

17 is amended—

18 (1) in paragraph (1)(A), by inserting ‘‘, subject 

19 to paragraph (2),’’ before ‘‘to judicial review of the 

20 Secretary’s final decision’’; 

21 (2) in paragraph (1)(F)—

22 (A) by striking clause (ii); 

23 (B) by striking ‘‘PROCEEDING’’ and all that 

24 follows through ‘‘DETERMINATION’’ and inserting 
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1 ‘‘DETERMINATIONS AND RECONSIDERATIONS’’; 

2 and 

3 (C) by redesignating subclauses (I) and (II) 

4 as clauses (i) and (ii) and by moving the inden5 tation of such subclauses (and the matter that 

6 follows) 2 ems to the left; and 

7 (3) by adding at the end the following new para8 graph: 

9 ‘‘(2) EXPEDITED ACCESS TO JUDICIAL RE10 VIEW.—

11 ‘‘(A) IN GENERAL.—The Secretary shall es12 tablish a process under which a provider of serv13 ices or supplier that furnishes an item or service 

14 or an individual entitled to benefits under part 

15 A or enrolled under part B, or both, who has 

16 filed an appeal under paragraph (1) may obtain 

17 access to judicial review when a review panel 

18 (described in subparagraph (D)), on its own mo19 tion or at the request of the appellant, deter20 mines that no entity in the administrative ap21 peals process has the authority to decide the 

22 question of law or regulation relevant to the mat23 ters in controversy and that there is no material 

24 issue of fact in dispute. The appellant may make 
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1 such request only once with respect to a question 

2 of law or regulation in a case of an appeal. 

3 ‘‘(B) PROMPT DETERMINATIONS.—If, after 

4 or coincident with appropriately filing a request 

5 for an administrative hearing, the appellant re6 quests a determination by the appropriate review 

7 panel that no review panel has the authority to 

8 decide the question of law or regulations relevant 

9 to the matters in controversy and that there is 

10 no material issue of fact in dispute and if such 

11 request is accompanied by the documents and 

12 materials as the appropriate review panel shall 

13 require for purposes of making such determina14 tion, such review panel shall make a determina15 tion on the request in writing within 60 days 

16 after the date such review panel receives the re17 quest and such accompanying documents and 

18 materials. Such a determination by such review 

19 panel shall be considered a final decision and 

20 not subject to review by the Secretary. 

21 ‘‘(C) ACCESS TO JUDICIAL REVIEW.—

22 ‘‘(i) IN GENERAL.—If the appropriate 

23 review panel—

24 ‘‘(I) determines that there are no 

25 material issues of fact in dispute and 
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1 that the only issue is one of law or reg2 ulation that no review panel has the 

3 authority to decide; or 

4 ‘‘(II) fails to make such deter5 mination within the period provided 

6 under subparagraph (B); 

7 then the appellant may bring a civil action 

8 as described in this subparagraph. 

9 ‘‘(ii) DEADLINE FOR FILING.—Such 

10 action shall be filed, in the case described 

11 in—

12 ‘‘(I) clause (i)(I), within 60 days 

13 of date of the determination described 

14 in such subparagraph; or 

15 ‘‘(II) clause (i)(II), within 60 

16 days of the end of the period provided 

17 under subparagraph (B) for the deter18 mination. 

19 ‘‘(iii) VENUE.—Such action shall be 

20 brought in the district court of the United 

21 States for the judicial district in which the 

22 appellant is located (or, in the case of an 

23 action brought jointly by more than one ap24 plicant, the judicial district in which the 

25 greatest number of applicants are located) 
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1 or in the district court for the District of 

2 Columbia. 

3 ‘‘(iv) INTEREST ON AMOUNTS IN CON4 TROVERSY.—Where a provider of services or 

5 supplier seeks judicial review pursuant to 

6 this paragraph, the amount in controversy 

7 shall be subject to annual interest beginning 

8 on the first day of the first month beginning 

9 after the 60-day period as determined pur10 suant to clause (ii) and equal to the rate of 

11 interest on obligations issued for purchase 

12 by the Federal Hospital Insurance Trust 

13 Fund and by the Federal Supplementary 

14 Medical Insurance Trust Fund for the 

15 month in which the civil action authorized 

16 under this paragraph is commenced, to be 

17 awarded by the reviewing court in favor of 

18 the prevailing party. No interest awarded 

19 pursuant to the preceding sentence shall be 

20 deemed income or cost for the purposes of 

21 determining reimbursement due providers of 

22 services or suppliers under this Act. 

23 ‘‘(D) REVIEW PANELS.—For purposes of 

24 this subsection, a ‘review panel’ is a panel con25 sisting of 3 members (who shall be administra-
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1 tive law judges, members of the Departmental 

2 Appeals Board, or qualified individuals associ3 ated with a qualified independent contractor (as 

4 defined in subsection (c)(2)) or with another 

5 independent entity) designated by the Secretary 

6 for purposes of making determinations under 

7 this paragraph.’’. 

8 (b) APPLICATION TO PROVIDER AGREEMENT DETER9 MINATIONS.—Section 1866(h)(1) (42 U.S.C. 1395cc(h)(1)) 

10 is amended—

11 (1) by inserting ‘‘(A)’’ after ‘‘(h)(1)’’; and 

12 (2) by adding at the end the following new sub13 paragraph: 

14 ‘‘(B) An institution or agency described in subpara15 graph (A) that has filed for a hearing under subparagraph 

16 (A) shall have expedited access to judicial review under this 

17 subparagraph in the same manner as providers of services, 

18 suppliers, and individuals entitled to benefits under part 

19 A or enrolled under part B, or both, may obtain expedited 

20 access to judicial review under the process established under 

21 section 1869(b)(2). Nothing in this subparagraph shall be 

22 construed to affect the application of any remedy imposed 

23 under section 1819 during the pendency of an appeal under 

24 this subparagraph.’’. 
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1 (c) EFFECTIVE DATE.—The amendments made by this 

2 section shall apply to appeals filed on or after October 1, 

3 2004. 

4 (d) EXPEDITED REVIEW OF CERTAIN PROVIDER

5 AGREEMENT DETERMINATIONS.—

6 (1) TERMINATION AND CERTAIN OTHER IMME7 DIATE REMEDIES.—The Secretary shall develop and 

8 implement a process to expedite proceedings under 

9 sections 1866(h) of the Social Security Act (42 U.S.C. 

10 1395cc(h)) in which the remedy of termination of 

11 participation, or a remedy described in clause (i) or 

12 (iii) of section 1819(h)(2)(B) of such Act (42 U.S.C. 

13 1395i–3(h)(2)(B)) which is applied on an immediate 

14 basis, has been imposed. Under such process priority 

15 shall be provided in cases of termination. 

16 (2) INCREASED FINANCIAL SUPPORT.—In addi17 tion to any amounts otherwise appropriated, to re18 duce by 50 percent the average time for administra19 tive determinations on appeals under section 1866(h) 

20 of the Social Security Act (42 U.S.C. 1395cc(h)), 

21 there are authorized to be appropriated (in appro22 priate part from the Federal Hospital Insurance 

23 Trust Fund and the Federal Supplementary Medical 

24 Insurance Trust Fund) to the Secretary such addi25 tional sums for fiscal year 2005 and each subsequent 
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1 fiscal year as may be necessary. The purposes for 

2 which such amounts are available include increasing 

3 the number of administrative law judges (and their 

4 staffs) and the appellate level staff at the Depart5 mental Appeals Board of the Department of Health 

6 and Human Services and educating such judges and 

7 staffs on long-term care issues. 

8 SEC. 933. REVISIONS TO MEDICARE APPEALS PROCESS. 

9 (a) REQUIRING FULL AND EARLY PRESENTATION OF

10 EVIDENCE.—

11 (1) IN GENERAL.—Section 1869(b) (42 U.S.C. 

12 1395ff(b)), as amended by BIPA and as amended by 

13 section 932(a), is further amended by adding at the 

14 end the following new paragraph: 

15 ‘‘(3) REQUIRING FULL AND EARLY PRESEN16 TATION OF EVIDENCE BY PROVIDERS.—A provider of 

17 services or supplier may not introduce evidence in 

18 any appeal under this section that was not presented 

19 at the reconsideration conducted by the qualified 

20 independent contractor under subsection (c), unless 

21 there is good cause which precluded the introduction 

22 of such evidence at or before that reconsideration.’’. 

23 (2) EFFECTIVE DATE.—The amendment made by 

24 paragraph (1) shall take effect on October 1, 2004. 
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1 (b) USE OF PATIENTS’ MEDICAL RECORDS.—Section 

2 1869(c)(3)(B)(i) (42 U.S.C. 1395ff(c)(3)(B)(i)), as amended 

3 by BIPA, is amended by inserting ‘‘(including the medical 

4 records of the individual involved)’’ after ‘‘clinical experi5 ence’’. 

6 (c) NOTICE REQUIREMENTS FOR MEDICARE AP7 PEALS.— 

8 (1) INITIAL DETERMINATIONS AND REDETER9 MINATIONS.—Section 1869(a) (42 U.S.C. 1395ff(a)), 

10 as amended by BIPA, is amended by adding at the 

11 end the following new paragraphs: 

12 ‘‘(4) REQUIREMENTS OF NOTICE OF DETERMINA13 TIONS.—With respect to an initial determination in14 sofar as it results in a denial of a claim for benefits—

15 ‘‘(A) the written notice on the determina16 tion shall include—

17 ‘‘(i) the reasons for the determination, 

18 including whether a local medical review 

19 policy or a local coverage determination 

20 was used; 

21 ‘‘(ii) the procedures for obtaining addi22 tional information concerning the deter23 mination, including the information de24 scribed in subparagraph (B); and 
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1 ‘‘(iii) notification of the right to seek a 

2 redetermination or otherwise appeal the de3 termination and instructions on how to ini4 tiate such a redetermination under this sec5 tion; and 

6 ‘‘(B) the person provided such notice may 

7 obtain, upon request, the specific provision of the 

8 policy, manual, or regulation used in making 

9 the determination. 

10 ‘‘(5) REQUIREMENTS OF NOTICE OF REDETER11 MINATIONS.—With respect to a redetermination inso12 far as it results in a denial of a claim for benefits—

13 ‘‘(A) the written notice on the redetermina14 tion shall include—

15 ‘‘(i) the specific reasons for the redeter16 mination; 

17 ‘‘(ii) as appropriate, a summary of the 

18 clinical or scientific evidence used in mak19 ing the redetermination; 

20 ‘‘(iii) a description of the procedures 

21 for obtaining additional information con22 cerning the redetermination; and 

23 ‘‘(iv) notification of the right to appeal 

24 the redetermination and instructions on 
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1 how to initiate such an appeal under this 

2 section; 

3 ‘‘(B) such written notice shall be provided 

4 in printed form and written in a manner cal5 culated to be understood by the individual enti6 tled to benefits under part A or enrolled under 

7 part B, or both; and 

8 ‘‘(C) the person provided such notice may 

9 obtain, upon request, information on the specific 

10 provision of the policy, manual, or regulation 

11 used in making the redetermination.’’. 

12 (2) RECONSIDERATIONS.—Section 1869(c)(3)(E) 

13 (42 U.S.C. 1395ff(c)(3)(E)), as amended by BIPA, is 

14 amended—

15 (A) by inserting ‘‘be written in a manner 

16 calculated to be understood by the individual en17 titled to benefits under part A or enrolled under 

18 part B, or both, and shall include (to the extent 

19 appropriate)’’ after ‘‘in writing, ’’; and 

20 (B) by inserting ‘‘and a notification of the 

21 right to appeal such determination and instruc22 tions on how to initiate such appeal under this 

23 section’’ after ‘‘such decision,’’. 

24 (3) APPEALS.—Section 1869(d) (42 U.S.C. 

25 1395ff(d)), as amended by BIPA, is amended—
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1 (A) in the heading, by inserting ‘‘; NOTICE’’ 

2 after ‘‘SECRETARY’’; and 

3 (B) by adding at the end the following new 

4 paragraph: 

5 ‘‘(4) NOTICE.—Notice of the decision of an ad6 ministrative law judge shall be in writing in a man7 ner calculated to be understood by the individual en8 titled to benefits under part A or enrolled under part 

9 B, or both, and shall include—

10 ‘‘(A) the specific reasons for the determina11 tion (including, to the extent appropriate, a 

12 summary of the clinical or scientific evidence 

13 used in making the determination); 

14 ‘‘(B) the procedures for obtaining addi15 tional information concerning the decision; and 

16 ‘‘(C) notification of the right to appeal the 

17 decision and instructions on how to initiate such 

18 an appeal under this section.’’. 

19 (4) SUBMISSION OF RECORD FOR APPEAL.—Sec20 tion 1869(c)(3)(J)(i) (42 U.S.C. 1395ff(c)(3)(J)(i)) by 

21 striking ‘‘prepare’’ and inserting ‘‘submit’’ and by 

22 striking ‘‘with respect to’’ and all that follows through 

23 ‘‘and relevant policies’’. 

24 (d) QUALIFIED INDEPENDENT CONTRACTORS.—
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1 (1) ELIGIBILITY REQUIREMENTS OF QUALIFIED

2 INDEPENDENT CONTRACTORS.—Section 1869(c)(3) (42 

3 U.S.C. 1395ff(c)(3)), as amended by BIPA, is amend4 ed—

5 (A) in subparagraph (A), by striking ‘‘suffi6 cient training and expertise in medical science 

7 and legal matters’’ and inserting ‘‘sufficient 

8 medical, legal, and other expertise (including 

9 knowledge of the program under this title) and 

10 sufficient staffing’’; and 

11 (B) by adding at the end the following new 

12 subparagraph: 

13 ‘‘(K) INDEPENDENCE REQUIREMENTS.—

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

15 (ii), a qualified independent contractor 

16 shall not conduct any activities in a case 

17 unless the entity—

18 ‘‘(I) is not a related party (as de19 fined in subsection (g)(5)); 

20 ‘‘(II) does not have a material fa21 milial, financial, or professional rela22 tionship with such a party in relation 

23 to such case; and 

24 ‘‘(III) does not otherwise have a 

25 conflict of interest with such a party. 
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1 ‘‘(ii) EXCEPTION FOR REASONABLE

2 COMPENSATION.—Nothing in clause (i) shall 

3 be construed to prohibit receipt by a quali4 fied independent contractor of compensation 

5 from the Secretary for the conduct of activi6 ties under this section if the compensation 

7 is provided consistent with clause (iii). 

8 ‘‘(iii) LIMITATIONS ON ENTITY COM9 PENSATION.—Compensation provided by the 

10 Secretary to a qualified independent con11 tractor in connection with reviews under 

12 this section shall not be contingent on any 

13 decision rendered by the contractor or by 

14 any reviewing professional.’’. 

15 (2) ELIGIBILITY REQUIREMENTS FOR REVIEW16 ERS.—Section 1869 (42 U.S.C. 1395ff), as amended 

17 by BIPA, is amended—

18 (A) by amending subsection (c)(3)(D) to 

19 read as follows: 

20 ‘‘(D) QUALIFICATIONS FOR REVIEWERS.—

21 The requirements of subsection (g) shall be met 

22 (relating to qualifications of reviewing profes23 sionals).’’; and 

24 (B) by adding at the end the following new 

25 subsection: 
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1 ‘‘(g) QUALIFICATIONS OF REVIEWERS.—

2 ‘‘(1) IN GENERAL.—In reviewing determinations 

3 under this section, a qualified independent contractor 

4 shall assure that—

5 ‘‘(A) each individual conducting a review 

6 shall meet the qualifications of paragraph (2); 

7 ‘‘(B) compensation provided by the con8 tractor to each such reviewer is consistent with 

9 paragraph (3); and 

10 ‘‘(C) in the case of a review by a panel de11 scribed in subsection (c)(3)(B) composed of phy12 sicians or other health care professionals (each in 

13 this subsection referred to as a ‘reviewing profes14 sional’), a reviewing professional meets the 

15 qualifications described in paragraph (4) and, 

16 where a claim is regarding the furnishing of 

17 treatment by a physician (allopathic or osteo18 pathic) or the provision of items or services by 

19 a physician (allopathic or osteopathic), each re20 viewing professional shall be a physician 

21 (allopathic or osteopathic). 

22 ‘‘(2) INDEPENDENCE.—

23 ‘‘(A) IN GENERAL.—Subject to subpara24 graph (B), each individual conducting a review 

25 in a case shall—
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1 ‘‘(i) not be a related party (as defined 

2 in paragraph (5)); 

3 ‘‘(ii) not have a material familial, fi4 nancial, or professional relationship with 

5 such a party in the case under review; and 

6 ‘‘(iii) not otherwise have a conflict of 

7 interest with such a party. 

8 ‘‘(B) EXCEPTION.—Nothing in subpara9 graph (A) shall be construed to—

10 ‘‘(i) prohibit an individual, solely on 

11 the basis of a participation agreement with 

12 a fiscal intermediary, carrier, or other con13 tractor, from serving as a reviewing profes14 sional if—

15 ‘‘(I) the individual is not involved 

16 in the provision of items or services in 

17 the case under review; 

18 ‘‘(II) the fact of such an agree19 ment is disclosed to the Secretary and 

20 the individual entitled to benefits 

21 under part A or enrolled under part B, 

22 or both, (or authorized representative) 

23 and neither party objects; and 

24 ‘‘(III) the individual is not an 

25 employee of the intermediary, carrier, 
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1 or contractor and does not provide 

2 services exclusively or primarily to or 

3 on behalf of such intermediary, carrier, 

4 or contractor; 

5 ‘‘(ii) prohibit an individual who has 

6 staff privileges at the institution where the 

7 treatment involved takes place from serving 

8 as a reviewer merely on the basis of having 

9 such staff privileges if the existence of such 

10 privileges is disclosed to the Secretary and 

11 such individual (or authorized representa12 tive), and neither party objects; or 

13 ‘‘(iii) prohibit receipt of compensation 

14 by a reviewing professional from a con15 tractor if the compensation is provided con16 sistent with paragraph (3). 

17 For purposes of this paragraph, the term ‘par18 ticipation agreement’ means an agreement relat19 ing to the provision of health care services by the 

20 individual and does not include the provision of 

21 services as a reviewer under this subsection. 

22 ‘‘(3) LIMITATIONS ON REVIEWER COMPENSA23 TION.—Compensation provided by a qualified inde24 pendent contractor to a reviewer in connection with 
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1 a review under this section shall not be contingent on 

2 the decision rendered by the reviewer. 

3 ‘‘(4) LICENSURE AND EXPERTISE.—Each review4 ing professional shall be—

5 ‘‘(A) a physician (allopathic or osteopathic) 

6 who is appropriately credentialed or licensed in 

7 one or more States to deliver health care services 

8 and has medical expertise in the field of practice 

9 that is appropriate for the items or services at 

10 issue; or 

11 ‘‘(B) a health care professional who is le12 gally authorized in one or more States (in ac13 cordance with State law or the State regulatory 

14 mechanism provided by State law) to furnish the 

15 health care items or services at issue and has 

16 medical expertise in the field of practice that is 

17 appropriate for such items or services. 

18 ‘‘(5) RELATED PARTY DEFINED.—For purposes 

19 of this section, the term ‘related party’ means, with 

20 respect to a case under this title involving a specific 

21 individual entitled to benefits under part A or en22 rolled under part B, or both, any of the following: 

23 ‘‘(A) The Secretary, the medicare adminis24 trative contractor involved, or any fiduciary, of25 ficer, director, or employee of the Department of 
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1 Health and Human Services, or of such con2 tractor. 

3 ‘‘(B) The individual (or authorized rep4 resentative). 

5 ‘‘(C) The health care professional that pro6 vides the items or services involved in the case. 

7 ‘‘(D) The institution at which the items or 

8 services (or treatment) involved in the case are 

9 provided. 

10 ‘‘(E) The manufacturer of any drug or 

11 other item that is included in the items or serv12 ices involved in the case. 

13 ‘‘(F) Any other party determined under any 

14 regulations to have a substantial interest in the 

15 case involved.’’. 

16 (3) REDUCING MINIMUM NUMBER OF QUALIFIED

17 INDEPENDENT CONTRACTORS.—Section 1869(c)(4) (42 

18 U.S.C. 1395ff(c)(4)) is amended by striking ‘‘not 

19 fewer than 12 qualified independent contractors under 

20 this subsection’’ and inserting ‘‘with a sufficient num21 ber of qualified independent contractors (but not 

22 fewer than 4 such contractors) to conduct reconsider23 ations consistent with the timeframes applicable 

24 under this subsection’’. 
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1 (4) EFFECTIVE DATE.—The amendments made 

2 by paragraphs (1) and (2) shall be effective as if in3 cluded in the enactment of the respective provisions of 

4 subtitle C of title V of BIPA, (114 Stat. 2763A–534). 

5 (5) TRANSITION.—In applying section 1869(g) of 

6 the Social Security Act (as added by paragraph (2)), 

7 any reference to a medicare administrative contractor 

8 shall be deemed to include a reference to a fiscal 

9 intermediary under section 1816 of the Social Secu10 rity Act (42 U.S.C. 1395h) and a carrier under sec11 tion 1842 of such Act (42 U.S.C. 1395u). 

12 SEC. 934. PREPAYMENT REVIEW. 

13 (a) IN GENERAL.—Section 1874A, as added by section 

14 911(a)(1) and as amended by sections 912(b), 921(b)(1), 

15 and 921(c)(1), is further amended by adding at the end the 

16 following new subsection: 

17 ‘‘(h) CONDUCT OF PREPAYMENT REVIEW.—

18 ‘‘(1) CONDUCT OF RANDOM PREPAYMENT RE19 VIEW.—

20 ‘‘(A) IN GENERAL.—A medicare adminis21 trative contractor may conduct random prepay22 ment review only to develop a contractor-wide or 

23 program-wide claims payment error rates or 

24 under such additional circumstances as may be 

25 provided under regulations, developed in con-
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1 sultation with providers of services and sup2 pliers. 

3 ‘‘(B) USE OF STANDARD PROTOCOLS WHEN

4 CONDUCTING PREPAYMENT REVIEWS.—When a 

5 medicare administrative contractor conducts a 

6 random prepayment review, the contractor may 

7 conduct such review only in accordance with a 

8 standard protocol for random prepayment audits 

9 developed by the Secretary. 

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

11 paragraph shall be construed as preventing the 

12 denial of payments for claims actually reviewed 

13 under a random prepayment review. 

14 ‘‘(D) RANDOM PREPAYMENT REVIEW.—For 

15 purposes of this subsection, the term ‘random 

16 prepayment review’ means a demand for the 

17 production of records or documentation absent 

18 cause with respect to a claim. 

19 ‘‘(2) LIMITATIONS ON NON-RANDOM PREPAYMENT

20 REVIEW.—

21 ‘‘(A) LIMITATIONS ON INITIATION OF NON22 RANDOM PREPAYMENT REVIEW.—A medicare ad23 ministrative contractor may not initiate non24 random prepayment review of a provider of serv25 ices or supplier based on the initial identifica-
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1 tion by that provider of services or supplier of 

2 an improper billing practice unless there is a 

3 likelihood of sustained or high level of payment 

4 error (as defined in subsection (i)(3)(A)). 

5 ‘‘(B) TERMINATION OF NON-RANDOM PRE6 PAYMENT REVIEW.—The Secretary shall issue 

7 regulations relating to the termination, includ8 ing termination dates, of non-random prepay9 ment review. Such regulations may vary such a 

10 termination date based upon the differences in 

11 the circumstances triggering prepayment re12 view.’’. 

13 (b) EFFECTIVE DATE.—

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

15 subsection, the amendment made by subsection (a) 

16 shall take effect 1 year after the date of the enactment 

17 of this Act. 

18 (2) DEADLINE FOR PROMULGATION OF CERTAIN

19 REGULATIONS.—The Secretary shall first issue regula20 tions under section 1874A(h) of the Social Security 

21 Act, as added by subsection (a), by not later than 1 

22 year after the date of the enactment of this Act. 

23 (3) APPLICATION OF STANDARD PROTOCOLS FOR

24 RANDOM PREPAYMENT REVIEW.—Section 

25 1874A(h)(1)(B) of the Social Security Act, as added 
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1 by subsection (a), shall apply to random prepayment 

2 reviews conducted on or after such date (not later 

3 than 1 year after the date of the enactment of this 

4 Act) as the Secretary shall specify. 

5 (c) APPLICATION TO FISCAL INTERMEDIARIES AND

6 CARRIERS.—The provisions of section 1874A(h) of the So7 cial Security Act, as added by subsection (a), shall apply 

8 to each fiscal intermediary under section 1816 of the Social 

9 Security Act (42 U.S.C. 1395h) and each carrier under sec10 tion 1842 of such Act (42 U.S.C. 1395u) in the same man11 ner as they apply to medicare administrative contractors 

12 under such provisions. 

13 SEC. 935. RECOVERY OF OVERPAYMENTS. 

14 (a) IN GENERAL.—Section 1893 (42 U.S.C. 1395ddd) 

15 is amended by adding at the end the following new sub16 section: 

17 ‘‘(f) RECOVERY OF OVERPAYMENTS.—

18 ‘‘(1) USE OF REPAYMENT PLANS.—

19 ‘‘(A) IN GENERAL.—If the repayment, with20 in 30 days by a provider of services or supplier, 

21 of an overpayment under this title would con22 stitute a hardship (as defined in subparagraph 

23 (B)), subject to subparagraph (C), upon request 

24 of the provider of services or supplier the Sec25 retary shall enter into a plan with the provider 
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1 of services or supplier for the repayment 

2 (through offset or otherwise) of such overpayment 

3 over a period of at least 6 months but not longer 

4 than 3 years (or not longer than 5 years in the 

5 case of extreme hardship, as determined by the 

6 Secretary). Interest shall accrue on the balance 

7 through the period of repayment. Such plan shall 

8 meet terms and conditions determined to be ap9 propriate by the Secretary. 

10 ‘‘(B) HARDSHIP.—

11 ‘‘(i) IN GENERAL.—For purposes of 

12 subparagraph (A), the repayment of an 

13 overpayment (or overpayments) within 30 

14 days is deemed to constitute a hardship if—

15 ‘‘(I) in the case of a provider of 

16 services that files cost reports, the ag17 gregate amount of the overpayments 

18 exceeds 10 percent of the amount paid 

19 under this title to the provider of serv20 ices for the cost reporting period cov21 ered by the most recently submitted 

22 cost report; or 

23 ‘‘(II) in the case of another pro24 vider of services or supplier, the aggre25 gate amount of the overpayments ex-
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1 ceeds 10 percent of the amount paid 

2 under this title to the provider of serv3 ices or supplier for the previous cal4 endar year. 

5 ‘‘(ii) RULE OF APPLICATION.—The 

6 Secretary shall establish rules for the appli7 cation of this subparagraph in the case of a 

8 provider of services or supplier that was not 

9 paid under this title during the previous 

10 year or was paid under this title only dur11 ing a portion of that year. 

12 ‘‘(iii) TREATMENT OF PREVIOUS OVER13 PAYMENTS.—If a provider of services or 

14 supplier has entered into a repayment plan 

15 under subparagraph (A) with respect to a 

16 specific overpayment amount, such payment 

17 amount under the repayment plan shall not 

18 be taken into account under clause (i) with 

19 respect to subsequent overpayment amounts. 

20 ‘‘(C) EXCEPTIONS.—Subparagraph (A) 

21 shall not apply if—

22 ‘‘(i) the Secretary has reason to suspect 

23 that the provider of services or supplier 

24 may file for bankruptcy or otherwise cease 
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1 to do business or discontinue participation 

2 in the program under this title; or 

3 ‘‘(ii) there is an indication of fraud or 

4 abuse committed against the program. 

5 ‘‘(D) IMMEDIATE COLLECTION IF VIOLATION

6 OF REPAYMENT PLAN.—If a provider of services 

7 or supplier fails to make a payment in accord8 ance with a repayment plan under this para9 graph, the Secretary may immediately seek to 

10 offset or otherwise recover the total balance out11 standing (including applicable interest) under 

12 the repayment plan. 

13 ‘‘(E) RELATION TO NO FAULT PROVISION.—

14 Nothing in this paragraph shall be construed as 

15 affecting the application of section 1870(c) (re16 lating to no adjustment in the cases of certain 

17 overpayments). 

18 ‘‘(2) LIMITATION ON RECOUPMENT.—

19 ‘‘(A) IN GENERAL.—In the case of a pro20 vider of services or supplier that is determined to 

21 have received an overpayment under this title 

22 and that seeks a reconsideration by a qualified 

23 independent contractor on such determination 

24 under section 1869(b)(1), the Secretary may not 

25 take any action (or authorize any other person, 
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1 including any medicare contractor, as defined in 

2 subparagraph (C)) to recoup the overpayment 

3 until the date the decision on the reconsideration 

4 has been rendered. If the provisions of section 

5 1869(b)(1) (providing for such a reconsideration 

6 by a qualified independent contractor) are not in 

7 effect, in applying the previous sentence any ref8 erence to such a reconsideration shall be treated 

9 as a reference to a redetermination by the fiscal 

10 intermediary or carrier involved. 

11 ‘‘(B) COLLECTION WITH INTEREST.—Inso12 far as the determination on such appeal is 

13 against the provider of services or supplier, in14 terest on the overpayment shall accrue on and 

15 after the date of the original notice of overpay16 ment. Insofar as such determination against the 

17 provider of services or supplier is later reversed, 

18 the Secretary shall provide for repayment of the 

19 amount recouped plus interest at the same rate 

20 as would apply under the previous sentence for 

21 the period in which the amount was recouped. 

22 ‘‘(C) MEDICARE CONTRACTOR DEFINED.—

23 For purposes of this subsection, the term ‘medi24 care contractor’ has the meaning given such term 

25 in section 1889(g). 
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1 ‘‘(3) LIMITATION ON USE OF EXTRAPOLATION.—

2 A medicare contractor may not use extrapolation to 

3 determine overpayment amounts to be recovered by 

4 recoupment, offset, or otherwise unless—

5 ‘‘(A) there is a sustained or high level of 

6 payment error (as defined by the Secretary by 

7 regulation); or 

8 ‘‘(B) documented educational intervention 

9 has failed to correct the payment error (as deter10 mined by the Secretary). 

11 ‘‘(4) PROVISION OF SUPPORTING DOCUMENTA12 TION.—In the case of a provider of services or sup13 plier with respect to which amounts were previously 

14 overpaid, a medicare contractor may request the peri15 odic production of records or supporting documenta16 tion for a limited sample of submitted claims to en17 sure that the previous practice is not continuing. 

18 ‘‘(5) CONSENT SETTLEMENT REFORMS.—

19 ‘‘(A) IN GENERAL.—The Secretary may use 

20 a consent settlement (as defined in subparagraph 

21 (D)) to settle a projected overpayment. 

22 ‘‘(B) OPPORTUNITY TO SUBMIT ADDITIONAL

23 INFORMATION BEFORE CONSENT SETTLEMENT

24 OFFER.—Before offering a provider of services or 
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1 supplier a consent settlement, the Secretary 

2 shall—

3 ‘‘(i) communicate to the provider of 

4 services or supplier—

5 ‘‘(I) that, based on a review of the 

6 medical records requested by the Sec7 retary, a preliminary evaluation of 

8 those records indicates that there would 

9 be an overpayment; 

10 ‘‘(II) the nature of the problems 

11 identified in such evaluation; and 

12 ‘‘(III) the steps that the provider 

13 of services or supplier should take to 

14 address the problems; and 

15 ‘‘(ii) provide for a 45-day period dur16 ing which the provider of services or sup17 plier may furnish additional information 

18 concerning the medical records for the 

19 claims that had been reviewed. 

20 ‘‘(C) CONSENT SETTLEMENT OFFER.—The 

21 Secretary shall review any additional informa22 tion furnished by the provider of services or sup23 plier under subparagraph (B)(ii). Taking into 

24 consideration such information, the Secretary 
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1 shall determine if there still appears to be an 

2 overpayment. If so, the Secretary—

3 ‘‘(i) shall provide notice of such deter4 mination to the provider of services or sup5 plier, including an explanation of the rea6 son for such determination; and 

7 ‘‘(ii) in order to resolve the overpay8 ment, may offer the provider of services or 

9 supplier—

10 ‘‘(I) the opportunity for a statis11 tically valid random sample; or 

12 ‘‘(II) a consent settlement. 

13 The opportunity provided under clause (ii)(I) 

14 does not waive any appeal rights with respect to 

15 the alleged overpayment involved. 

16 ‘‘(D) CONSENT SETTLEMENT DEFINED.—

17 For purposes of this paragraph, the term ‘con18 sent settlement’ means an agreement between the 

19 Secretary and a provider of services or supplier 

20 whereby both parties agree to settle a projected 

21 overpayment based on less than a statistically 

22 valid sample of claims and the provider of serv23 ices or supplier agrees not to appeal the claims 

24 involved. 
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1 ‘‘(6) NOTICE OF OVER-UTILIZATION OF CODES.—

2 The Secretary shall establish, in consultation with or3 ganizations representing the classes of providers of 

4 services and suppliers, a process under which the Sec5 retary provides for notice to classes of providers of 

6 services and suppliers served by the contractor in 

7 cases in which the contractor has identified that par8 ticular billing codes may be overutilized by that class 

9 of providers of services or suppliers under the pro10 grams under this title (or provisions of title XI inso11 far as they relate to such programs). 

12 ‘‘(7) PAYMENT AUDITS.—

13 ‘‘(A) WRITTEN NOTICE FOR POST-PAYMENT

14 AUDITS.—Subject to subparagraph (C), if a 

15 medicare contractor decides to conduct a post16 payment audit of a provider of services or sup17 plier under this title, the contractor shall provide 

18 the provider of services or supplier with written 

19 notice (which may be in electronic form) of the 

20 intent to conduct such an audit. 

21 ‘‘(B) EXPLANATION OF FINDINGS FOR ALL

22 AUDITS.—Subject to subparagraph (C), if a 

23 medicare contractor audits a provider of services 

24 or supplier under this title, the contractor 

25 shall—
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1 ‘‘(i) give the provider of services or 

2 supplier a full review and explanation of 

3 the findings of the audit in a manner that 

4 is understandable to the provider of services 

5 or supplier and permits the development of 

6 an appropriate corrective action plan; 

7 ‘‘(ii) inform the provider of services or 

8 supplier of the appeal rights under this title 

9 as well as consent settlement options (which 

10 are at the discretion of the Secretary); 

11 ‘‘(iii) give the provider of services or 

12 supplier an opportunity to provide addi13 tional information to the contractor; and 

14 ‘‘(iv) take into account information 

15 provided, on a timely basis, by the provider 

16 of services or supplier under clause (iii). 

17 ‘‘(C) EXCEPTION.—Subparagraphs (A) and 

18 (B) shall not apply if the provision of notice or 

19 findings would compromise pending law enforce20 ment activities, whether civil or criminal, or re21 veal findings of law enforcement-related audits. 

22 ‘‘(8) STANDARD METHODOLOGY FOR PROBE SAM23 PLING.—The Secretary shall establish a standard 

24 methodology for medicare contractors to use in select-
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1 ing a sample of claims for review in the case of an 

2 abnormal billing pattern.’’. 

3 (b) EFFECTIVE DATES AND DEADLINES.—

4 (1) USE OF REPAYMENT PLANS.—Section 

5 1893(f)(1) of the Social Security Act, as added by 

6 subsection (a), shall apply to requests for repayment 

7 plans made after the date of the enactment of this Act. 

8 (2) LIMITATION ON RECOUPMENT.—Section 

9 1893(f)(2) of the Social Security Act, as added by 

10 subsection (a), shall apply to actions taken after the 

11 date of the enactment of this Act. 

12 (3) USE OF EXTRAPOLATION.—Section 

13 1893(f)(3) of the Social Security Act, as added by 

14 subsection (a), shall apply to statistically valid ran15 dom samples initiated after the date that is 1 year 

16 after the date of the enactment of this Act. 

17 (4) PROVISION OF SUPPORTING DOCUMENTA18 TION.—Section 1893(f)(4) of the Social Security Act, 

19 as added by subsection (a), shall take effect on the 

20 date of the enactment of this Act. 

21 (5) CONSENT SETTLEMENT.—Section 1893(f)(5) 

22 of the Social Security Act, as added by subsection (a), 

23 shall apply to consent settlements entered into after 

24 the date of the enactment of this Act. 
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1 (6) NOTICE OF OVERUTILIZATION.—Not later 

2 than 1 year after the date of the enactment of this 

3 Act, the Secretary shall first establish the process for 

4 notice of overutilization of billing codes under section 

5 1893A(f)(6) of the Social Security Act, as added by 

6 subsection (a). 

7 (7) PAYMENT AUDITS.—Section 1893A(f)(7) of 

8 the Social Security Act, as added by subsection (a), 

9 shall apply to audits initiated after the date of the 

10 enactment of this Act. 

11 (8) STANDARD FOR ABNORMAL BILLING PAT12 TERNS.—Not later than 1 year after the date of the 

13 enactment of this Act, the Secretary shall first estab14 lish a standard methodology for selection of sample 

15 claims for abnormal billing patterns under section 

16 1893(f)(8) of the Social Security Act, as added by 

17 subsection (a). 

18 SEC. 936. PROVIDER ENROLLMENT PROCESS; RIGHT OF AP19 PEAL. 

20 (a) IN GENERAL.—Section 1866 (42 U.S.C. 1395cc) 

21 is amended—

22 (1) by adding at the end of the heading the fol23 lowing: ‘‘; ENROLLMENT PROCESSES’’; and 

24 (2) by adding at the end the following new sub25 section: 
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1 ‘‘(j) ENROLLMENT PROCESS FOR PROVIDERS OF SERV2 ICES AND SUPPLIERS.—

3 ‘‘(1) ENROLLMENT PROCESS.—

4 ‘‘(A) IN GENERAL.—The Secretary shall es5 tablish by regulation a process for the enrollment 

6 of providers of services and suppliers under this 

7 title. 

8 ‘‘(B) DEADLINES.—The Secretary shall es9 tablish by regulation procedures under which 

10 there are deadlines for actions on applications 

11 for enrollment (and, if applicable, renewal of en12 rollment). The Secretary shall monitor the per13 formance of medicare administrative contractors 

14 in meeting the deadlines established under this 

15 subparagraph. 

16 ‘‘(C) CONSULTATION BEFORE CHANGING

17 PROVIDER ENROLLMENT FORMS.—The Secretary 

18 shall consult with providers of services and sup19 pliers before making changes in the provider en20 rollment forms required of such providers and 

21 suppliers to be eligible to submit claims for 

22 which payment may be made under this title. 

23 ‘‘(2) HEARING RIGHTS IN CASES OF DENIAL OR

24 NON-RENEWAL.—A provider of services or supplier 

25 whose application to enroll (or, if applicable, to renew 
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1 enrollment) under this title is denied may have a 

2 hearing and judicial review of such denial under the 

3 procedures that apply under subsection (h)(1)(A) to a 

4 provider of services that is dissatisfied with a deter5 mination by the Secretary.’’. 

6 (b) EFFECTIVE DATES.—

7 (1) ENROLLMENT PROCESS.—The Secretary shall 

8 provide for the establishment of the enrollment process 

9 under section 1866(j)(1) of the Social Security Act, as 

10 added by subsection (a)(2), within 6 months after the 

11 date of the enactment of this Act. 

12 (2) CONSULTATION.—Section 1866(j)(1)(C) of 

13 the Social Security Act, as added by subsection 

14 (a)(2), shall apply with respect to changes in provider 

15 enrollment forms made on or after January 1, 2004. 

16 (3) HEARING RIGHTS.—Section 1866(j)(2) of the 

17 Social Security Act, as added by subsection (a)(2), 

18 shall apply to denials occurring on or after such date 

19 (not later than 1 year after the date of the enactment 

20 of this Act) as the Secretary specifies. 

21 SEC. 937. PROCESS FOR CORRECTION OF MINOR ERRORS 

22 AND OMISSIONS WITHOUT PURSUING AP23 PEALS PROCESS. 

24 (a) CLAIMS.—The Secretary shall develop, in consulta25 tion with appropriate medicare contractors (as defined in 
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1 section 1889(g) of the Social Security Act, as inserted by 

2 section 301(a)(1)) and representatives of providers of serv3 ices and suppliers, a process whereby, in the case of minor 

4 errors or omissions (as defined by the Secretary) that are 

5 detected in the submission of claims under the programs 

6 under title XVIII of such Act, a provider of services or sup7 plier is given an opportunity to correct such an error or 

8 omission without the need to initiate an appeal. Such proc9 ess shall include the ability to resubmit corrected claims. 

10 (b) PERMITTING USE OF CORRECTED AND SUPPLE11 MENTARY DATA.—

12 (1) IN GENERAL.—Section 1886(d)(10)(D)(vi) 

13 (42 U.S.C. 1395ww(d)(10)(D)(vi)) is amended by 

14 adding after subclause (II) at the end the following: 

15 ‘‘Notwithstanding subclause (I), a hospital may submit, 

16 and the Secretary may accept upon verification, data that 

17 corrects or supplements the data described in such subclause 

18 without regard to whether the corrected or supplementary 

19 data relate to a cost report that has been settled.’’. 

20 (2) EFFECTIVE DATE.—The amendment made by 

21 paragraph (1) shall apply to fiscal years beginning 

22 with fiscal year 2004. 

23 (3) SUBMITTAL AND RESUBMITTAL OF APPLICA24 TIONS PERMITTED FOR FISCAL YEAR 2004.—
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1 (A) IN GENERAL.—Notwithstanding any 

2 other provision of law, a hospital may submit 

3 (or resubmit) an application for a change de4 scribed in section 1886(d)(10)(C)(i)(II) of the 

5 Social Security Act for fiscal year 2004 if the 

6 hospital demonstrates on a timely basis to the 

7 satisfaction of the Secretary that the use of cor8 rected or supplementary data under the amend9 ment made by paragraph (1) would materially 

10 affect the approval of such an application. 

11 (B) APPLICATION OF BUDGET NEU12 TRALITY.—If one or more hospital’s applications 

13 are approved as a result of paragraph (1) and 

14 subparagraph (A) for fiscal year 2004, the Sec15 retary shall make a proportional adjustment in 

16 the standardized amounts determined under sec17 tion 1886(d)(3) of the Social Security Act (42 

18 U.S.C. 1395ww(d)(3)) for fiscal year 2004 to as19 sure that approval of such applications does not 

20 result in aggregate payments under section 

21 1886(d) of such Act that are greater or less than 

22 those that would otherwise be made if paragraph 

23 (1) and subparagraph (A) did not apply. 
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1 SEC. 938. PRIOR DETERMINATION PROCESS FOR CERTAIN 

2 ITEMS AND SERVICES; ADVANCE BENE3 FICIARY NOTICES. 

4 (a) IN GENERAL.—Section 1869 (42 U.S.C. 1395ff(b)), 

5 as amended by sections 521 and 522 of BIPA and section 

6 933(d)(2)(B), is further amended by adding at the end the 

7 following new subsection: 

8 ‘‘(h) PRIOR DETERMINATION PROCESS FOR CERTAIN

9 ITEMS AND SERVICES.—

10 ‘‘(1) ESTABLISHMENT OF PROCESS.—

11 ‘‘(A) IN GENERAL.—With respect to a medi12 care administrative contractor that has a con13 tract under section 1874A that provides for mak14 ing payments under this title with respect to eli15 gible items and services described in subpara16 graph (C), the Secretary shall establish a prior 

17 determination process that meets the require18 ments of this subsection and that shall be applied 

19 by such contractor in the case of eligible request20 ers. 

21 ‘‘(B) ELIGIBLE REQUESTER.—For purposes 

22 of this subsection, each of the following shall be 

23 an eligible requester: 

24 ‘‘(i) A physician, but only with respect 

25 to eligible items and services for which the 

26 physician may be paid directly. 
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1 ‘‘(ii) An individual entitled to benefits 

2 under this title, but only with respect to an 

3 item or service for which the individual re4 ceives, from the physician who may be paid 

5 directly for the item or service, an advance 

6 beneficiary notice under section 1879(a) 

7 that payment may not be made (or may no 

8 longer be made) for the item or service 

9 under this title. 

10 ‘‘(C) ELIGIBLE ITEMS AND SERVICES.—For 

11 purposes of this subsection and subject to para12 graph (2), eligible items and services are items 

13 and services which are physicians’ services (as 

14 defined in paragraph (4)(A) of section 1848(f) 

15 for purposes of calculating the sustainable 

16 growth rate under such section). 

17 ‘‘(2) SECRETARIAL FLEXIBILITY.—The Secretary 

18 shall establish by regulation reasonable limits on the 

19 categories of eligible items and services for which a 

20 prior determination of coverage may be requested 

21 under this subsection. In establishing such limits, the 

22 Secretary may consider the dollar amount involved 

23 with respect to the item or service, administrative 

24 costs and burdens, and other relevant factors. 

25 ‘‘(3) REQUEST FOR PRIOR DETERMINATION.—
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1 ‘‘(A) IN GENERAL.—Subject to paragraph 

2 (2), under the process established under this sub3 section an eligible requester may submit to the 

4 contractor a request for a determination, before 

5 the furnishing of an eligible item or service in6 volved as to whether the item or service is cov7 ered under this title consistent with the applica8 ble requirements of section 1862(a)(1)(A) (relat9 ing to medical necessity). 

10 ‘‘(B) ACCOMPANYING DOCUMENTATION.—

11 The Secretary may require that the request be 

12 accompanied by a description of the item or 

13 service, supporting documentation relating to the 

14 medical necessity for the item or service, and 

15 any other appropriate documentation. In the 

16 case of a request submitted by an eligible re17 quester who is described in paragraph (1)(B)(ii), 

18 the Secretary may require that the request also 

19 be accompanied by a copy of the advance bene20 ficiary notice involved. 

21 ‘‘(4) RESPONSE TO REQUEST.—

22 ‘‘(A) IN GENERAL.—Under such process, the 

23 contractor shall provide the eligible requester 

24 with written notice of a determination as to 

25 whether—
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1 ‘‘(i) the item or service is so covered; 

2 ‘‘(ii) the item or service is not so cov3 ered; or 

4 ‘‘(iii) the contractor lacks sufficient in5 formation to make a coverage determina6 tion. 

7 If the contractor makes the determination de8 scribed in clause (iii), the contractor shall in9 clude in the notice a description of the addi10 tional information required to make the coverage 

11 determination. 

12 ‘‘(B) DEADLINE TO RESPOND.—Such notice 

13 shall be provided within the same time period as 

14 the time period applicable to the contractor pro15 viding notice of initial determinations on a 

16 claim for benefits under subsection (a)(2)(A). 

17 ‘‘(C) INFORMING BENEFICIARY IN CASE OF

18 PHYSICIAN REQUEST.—In the case of a request 

19 in which an eligible requester is not the indi20 vidual described in paragraph (1)(B)(ii), the 

21 process shall provide that the individual to 

22 whom the item or service is proposed to be fur23 nished shall be informed of any determination 

24 described in clause (ii) (relating to a determina25 tion of non-coverage) and the right (referred to 
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1 in paragraph (6)(B)) to obtain the item or serv2 ice and have a claim submitted for the item or 

3 service. 

4 ‘‘(5) EFFECT OF DETERMINATIONS.—

5 ‘‘(A) BINDING NATURE OF POSITIVE DETER6 MINATION.—If the contractor makes the deter7 mination described in paragraph (4)(A)(i), such 

8 determination shall be binding on the contractor 

9 in the absence of fraud or evidence of misrepre10 sentation of facts presented to the contractor. 

11 ‘‘(B) NOTICE AND RIGHT TO REDETERMINA12 TION IN CASE OF A DENIAL.—

13 ‘‘(i) IN GENERAL.—If the contractor 

14 makes the determination described in para15 graph (4)(A)(ii)—

16 ‘‘(I) the eligible requester has the 

17 right to a redetermination by the con18 tractor on the determination that the 

19 item or service is not so covered; and 

20 ‘‘(II) the contractor shall include 

21 in notice under paragraph (4)(A) a 

22 brief explanation of the basis for the 

23 determination, including on what na24 tional or local coverage or noncoverage 

25 determination (if any) the determina-
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1 tion is based, and the right to such a 

2 redetermination. 

3 ‘‘(ii) DEADLINE FOR REDETERMINA4 TIONS.—The contractor shall complete and 

5 provide notice of such redetermination with6 in the same time period as the time period 

7 applicable to the contractor providing notice 

8 of redeterminations relating to a claim for 

9 benefits under subsection (a)(3)(C)(ii). 

10 ‘‘(6) LIMITATION ON FURTHER REVIEW.—

11 ‘‘(A) IN GENERAL.—Contractor determina12 tions described in paragraph (4)(A)(ii) or 

13 (4)(A)(iii) (and redeterminations made under 

14 paragraph (5)(B)), relating to pre-service claims 

15 are not subject to further administrative appeal 

16 or judicial review under this section or other17 wise. 

18 ‘‘(B) DECISION NOT TO SEEK PRIOR DETER19 MINATION OR NEGATIVE DETERMINATION DOES

20 NOT IMPACT RIGHT TO OBTAIN SERVICES, SEEK

21 REIMBURSEMENT, OR APPEAL RIGHTS.—Nothing 

22 in this subsection shall be construed as affecting 

23 the right of an individual who—
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1 ‘‘(i) decides not to seek a prior deter2 mination under this subsection with respect 

3 to items or services; or 

4 ‘‘(ii) seeks such a determination and 

5 has received a determination described in 

6 paragraph (4)(A)(ii), 

7 from receiving (and submitting a claim for) such 

8 items services and from obtaining administrative 

9 or judicial review respecting such claim under 

10 the other applicable provisions of this section. 

11 Failure to seek a prior determination under this 

12 subsection with respect to items and services 

13 shall not be taken into account in such adminis14 trative or judicial review. 

15 ‘‘(C) NO PRIOR DETERMINATION AFTER RE16 CEIPT OF SERVICES.—Once an individual is pro17 vided items and services, there shall be no prior 

18 determination under this subsection with respect 

19 to such items or services.’’. 

20 (b) EFFECTIVE DATE; TRANSITION.—

21 (1) EFFECTIVE DATE.—The Secretary shall es22 tablish the prior determination process under the 

23 amendment made by subsection (a) in such a manner 

24 as to provide for the acceptance of requests for deter-
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1 minations under such process filed not later than 18 

2 months after the date of the enactment of this Act. 

3 (2) TRANSITION.—During the period in which 

4 the amendment made by subsection (a) has become ef5 fective but contracts are not provided under section 

6 1874A of the Social Security Act with medicare ad7 ministrative contractors, any reference in section 

8 1869(g) of such Act (as added by such amendment) to 

9 such a contractor is deemed a reference to a fiscal 

10 intermediary or carrier with an agreement under sec11 tion 1816, or contract under section 1842, respec12 tively, of such Act. 

13 (3) LIMITATION ON APPLICATION TO SGR.—For 

14 purposes of applying section 1848(f)(2)(D) of the So15 cial Security Act (42 U.S.C. 1395w–4(f)(2)(D)), the 

16 amendment made by subsection (a) shall not be con17 sidered to be a change in law or regulation. 

18 (c) PROVISIONS RELATING TO ADVANCE BENEFICIARY

19 NOTICES; REPORT ON PRIOR DETERMINATION PROCESS.—

20 (1) DATA COLLECTION.—The Secretary shall es21 tablish a process for the collection of information on 

22 the instances in which an advance beneficiary notice 

23 (as defined in paragraph (5)) has been provided and 

24 on instances in which a beneficiary indicates on such 

25 a notice that the beneficiary does not intend to seek 
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1 to have the item or service that is the subject of the 

2 notice furnished. 

3 (2) OUTREACH AND EDUCATION.—The Secretary 

4 shall establish a program of outreach and education 

5 for beneficiaries and providers of services and other 

6 persons on the appropriate use of advance beneficiary 

7 notices and coverage policies under the medicare pro8 gram. 

9 (3) GAO REPORT REPORT ON USE OF ADVANCE

10 BENEFICIARY NOTICES.—Not later than 18 months 

11 after the date on which section 1869(g) of the Social 

12 Security Act (as added by subsection (a)) takes effect, 

13 the Comptroller General of the United States shall 

14 submit to Congress a report on the use of advance 

15 beneficiary notices under title XVIII of such Act. 

16 Such report shall include information concerning the 

17 providers of services and other persons that have pro18 vided such notices and the response of beneficiaries to 

19 such notices. 

20 (4) GAO REPORT ON USE OF PRIOR DETERMINA21 TION PROCESS.—Not later than 18 months after the 

22 date on which section 1869(g) of the Social Security 

23 Act (as added by subsection (a)) takes effect, the 

24 Comptroller General of the United States shall submit 

25 to Congress a report on the use of the prior deter-
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1 mination process under such section. Such report 

2 shall include—

3 (A) information concerning the types of 

4 procedures for which a prior determination has 

5 been sought, determinations made under the 

6 process, and changes in receipt of services result7 ing from the application of such process; and 

8 (B) an evaluation of whether the process 

9 was useful for physicians (and other suppliers) 

10 and beneficiaries, whether it was timely, and 

11 whether the amount of information required was 

12 burdensome to physicians and beneficiaries. 

13 (5) ADVANCE BENEFICIARY NOTICE DEFINED.—

14 In this subsection, the term ‘‘advance beneficiary no15 tice’’ means a written notice provided under section 

16 1879(a) of the Social Security Act (42 U.S.C. 

17 1395pp(a)) to an individual entitled to benefits under 

18 part A or B of title XVIII of such Act before items 

19 or services are furnished under such part in cases 

20 where a provider of services or other person that 

21 would furnish the item or service believes that pay22 ment will not be made for some or all of such items 

23 or services under such title. 
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1 Subtitle V—Miscellaneous 

2 Provisions 

3 SEC. 941. POLICY DEVELOPMENT REGARDING EVALUATION 

4 AND MANAGEMENT (E & M) DOCUMENTATION 

5 GUIDELINES. 

6 (a) IN GENERAL.—The Secretary may not implement 

7 any new documentation guidelines for, or clinical examples 

8 of, evaluation and management physician services under 

9 the title XVIII of the Social Security Act on or after the 

10 date of the enactment of this Act unless the Secretary—

11 (1) has developed the guidelines in collaboration 

12 with practicing physicians (including both generalists 

13 and specialists) and provided for an assessment of the 

14 proposed guidelines by the physician community; 

15 (2) has established a plan that contains specific 

16 goals, including a schedule, for improving the use of 

17 such guidelines; 

18 (3) has conducted appropriate and representative 

19 pilot projects under subsection (b) to test modifica20 tions to the evaluation and management documenta21 tion guidelines; 

22 (4) finds that the objectives described in sub23 section (c) will be met in the implementation of such 

24 guidelines; and 
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1 (5) has established, and is implementing, a pro2 gram to educate physicians on the use of such guide3 lines and that includes appropriate outreach. 

4 The Secretary shall make changes to the manner in which 

5 existing evaluation and management documentation guide6 lines are implemented to reduce paperwork burdens on phy7 sicians. 

8 (b) PILOT PROJECTS TO TEST EVALUATION AND MAN9 AGEMENT DOCUMENTATION GUIDELINES.—

10 (1) IN GENERAL.—The Secretary shall conduct 

11 under this subsection appropriate and representative 

12 pilot projects to test new evaluation and management 

13 documentation guidelines referred to in subsection 

14 (a). 

15 (2) LENGTH AND CONSULTATION.—Each pilot 

16 project under this subsection shall—

17 (A) be voluntary; 

18 (B) be of sufficient length as determined by 

19 the Secretary to allow for preparatory physician 

20 and medicare contractor education, analysis, 

21 and use and assessment of potential evaluation 

22 and management guidelines; and 

23 (C) be conducted, in development and 

24 throughout the planning and operational stages 

25 of the project, in consultation with practicing 
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1 physicians (including both generalists and spe2 cialists). 

3 (3) RANGE OF PILOT PROJECTS.—Of the pilot 

4 projects conducted under this subsection—

5 (A) at least one shall focus on a peer review 

6 method by physicians (not employed by a medi7 care contractor) which evaluates medical record 

8 information for claims submitted by physicians 

9 identified as statistical outliers relative to defini10 tions published in the Current Procedures Ter11 minology (CPT) code book of the American Med12 ical Association; 

13 (B) at least one shall focus on an alter14 native method to detailed guidelines based on 

15 physician documentation of face to face encoun16 ter time with a patient; 

17 (C) at least one shall be conducted for serv18 ices furnished in a rural area and at least one 

19 for services furnished outside such an area; and 

20 (D) at least one shall be conducted in a set21 ting where physicians bill under physicians’ 

22 services in teaching settings and at least one 

23 shall be conducted in a setting other than a 

24 teaching setting. 
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1 (4) BANNING OF TARGETING OF PILOT PROJECT

2 PARTICIPANTS.—Data collected under this subsection 

3 shall not be used as the basis for overpayment de4 mands or post-payment audits. Such limitation ap5 plies only to claims filed as part of the pilot project 

6 and lasts only for the duration of the pilot project 

7 and only as long as the provider is a participant in 

8 the pilot project. 

9 (5) STUDY OF IMPACT.—Each pilot project shall 

10 examine the effect of the new evaluation and manage11 ment documentation guidelines on—

12 (A) different types of physician practices, 

13 including those with fewer than 10 full-time14 equivalent employees (including physicians); and 

15 (B) the costs of physician compliance, in16 cluding education, implementation, auditing, 

17 and monitoring. 

18 (6) PERIODIC REPORTS.—The Secretary shall 

19 submit to Congress periodic reports on the pilot 

20 projects under this subsection. 

21 (c) OBJECTIVES FOR EVALUATION AND MANAGEMENT

22 GUIDELINES.—The objectives for modified evaluation and 

23 management documentation guidelines developed by the 

24 Secretary shall be to—
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1 (1) identify clinically relevant documentation 

2 needed to code accurately and assess coding levels ac3 curately; 

4 (2) decrease the level of non-clinically pertinent 

5 and burdensome documentation time and content in 

6 the physician’s medical record; 

7 (3) increase accuracy by reviewers; and 

8 (4) educate both physicians and reviewers. 

9 (d) STUDY OF SIMPLER, ALTERNATIVE SYSTEMS OF

10 DOCUMENTATION FOR PHYSICIAN CLAIMS.—

11 (1) STUDY.—The Secretary shall carry out a 

12 study of the matters described in paragraph (2). 

13 (2) MATTERS DESCRIBED.—The matters referred 

14 to in paragraph (1) are—

15 (A) the development of a simpler, alter16 native system of requirements for documentation 

17 accompanying claims for evaluation and man18 agement physician services for which payment is 

19 made under title XVIII of the Social Security 

20 Act; and 

21 (B) consideration of systems other than cur22 rent coding and documentation requirements for 

23 payment for such physician services. 

24 (3) CONSULTATION WITH PRACTICING PHYSI25 CIANS.—In designing and carrying out the study 
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1 under paragraph (1), the Secretary shall consult with 

2 practicing physicians, including physicians who are 

3 part of group practices and including both generalists 

4 and specialists. 

5 (4) APPLICATION OF HIPAA UNIFORM CODING RE6 QUIREMENTS.—In developing an alternative system 

7 under paragraph (2), the Secretary shall consider re8 quirements of administrative simplification under 

9 part C of title XI of the Social Security Act. 

10 (5) REPORT TO CONGRESS.—(A) Not later than 

11 October 1, 2005, the Secretary shall submit to Con12 gress a report on the results of the study conducted 

13 under paragraph (1). 

14 (B) The Medicare Payment Advisory Commis15 sion shall conduct an analysis of the results of the 

16 study included in the report under subparagraph (A) 

17 and shall submit a report on such analysis to Con18 gress. 

19 (e) STUDY ON APPROPRIATE CODING OF CERTAIN EX20 TENDED OFFICE VISITS.—The Secretary shall conduct a 

21 study of the appropriateness of coding in cases of extended 

22 office visits in which there is no diagnosis made. Not later 

23 than October 1, 2005, the Secretary shall submit a report 

24 to Congress on such study and shall include recommenda25 tions on how to code appropriately for such visits in a man-
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1 ner that takes into account the amount of time the physi2 cian spent with the patient. 

3 (f) DEFINITIONS.—In this section—

4 (1) the term ‘‘rural area’’ has the meaning given 

5 that term in section 1886(d)(2)(D) of the Social Secu6 rity Act, 42 U.S.C. 1395ww(d)(2)(D); and 

7 (2) the term ‘‘teaching settings’’ are those set8 tings described in section 415.150 of title 42, Code of 

9 Federal Regulations. 

10 SEC. 942. IMPROVEMENT IN OVERSIGHT OF TECHNOLOGY 

11 AND COVERAGE. 

12 (a) COUNCIL FOR TECHNOLOGY AND INNOVATION.—

13 Section 1868 (42 U.S.C. 1395ee), as amended by section 

14 921(a), is amended by adding at the end the following new 

15 subsection: 

16 ‘‘(c) COUNCIL FOR TECHNOLOGY AND INNOVATION.—

17 ‘‘(1) ESTABLISHMENT.—The Secretary shall es18 tablish a Council for Technology and Innovation 

19 within the Centers for Medicare & Medicaid Services 

20 (in this section referred to as ‘CMS’). 

21 ‘‘(2) COMPOSITION.—The Council shall be com22 posed of senior CMS staff and clinicians and shall be 

23 chaired by the Executive Coordinator for Technology 

24 and Innovation (appointed or designated under para25 graph (4)). 
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1 ‘‘(3) DUTIES.—The Council shall coordinate the 

2 activities of coverage, coding, and payment processes 

3 under this title with respect to new technologies and 

4 procedures, including new drug therapies, and shall 

5 coordinate the exchange of information on new tech6 nologies between CMS and other entities that make 

7 similar decisions. 

8 ‘‘(4) EXECUTIVE COORDINATOR FOR TECH9 NOLOGY AND INNOVATION.—The Secretary shall ap10 point (or designate) a noncareer appointee (as defined 

11 in section 3132(a)(7) of title 5, United States Code) 

12 who shall serve as the Executive Coordinator for Tech13 nology and Innovation. Such executive coordinator 

14 shall report to the Administrator of CMS, shall chair 

15 the Council, shall oversee the execution of its duties, 

16 and shall serve as a single point of contact for outside 

17 groups and entities regarding the coverage, coding, 

18 and payment processes under this title.’’. 

19 (b) METHODS FOR DETERMINING PAYMENT BASIS

20 FOR NEW LAB TESTS.—Section 1833(h) (42 U.S.C. 

21 1395l(h)) is amended by adding at the end the following: 

22 ‘‘(8)(A) The Secretary shall establish by regulation 

23 procedures for determining the basis for, and amount of, 

24 payment under this subsection for any clinical diagnostic 

25 laboratory test with respect to which a new or substantially 
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1 revised HCPCS code is assigned on or after January 1, 

2 2005 (in this paragraph referred to as ‘new tests’). 

3 ‘‘(B) Determinations under subparagraph (A) shall be 

4 made only after the Secretary—

5 ‘‘(i) makes available to the public (through an 

6 Internet site and other appropriate mechanisms) a 

7 list that includes any such test for which establish8 ment of a payment amount under this subsection is 

9 being considered for a year; 

10 ‘‘(ii) on the same day such list is made avail11 able, causes to have published in the Federal Register 

12 notice of a meeting to receive comments and rec13 ommendations (and data on which recommendations 

14 are based) from the public on the appropriate basis 

15 under this subsection for establishing payment 

16 amounts for the tests on such list; 

17 ‘‘(iii) not less than 30 days after publication of 

18 such notice convenes a meeting, that includes rep19 resentatives of officials of the Centers for Medicare & 

20 Medicaid Services involved in determining payment 

21 amounts, to receive such comments and recommenda22 tions (and data on which the recommendations are 

23 based); 

24 ‘‘(iv) taking into account the comments and rec25 ommendations (and accompanying data) received at 
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1 such meeting, develops and makes available to the 

2 public (through an Internet site and other appro3 priate mechanisms) a list of proposed determinations 

4 with respect to the appropriate basis for establishing 

5 a payment amount under this subsection for each 

6 such code, together with an explanation of the reasons 

7 for each such determination, the data on which the 

8 determinations are based, and a request for public 

9 written comments on the proposed determination; and 

10 ‘‘(v) taking into account the comments received 

11 during the public comment period, develops and 

12 makes available to the public (through an Internet 

13 site and other appropriate mechanisms) a list of final 

14 determinations of the payment amounts for such tests 

15 under this subsection, together with the rationale for 

16 each such determination, the data on which the deter17 minations are based, and responses to comments and 

18 suggestions received from the public. 

19 ‘‘(C) Under the procedures established pursuant to sub20 paragraph (A), the Secretary shall—

21 ‘‘(i) set forth the criteria for making determina22 tions under subparagraph (A); and 

23 ‘‘(ii) make available to the public the data (other 

24 than proprietary data) considered in making such de25 terminations. 
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1 ‘‘(D) The Secretary may convene such further public 

2 meetings to receive public comments on payment amounts 

3 for new tests under this subsection as the Secretary deems 

4 appropriate. 

5 ‘‘(E) For purposes of this paragraph: 

6 ‘‘(i) The term ‘HCPCS’ refers to the Health Care 

7 Procedure Coding System. 

8 ‘‘(ii) A code shall be considered to be ‘substan9 tially revised’ if there is a substantive change to the 

10 definition of the test or procedure to which the code 

11 applies (such as a new analyte or a new methodology 

12 for measuring an existing analyte-specific test).’’. 

13 (c) GAO STUDY ON IMPROVEMENTS IN EXTERNAL

14 DATA COLLECTION FOR USE IN THE MEDICARE INPATIENT

15 PAYMENT SYSTEM.—

16 (1) STUDY.—The Comptroller General of the 

17 United States shall conduct a study that analyzes 

18 which external data can be collected in a shorter time 

19 frame by the Centers for Medicare & Medicaid Serv20 ices for use in computing payments for inpatient hos21 pital services. The study may include an evaluation 

22 of the feasibility and appropriateness of using of 

23 quarterly samples or special surveys or any other 

24 methods. The study shall include an analysis of 

25 whether other executive agencies, such as the Bureau 
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1 of Labor Statistics in the Department of Commerce, 

2 are best suited to collect this information. 

3 (2) REPORT.—By not later than October 1, 

4 2004, the Comptroller General shall submit a report 

5 to Congress on the study under paragraph (1). 

6 (d) PROCESS FOR ADOPTION OF ICD CODES AS DATA

7 STANDARD.—Section 1172(f) (42 U.S.C. 1320d–1(f)) is 

8 amended by inserting after the first sentence the following: 

9 ‘‘Notwithstanding the preceding sentence, if the National 

10 Committee on Vital and Health Statistics has not made a 

11 recommendation to the Secretary before the date of the en12 actment of this sentence, with respect to the adoption of the 

13 International Classification of Diseases, 10th Revision, 

14 Procedure Coding System (‘ICD–10–PCS’) and the Inter15 national Classification of Diseases, 10th Revision, Clinical 

16 Modification (‘ICD–10–CM’) as a standard under this part 

17 for the reporting of diagnoses, the Secretary may implement 

18 ICD-10-PCS only with respect to inpatient services as such 

19 a standard.’’. 

20 SEC. 943. TREATMENT OF HOSPITALS FOR CERTAIN SERV21 ICES UNDER MEDICARE SECONDARY PAYOR 

22 (MSP) PROVISIONS. 

23 (a) IN GENERAL.—The Secretary shall not require a 

24 hospital (including a critical access hospital) to ask ques25 tions (or obtain information) relating to the application of 
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1 section 1862(b) of the Social Security Act (relating to medi2 care secondary payor provisions) in the case of reference 

3 laboratory services described in subsection (b), if the Sec4 retary does not impose such requirement in the case of such 

5 services furnished by an independent laboratory. 

6 (b) REFERENCE LABORATORY SERVICES DE7 SCRIBED.—Reference laboratory services described in this 

8 subsection are clinical laboratory diagnostic tests (or the 

9 interpretation of such tests, or both) furnished without a 

10 face-to-face encounter between the individual entitled to 

11 benefits under part A or enrolled under part B, or both, 

12 and the hospital involved and in which the hospital submits 

13 a claim only for such test or interpretation. 

14 SEC. 944. EMTALA IMPROVEMENTS. 

15 (a) PAYMENT FOR EMTALA-MANDATED SCREENING

16 AND STABILIZATION SERVICES.—

17 (1) IN GENERAL.—Section 1862 (42 U.S.C. 

18 1395y) is amended by inserting after subsection (c) 

19 the following new subsection: 

20 ‘‘(d) For purposes of subsection (a)(1)(A), in the case 

21 of any item or service that is required to be provided pursu22 ant to section 1867 to an individual who is entitled to bene23 fits under this title, determinations as to whether the item 

24 or service is reasonable and necessary shall be made on the 

25 basis of the information available to the treating physician 
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1 or practitioner (including the patient’s presenting symp2 toms or complaint) at the time the item or service was or3 dered or furnished by the physician or practitioner (and 

4 not on the patient’s principal diagnosis). When making 

5 such determinations with respect to such an item or service, 

6 the Secretary shall not consider the frequency with which 

7 the item or service was provided to the patient before or 

8 after the time of the admission or visit.’’. 

9 (2) EFFECTIVE DATE.—The amendment made by 

10 paragraph (1) shall apply to items and services fur11 nished on or after January 1, 2004. 

12 (b) NOTIFICATION OF PROVIDERS WHEN EMTALA IN13 VESTIGATION CLOSED.—Section 1867(d) (42 U.S.C. 42 

14 U.S.C. 1395dd(d)) is amended by adding at the end the 

15 following new paragraph: 

16 ‘‘(4) NOTICE UPON CLOSING AN INVESTIGA17 TION.—The Secretary shall establish a procedure to 

18 notify hospitals and physicians when an investigation 

19 under this section is closed.’’. 

20 (c) PRIOR REVIEW BY PEER REVIEW ORGANIZATIONS

21 IN EMTALA CASES INVOLVING TERMINATION OF PARTICI22 PATION.—

23 (1) IN GENERAL.—Section 1867(d)(3) (42 U.S.C. 

24 1395dd(d)(3)) is amended—
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1 (A) in the first sentence, by inserting ‘‘or in 

2 terminating a hospital’s participation under this 

3 title’’ after ‘‘in imposing sanctions under para4 graph (1)’’; and 

5 (B) by adding at the end the following new 

6 sentences: ‘‘Except in the case in which a delay 

7 would jeopardize the health or safety of individ8 uals, the Secretary shall also request such a re9 view before making a compliance determination 

10 as part of the process of terminating a hospital’s 

11 participation under this title for violations re12 lated to the appropriateness of a medical screen13 ing examination, stabilizing treatment, or an 

14 appropriate transfer as required by this section, 

15 and shall provide a period of 5 days for such re16 view. The Secretary shall provide a copy of the 

17 organization’s report to the hospital or physician 

18 consistent with confidentiality requirements im19 posed on the organization under such part B.’’. 

20 (2) EFFECTIVE DATE.—The amendments made 

21 by paragraph (1) shall apply to terminations of par22 ticipation initiated on or after the date of the enact23 ment of this Act. 
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1 SEC. 945. EMERGENCY MEDICAL TREATMENT AND ACTIVE 

2 LABOR ACT (EMTALA) TECHNICAL ADVISORY 

3 GROUP. 

4 (a) ESTABLISHMENT.—The Secretary shall establish a 

5 Technical Advisory Group (in this section referred to as the 

6 ‘‘Advisory Group’’) to review issues related to the Emer7 gency Medical Treatment and Labor Act (EMTALA) and 

8 its implementation. In this section, the term ‘‘EMTALA’’ 

9 refers to the provisions of section 1867 of the Social Security 

10 Act (42 U.S.C. 1395dd). 

11 (b) MEMBERSHIP.—The Advisory Group shall be com12 posed of 19 members, including the Administrator of the 

13 Centers for Medicare & Medicaid Services and the Inspector 

14 General of the Department of Health and Human Services 

15 and of which—

16 (1) 4 shall be representatives of hospitals, includ17 ing at least one public hospital, that have experience 

18 with the application of EMTALA and at least 2 of 

19 which have not been cited for EMTALA violations; 

20 (2) 7 shall be practicing physicians drawn from 

21 the fields of emergency medicine, cardiology or 

22 cardiothoracic surgery, orthopedic surgery, neuro23 surgery, pediatrics or a pediatric subspecialty, obstet24 rics-gynecology, and psychiatry, with not more than 

25 one physician from any particular field; 

26 (3) 2 shall represent patients; 
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1 (4) 2 shall be staff involved in EMTALA inves2 tigations from different regional offices of the Centers 

3 for Medicare & Medicaid Services; and 

4 (5) 1 shall be from a State survey office involved 

5 in EMTALA investigations and 1 shall be from a 

6 peer review organization, both of whom shall be from 

7 areas other than the regions represented under para8 graph (4). 

9 In selecting members described in paragraphs (1) through 

10 (3), the Secretary shall consider qualified individuals nomi11 nated by organizations representing providers and patients. 

12 (c) GENERAL RESPONSIBILITIES.—The Advisory 

13 Group—

14 (1) shall review EMTALA regulations; 

15 (2) may provide advice and recommendations to 

16 the Secretary with respect to those regulations and 

17 their application to hospitals and physicians; 

18 (3) shall solicit comments and recommendations 

19 from hospitals, physicians, and the public regarding 

20 the implementation of such regulations; and 

21 (4) may disseminate information on the applica22 tion of such regulations to hospitals, physicians, and 

23 the public. 

24 (d) ADMINISTRATIVE MATTERS.—
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1 (1) CHAIRPERSON.—The members of the Advi2 sory Group shall elect a member to serve as chair3 person of the Advisory Group for the life of the Advi4 sory Group. 

5 (2) MEETINGS.—The Advisory Group shall first 

6 meet at the direction of the Secretary. The Advisory 

7 Group shall then meet twice per year and at such 

8 other times as the Advisory Group may provide. 

9 (e) TERMINATION.—The Advisory Group shall termi10 nate 30 months after the date of its first meeting. 

11 (f) WAIVER OF ADMINISTRATIVE LIMITATION.—The 

12 Secretary shall establish the Advisory Group notwith13 standing any limitation that may apply to the number of 

14 advisory committees that may be established (within the 

15 Department of Health and Human Services or otherwise). 

16 SEC. 946. AUTHORIZING USE OF ARRANGEMENTS TO PRO17 VIDE CORE HOSPICE SERVICES IN CERTAIN 

18 CIRCUMSTANCES. 

19 (a) IN GENERAL.—Section 1861(dd)(5) (42 U.S.C. 

20 1395x(dd)(5)) is amended by adding at the end the fol21 lowing: 

22 ‘‘(D) In extraordinary, exigent, or other non-routine 

23 circumstances, such as unanticipated periods of high pa24 tient loads, staffing shortages due to illness or other events, 

25 or temporary travel of a patient outside a hospice pro-
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1 gram’s service area, a hospice program may enter into ar2 rangements with another hospice program for the provision 

3 by that other program of services described in paragraph 

4 (2)(A)(ii)(I). The provisions of paragraph (2)(A)(ii)(II) 

5 shall apply with respect to the services provided under such 

6 arrangements. 

7 ‘‘(E) A hospice program may provide services de8 scribed in paragraph (1)(A) other than directly by the pro9 gram if the services are highly specialized services of a reg10 istered professional nurse and are provided non-routinely 

11 and so infrequently so that the provision of such services 

12 directly would be impracticable and prohibitively expen13 sive.’’. 

14 (b) CONFORMING PAYMENT PROVISION.—Section 

15 1814(i) (42 U.S.C. 1395f(i)) is amended by adding at the 

16 end the following new paragraph: 

17 ‘‘(4) In the case of hospice care provided by a hospice 

18 program under arrangements under section 1861(dd)(5)(D) 

19 made by another hospice program, the hospice program that 

20 made the arrangements shall bill and be paid for the hospice 

21 care.’’. 

22 (c) EFFECTIVE DATE.—The amendments made by this 

23 section shall apply to hospice care provided on or after the 

24 date of the enactment of this Act. 
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1 SEC. 947. APPLICATION OF OSHA BLOODBORNE PATHO2 GENS STANDARD TO CERTAIN HOSPITALS. 

3 (a) IN GENERAL.—Section 1866 (42 U.S.C. 1395cc) 

4 is amended—

5 (1) in subsection (a)(1)—

6 (A) in subparagraph (R), by striking ‘‘and’’ 

7 at the end; 

8 (B) in subparagraph (S), by striking the 

9 period at the end and inserting ‘‘, and’’; and 

10 (C) by inserting after subparagraph (S) the 

11 following new subparagraph: 

12 ‘‘(T) in the case of hospitals that are not other13 wise subject to the Occupational Safety and Health 

14 Act of 1970, to comply with the Bloodborne Pathogens 

15 standard under section 1910.1030 of title 29 of the 

16 Code of Federal Regulations (or as subsequently redes17 ignated).’’; and 

18 (2) by adding at the end of subsection (b) the fol19 lowing new paragraph: 

20 ‘‘(4)(A) A hospital that fails to comply with the re21 quirement of subsection (a)(1)(T) (relating to the 

22 Bloodborne Pathogens standard) is subject to a civil money 

23 penalty in an amount described in subparagraph (B), but 

24 is not subject to termination of an agreement under this 

25 section. 
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1 ‘‘(B) The amount referred to in subparagraph (A) is 

2 an amount that is similar to the amount of civil penalties 

3 that may be imposed under section 17 of the Occupational 

4 Safety and Health Act of 1970 for a violation of the 

5 Bloodborne Pathogens standard referred to in subsection 

6 (a)(1)(T) by a hospital that is subject to the provisions of 

7 such Act. 

8 ‘‘(C) A civil money penalty under this paragraph shall 

9 be imposed and collected in the same manner as civil money 

10 penalties under subsection (a) of section 1128A are imposed 

11 and collected under that section.’’. 

12 (b) EFFECTIVE DATE.—The amendments made by this 

13 subsection (a) shall apply to hospitals as of July 1, 2004. 

14 SEC. 948. BIPA-RELATED TECHNICAL AMENDMENTS AND 

15 CORRECTIONS. 

16 (a) TECHNICAL AMENDMENTS RELATING TO ADVISORY

17 COMMITTEE UNDER BIPA SECTION 522.—(1) Subsection 

18 (i) of section 1114 (42 U.S.C. 1314)—

19 (A) is transferred to section 1862 and added at 

20 the end of such section; and 

21 (B) is redesignated as subsection (j). 

22 (2) Section 1862 (42 U.S.C. 1395y) is amended—

23 (A) in the last sentence of subsection (a), by 

24 striking ‘‘established under section 1114(f)’’; and 
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1 (B) in subsection (j), as so transferred and redes2 ignated—

3 (i) by striking ‘‘under subsection (f)’’; and 

4 (ii) by striking ‘‘section 1862(a)(1)’’ and 

5 inserting ‘‘subsection (a)(1)’’. 

6 (b) TERMINOLOGY CORRECTIONS.—(1) Section 

7 1869(c)(3)(I)(ii) (42 U.S.C. 1395ff(c)(3)(I)(ii)), as amend8 ed by section 521 of BIPA, is amended—

9 (A) in subclause (III), by striking ‘‘policy’’ and 

10 inserting ‘‘determination’’; and 

11 (B) in subclause (IV), by striking ‘‘medical re12 view policies’’ and inserting ‘‘coverage determina13 tions’’. 

14 (2) Section 1852(a)(2)(C) (42 U.S.C. 1395w–

15 22(a)(2)(C)) is amended by striking ‘‘policy’’ and ‘‘POLICY’’ 

16 and inserting ‘‘determination’’ each place it appears and 

17 ‘‘DETERMINATION’’, respectively. 

18 (c) REFERENCE CORRECTIONS.—Section 1869(f)(4) 

19 (42 U.S.C. 1395ff(f)(4)), as added by section 522 of BIPA, 

20 is amended—

21 (1) in subparagraph (A)(iv), by striking ‘‘sub22 clause (I), (II), or (III)’’ and inserting ‘‘clause (i), 

23 (ii), or (iii)’’; 

24 (2) in subparagraph (B), by striking ‘‘clause 

25 (i)(IV)’’ and ‘‘clause (i)(III)’’ and inserting ‘‘sub-
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1 paragraph (A)(iv)’’ and ‘‘subparagraph (A)(iii)’’, re2 spectively; and 

3 (3) in subparagraph (C), by striking ‘‘clause 

4 (i)’’, ‘‘subclause (IV)’’ and ‘‘subparagraph (A)’’ and 

5 inserting ‘‘subparagraph (A)’’, ‘‘clause (iv)’’ and 

6 ‘‘paragraph (1)(A)’’, respectively each place it ap7 pears. 

8 (d) OTHER CORRECTIONS.—Effective as if included in 

9 the enactment of section 521(c) of BIPA, section 1154(e) 

10 (42 U.S.C. 1320c–3(e)) is amended by striking paragraph 

11 (5). 

12 (e) EFFECTIVE DATE.—Except as otherwise provided, 

13 the amendments made by this section shall be effective as 

14 if included in the enactment of BIPA. 

15 SEC. 949. CONFORMING AUTHORITY TO WAIVE A PROGRAM 

16 EXCLUSION. 

17 The first sentence of section 1128(c)(3)(B) (42 U.S.C. 

18 1320a–7(c)(3)(B)) is amended to read as follows: ‘‘Subject 

19 to subparagraph (G), in the case of an exclusion under sub20 section (a), the minimum period of exclusion shall be not 

21 less than five years, except that, upon the request of the ad22 ministrator of a Federal health care program (as defined 

23 in section 1128B(f)) who determines that the exclusion 

24 would impose a hardship on individuals entitled to benefits 

25 under part A of title XVIII or enrolled under part B of 
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1 such title, or both, the Secretary may waive the exclusion 

2 under subsection (a)(1), (a)(3), or (a)(4) with respect to 

3 that program in the case of an individual or entity that 

4 is the sole community physician or sole source of essential 

5 specialized services in a community.’’. 

6 SEC. 950. TREATMENT OF CERTAIN DENTAL CLAIMS. 

7 (a) IN GENERAL.—Section 1862 (42 U.S.C. 1395y) is 

8 amended by adding after subsection (g) the following new 

9 subsection: 

10 ‘‘(h)(1) Subject to paragraph (2), a group health plan 

11 (as defined in subsection (a)(1)(A)(v)) providing supple12 mental or secondary coverage to individuals also entitled 

13 to services under this title shall not require a medicare 

14 claims determination under this title for dental benefits spe15 cifically excluded under subsection (a)(12) as a condition 

16 of making a claims determination for such benefits under 

17 the group health plan. 

18 ‘‘(2) A group health plan may require a claims deter19 mination under this title in cases involving or appearing 

20 to involve inpatient dental hospital services or dental serv21 ices expressly covered under this title pursuant to actions 

22 taken by the Secretary.’’. 

23 (b) EFFECTIVE DATE.—The amendment made by sub24 section (a) shall take effect on the date that is 60 days after 

25 the date of the enactment of this Act. 
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1 SEC. 951. FURNISHING HOSPITALS WITH INFORMATION TO 

2 COMPUTE DSH FORMULA. 

3 Beginning not later than 1 year after the date of the 

4 enactment of this Act, the Secretary shall furnish to sub5 section (d) hospitals (as defined in section 1886(d)(1)(B) 

6 of the Social Security Act, 42 U.S.C. 1395ww(d)(1)(B)) the 

7 data necessary for such hospitals to compute the number 

8 of patient days described in subclause (II) of section 

9 1886(d)(5)(F)(vi) of the Social Security Act (42 U.S.C. 

10 1395ww(d)(5)(F)(vi)) used in computing the dispropor11 tionate patient percentage under such section for that hos12 pital. Such data shall also be furnished to other hospitals 

13 which would qualify for additional payments under part 

14 A of title XVIII of the Social Security Act on the basis of 

15 such data. 

16 SEC. 952. REVISIONS TO REASSIGNMENT PROVISIONS. 

17 (a) IN GENERAL.—Section 1842(b)(6)(A) (42 U.S.C. 

18 1395u(b)(6)(A)) is amended by striking ‘‘or (ii) (where the 

19 service was provided in a hospital, critical access hospital, 

20 clinic, or other facility) to the facility in which the service 

21 was provided if there is a contractual arrangement between 

22 such physician or other person and such facility under 

23 which such facility submits the bill for such service,’’ and 

24 inserting ‘‘or (ii) where the service was provided under a 

25 contractual arrangement between such physician or other 

26 person and an entity (as defined by the Secretary), to the 
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1 entity if, under the contractual arrangement, the entity sub2 mits the bill for the service and the contractual arrangement 

3 meets such other program integrity and other safeguards 

4 as the Secretary may determine to be appropriate,’’. 

5 (b) CONFORMING AMENDMENT.—The second sentence 

6 of section 1842(b)(6) (42 U.S.C. 1395u(b)(6)) is amended 

7 by striking ‘‘except to an employer or facility’’ and insert8 ing ‘‘except to an employer, entity, or other person’’. 

9 (c) EFFECTIVE DATE.—The amendments made by sec10 tion shall apply to payments made on or after the date of 

11 the enactment of this Act. 

12 SEC. 953. OTHER PROVISIONS. 

13 (a) GAO REPORTS ON THE PHYSICIAN COMPENSA14 TION.—

15 (1) SUSTAINABLE GROWTH RATE AND UP16 DATES.—Not later than 6 months after the date of the 

17 enactment of this Act, the Comptroller General of the 

18 United States shall submit to Congress a report on 

19 the appropriateness of the updates in the conversion 

20 factor under subsection (d)(3) of section 1848 of the 

21 Social Security Act (42 U.S.C. 1395w–4), including 

22 the appropriateness of the sustainable growth rate for23 mula under subsection (f) of such section for 2002 

24 and succeeding years. Such report shall examine the 

25 stability and predictability of such updates and rate 
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1 and alternatives for the use of such rate in the up2 dates. 

3 (2) PHYSICIAN COMPENSATION GENERALLY.—Not 

4 later than 12 months after the date of the enactment 

5 of this Act, the Comptroller General shall submit to 

6 Congress a report on all aspects of physician com7 pensation for services furnished under title XVIII of 

8 the Social Security Act, and how those aspects inter9 act and the effect on appropriate compensation for 

10 physician services. Such report shall review alter11 natives for the physician fee schedule under section 

12 1848 of such title (42 U.S.C. 1395w–4). 

13 (b) ANNUAL PUBLICATION OF LIST OF NATIONAL COV14 ERAGE DETERMINATIONS.—The Secretary shall provide, in 

15 an appropriate annual publication available to the public, 

16 a list of national coverage determinations made under title 

17 XVIII of the Social Security Act in the previous year and 

18 information on how to get more information with respect 

19 to such determinations. 

20 (c) GAO REPORT ON FLEXIBILITY IN APPLYING HOME

21 HEALTH CONDITIONS OF PARTICIPATION TO PATIENTS

22 WHO ARE NOT MEDICARE BENEFICIARIES.—Not later than 

23 6 months after the date of the enactment of this Act, the 

24 Comptroller General of the United States shall submit to 

25 Congress a report on the implications if there were flexi-
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1 bility in the application of the medicare conditions of par2 ticipation for home health agencies with respect to groups 

3 or types of patients who are not medicare beneficiaries. The 

4 report shall include an analysis of the potential impact of 

5 such flexible application on clinical operations and the re6 cipients of such services and an analysis of methods for 

7 monitoring the quality of care provided to such recipients. 

8 (d) OIG REPORT ON NOTICES RELATING TO USE OF

9 HOSPITAL LIFETIME RESERVE DAYS.—Not later than 1 

10 year after the date of the enactment of this Act, the Inspec11 tor General of the Department of Health and Human Serv12 ices shall submit a report to Congress on—

13 (1) the extent to which hospitals provide notice 

14 to medicare beneficiaries in accordance with applica15 ble requirements before they use the 60 lifetime reserve 

16 days described in section 1812(a)(1) of the Social Se17 curity Act (42 U.S.C. 1395d(a)(1)); and 

18 (2) the appropriateness and feasibility of hos19 pitals providing a notice to such beneficiaries before 

20 they completely exhaust such lifetime reserve days. 

21 TITLE X—MEDICAID 

22 SEC. 1001. MEDICAID DISPROPORTIONATE SHARE HOS23 PITAL (DSH) PAYMENTS. 

24 Section 1923(f)(3) (42 U.S.C. 1396r–4(f)(3)) is 

25 amended—
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1 (1) in subparagraph (A), by striking ‘‘subpara2 graph (B)’’ and inserting ‘‘subparagraphs (B) and 

3 (C)’’; and 

4 (2) by adding at the end the following new sub5 paragraphs: 

6 ‘‘(C) SPECIAL, TEMPORARY INCREASE IN

7 ALLOTMENTS ON A ONE-TIME, NON-CUMULATIVE

8 BASIS.—The DSH allotment for any State—

9 ‘‘(i) for fiscal year 2004 is equal to 106 

10 percent of the DSH allotment for the State 

11 for fiscal year 2003 under this paragraph, 

12 notwithstanding subparagraph (B); and 

13 ‘‘(ii) for each succeeding fiscal year is 

14 equal to the DSH allotment for the State for 

15 the previous fiscal year under this subpara16 graph increased, subject to subparagraph 

17 (B), by 1.9 percent or, in the case of fiscal 

18 years beginning with the fiscal year speci19 fied in subparagraph (D) for that State, the 

20 percentage change in the consumer price 

21 index for all urban consumers (all items; 

22 U.S. city average), for the previous fiscal 

23 year. 

24 ‘‘(D) FISCAL YEAR SPECIFIED.—For pur25 poses of subparagraph (C)(ii), the fiscal year 
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1 specified in this subparagraph for a State is the 

2 first fiscal year for which the Secretary estimates 

3 that the DSH allotment for that State will equal 

4 (or no longer exceed) the DSH allotment for that 

5 State under the law as in effect before the date 

6 of the enactment of this subparagraph.’’. 

7 SEC. 1002. CLARIFICATION OF INCLUSION OF INPATIENT 

8 DRUG PRICES CHARGED TO CERTAIN PUBLIC 

9 HOSPITALS IN THE BEST PRICE EXEMPTIONS 

10 FOR THE MEDICAID DRUG REBATE PROGRAM. 

11 (a) IN GENERAL.—Section 1927(c)(1)(C)(i)(I) (42 

12 U.S.C. 1396r–8(c)(1)(C)(i)(I)) is amended by inserting be13 fore the semicolon the following: ‘‘(including inpatient 

14 prices charged to hospitals described in section 

15 340B(a)(4)(L) of the Public Health Service Act)’’. 

16 (b) EFFECTIVE DATE.—The amendment made by this 

17 section shall take effect on the date of the enactment of this 

18 Act.

19 SECTION 1. SHORT TITLE; AMENDMENTS TO SOCIAL SECU20 RITY ACT; REFERENCES TO BIPA AND SEC21 RETARY; TABLE OF CONTENTS. 

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

23 the ‘‘Medicare Prescription Drug and Mod24 ernization Act of 2003’’. 
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1 (b) AMENDMENTS TO SOCIAL SECURITY

2 ACT.—Except as otherwise specifically pro3 vided, whenever in this Act an amendment is 

4 expressed in terms of an amendment to or re5 peal of a section or other provision, the ref6 erence shall be considered to be made to that 

7 section or other provision of the Social Secu8 rity Act. 

9 (c) BIPA; SECRETARY.—In this Act: 

10 (1) BIPA.—The term ‘‘BIPA’’ means 

11 the Medicare, Medicaid, and SCHIP Bene12 fits Improvement and Protection Act of 

13 2000, as enacted into law by section 

14 1(a)(6) of Public Law 106–554. 

15 (2) SECRETARY.—The term ‘‘Secretary’’

16 means the Secretary of Health and 

17 Human Services. 

18 (d) TABLE OF CONTENTS.—The table of con19 tents of this Act is as follows:

Sec. 1. Short title; amendments to Social Security Act; references to BIPA and Secretary; table of contents. 

TITLE I—MEDICARE PRESCRIPTION DRUG BENEFIT 

Sec. 101. Establishment of a medicare prescription drug benefit. 

‘‘PART D—VOLUNTARY PRESCRIPTION DRUG BENEFIT PROGRAM

‘‘Sec. 1860D–1. Benefits; eligibility; enrollment; and coverage period. 

‘‘Sec. 1860D–2. Requirements for qualified prescription 

drug coverage. 
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‘‘Sec. 1860D–3. Beneficiary protections for qualified prescription drug coverage. 

‘‘Sec. 1860D–4. Requirements for and contracts with prescription drug plan (PDP) sponsors. 

‘‘Sec. 1860D–5. Process for beneficiaries to select qualified 

prescription drug coverage. 

‘‘Sec. 1860D–6. Submission of bids and premiums. 

‘‘Sec. 1860D–7. Premium and cost-sharing subsidies for lowincome individuals. 

‘‘Sec. 1860D–8. Subsidies for all medicare beneficiaries for 

qualified prescription drug coverage. 

‘‘Sec. 1860D–9. Medicare Prescription Drug Trust Fund. 

‘‘Sec. 1860D–10. Definitions; application to medicare advantage and EFFS programs; treatment of references to provisions in part C. 

Sec. 102. Offering of qualified prescription drug coverage 

under Medicare Advantage and enhanced fee-forservice (EFFS) program. 

Sec. 103. Medicaid amendments. 

‘‘Sec. 1935. Special provisions relating to medicare prescription drug benefit. 

Sec. 104. Medigap transition. 

Sec. 105. Medicare prescription drug discount card endorsement program. 

Sec. 106. Disclosure of return information for purposes of carrying out medicare catastrophic prescription 

drug program. 

Sec. 107. State pharmaceutical assistance transition commission. 

TITLE II—MEDICARE ENHANCED FEE-FOR-SERVICE AND 

MEDICARE ADVANTAGE PROGRAMS; MEDICARE COMPETITION 

Sec. 200. Medicare modernization and revitalization. 

Subtitle A—Medicare Enhanced Fee-for-Service Program 

Sec. 201. Establishment of enhanced fee-for-service (EFFS) 

program under medicare. 

‘‘PART E—ENHANCED FEE-FOR-SERVICE PROGRAM

‘‘Sec. 1860E–1. Offering of enhanced fee-for-service plans 

throughout the United States. 

‘‘Sec. 1860E–2. Offering of enhanced fee-for-service (EFFS) 

plans. 

‘‘Sec. 1860E–3. Submission of bids; beneficiary savings; payment of plans. 

‘‘Sec. 1860E–4. Premiums; organizational and financial requirements; establishment of standards; contracts with EFFS organizations. 

Subtitle B—Medicare Advantage Program 

CHAPTER 1—IMPLEMENTATION OF PROGRAM
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Sec. 211. Implementation of medicare advantage program. 

Sec. 212. Medicare advantage improvements. 

CHAPTER 2—IMPLEMENTATION OF COMPETITION PROGRAM

Sec. 221. Competition program beginning in 2006. 

CHAPTER 3—ADDITIONAL REFORMS

Sec. 231. Making permanent change in medicare advantage reporting deadlines and annual, coordinated election period. 

Sec. 232. Avoiding duplicative State regulation. 

Sec. 233. Specialized medicare advantage plans for special 

needs beneficiaries. 

Sec. 234. Medicare MSAs. 

Sec. 235. Extension of reasonable cost contracts. 

Sec. 236. Extension of municipal health service demonstration 

projects. 

Subtitle C—Application of FEHBP-Style Competitive Reforms 

Sec. 241. Application of FEHBP-style competitive reform beginning in 2010. 

TITLE III—COMBATTING WASTE, FRAUD, AND ABUSE 

Sec. 301. Medicare secondary payor (MSP) provisions. 

Sec. 302. Competitive acquisition of certain items and services. 

Sec. 303. Competitive acquisition of covered outpatient drugs 

and biologicals. 

Sec. 304. Demonstration project for use of recovery audit contractors. 

TITLE IV—RURAL HEALTH CARE IMPROVEMENTS 

Sec. 401. Enhanced disproportionate share hospital (DSH) 

treatment for rural hospitals and urban hospitals 

with fewer than 100 beds. 

Sec. 402. Immediate establishment of uniform standardized 

amount in rural and small urban areas. 

Sec. 403. Establishment of essential rural hospital classification. 

Sec. 404. More frequent update in weights used in hospital 

market basket. 

Sec. 405. Improvements to critical access hospital program. 

Sec. 406. Redistribution of unused resident positions. 

Sec. 407. Two-year extension of hold harmless provisions for 

small rural hospitals and sole community hospitals under prospective payment system for hospital outpatient department services. 

Sec. 408. Exclusion of certain rural health clinic and federally 

qualified health center services from the prospective payment system for skilled nursing facilities. 

Sec. 409. Recognition of attending nurse practitioners as attending physicians to serve hospice patients. 
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Sec. 410. Improvement in payments to retain emergency capacity for ambulance services in rural areas. 

Sec. 411. Two-year increase for home health services furnished 

in a rural area. 

Sec. 412. Providing safe harbor for certain collaborative efforts 

that benefit medically underserved populations. 

Sec. 413. GAO study of geographic differences in payments for 

physicians’ services. 

Sec. 414. Treatment of missing cost reporting periods for sole 

community hospitals. 

Sec. 415. Extension of telemedicine demonstration project. 

Sec. 416. Adjustment to the medicare inpatient hospital PPS 

wage index to revise the labor-related share of 

such index. 

Sec. 417. Medicare incentive payment program improvements 

for physician scarcity. 

TITLE V—PROVISIONS RELATING TO PART A 

Subtitle A—Inpatient Hospital Services 

Sec. 501. Revision of acute care hospital payment updates. 

Sec. 502. Recognition of new medical technologies under inpatient hospital PPS. 

Sec. 503. Increase in Federal rate for hospitals in Puerto Rico. 

Sec. 504. Wage index adjustment reclassification reform . 

Sec. 505. MedPAC report on specialty hospitals. 

Subtitle B—Other Provisions 

Sec. 511. Payment for covered skilled nursing facility services. 

Sec. 512. Coverage of hospice consultation services. 

TITLE VI—PROVISIONS RELATING TO PART B 

Subtitle A—Physicians’ Services 

Sec. 601. Revision of updates for physicians’ services. 

Sec. 602. Studies on access to physicians’ services. 

Sec. 603. MedPAC report on payment for physicians’ services. 

SUBTITLE B—PREVENTIVE SERVICES

Sec. 611. Coverage of an initial preventive physical examination. 

Sec. 612. Coverage of cholesterol and blood lipid screening. 

Sec. 613. Waiver of deductible for colorectal cancer screening 

tests. 

Sec. 614. Improved payment for certain mammography services. 

Subtitle C—Other Services 

Sec. 621. Hospital outpatient department (HOPD) payment reform. 

Sec. 622. Payment for ambulance services. 

Sec. 623. Renal dialysis services. 
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Sec. 624. One-year moratorium on therapy caps; provisions relating to reports. 

Sec. 625. Adjustment to payments for services furnished in ambulatory surgical centers. 

Sec. 626. Payment for certain shoes and inserts under the fee 

schedule for orthotics and prosthetics. 

Sec. 627. Waiver of part B late enrollment penalty for certain 

military retirees; special enrollment period. 

Sec. 628. Part B deductible. 

Sec. 629. Extension of coverage of intravenous immune globulin (IVIG) for the treatment of primary immune 

deficiency diseases in the home. 

TITLE VII—PROVISIONS RELATING TO PARTS A AND B 

Subtitle A—Home Health Services 

Sec. 701. Update in home health services. 

Sec. 702. Establishment of reduced copayment for a home 

health service episode of care for certain beneficiaries. 

Sec. 703. MedPAC study on medicare margins of home health 

agencies. 

Subtitle B—Direct Graduate Medical Education 

Sec. 711. Extension of update limitation on high cost programs. 

Subtitle C—Chronic Care Improvement 

Sec. 721. Voluntary chronic care improvement under traditional fee-for-service. 

Sec. 722. Chronic care improvement under medicare advantage and enhanced fee-for-service programs. 

Sec. 723. Institute of Medicine report. 

Sec. 724. MedPAC report. 

Subtitle D—Other Provisions 

Sec. 731. Modifications to medicare payment advisory commission (MedPAC). 

Sec. 732. Demonstration project for medical adult day care 

services. 

Sec. 733. Improvements in national and local coverage determination process to respond to changes in technology. 

Sec. 734. Treatment of certain physician pathology services. 

TITLE VIII—MEDICARE BENEFITS ADMINISTRATION 

Sec. 801. Establishment of Medicare Benefits Administration. 

TITLE IX—REGULATORY REDUCTION AND CONTRACTING 

REFORM 

Subtitle A—Regulatory Reform 

Sec. 901. Construction; definition of supplier. 
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‘‘Supplier 

Sec. 902. Issuance of regulations. 

Sec. 903. Compliance with changes in regulations and policies. 

Sec. 904. Reports and studies relating to regulatory reform. 

Subtitle B—Contracting Reform 

Sec. 911. Increased flexibility in medicare administration. 

Sec. 912. Requirements for information security for medicare 

administrative contractors. 

Subtitle C—Education and Outreach 

Sec. 921. Provider education and technical assistance. 

‘‘Sec. 1889. Provider education and technical assistance. 

Sec. 922. Small provider technical assistance demonstration 

program. 

Sec. 923. Medicare Provider Ombudsman; Medicare Beneficiary Ombudsman. 

Sec. 924. Beneficiary outreach demonstration program. 

Sec. 925. Inclusion of additional information in notices to 

beneficiaries about skilled nursing facility benefits. 

Sec. 926. Information on medicare-certified skilled nursing facilities in hospital discharge plans. 

Subtitle D—Appeals and Recovery 

Sec. 931. Transfer of responsibility for medicare appeals. 

Sec. 932. Process for expedited access to review. 

Sec. 933. Revisions to medicare appeals process. 

Sec. 934. Prepayment review. 

Sec. 935. Recovery of overpayments. 

Sec. 936. Provider enrollment process; right of appeal. 

Sec. 937. Process for correction of minor errors and omissions 

without pursuing appeals process. 

Sec. 938. Prior determination process for certain items and 

services; advance beneficiary notices. 

Subtitle V—Miscellaneous Provisions 

Sec. 941. Policy development regarding evaluation and management (E & M) documentation guidelines. 

Sec. 942. Improvement in oversight of technology and coverage. 

Sec. 943. Treatment of hospitals for certain services under 

medicare secondary payor (MSP) provisions. 

Sec. 944. EMTALA improvements. 

Sec. 945. Emergency Medical Treatment and Active Labor Act 

(EMTALA) technical advisory group. 

Sec. 946. Authorizing use of arrangements to provide core hospice services in certain circumstances. 

Sec. 947. Application of osha bloodborne pathogens standard 

to certain hospitals. 

Sec. 948. BIPA-related technical amendments and corrections. 

Sec. 949. Conforming authority to waive a program exclusion. 
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Sec. 950. Treatment of certain dental claims. 

Sec. 951. Furnishing hospitals with information to compute 

dsh formula. 

Sec. 952. Revisions to reassignment provisions. 

Sec. 953. Other provisions. 

Sec. 954. Temporary suspension of OASIS requirement for collection of data on non-medicare and non-medicaid 

patients.

1 TITLE I—MEDICARE 

2 PRESCRIPTION DRUG BENEFIT 

3 SEC. 101. ESTABLISHMENT OF A MEDICARE PRESCRIPTION 

4 DRUG BENEFIT. 

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

6 (1) by redesignating part D as part F; 

7 and 

8 (2) by inserting after part C the fol9 lowing new part:

10 ‘‘PART D—VOLUNTARY PRESCRIPTION DRUG

11 BENEFIT PROGRAM

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

13 COVERAGE PERIOD. 

14 ‘‘(a) PROVISION OF QUALIFIED PRESCRIPTION

15 DRUG COVERAGE THROUGH ENROLLMENT IN

16 PLANS.—Subject to the succeeding provisions 

17 of this part, each individual who is entitled to 

18 benefits under part A or is enrolled under 

19 part B is entitled to obtain qualified prescrip20 tion drug coverage (described in section 

21 1860D–2(a)) as follows:
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1 ‘‘(1) MEDICARE-RELATED PLANS.—

2 ‘‘(A) MEDICARE ADVANTAGE.—If the 

3 individual is eligible to enroll in a 

4 Medicare Advantage plan that pro5 vides qualified prescription drug cov6 erage under section 1851(j), the indi7 vidual may enroll in such plan and 

8 obtain coverage through such plan. 

9 ‘‘(B) EFFS PLANS.—If the indi10 vidual is eligible to enroll in an EFFS 

11 plan that provides qualified prescrip12 tion drug coverage under part E 

13 under section 1860E–2(d), the indi14 vidual may enroll in such plan and 

15 obtain coverage through such plan. 

16 ‘‘(C) MA-EFFS PLAN; MA-EFFS RX

17 PLAN.—For purposes of this part, the 

18 term ‘MA-EFFS plan’ means a Medi19 care Advantage plan under part C 

20 and an EFFS plan under part E and 

21 the term ‘MA-EFFS Rx plan’ means a 

22 MA-EFFS plan insofar as such plan 

23 provides qualified prescription drug 

24 coverage. 
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1 ‘‘(2) PRESCRIPTION DRUG PLAN.—If the 

2 individual is not enrolled in a MA-EFFS 

3 plan , the individual may enroll under 

4 this part in a prescription drug plan (as 

5 defined in section 1860D–10(a)(5)). 

6 Such individuals shall have a choice of such 

7 plans under section 1860D–5(d). 

8 ‘‘(b) GENERAL ELECTION PROCEDURES.—

9 ‘‘(1) IN GENERAL.—An individual eligi10 ble to make an election under subsection 

11 (a) may elect to enroll in a prescription 

12 drug plan under this part, or elect the op13 tion of qualified prescription drug cov14 erage under a MA-EFFS Rx plan under 

15 part C or part E, and to change such elec16 tion only in such manner and form as 

17 may be prescribed by regulations of the 

18 Administrator of the Medicare Benefits 

19 Administration (appointed under section 

20 1809(b)) (in this part referred to as the 

21 ‘Medicare Benefits Administrator’) and 

22 only during an election period prescribed 

23 in or under this subsection. 

24 ‘‘(2) ELECTION PERIODS.—
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1 ‘‘(A) IN GENERAL.—Except as pro2 vided in this paragraph, the election 

3 periods under this subsection shall be 

4 the same as the coverage election pe5 riods under the Medicare Advantage 

6 and EFFS programs under section 

7 1851(e), including—

8 ‘‘(i) annual coordinated elec9 tion periods; and 

10 ‘‘(ii) special election periods. 

11 In applying the last sentence of sec12 tion 1851(e)(4) (relating to discontinu13 ance of an election during the first 

14 year of eligibility) under this sub15 paragraph, in the case of an election 

16 described in such section in which 

17 the individual had elected or is pro18 vided qualified prescription drug cov19 erage at the time of such first enroll20 ment, the individual shall be per21 mitted to enroll in a prescription 

22 drug plan under this part at the time 

23 of the election of coverage under the 

24 original fee-for-service plan. 

25 ‘‘(B) INITIAL ELECTION PERIODS.—
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1 ‘‘(i) INDIVIDUALS CURRENTLY

2 COVERED.—In the case of an indi3 vidual who is entitled to benefits 

4 under part A or enrolled under 

5 part B as of October 1, 2005, there 

6 shall be an initial election period 

7 of 6 months beginning on that 

8 date. 

9 ‘‘(ii) INDIVIDUAL COVERED IN FU10 TURE.—In the case of an indi11 vidual who is first entitled to ben12 efits under part A or enrolled 

13 under part B after such date, 

14 there shall be an initial election 

15 period which is the same as the 

16 initial enrollment period under 

17 section 1837(d). 

18 ‘‘(C) ADDITIONAL SPECIAL ELECTION

19 PERIODS.—The Administrator shall es20 tablish special election periods—

21 ‘‘(i) in cases of individuals 

22 who have and involuntarily lose 

23 prescription drug coverage de24 scribed in subsection (c)(2)(C); 
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1 ‘‘(ii) in cases described in sec2 tion 1837(h) (relating to errors in 

3 enrollment), in the same manner 

4 as such section applies to part B; 

5 ‘‘(iii) in the case of an indi6 vidual who meets such excep7 tional conditions (including con8 ditions provided under section 

9 1851(e)(4)(D)) as the Adminis10 trator may provide; and 

11 ‘‘(iv) in cases of individuals 

12 (as determined by the Adminis13 trator) who become eligible for 

14 prescription drug assistance 

15 under title XIX under section 

16 1935(d). 

17 ‘‘(3) INFORMATION ON PLANS.—Informa18 tion described in section 1860D–3(b)(1) on 

19 prescription drug plans shall be made 

20 available during election periods. 

21 ‘‘(c) GUARANTEED ISSUE; COMMUNITY RAT22 ING; AND NONDISCRIMINATION.—

23 ‘‘(1) GUARANTEED ISSUE.—

24 ‘‘(A) IN GENERAL.—An eligible indi25 vidual who is eligible to elect quali-
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1 fied prescription drug coverage 

2 under a prescription drug plan or 

3 MA-EFFS Rx plan at a time during 

4 which elections are accepted under 

5 this part with respect to the plan 

6 shall not be denied enrollment based 

7 on any health status-related factor 

8 (described in section 2702(a)(1) of the 

9 Public Health Service Act) or any 

10 other factor. 

11 ‘‘(B) MEDICARE ADVANTAGE LIMITA12 TIONS PERMITTED.—The provisions of 

13 paragraphs (2) and (3) (other than 

14 subparagraph (C)(i), relating to de15 fault enrollment) of section 1851(g) 

16 (relating to priority and limitation on 

17 termination of election) shall apply to 

18 PDP sponsors under this subsection. 

19 ‘‘(2) COMMUNITY-RATED PREMIUM.—

20 ‘‘(A) IN GENERAL.—In the case of 

21 an individual who enrolls under a 

22 prescription drug plan or in a MA23 EFFS Rx plan during the individual’s 

24 initial enrollment period under this 

25 part or maintains (as determined 
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1 under subparagraph (C)) continuous 

2 prescription drug coverage since the 

3 date the individual first qualifies to 

4 elect prescription drug coverage 

5 under this part, a PDP sponsor or en6 tity offering a prescription drug plan 

7 or MA-EFFS Rx plan and in which 

8 the individual is enrolled may not 

9 deny, limit, or condition the coverage 

10 or provision of covered prescription 

11 drug benefits or vary or increase the 

12 premium under the plan based on 

13 any health status-related factor de14 scribed in section 2702(a)(1) of the 

15 Public Health Service Act or any 

16 other factor. 

17 ‘‘(B) LATE ENROLLMENT PENALTY.—

18 In the case of an individual who does 

19 not maintain such continuous pre20 scription drug coverage (as described 

21 in subparagraph (C)), a PDP sponsor 

22 or an entity offering a MA-EFFS Rx 

23 plan may (notwithstanding any provi24 sion in this title) adjust the premium 

25 otherwise applicable or impose a pre-
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1 existing condition exclusion with re2 spect to qualified prescription drug 

3 coverage in a manner that reflects ad4 ditional actuarial risk involved. Such 

5 a risk shall be established through an 

6 appropriate actuarial opinion of the 

7 type described in subparagraphs (A) 

8 through (C) of section 2103(c)(4). 

9 ‘‘(C) CONTINUOUS PRESCRIPTION

10 DRUG COVERAGE.—An individual is 

11 considered for purposes of this part 

12 to be maintaining continuous pre13 scription drug coverage on and after 

14 the date the individual first qualifies 

15 to elect prescription drug coverage 

16 under this part if the individual es17 tablishes that as of such date the in18 dividual is covered under any of the 

19 following prescription drug coverage 

20 and before the date that is the last 

21 day of the 63-day period that begins 

22 on the date of termination of the par23 ticular prescription drug coverage in24 volved (regardless of whether the in25 dividual subsequently obtains any of 
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1 the following prescription drug cov2 erage): 

3 ‘‘(i) COVERAGE UNDER PRE4 SCRIPTION DRUG PLAN OR MA-EFFS

5 RX PLAN.—Qualified prescription 

6 drug coverage under a prescrip7 tion drug plan or under a MA8 EFFS Rx plan. 

9 ‘‘(ii) MEDICAID PRESCRIPTION

10 DRUG COVERAGE.—Prescription 

11 drug coverage under a medicaid 

12 plan under title XIX, including 

13 through the Program of All-inclu14 sive Care for the Elderly (PACE) 

15 under section 1934, through a so16 cial health maintenance organiza17 tion (referred to in section 4104(c) 

18 of the Balanced Budget Act of 

19 1997), or through a demonstration 

20 project under part C that dem21 onstrates the application of capi22 tation payment rates for frail el23 derly medicare beneficiaries 

24 through the use of an inter25 disciplinary team and through 
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1 the provision of primary care 

2 services to such beneficiaries by 

3 means of such a team at the nurs4 ing facility involved. 

5 ‘‘(iii) PRESCRIPTION DRUG COV6 ERAGE UNDER GROUP HEALTH

7 PLAN.—Any outpatient prescrip8 tion drug coverage under a group 

9 health plan, including a health 

10 benefits plan under the Federal 

11 Employees Health Benefit Plan 

12 under chapter 89 of title 5, United 

13 States Code, and a qualified re14 tiree prescription drug plan as 

15 defined in section 1860D–8(f)(1), 

16 but only if (subject to subpara17 graph (E)(ii)) the coverage pro18 vides benefits at least equivalent 

19 to the benefits under a qualified 

20 prescription drug plan. 

21 ‘‘(iv) PRESCRIPTION DRUG COV22 ERAGE UNDER CERTAIN MEDIGAP

23 POLICIES.—Coverage under a 

24 medicare supplemental policy 

25 under section 1882 that provides 
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1 benefits for prescription drugs 

2 (whether or not such coverage 

3 conforms to the standards for 

4 packages of benefits under sec5 tion 1882(p)(1)), but only if the 

6 policy was in effect on January 1, 

7 2006, and if (subject to subpara8 graph (E)(ii)) the coverage pro9 vides benefits at least equivalent 

10 to the benefits under a qualified 

11 prescription drug plan. 

12 ‘‘(v) STATE PHARMACEUTICAL AS13 SISTANCE PROGRAM.—Coverage of 

14 prescription drugs under a State 

15 pharmaceutical assistance pro16 gram, but only if (subject to sub17 paragraph (E)(ii)) the coverage 

18 provides benefits at least equiva19 lent to the benefits under a quali20 fied prescription drug plan. 

21 ‘‘(vi) VETERANS’ COVERAGE OF

22 PRESCRIPTION DRUGS.—Coverage of 

23 prescription drugs for veterans 

24 under chapter 17 of title 38, 

25 United States Code, but only if 
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1 (subject to subparagraph (E)(ii)) 

2 the coverage provides benefits at 

3 least equivalent to the benefits 

4 under a qualified prescription 

5 drug plan. 

6 ‘‘(D) CERTIFICATION.—For pur7 poses of carrying out this paragraph, 

8 the certifications of the type de9 scribed in sections 2701(e) of the Pub10 lic Health Service Act and in section 

11 9801(e) of the Internal Revenue Code 

12 shall also include a statement for the 

13 period of coverage of whether the in14 dividual involved had prescription 

15 drug coverage described in subpara16 graph (C). 

17 ‘‘(E) DISCLOSURE.—

18 ‘‘(i) IN GENERAL.—Each entity 

19 that offers coverage of the type 

20 described in clause (iii), (iv), (v), 

21 or (vi) of subparagraph (C) shall 

22 provide for disclosure, consistent 

23 with standards established by the 

24 Administrator, of whether such 

25 coverage provides benefits at 
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1 least equivalent to the benefits 

2 under a qualified prescription 

3 drug plan. 

4 ‘‘(ii) WAIVER OF LIMITATIONS.—

5 An individual may apply to the 

6 Administrator to waive the re7 quirement that coverage of such 

8 type provide benefits at least 

9 equivalent to the benefits under a 

10 qualified prescription drug plan, 

11 if the individual establishes that 

12 the individual was not adequately 

13 informed that such coverage did 

14 not provide such level of benefits. 

15 ‘‘(F) CONSTRUCTION.—Nothing in 

16 this section shall be construed as pre17 venting the disenrollment of an indi18 vidual from a prescription drug plan 

19 or a MA-EFFS Rx plan based on the 

20 termination of an election described 

21 in section 1851(g)(3), including for 

22 non-payment of premiums or for 

23 other reasons specified in subsection 

24 (d)(3), which takes into account a 
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1 grace period described in section 

2 1851(g)(3)(B)(i). 

3 ‘‘(3) NONDISCRIMINATION.—A PDP 

4 sponsor that offers a prescription drug 

5 plan in an area designated under section 

6 1860D–4(b)(5) shall make such plan avail7 able to all eligible individuals residing in 

8 the area without regard to their health or 

9 economic status or their place of resi10 dence within the area. 

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

12 ‘‘(1) IN GENERAL.—Except as provided 

13 in this section, the Administrator shall 

14 provide that elections under subsection 

15 (b) take effect at the same time as the Ad16 ministrator provides that similar elec17 tions under section 1851(e) take effect 

18 under section 1851(f). 

19 ‘‘(2) NO ELECTION EFFECTIVE BEFORE

20 2006.—In no case shall any election take 

21 effect before January 1, 2006. 

22 ‘‘(3) TERMINATION.—The Administrator 

23 shall provide for the termination of an 

24 election in the case of—
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1 ‘‘(A) termination of coverage 

2 under both part A and part B; and 

3 ‘‘(B) termination of elections de4 scribed in section 1851(g)(3) (includ5 ing failure to pay required pre6 miums). 

7 ‘‘SEC. 1860D–2. REQUIREMENTS FOR QUALIFIED PRESCRIP8 TION DRUG COVERAGE. 

9 ‘‘(a) REQUIREMENTS.—

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

11 part and part C and part E, the term 

12 ‘qualified prescription drug coverage’

13 means either of the following: 

14 ‘‘(A) STANDARD COVERAGE WITH AC15 CESS TO NEGOTIATED PRICES.—Stand16 ard coverage (as defined in sub17 section (b)) and access to negotiated 

18 prices under subsection (d). 

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

21 PRICES.—Coverage of covered out22 patient drugs which meets the alter23 native coverage requirements of sub24 section (c) and access to negotiated 

25 prices under subsection (d), but only 
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1 if it is approved by the Administrator, 

2 as provided under subsection (c). 

3 ‘‘(2) PERMITTING ADDITIONAL OUT4 PATIENT PRESCRIPTION DRUG COVERAGE.—

5 ‘‘(A) IN GENERAL.—Subject to sub6 paragraph (B), nothing in this part 

7 shall be construed as preventing 

8 qualified prescription drug coverage 

9 from including coverage of covered 

10 outpatient drugs that exceeds the 

11 coverage required under paragraph 

12 (1), but any such additional coverage 

13 shall be limited to coverage of cov14 ered outpatient drugs. 

15 ‘‘(B) DISAPPROVAL AUTHORITY.—The 

16 Administrator shall review the offer17 ing of qualified prescription drug 

18 coverage under this part or part C or 

19 E. If the Administrator finds, in the 

20 case of a qualified prescription drug 

21 coverage under a prescription drug 

22 plan or a MA-EFFS Rx plan, that the 

23 organization or sponsor offering the 

24 coverage is engaged in activities in25 tended to discourage enrollment of 
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1 classes of eligible medicare bene2 ficiaries obtaining coverage through 

3 the plan on the basis of their higher 

4 likelihood of utilizing prescription 

5 drug coverage, the Administrator 

6 may terminate the contract with the 

7 sponsor or organization under this 

8 part or part C or E. 

9 ‘‘(3) APPLICATION OF SECONDARY PAYOR

10 PROVISIONS.—The provisions of section 

11 1852(a)(4) shall apply under this part in 

12 the same manner as they apply under 

13 part C. 

14 ‘‘(b) STANDARD COVERAGE.—For purposes 

15 of this part, the ‘standard coverage’ is cov16 erage of covered outpatient drugs (as defined 

17 in subsection (f)) that meets the following re18 quirements: 

19 ‘‘(1) DEDUCTIBLE.—The coverage has 

20 an annual deductible—

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

22 or 

23 ‘‘(B) for a subsequent year, that is 

24 equal to the amount specified under 

25 this paragraph for the previous year 
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1 increased by the percentage specified 

2 in paragraph (5) for the year in3 volved. 

4 Any amount determined under subpara5 graph (B) that is not a multiple of $10 

6 shall be rounded to the nearest multiple 

7 of $10. 

8 ‘‘(2) 80:20 BENEFIT STRUCTURE.—

9 ‘‘(A) 20 PERCENT COINSURANCE.—

10 The coverage has cost-sharing (for 

11 costs above the annual deductible 

12 specified in paragraph (1) and up to 

13 the initial coverage limit under para14 graph (3)) that is—

15 ‘‘(i) equal to 20 percent; or 

16 ‘‘(ii) is actuarially equivalent 

17 (using processes established 

18 under subsection (e)) to an aver19 age expected payment of 20 per20 cent of such costs. 

21 ‘‘(B) USE OF TIERS.—Nothing in 

22 this part shall be construed as pre23 venting a PDP sponsor from applying 

24 tiered copayments, so long as such 
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1 tiered copayments are consistent 

2 with subparagraph (A).

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

4 to paragraph (4), the coverage has an ini5 tial coverage limit on the maximum costs 

6 that may be recognized for payment pur7 poses—

8 ‘‘(A) for 2006, that is equal to 

9 $2,000; or 

10 ‘‘(B) for a subsequent year, that is 

11 equal to the amount specified in this 

12 paragraph for the previous year, in13 creased by the annual percentage in14 crease described in paragraph (5) for 

15 the year involved. 

16 Any amount determined under subpara17 graph (B) that is not a multiple of $25 

18 shall be rounded to the nearest multiple 

19 of $25.

20 ‘‘(4) CATASTROPHIC PROTECTION.—

21 ‘‘(A) IN GENERAL.—Notwith22 standing paragraph (3), the coverage 

23 provides benefits with no cost-shar24 ing after the individual has incurred 

25 costs (as described in subparagraph 
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1 (C)) for covered outpatient drugs in a 

2 year equal to the annual out-of-pock3 et threshold specified in subpara4 graph (B). 

5 ‘‘(B) ANNUAL OUT-OF-POCKET

6 THRESHOLD.—

7 ‘‘(i) IN GENERAL.—For purposes 

8 of this part, the ‘annual out-of9 pocket threshold’ specified in this 

10 subparagraph is equal to $3,500 

11 (subject to adjustment under 

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

13 ‘‘(ii) INFLATION INCREASE.—For 

14 a year after 2006, the dollar 

15 amount specified in clause (i) 

16 shall be increased by the annual 

17 percentage increase described in 

18 paragraph (5) for the year in19 volved. Any amount determined 

20 under the previous sentence that 

21 is not a multiple of $100 shall be 

22 rounded to the nearest multiple 

23 of $100. 

24 ‘‘(C) APPLICATION.—In applying 

25 subparagraph (A)—
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1 ‘‘(i) incurred costs shall only 

2 include costs incurred for the an3 nual deductible (described in 

4 paragraph (1)), cost-sharing (de5 scribed in paragraph (2)), and 

6 amounts for which benefits are 

7 not provided because of the appli8 cation of the initial coverage limit 

9 described in paragraph (3); and 

10 ‘‘(ii) such costs shall be treat11 ed as incurred only if they are 

12 paid by the individual (or by an13 other individual, such as a family 

14 member, on behalf of the indi15 vidual), under section 1860D–7, 

16 under title XIX, or under a State 

17 pharmaceutical assistance pro18 gram and the individual (or other 

19 individual) is not reimbursed 

20 through insurance or otherwise, a 

21 group health plan, or other third22 party payment arrangement 

23 (other than under such title or 

24 such program) for such costs. 
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1 ‘‘(D) ADJUSTMENT OF ANNUAL OUT2 OF-POCKET THRESHOLDS.—

3 ‘‘(i) IN GENERAL.—For each en4 rollee in a prescription drug plan 

5 or in a MA-EFFS Rx plan whose 

6 adjusted gross income exceeds 

7 the income threshold as defined 

8 in clause (ii) for a year, the an9 nual out-of-pocket threshold oth10 erwise determined under sub11 paragraph (B) for such year shall 

12 be increased by an amount equal 

13 to the percentage specified in 

14 clause (iii), multiplied by the less15 er of—

16 ‘‘(I) the amount of such ex17 cess; or 

18 ‘‘(II) the amount by which 

19 the income threshold limit ex20 ceeds the income threshold. 

21 Any amount determined under 

22 the previous sentence that is not 

23 a multiple of $100 shall be round24 ed to the nearest multiple of $100. 
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1 ‘‘(ii) INCOME THRESHOLD.—For 

2 purposes of clause (i)—

3 ‘‘(I) IN GENERAL.—Subject 

4 to subclause (II), the term ‘in5 come threshold’ means 

6 $60,000 and the term ‘income 

7 threshold limit’ means 

8 $200,000. 

9 ‘‘(II) INCOME INFLATION AD10 JUSTMENT.—In the case of a 

11 year beginning after 2006, 

12 each of the dollar amounts in 

13 subclause (I) shall be in14 creased by an amount equal 

15 to such dollar amount multi16 plied by the cost-of-living ad17 justment determined under 

18 section 1(f)(3) of the Internal 

19 Revenue Code of 1986 for 

20 such year, determined by sub21 stituting ‘calendar year 2005’

22 for ‘calendar year 1992’. If any 

23 amount increased under the 

24 previous sentence is not a 

25 multiple of $100, such amount 
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1 shall be rounded to the near2 est multiple of $100. 

3 ‘‘(iii) PERCENTAGE.—The per4 centage specified in this clause 

5 for a year is a fraction (expressed 

6 as a percentage) equal to—

7 ‘‘(I) the annual out-of8 pocket threshold for a year 

9 under subparagraph (B) (de10 termined without regard to 

11 this subparagraph), divided 

12 by 

13 ‘‘(II) the income threshold 

14 under clause (ii) for that year. 

15 If any percentage determined 

16 under the previous sentence that 

is not a multiple of 1 17 ⁄10th of 1 per18 centage point, such percentage 

19 shall be rounded to the nearest 

multiple of 1 20 ⁄10th of 1 percentage 

21 point. 

22 ‘‘(iv) USE OF MOST RECENT RE23 TURN INFORMATION.—For purposes 

24 of clause (i) for an enrollee for a 

25 year, except as provided in clause 
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1 (v), the adjusted gross income of 

2 an individual shall be based on 

3 the most recent information dis4 closed to the Secretary under sec5 tion 6109(l)(19) of the Internal 

6 Revenue Code of 1986 before the 

7 beginning of that year. 

8 ‘‘(v) INDIVIDUAL ELECTION TO

9 PRESENT MOST RECENT INFORMA10 TION REGARDING INCOME.—The Sec11 retary shall provide, in coordina12 tion with the Secretary of the 

13 Treasury, a procedure under 

14 which, for purposes of applying 

15 this subparagraph for a calendar 

16 year, instead of using the infor17 mation described in clause (iv), 

18 an enrollee may elect to use more 

19 recent information, including in20 formation with respect to a tax21 able year ending in such calendar 

22 year. Such process shall—

23 ‘‘(I) require the enrollee to 

24 provide the Secretary with a 

25 copy of the relevant portion 
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1 of the more recent return to 

2 be used under this clause; 

3 ‘‘(II) provide for the Medi4 care Beneficiary Ombudsman 

5 (under section 1810) offering 

6 assistance to such enrollees in 

7 presenting such information 

8 and the toll-free number 

9 under such section being a 

10 point of contact for bene11 ficiaries to inquire as to how 

12 to present such information; 

13 ‘‘(III) provide for the 

14 verification of the informa15 tion in such return by the 

16 Secretary of the Treasury 

17 under section 6103(l)(19) of 

18 the Internal Revenue Code of 

19 1986; and 

20 ‘‘(IV) provide for the pay21 ment by the Secretary (in a 

22 manner specified by the Sec23 retary) to the enrollee of an 

24 amount equal to the excess of 

25 the benefit payments that 
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1 would have been payable 

2 under the plan if the more re3 cent return information were 

4 used, over the benefit pay5 ments that were made under 

6 the plan. 

7 In the case of a payment under 

8 subclause (III) for an enrollee 

9 under a prescription drug plan, 

10 the PDP sponsor of the plan shall 

11 pay to the Secretary the amount 

12 so paid, less the applicable rein13 surance amount that would have 

14 applied under section 1860D–

15 8(c)(1)(B) if such payment had 

16 been treated as an allowable cost 

17 under such section. Such plan 

18 payment shall be deposited in the 

19 Treasury to the credit of the 

20 Medicare Prescription Drug Ac21 count in the Federal Supple22 mentary Medical Insurance Trust 

23 Fund (under section 1841). 

24 ‘‘(vi) DISSEMINATION OF INFOR25 MATION ON PROCESS.—The Sec-
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1 retary shall provide, through the 

2 annual medicare handbook under 

3 section 1804(a), for a general de4 scription of the adjustment of an5 nual out-of-pocket thresholds pro6 vided under this subparagraph, 

7 including the process for adjust8 ment based upon more recent in9 formation and the confidentiality 

10 provisions of subparagraph (F), 

11 and shall provide for dissemina12 tion of a table for each year that 

13 sets forth the amount of the ad14 justment that is made under 

15 clause (i) based on the amount of 

16 an enrollee’s adjusted gross in17 come. 

18 ‘‘(E) REQUESTING INFORMATION ON

19 ENROLLEES.—

20 ‘‘(i) IN GENERAL.—The Sec21 retary shall, periodically as re22 quired to carry out subparagraph 

23 (D), transmit to the Secretary of 

24 the Treasury a list of the names 

25 and TINs of enrollees in prescrip-
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1 tion drug plans (or in MA-EFFS 

2 Rx plans) and request that such 

3 Secretary disclose to the Sec4 retary information under sub5 paragraph (A) of section 

6 6103(l)(19) of the Internal Rev7 enue Code of 1986 with respect to 

8 those enrollees for a specified tax9 able year for application in a par10 ticular calendar year. 

11 ‘‘(ii) DISCLOSURE TO PLAN SPON12 SORS.—In the case of a specified 

13 taxpayer (as defined in section 

14 6103(l)(19)(B) of the Internal Rev15 enue Code of 1986) who is en16 rolled in a prescription drug plan 

17 or in an MA-EFFS Rx plan, the 

18 Secretary shall disclose to the en19 tity that offers the plan the an20 nual out-of-pocket threshold ap21 plicable to such individual under 

22 subparagraph (D). 

23 ‘‘(F) MAINTAINING CONFIDENTIALITY

24 OF INFORMATION.—
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1 ‘‘(i) IN GENERAL.—The amount 

2 of any increase in an annual out3 of-pocket threshold under sub4 paragraph (D) may not be dis5 closed by the Secretary except to 

6 a PDP sponsor or entity that of7 fers a MA-EFFS Rx plan to the ex8 tent necessary to carry out this 

9 part. 

10 ‘‘(ii) CRIMINAL AND CIVIL PEN11 ALTIES FOR UNAUTHORIZED DISCLO12 SURE.—A person who makes an 

13 unauthorized disclosure of infor14 mation disclosed under section 

15 6103(l)(19) of the Internal Rev16 enue Code of 1986 (including dis17 closure of any increase in an an18 nual out-of-pocket threshold 

19 under subparagraph (D)) shall be 

20 subject to penalty to the extent 

21 provided under—

22 ‘‘(I) section 7213 of such 

23 Code (relating to criminal 

24 penalty for unauthorized dis25 closure of information); 
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1 ‘‘(II) section 7213A of such 

2 Code (relating to criminal 

3 penalty for unauthorized in4 spection of returns or return 

5 information); 

6 ‘‘(III) section 7431 of such 

7 Code (relating to civil dam8 ages for unauthorized inspec9 tion or disclosure of returns 

10 and return information); 

11 ‘‘(IV) any other provision 

12 of the Internal Revenue Code 

13 of 1986; or 

14 ‘‘(V) any other provision 

15 of law. 

16 ‘‘(iii) APPLICATION OF ADDI17 TIONAL CIVIL MONETARY PENALTY

18 FOR UNAUTHORIZED DISCLOSURES.—

19 In addition to any penalty other20 wise provided under law, any per21 son who makes an unauthorized 

22 disclosure of such information 

23 shall be subject to a civil mone24 tary penalty of not to exceed 

25 $10,000 for each such unauthor-
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1 ized disclosure. The provisions of 

2 section 1128A (other than sub3 sections (a) and (b)) shall apply to 

4 civil money penalties under this 

5 subparagraph in the same man6 ner as they apply to a penalty or 

7 proceeding under section 

8 1128A(a).

9 ‘‘(5) ANNUAL PERCENTAGE INCREASE.—

10 For purposes of this part, the annual per11 centage increase specified in this para12 graph for a year is equal to the annual 

13 percentage increase in average per capita 

14 aggregate expenditures for covered out15 patient drugs in the United States for 

16 medicare beneficiaries, as determined by 

17 the Administrator for the 12-month pe18 riod ending in July of the previous year.

19 ‘‘(c) ALTERNATIVE COVERAGE REQUIRE20 MENTS.—A prescription drug plan or MA-EFFS 

21 Rx plan may provide a different prescription 

22 drug benefit design from the standard cov23 erage described in subsection (b) so long as 

24 the Administrator determines (based on an 

25 actuarial analysis by the Administrator) that 
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1 the following requirements are met and the 

2 plan applies for, and receives, the approval of 

3 the Administrator for such benefit design: 

4 ‘‘(1) ASSURING AT LEAST ACTUARIALLY

5 EQUIVALENT COVERAGE.—

6 ‘‘(A) ASSURING EQUIVALENT VALUE

7 OF TOTAL COVERAGE.—The actuarial 

8 value of the total coverage (as deter9 mined under subsection (e)) is at 

10 least equal to the actuarial value (as 

11 so determined) of standard coverage. 

12 ‘‘(B) ASSURING EQUIVALENT UNSUB13 SIDIZED VALUE OF COVERAGE.—The un14 subsidized value of the coverage is at 

15 least equal to the unsubsidized value 

16 of standard coverage. For purposes of 

17 this subparagraph, the unsubsidized 

18 value of coverage is the amount by 

19 which the actuarial value of the cov20 erage (as determined under sub21 section (e)) exceeds the actuarial 

22 value of the subsidy payments under 

23 section 1860D–8 with respect to such 

24 coverage. 
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1 ‘‘(C) ASSURING STANDARD PAYMENT

2 FOR COSTS AT INITIAL COVERAGE

3 LIMIT.—The coverage is designed, 

4 based upon an actuarially representa5 tive pattern of utilization (as deter6 mined under subsection (e)), to pro7 vide for the payment, with respect to 

8 costs incurred that are equal to the 

9 initial coverage limit under sub10 section (b)(3), of an amount equal to 

11 at least the product of—

12 ‘‘(i) the amount by which the 

13 initial coverage limit described in 

14 subsection (b)(3) exceeds the de15 ductible described in subsection 

16 (b)(1); and 

17 ‘‘(ii) 100 percent minus the 

18 cost-sharing percentage specified 

19 in subsection (b)(2)(A)(i). 

20 ‘‘(2) CATASTROPHIC PROTECTION.—The 

21 coverage provides for beneficiaries the 

22 catastrophic protection described in sub23 section (b)(4). 

24 ‘‘(d) ACCESS TO NEGOTIATED PRICES.—
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1 ‘‘(1) IN GENERAL.—Under qualified pre2 scription drug coverage offered by a PDP 

3 sponsor or an entity offering a MA-EFFS 

4 Rx plan, the sponsor or entity shall pro5 vide beneficiaries with access to nego6 tiated prices (including applicable dis7 counts) used for payment for covered out8 patient drugs, regardless of the fact that 

9 no benefits may be payable under the 

10 coverage with respect to such drugs be11 cause of the application of cost-sharing 

12 or an initial coverage limit (described in 

13 subsection (b)(3)). Insofar as a State 

14 elects to provide medical assistance 

15 under title XIX to a beneficiary enrolled 

16 under such title and under a prescription 

17 drug plan or MA-EFFS Rx plan for a drug 

18 based on the prices negotiated by a pre19 scription drug plan or MA-EFFS Rx plan 

20 under this part, the requirements of sec21 tion 1927 shall not apply to such drugs. 

22 The prices negotiated by a prescription 

23 drug plan under this part, by a MA-EFFS 

24 Rx plan with respect to covered out25 patient drugs, or by a qualified retiree 
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1 prescription drug plan (as defined in sec2 tion 1860D–8(f)(1)) with respect to such 

3 drugs on behalf of individuals entitled to 

4 benefits under part A or enrolled under 

5 part B, shall (notwithstanding any other 

6 provision of law) not be taken into ac7 count for the purposes of establishing the 

8 best price under section 1927(c)(1)(C). 

9 ‘‘(2) DISCLOSURE.—The PDP sponsor 

10 or entity offering a MA-EFFS Rx plan 

11 shall disclose to the Administrator (in a 

12 manner specified by the Administrator) 

13 the extent to which discounts or rebates 

14 or other remuneration or price conces15 sions made available to the sponsor or or16 ganization by a manufacturer are passed 

17 through to enrollees through pharmacies 

18 and other dispensers or otherwise. The 

19 provisions of section 1927(b)(3)(D) shall 

20 apply to information disclosed to the Ad21 ministrator under this paragraph in the 

22 same manner as such provisions apply to 

23 information disclosed under such section. 

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

25 against fraud and abuse and to ensure 
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1 proper disclosures and accounting under 

2 this part, in addition to any protections 

3 against fraud and abuse provided under 

4 section 1860D–4(b)(3)(C), the Adminis5 trator may periodically audit the finan6 cial statements and records of PDP spon7 sor or entities offering a MA-EFFS Rx 

8 plan.

9 ‘‘(e) ACTUARIAL VALUATION; DETERMINATION

10 OF ANNUAL PERCENTAGE INCREASES.—

11 ‘‘(1) PROCESSES.—For purposes of this 

12 section, the Administrator shall establish 

13 processes and methods—

14 ‘‘(A) for determining the actuarial 

15 valuation of prescription drug cov16 erage, including—

17 ‘‘(i) an actuarial valuation of 

18 standard coverage and of the re19 insurance subsidy payments 

20 under section 1860D–8; 

21 ‘‘(ii) the use of generally ac22 cepted actuarial principles and 

23 methodologies; and 

24 ‘‘(iii) applying the same meth25 odology for determinations of al-
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1 ternative coverage under sub2 section (c) as is used with respect 

3 to determinations of standard 

4 coverage under subsection (b); 

5 and 

6 ‘‘(B) for determining annual per7 centage increases described in sub8 section (b)(5). 

9 ‘‘(2) USE OF OUTSIDE ACTUARIES.—

10 Under the processes under paragraph 

11 (1)(A), PDP sponsors and entities offering 

12 MA-EFFS Rx plans may use actuarial 

13 opinions certified by independent, quali14 fied actuaries to establish actuarial val15 ues, but the Administrator shall deter16 mine whether such actuarial values meet 

17 the requirements under subsection (c)(1). 

18 ‘‘(f) COVERED OUTPATIENT DRUGS DE19 FINED.—

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

21 in this subsection, for purposes of this 

22 part, the term ‘covered outpatient drug’

23 means—

24 ‘‘(A) a drug that may be dispensed 

25 only upon a prescription and that is 
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1 described in subparagraph (A)(i) or 

2 (A)(ii) of section 1927(k)(2); or 

3 ‘‘(B) a biological product de4 scribed in clauses (i) through (iii) of 

5 subparagraph (B) of such section or 

6 insulin described in subparagraph (C) 

7 of such section, 

8 and such term includes a vaccine li9 censed under section 351 of the Public 

10 Health Service Act and any use of a cov11 ered outpatient drug for a medically ac12 cepted indication (as defined in section 

13 1927(k)(6)). 

14 ‘‘(2) EXCLUSIONS.—

15 ‘‘(A) IN GENERAL.—Such term does 

16 not include drugs or classes of drugs, 

17 or their medical uses, which may be 

18 excluded from coverage or otherwise 

19 restricted under section 1927(d)(2), 

20 other than subparagraph (E) thereof 

21 (relating to smoking cessation 

22 agents), or under section 1927(d)(3). 

23 ‘‘(B) AVOIDANCE OF DUPLICATE COV24 ERAGE.—A drug prescribed for an in25 dividual that would otherwise be a 
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1 covered outpatient drug under this 

2 part shall not be so considered if pay3 ment for such drug is available under 

4 part A or B for an individual entitled 

5 to benefits under part A and enrolled 

6 under part B. 

7 ‘‘(3) APPLICATION OF FORMULARY RE8 STRICTIONS.—A drug prescribed for an in9 dividual that would otherwise be a cov10 ered outpatient drug under this part 

11 shall not be so considered under a plan if 

12 the plan excludes the drug under a for13 mulary and such exclusion is not success14 fully appealed under section 1860D–

15 3(f)(2). 

16 ‘‘(4) APPLICATION OF GENERAL EXCLU17 SION PROVISIONS.—A prescription drug 

18 plan or MA-EFFS Rx plan may exclude 

19 from qualified prescription drug cov20 erage any covered outpatient drug—

21 ‘‘(A) for which payment would not 

22 be made if section 1862(a) applied to 

23 part D; or 

24 ‘‘(B) which are not prescribed in 

25 accordance with the plan or this part. 
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1 Such exclusions are determinations sub2 ject to reconsideration and appeal pursu3 ant to section 1860D–3(f). 

4 ‘‘SEC. 1860D–3. BENEFICIARY PROTECTIONS FOR QUALI5 FIED PRESCRIPTION DRUG COVERAGE. 

6 ‘‘(a) GUARANTEED ISSUE, COMMUNITY-RATED

7 PREMIUMS, ACCESS TO NEGOTIATED PRICES, AND

8 NONDISCRIMINATION.—For provisions requir9 ing guaranteed issue, community-rated pre10 miums, access to negotiated prices, and non11 discrimination, see sections 1860D–1(c)(1), 

12 1860D–1(c)(2), 1860D–2(d), and 1860D–6(b), re13 spectively. 

14 ‘‘(b) DISSEMINATION OF INFORMATION.—

15 ‘‘(1) GENERAL INFORMATION.—A PDP 

16 sponsor shall disclose, in a clear, accu17 rate, and standardized form to each en18 rollee with a prescription drug plan of19 fered by the sponsor under this part at 

20 the time of enrollment and at least annu21 ally thereafter, the information described 

22 in section 1852(c)(1) relating to such plan. 

23 Such information includes the following: 
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1 ‘‘(A) Access to specific covered 

2 outpatient drugs, including access 

3 through pharmacy networks. 

4 ‘‘(B) How any formulary used by 

5 the sponsor functions, including the 

6 drugs included in the formulary. 

7 ‘‘(C) Co-payments and deductible 

8 requirements, including the identi9 fication of the tiered or other co-pay10 ment level applicable to each drug (or 

11 class of drugs). 

12 ‘‘(D) Grievance and appeals proce13 dures. 

14 Such information shall also be made 

15 available upon request to prospective en16 rollees. 

17 ‘‘(2) DISCLOSURE UPON REQUEST OF GEN18 ERAL COVERAGE, UTILIZATION, AND GRIEV19 ANCE INFORMATION.—Upon request of an 

20 individual eligible to enroll under a pre21 scription drug plan, the PDP sponsor 

22 shall provide the information described 

23 in section 1852(c)(2) (other than subpara24 graph (D)) to such individual. 
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1 ‘‘(3) RESPONSE TO BENEFICIARY QUES2 TIONS.—Each PDP sponsor offering a pre3 scription drug plan shall have a mecha4 nism for providing specific information 

5 to enrollees upon request. The sponsor 

6 shall make available on a timely basis, 

7 through an Internet website and in writ8 ing upon request, information on specific 

9 changes in its formulary. 

10 ‘‘(4) CLAIMS INFORMATION.—Each PDP 

11 sponsor offering a prescription drug plan 

12 must furnish to each enrollee in a form 

13 easily understandable to such enrollees 

14 an explanation of benefits (in accordance 

15 with section 1806(a) or in a comparable 

16 manner) and a notice of the benefits in 

17 relation to initial coverage limit and the 

18 annual out-of-pocket threshold applicable 

19 to such enrollee for the current year, 

20 whenever prescription drug benefits are 

21 provided under this part (except that 

22 such notice need not be provided more 

23 often than monthly).

24 ‘‘(c) ACCESS TO COVERED BENEFITS.—

25 ‘‘(1) ASSURING PHARMACY ACCESS.—
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1 ‘‘(A) PARTICIPATION OF ANY WILLING

2 PHARMACY.—A PDP sponsor and an 

3 entity offering a MA-EFFS Rx plan 

4 shall permit the participation of any 

5 pharmacy that meets terms and con6 ditions that the plan has established. 

7 ‘‘(B) DISCOUNTS ALLOWED FOR NET8 WORK PHARMACIES.—A prescription 

9 drug plan and a MA-EFFS Rx plan 

10 may, notwithstanding subparagraph 

11 (A), reduce coinsurance or copay12 ments for its enrolled beneficiaries 

13 below the level otherwise provided 

14 for covered outpatient drugs dis15 pensed through in-network phar16 macies, but in no case shall such a re17 duction result in an increase in pay18 ments made by the Administrator 

19 under section 1860D–8 to a plan. 

20 ‘‘(C) CONVENIENT ACCESS FOR NET21 WORK PHARMACIES.—The PDP sponsor 

22 of the prescription drug plan and the 

23 entity offering a MA-EFFS Rx plan 

24 shall secure the participation in its 

25 network of a sufficient number of 
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1 pharmacies that dispense (other than 

2 by mail order) drugs directly to pa3 tients to ensure convenient access 

4 (consistent with rules of the Adminis5 trator). The Administrator shall es6 tablish convenient access rules under 

7 this subparagraph that are no less fa8 vorable to enrollees than the rules for 

9 convenient access to pharmacies of 

10 the Secretary of Defense established 

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

12 TRICARE Retail Pharmacy (TRRx) 

13 program. Such rules shall include 

14 adequate emergency access for en15 rolled beneficiaries. 

16 ‘‘(D) LEVEL PLAYING FIELD.—Such a 

17 sponsor shall permit enrollees to re18 ceive benefits (which may include a 

19 90-day supply of drugs or biologicals) 

20 through a community pharmacy, 

21 rather than through mail order, with 

22 any differential in cost paid by such 

23 enrollees. 

24 ‘‘(E) NOT REQUIRED TO ACCEPT IN25 SURANCE RISK.—The terms and condi-
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1 tions under subparagraph (A) may 

2 not require participating pharmacies 

3 to accept insurance risk as a condi4 tion of participation. 

5 ‘‘(2) USE OF STANDARDIZED TECH6 NOLOGY.—

7 ‘‘(A) IN GENERAL.—The PDP spon8 sor of a prescription drug plan and 

9 an entity offering a MA-EFFS Rx plan 

10 shall issue (and reissue, as appro11 priate) such a card (or other tech12 nology) that may be used by an en13 rollee to assure access to negotiated 

14 prices under section 1860D–2(d) for 

15 the purchase of prescription drugs 

16 for which coverage is not otherwise 

17 provided under the plan. 

18 ‘‘(B) STANDARDS.—

19 ‘‘(i) DEVELOPMENT.—The Ad20 ministrator shall provide for the 

21 development or utilization of uni22 form standards relating to a 

23 standardized format for the card 

24 or other technology referred to in 

25 subparagraph (A). Such standards 
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1 shall be compatible with stand2 ards established under part C of 

3 title XI. 

4 ‘‘(ii) APPLICATION OF ADVISORY

5 TASK FORCE.—The advisory task 

6 force established under sub7 section (d)(3)(B)(ii) shall provide 

8 recommendations to the Adminis9 trator under such subsection re10 garding the standards developed 

11 under clause (i). 

12 ‘‘(3) REQUIREMENTS ON DEVELOPMENT

13 AND APPLICATION OF FORMULARIES.—If a 

14 PDP sponsor of a prescription drug plan 

15 or an entity offering a MA-EFFS Rx plan 

16 uses a formulary, the following require17 ments must be met: 

18 ‘‘(A) PHARMACY AND THERAPEUTIC

19 (P&T) COMMITTEE.—The sponsor or en20 tity must establish a pharmacy and 

21 therapeutic committee that develops 

22 and reviews the formulary. Such com23 mittee shall include at least one prac24 ticing physician and at least one 

25 practicing pharmacist independent 
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1 and free of conflict with respect to 

2 the committee both with expertise in 

3 the care of elderly or disabled per4 sons and a majority of its members 

5 shall consist of individuals who are 

6 practicing physicians or practicing 

7 pharmacists (or both). 

8 ‘‘(B) FORMULARY DEVELOPMENT.—In 

9 developing and reviewing the for10 mulary, the committee shall—

11 ‘‘(i) base clinical decisions on 

12 the strength of scientific evidence 

13 and standards of practice, includ14 ing assessing peer-reviewed med15 ical literature, such as random16 ized clinical trials, 

17 pharmacoeconomic studies, out18 comes research data, and such 

19 other information as the com20 mittee determines to be appro21 priate; and 

22 ‘‘(ii) shall take into account 

23 whether including in the for24 mulary particular covered out25 patient drugs has therapeutic ad-
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1 vantages in terms of safety and 

2 efficacy. 

3 ‘‘(C) INCLUSION OF DRUGS IN ALL

4 THERAPEUTIC CATEGORIES.—The for5 mulary must include drugs within 

6 each therapeutic category and class 

7 of covered outpatient drugs (although 

8 not necessarily for all drugs within 

9 such categories and classes). In estab10 lishing such classes, the committee 

11 shall take into account the standards 

12 published in the United States Phar13 macopeia-Drug Information. The com14 mittee shall make available to the en15 rollees under the plan through the 

16 Internet or otherwise the bases for 

17 the exclusion of coverage of any drug 

18 from the formulary. 

19 ‘‘(D) PROVIDER AND PATIENT EDU20 CATION.—The committee shall estab21 lish policies and procedures to edu22 cate and inform health care providers 

23 and enrollees concerning the for24 mulary. 
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1 ‘‘(E) NOTICE BEFORE REMOVING

2 DRUG FROM FORMULARY FOR CHANGING

3 PREFERRED OR TIER STATUS OF DRUG.—

4 Any removal of a covered outpatient 

5 drug from a formulary and any 

6 change in the preferred or tier cost7 sharing status of such a drug shall 

8 take effect only after appropriate no9 tice is made available to beneficiaries 

10 and physicians. 

11 ‘‘(F) PERIODIC EVALUATION OF PRO12 TOCOLS.—In connection with the for13 mulary, a prescription drug plan 

14 shall provide for the periodic evalua15 tion and analysis of treatment proto16 cols and procedures. 

17 ‘‘(G) GRIEVANCES AND APPEALS RE18 LATING TO APPLICATION OF

19 FORMULARIES.—For provisions relat20 ing to grievances and appeals of cov21 erage, see subsections (e) and (f). 

22 ‘‘(d) COST AND UTILIZATION MANAGEMENT; 

23 QUALITY ASSURANCE; MEDICATION THERAPY

24 MANAGEMENT PROGRAM.—
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1 ‘‘(1) IN GENERAL.—The PDP sponsor or 

2 entity offering a MA-EFFS Rx plan shall 

3 have in place, directly or through appro4 priate arrangements, with respect to cov5 ered outpatient drugs—

6 ‘‘(A) an effective cost and drug 

7 utilization management program, in8 cluding medically appropriate incen9 tives to use generic drugs and thera10 peutic interchange, when appro11 priate; 

12 ‘‘(B) quality assurance measures 

13 and systems to reduce medical errors 

14 and adverse drug interactions, in15 cluding side-effects, and improve 

16 medication use, including a medica17 tion therapy management program 

18 described in paragraph (2) and for 

19 years beginning with 2007, an elec20 tronic prescription program de21 scribed in paragraph (3); and 

22 ‘‘(C) a program to control fraud, 

23 abuse, and waste. 

24 Nothing in this section shall be construed 

25 as impairing a PDP sponsor or entity 
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1 from utilizing cost management tools (in2 cluding differential payments) under all 

3 methods of operation. 

4 ‘‘(2) MEDICATION THERAPY MANAGEMENT

5 PROGRAM.—

6 ‘‘(A) IN GENERAL.—A medication 

7 therapy management program de8 scribed in this paragraph is a pro9 gram of drug therapy management 

10 and medication administration that 

11 may be furnished by a pharmacy pro12 vider and that is designed to assure, 

13 with respect to beneficiaries at risk 

14 for potential medication problems, 

15 such as beneficiaries with complex or 

16 chronic diseases (such as diabetes, 

17 asthma, hypertension, and congestive 

18 heart failure) or multiple prescrip19 tions, that covered outpatient drugs 

20 under the prescription drug plan are 

21 appropriately used to optimize thera22 peutic outcomes through improved 

23 medication use and reduce the risk of 

24 adverse events, including adverse 

25 drug interactions. Such programs 
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1 may distinguish between services in 

2 ambulatory and institutional settings. 

3 ‘‘(B) ELEMENTS.—Such program 

4 may include—

5 ‘‘(i) enhanced beneficiary un6 derstanding to promote the ap7 propriate use of medications by 

8 beneficiaries and to reduce the 

9 risk of potential adverse events 

10 associated with medications, 

11 through beneficiary education, 

12 counseling, case management, dis13 ease state management programs, 

14 and other appropriate means; 

15 ‘‘(ii) increased beneficiary ad16 herence with prescription medi17 cation regimens through medica18 tion refill reminders, special 

19 packaging, and other compliance 

20 programs and other appropriate 

21 means; and 

22 ‘‘(iii) detection of patterns of 

23 overuse and underuse of prescrip24 tion drugs. 
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1 ‘‘(C) DEVELOPMENT OF PROGRAM IN

2 COOPERATION WITH LICENSED PHAR3 MACISTS.—The program shall be devel4 oped in cooperation with licensed 

5 and practicing pharmacists and phy6 sicians. 

7 ‘‘(D) CONSIDERATIONS IN PHARMACY

8 FEES.—The PDP sponsor of a prescrip9 tion drug program and an entity of10 fering a MA-EFFS Rx plan shall take 

11 into account, in establishing fees for 

12 pharmacists and others providing 

13 services under the medication ther14 apy management program, the re15 sources and time used in imple16 menting the program. Each such 

17 sponsor or entity shall disclose to the 

18 Administrator upon request the 

19 amount of any such management or 

20 dispensing fees. 

21 ‘‘(3) ELECTRONIC PRESCRIPTION PRO22 GRAM.—

23 ‘‘(A) IN GENERAL.—An electronic 

24 prescription drug program described 

25 in this paragraph is a program that 
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1 includes at least the following compo2 nents, consistent with uniform stand3 ards established under subparagraph 

4 (B): 

5 ‘‘(i) ELECTRONIC TRANSMITTAL

6 OF PRESCRIPTIONS.—Prescriptions 

7 must be written and transmitted 

8 electronically (other than by fac9 simile), except in emergency cases 

10 and other exceptional cir11 cumstances recognized by the Ad12 ministrator. 

13 ‘‘(ii) PROVISION OF INFORMA14 TION TO PRESCRIBING HEALTH CARE

15 PROFESSIONAL.—The program pro16 vides for the electronic trans17 mittal to the prescribing health 

18 care professional of information 

19 that includes—

20 ‘‘(I) information (to the ex21 tent available and feasible) on 

22 the drug or drugs being pre23 scribed for that patient and 

24 other information relating to 

25 the medical history or condi-
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1 tion of the patient that may 

2 be relevant to the appropriate 

3 prescription for that patient; 

4 ‘‘(II) cost-effective alter5 natives (if any) for the use of 

6 the drug prescribed; and 

7 ‘‘(III) information on the 

8 drugs included in the applica9 ble formulary. 

10 To the extent feasible, such pro11 gram shall permit the prescribing 

12 health care professional to pro13 vide (and be provided) related in14 formation on an interactive, real15 time basis. 

16 ‘‘(B) STANDARDS.—

17 ‘‘(i) DEVELOPMENT.—The Ad18 ministrator shall provide for the 

19 development of uniform stand20 ards relating to the electronic 

21 prescription drug program de22 scribed in subparagraph (A). Such 

23 standards shall be compatible 

24 with standards established under 

25 part C of title XI. 
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1 ‘‘(ii) ADVISORY TASK FORCE.—In 

2 developing such standards and 

3 the standards described in sub4 section (c)(2)(B)(i) the Adminis5 trator shall establish a task force 

6 that includes representatives of 

7 physicians, hospitals, pharmacies, 

8 beneficiaries, pharmacy benefit 

9 managers, individuals with exper10 tise in information technology, 

11 and pharmacy benefit experts of 

12 the Departments of Veterans Af13 fairs and Defense and other ap14 propriate Federal agencies to pro15 vide recommendations to the Ad16 ministrator on such standards, in17 cluding recommendations relat18 ing to the following: 

19 ‘‘(I) The range of available 

20 computerized prescribing 

21 software and hardware and 

22 their costs to develop and im23 plement. 

24 ‘‘(II) The extent to which 

25 such standards and systems 
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1 reduce medication errors and 

2 can be readily implemented 

3 by physicians, pharmacies, 

4 and hospitals. 

5 ‘‘(III) Efforts to develop 

6 uniform standards and a com7 mon software platform for the 

8 secure electronic communica9 tion of medication history, eli10 gibility, benefit, and prescrip11 tion information. 

12 ‘‘(IV) Efforts to develop 

13 and promote universal 

14 connectivity and interoper15 ability for the secure elec16 tronic exchange of such infor17 mation.

18 ‘‘(V) The cost of imple19 menting such systems in the 

20 range of hospital and physi21 cian office settings and phar22 macies, including hardware, 

23 software, and training costs. 

24 ‘‘(VI) Implementation 

25 issues as they relate to part C 
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1 of title XI, and current Fed2 eral and State prescribing 

3 laws and regulations and 

4 their impact on implementa5 tion of computerized pre6 scribing. 

7 ‘‘(iii) DEADLINES.—

8 ‘‘(I) The Administrator 

9 shall constitute the task force 

10 under clause (ii) by not later 

11 than April 1, 2004. 

12 ‘‘(II) Such task force shall 

13 submit recommendations to 

14 Administrator by not later 

15 than January 1, 2005. 

16 ‘‘(III) The Administrator 

17 shall provide for the develop18 ment and promulgation, by 

19 not later than January 1, 

20 2006, of national standards re21 lating to the electronic pre22 scription drug program de23 scribed in clause (ii). Such 

24 standards shall be issued by a 

25 standards organization ac-
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1 credited by the American Na2 tional Standards Institute 

3 (ANSI) and shall be compat4 ible with standards estab5 lished under part C of title XI. 

6 ‘‘(4) TREATMENT OF ACCREDITATION.—

7 Section 1852(e)(4) (relating to treatment 

8 of accreditation) shall apply to prescrip9 tion drug plans under this part with re10 spect to the following requirements, in 

11 the same manner as they apply to plans 

12 under part C with respect to the require13 ments described in a clause of section 

14 1852(e)(4)(B): 

15 ‘‘(A) Paragraph (1) (including 

16 quality assurance), including medica17 tion therapy management program 

18 under paragraph (2). 

19 ‘‘(B) Subsection (c)(1) (relating to 

20 access to covered benefits). 

21 ‘‘(C) Subsection (g) (relating to 

22 confidentiality and accuracy of en23 rollee records). 

24 ‘‘(5) PUBLIC DISCLOSURE OF PHARMA25 CEUTICAL PRICES FOR EQUIVALENT DRUGS.—
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1 Each PDP sponsor and each entity offer2 ing a MA-EFFS Rx plan shall provide that 

3 each pharmacy or other dispenser that 

4 arranges for the dispensing of a covered 

5 outpatient drug shall inform the bene6 ficiary at the time of purchase of the 

7 drug of any differential between the 

8 price of the prescribed drug to the en9 rollee and the price of the lowest cost 

10 available generic drug covered under the 

11 plan that is therapeutically equivalent 

12 and bioequivalent.

13 ‘‘(e) GRIEVANCE MECHANISM, COVERAGE DE14 TERMINATIONS, AND RECONSIDERATIONS.—

15 ‘‘(1) IN GENERAL.—Each PDP sponsor 

16 shall provide meaningful procedures for 

17 hearing and resolving grievances be18 tween the organization (including any en19 tity or individual through which the 

20 sponsor provides covered benefits) and 

21 enrollees with prescription drug plans of 

22 the sponsor under this part in accord23 ance with section 1852(f). 

24 ‘‘(2) APPLICATION OF COVERAGE DETER25 MINATION AND RECONSIDERATION PROVI-
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1 SIONS.—A PDP sponsor shall meet the re2 quirements of paragraphs (1) through (3) 

3 of section 1852(g) with respect to covered 

4 benefits under the prescription drug plan 

5 it offers under this part in the same man6 ner as such requirements apply to an or7 ganization with respect to benefits it of8 fers under a plan under part C. 

9 ‘‘(3) REQUEST FOR REVIEW OF TIERED

10 FORMULARY DETERMINATIONS.—In the case 

11 of a prescription drug plan offered by a 

12 PDP sponsor or a MA-EFFS Rx plan that 

13 provides for tiered cost-sharing for drugs 

14 included within a formulary and provides 

15 lower cost-sharing for preferred drugs in16 cluded within the formulary, an indi17 vidual who is enrolled in the plan may re18 quest coverage of a nonpreferred drug 

19 under the terms applicable for preferred 

20 drugs if the prescribing physician deter21 mines that the preferred drug for treat22 ment of the same condition either would 

23 not be as effective for the individual or 

24 would have adverse effects for the indi25 vidual or both.
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1 ‘‘(f) APPEALS.—

2 ‘‘(1) IN GENERAL.—Subject to para3 graph (2), a PDP sponsor shall meet the 

4 requirements of paragraphs (4) and (5) of 

5 section 1852(g) with respect to drugs (in6 cluding a determination related to the 

7 application of tiered cost-sharing de8 scribed in subsection (e)(3)) in the same 

9 manner as such requirements apply to an 

10 organization with respect to benefits it 

11 offers under a plan under part C. 

12 ‘‘(2) FORMULARY DETERMINATIONS.—An 

13 individual who is enrolled in a prescrip14 tion drug plan offered by a PDP sponsor 

15 or in a MA-EFFS Rx plan may appeal to 

16 obtain coverage for a covered outpatient 

17 drug that is not on a formulary of the 

18 sponsor or entity offering the plan if the 

19 prescribing physician determines that 

20 the formulary drug for treatment of the 

21 same condition either would not be as ef22 fective for the individual or would have 

23 adverse effects for the individual or both. 

24 ‘‘(g) CONFIDENTIALITY AND ACCURACY OF EN25 ROLLEE RECORDS.—A PDP sponsor that offers 
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1 a prescription drug plan shall meet the re2 quirements of section 1852(h) with respect to 

3 enrollees under the plan in the same manner 

4 as such requirements apply to an organiza5 tion with respect to enrollees under part C. A 

6 PDP sponsor shall be treated as a business as7 sociate for purposes of the provisions of sub8 part E of part 164 of title 45, Code of Federal 

9 Regulations, adopted pursuant to the author10 ity of the Secretary under section 264(c) of the 

11 Health Insurance Portability and Account12 ability Act of 1996 (42 U.S. C. 1320d-2 note). 

13 ‘‘SEC. 1860D–4. REQUIREMENTS FOR AND CONTRACTS WITH 

14 PRESCRIPTION DRUG PLAN (PDP) SPONSORS. 

15 ‘‘(a) GENERAL REQUIREMENTS.—Each PDP 

16 sponsor of a prescription drug plan shall meet 

17 the following requirements: 

18 ‘‘(1) LICENSURE.—Subject to sub19 section (c), the sponsor is organized and 

20 licensed under State law as a risk-bear21 ing entity eligible to offer health insur22 ance or health benefits coverage in each 

23 State in which it offers a prescription 

24 drug plan. 
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1 ‘‘(2) ASSUMPTION OF FINANCIAL RISK FOR

2 UNSUBSIDIZED COVERAGE.—

3 ‘‘(A) IN GENERAL.—Subject to sub4 paragraph (B) and section 1860D–

5 5(d)(2), the entity assumes full finan6 cial risk on a prospective basis for 

7 qualified prescription drug coverage 

8 that it offers under a prescription 

9 drug plan and that is not covered 

10 under section 1860D–8. 

11 ‘‘(B) REINSURANCE PERMITTED.—

12 The entity may obtain insurance or 

13 make other arrangements for the cost 

14 of coverage provided to any enrollee. 

15 ‘‘(3) SOLVENCY FOR UNLICENSED SPON16 SORS.—In the case of a sponsor that is not 

17 described in paragraph (1), the sponsor 

18 shall meet solvency standards established 

19 by the Administrator under subsection 

20 (d).

21 ‘‘(b) CONTRACT REQUIREMENTS.—

22 ‘‘(1) IN GENERAL.—The Administrator 

23 shall not permit the election under sec24 tion 1860D–1 of a prescription drug plan 

25 offered by a PDP sponsor under this part, 
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1 and the sponsor shall not be eligible for 

2 payments under section 1860D–7 or 

3 1860D–8, unless the Administrator has en4 tered into a contract under this sub5 section with the sponsor with respect to 

6 the offering of such plan. Such a contract 

7 with a sponsor may cover more than one 

8 prescription drug plan. Such contract 

9 shall provide that the sponsor agrees to 

10 comply with the applicable requirements 

11 and standards of this part and the terms 

12 and conditions of payment as provided 

13 for in this part. 

14 ‘‘(2) NEGOTIATION REGARDING TERMS

15 AND CONDITIONS.—The Administrator shall 

16 have the same authority to negotiate the 

17 terms and conditions of prescription 

18 drug plans under this part as the Direc19 tor of the Office of Personnel Manage20 ment has with respect to health benefits 

21 plans under chapter 89 of title 5, United 

22 States Code. In negotiating the terms and 

23 conditions regarding premiums for which 

24 information is submitted under section 

25 1860D–6(a)(2), the Administrator shall 
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1 take into account the subsidy payments 

2 under section 1860D–8. 

3 ‘‘(3) INCORPORATION OF CERTAIN MEDI4 CARE ADVANTAGE CONTRACT REQUIRE5 MENTS.—The following provisions of sec6 tion 1857 shall apply, subject to sub7 section (c)(5), to contracts under this sec8 tion in the same manner as they apply to 

9 contracts under section 1857(a): 

10 ‘‘(A) MINIMUM ENROLLMENT.—Para11 graphs (1) and (3) of section 1857(b). 

12 ‘‘(B) CONTRACT PERIOD AND EFFEC13 TIVENESS.—Paragraphs (1) through (3) 

14 and (5) of section 1857(c). 

15 ‘‘(C) PROTECTIONS AGAINST FRAUD

16 AND BENEFICIARY PROTECTIONS.—Sec17 tion 1857(d). 

18 ‘‘(D) ADDITIONAL CONTRACT

19 TERMS.—Section 1857(e); except that 

20 in applying section 1857(e)(2) under 

21 this part—

22 ‘‘(i) such section shall be ap23 plied separately to costs relating 

24 to this part (from costs under 

25 part C and part E); 
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1 ‘‘(ii) in no case shall the 

2 amount of the fee established 

3 under this subparagraph for a 

4 plan exceed 20 percent of the 

5 maximum amount of the fee that 

6 may be established under sub7 paragraph (B) of such section; 

8 and 

9 ‘‘(iii) no fees shall be applied 

10 under this subparagraph with re11 spect to MA-EFFS Rx plans. 

12 ‘‘(E) INTERMEDIATE SANCTIONS.—

13 Section 1857(g). 

14 ‘‘(F) PROCEDURES FOR TERMI15 NATION.—Section 1857(h). 

16 ‘‘(4) RULES OF APPLICATION FOR INTER17 MEDIATE SANCTIONS.—In applying para18 graph (3)(E)—

19 ‘‘(A) the reference in section 

20 1857(g)(1)(B) to section 1854 is 

21 deemed a reference to this part; and 

22 ‘‘(B) the reference in section 

23 1857(g)(1)(F) to section 

24 1852(k)(2)(A)(ii) shall not be applied. 
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1 ‘‘(5) SERVICE AREA REQUIREMENT.—For 

2 purposes of this part, the Administrator 

3 shall designate at least 10 areas covering 

4 the entire United States and shall be con5 sistent with EFFS regions established 

6 under section 1860E–1(a)(2). 

7 ‘‘(c) WAIVER OF CERTAIN REQUIREMENTS TO

8 EXPAND CHOICE.—

9 ‘‘(1) IN GENERAL.—In the case of an en10 tity that seeks to offer a prescription 

11 drug plan in a State, the Administrator 

12 shall waive the requirement of subsection 

13 (a)(1) that the entity be licensed in that 

14 State if the Administrator determines, 

15 based on the application and other evi16 dence presented to the Administrator, 

17 that any of the grounds for approval of 

18 the application described in paragraph 

19 (2) have been met. 

20 ‘‘(2) GROUNDS FOR APPROVAL.—The 

21 grounds for approval under this para22 graph are the grounds for approval de23 scribed in subparagraph (B), (C), and (D) 

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

25 application by a State of any grounds 
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1 other than those required under Federal 

2 law. 

3 ‘‘(3) APPLICATION OF WAIVER PROCE4 DURES.—With respect to an application 

5 for a waiver (or a waiver granted) under 

6 this subsection, the provisions of sub7 paragraphs (E), (F), and (G) of section 

8 1855(a)(2) shall apply. 

9 ‘‘(4) LICENSURE DOES NOT SUBSTITUTE

10 FOR OR CONSTITUTE CERTIFICATION.—The 

11 fact that an entity is licensed in accord12 ance with subsection (a)(1) does not deem 

13 the entity to meet other requirements im14 posed under this part for a PDP sponsor. 

15 ‘‘(5) REFERENCES TO CERTAIN PROVI16 SIONS.—For purposes of this subsection, 

17 in applying provisions of section 

18 1855(a)(2) under this subsection to pre19 scription drug plans and PDP sponsors—

20 ‘‘(A) any reference to a waiver ap21 plication under section 1855 shall be 

22 treated as a reference to a waiver ap23 plication under paragraph (1); and 

24 ‘‘(B) any reference to solvency 

25 standards shall be treated as a ref-
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1 erence to solvency standards estab2 lished under subsection (d). 

3 ‘‘(d) SOLVENCY STANDARDS FOR NON-LI4 CENSED SPONSORS.—

5 ‘‘(1) ESTABLISHMENT.—The Adminis6 trator shall establish, by not later than 

7 October 1, 2004, financial solvency and 

8 capital adequacy standards that an entity 

9 that does not meet the requirements of 

10 subsection (a)(1) must meet to qualify as 

11 a PDP sponsor under this part. 

12 ‘‘(2) COMPLIANCE WITH STANDARDS.—

13 Each PDP sponsor that is not licensed by 

14 a State under subsection (a)(1) and for 

15 which a waiver application has been ap16 proved under subsection (c) shall meet 

17 solvency and capital adequacy standards 

18 established under paragraph (1). The Ad19 ministrator shall establish certification 

20 procedures for such PDP sponsors with 

21 respect to such solvency standards in the 

22 manner described in section 1855(c)(2). 

23 ‘‘(e) RELATION TO STATE LAWS.—

24 ‘‘(1) IN GENERAL.—The standards es25 tablished under this part shall supersede 
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1 any State law or regulation (other than 

2 State licensing laws or State laws relat3 ing to plan solvency, except as provided 

4 in subsection (d)) with respect to pre5 scription drug plans which are offered by 

6 PDP sponsors under this part. 

7 ‘‘(2) PROHIBITION OF STATE IMPOSITION

8 OF PREMIUM TAXES.—No State may impose 

9 a premium tax or similar tax with respect 

10 to premiums paid to PDP sponsors for 

11 prescription drug plans under this part, 

12 or with respect to any payments made to 

13 such a sponsor by the Administrator 

14 under this part. 

15 ‘‘SEC. 1860D–5. PROCESS FOR BENEFICIARIES TO SELECT 

16 QUALIFIED PRESCRIPTION DRUG COVERAGE. 

17 ‘‘(a) IN GENERAL.—The Administrator shall 

18 establish a process for the selection of the 

19 prescription drug plan or MA-EFFS Rx plan 

20 through which eligible individuals elect quali21 fied prescription drug coverage under this 

22 part. 

23 ‘‘(b) ELEMENTS.—Such process shall in24 clude the following: 
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1 ‘‘(1) Annual, coordinated election pe2 riods, in which such individuals can 

3 change the qualifying plans through 

4 which they obtain coverage, in accord5 ance with section 1860D–1(b)(2). 

6 ‘‘(2) Active dissemination of informa7 tion to promote an informed selection 

8 among qualifying plans based upon price, 

9 quality, and other features, in the man10 ner described in (and in coordination 

11 with) section 1851(d), including the provi12 sion of annual comparative information, 

13 maintenance of a toll-free hotline, and 

14 the use of non-Federal entities. 

15 ‘‘(3) Coordination of elections through 

16 filing with the entity offering a MA-EFFS 

17 Rx plan or a PDP sponsor, in the manner 

18 described in (and in coordination with) 

19 section 1851(c)(2). 

20 ‘‘(4) Informing each enrollee before 

21 the beginning of each year of the annual 

22 out-of-pocket threshold applicable to the 

23 enrollee for that year under section 

24 1860D–2(b)(4) at such time. 
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1 ‘‘(c) MA-EFFS RX ENROLLEE MAY ONLY OB2 TAIN BENEFITS THROUGH THE PLAN.—An indi3 vidual who is enrolled under a MA-EFFS Rx 

4 plan may only elect to receive qualified pre5 scription drug coverage under this part 

6 through such plan. 

7 ‘‘(d) ASSURING ACCESS TO A CHOICE OF

8 QUALIFIED PRESCRIPTION DRUG COVERAGE.—

9 ‘‘(1) CHOICE OF AT LEAST TWO PLANS IN

10 EACH AREA.—

11 ‘‘(A) IN GENERAL.—The Adminis12 trator shall assure that each indi13 vidual who is entitled to benefits 

14 under part A or enrolled under part 

15 B and who is residing in an area in 

16 the United States has available, con17 sistent with subparagraph (B), a 

18 choice of enrollment in at least two 

19 qualifying plans (as defined in para20 graph (5)) in the area in which the in21 dividual resides, at least one of which 

22 is a prescription drug plan. 

23 ‘‘(B) REQUIREMENT FOR DIFFERENT

24 PLAN SPONSORS.—The requirement in 

25 subparagraph (A) is not satisfied with 
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1 respect to an area if only one PDP 

2 sponsor or one entity that offers a 

3 MA-EFFS Rx plan offers all the quali4 fying plans in the area. 

5 ‘‘(2) GUARANTEEING ACCESS TO COV6 ERAGE.—In order to assure access under 

7 paragraph (1) and consistent with para8 graph (3), the Administrator may provide 

9 partial underwriting of risk for a PDP 

10 sponsor to expand the service area under 

11 an existing prescription drug plan to ad12 joining or additional areas or to establish 

13 such a plan (including offering such a 

14 plan on a regional or nationwide basis), 

15 but only so long as (and to the extent) 

16 necessary to assure the access guaran17 teed under paragraph (1). 

18 ‘‘(3) LIMITATION ON AUTHORITY.—In ex19 ercising authority under this subsection, 

20 the Administrator—

21 ‘‘(A) shall not provide for the full 

22 underwriting of financial risk for any 

23 PDP sponsor; and 

24 ‘‘(B) shall seek to maximize the as25 sumption of financial risk by PDP 
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1 sponsors or entities offering a MA2 EFFS Rx plan. 

3 ‘‘(4) REPORTS.—The Administrator 

4 shall, in each annual report to Congress 

5 under section 1809(f), include informa6 tion on the exercise of authority under 

7 this subsection. The Administrator also 

8 shall include such recommendations as 

9 may be appropriate to minimize the exer10 cise of such authority, including mini11 mizing the assumption of financial risk. 

12 ‘‘(5) QUALIFYING PLAN DEFINED.—For 

13 purposes of this subsection, the term 

14 ‘qualifying plan’ means a prescription 

15 drug plan or a MA-EFFS Rx plan. 

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

17 ‘‘(a) SUBMISSION OF BIDS, PREMIUMS, AND

18 RELATED INFORMATION.—

19 ‘‘(1) IN GENERAL.—Each PDP sponsor 

20 shall submit to the Administrator the in21 formation described in paragraph (2) in 

22 the same manner as information is sub23 mitted by an organization under section 

24 1854(a)(1). 
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1 ‘‘(2) INFORMATION SUBMITTED.—The in2 formation described in this paragraph is 

3 the following: 

4 ‘‘(A) COVERAGE PROVIDED.—Infor5 mation on the qualified prescription 

6 drug coverage to be provided. 

7 ‘‘(B) ACTUARIAL VALUE.—Informa8 tion on the actuarial value of the cov9 erage. 

10 ‘‘(C) BID AND PREMIUM.—Informa11 tion on the bid and the premium for 

12 the coverage, including an actuarial 

13 certification of—

14 ‘‘(i) the actuarial basis for 

15 such bid and premium; 

16 ‘‘(ii) the portion of such bid 

17 and premium attributable to ben18 efits in excess of standard cov19 erage; 

20 ‘‘(iii) the reduction in such bid 

21 resulting from the reinsurance 

22 subsidy payments provided under 

23 section 1860D–8(a)(2); and 

24 ‘‘(iv) the reduction in such 

25 premium resulting from the di-
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1 rect and reinsurance subsidy pay2 ments provided under section 

3 1860D–8. 

4 ‘‘(D) ADDITIONAL INFORMATION.—

5 Such other information as the Admin6 istrator may require to carry out this 

7 part. 

8 ‘‘(3) REVIEW OF INFORMATION; NEGOTIA9 TION AND APPROVAL OF PREMIUMS.—

10 ‘‘(A) IN GENERAL.—Subject to sub11 paragraph (B), the Administrator 

12 shall review the information filed 

13 under paragraph (2) for the purpose 

14 of conducting negotiations under sec15 tion 1860D–4(b)(2) (relating to using 

16 OPM-like authority under the 

17 FEHBP). The Administrator, using 

18 the information provided (including 

19 the actuarial certification under 

20 paragraph (2)(C)) shall approve the 

21 premium submitted under this sub22 section only if the premium accu23 rately reflects both (i) the actuarial 

24 value of the benefits provided, and 

25 (ii) the 73 percent average subsidy 
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1 provided under section 1860D–8 for 

2 the standard benefit. The Adminis3 trator shall apply actuarial principles 

4 to approval of a premium under this 

5 part in a manner similar to the man6 ner in which those principles are ap7 plied in establishing the monthly part 

8 B premium under section 1839. 

9 ‘‘(B) EXCEPTION.—In the case of a 

10 plan described in section 

11 1851(a)(2)(C), the provisions of sub12 paragraph (A) shall not apply and the 

13 provisions of paragraph (5)(B) of sec14 tion 1854(a), prohibiting the review, 

15 approval, or disapproval of amounts 

16 described in such paragraph, shall 

17 apply to the negotiation and rejection 

18 of the monthly bid amounts and pro19 portion referred to in subparagraph 

20 (A). 

21 ‘‘(b) UNIFORM BID AND PREMIUM.—

22 ‘‘(1) IN GENERAL.—The bid and pre23 mium for a prescription drug plan under 

24 this section may not vary among enroll25 ees in the plan in the same service area. 
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1 ‘‘(2) CONSTRUCTION.—Nothing in para2 graph (1) shall be construed as pre3 venting the imposition of a late enroll4 ment penalty under section 1860D–

5 1(c)(2)(B).

6 ‘‘(c) COLLECTION.—

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

8 THROUGH WITHHOLDING FROM SOCIAL SECU9 RITY PAYMENT OR USE OF ELECTRONIC FUNDS

10 TRANSFER MECHANISM.—In accordance 

11 with regulations, a PDP sponsor shall 

12 permit each enrollee, at the enrollee’s op13 tion, to make payment of premiums 

14 under this part to the sponsor through 

15 withholding from benefit payments in the 

16 manner provided under section 1840 with 

17 respect to monthly premiums under sec18 tion 1839 or through an electronic funds 

19 transfer mechanism (such as automatic 

20 charges of an account at a financial insti21 tution or a credit or debit card account) 

22 or otherwise. All premium payments that 

23 are withheld under this paragraph shall 

24 be credited to the Medicare Prescription 
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1 Drug Trust Fund and shall be paid to the 

2 PDP sponsor involved. 

3 ‘‘(2) OFFSETTING.—Reductions in pre4 miums for coverage under parts A and B 

5 as a result of a selection of a MA-EFFS Rx 

6 plan may be used to reduce the premium 

7 otherwise imposed under paragraph (1). 

8 ‘‘(d) ACCEPTANCE OF REFERENCE PREMIUM

9 AMOUNT AS FULL PREMIUM FOR SUBSIDIZED

10 LOW-INCOME INDIVIDUALS IF NO STANDARD (OR

11 EQUIVALENT) COVERAGE IN AN AREA.—

12 ‘‘(1) IN GENERAL.—If there is no stand13 ard prescription drug coverage (as de14 fined in paragraph (2)) offered in an area, 

15 in the case of an individual who is eligi16 ble for a premium subsidy under section 

17 1860D–7 and resides in the area, the PDP 

18 sponsor of any prescription drug plan of19 fered in the area (and any entity offering 

20 a MA-EFFS Rx plan in the area) shall ac21 cept the reference premium amount 

22 (under paragraph (3)) as payment in full 

23 for the premium charge for qualified pre24 scription drug coverage. 
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1 ‘‘(2) STANDARD PRESCRIPTION DRUG

2 COVERAGE DEFINED.—For purposes of this 

3 subsection, the term ‘standard prescrip4 tion drug coverage’ means qualified pre5 scription drug coverage that is standard 

6 coverage or that has an actuarial value 

7 equivalent to the actuarial value for 

8 standard coverage. 

9 ‘‘(3) REFERENCE PREMIUM AMOUNT DE10 FINED.—For purposes of this subsection, 

11 the term ‘reference premium amount’

12 means, with respect to qualified prescrip13 tion drug coverage offered under—

14 ‘‘(A) a prescription drug plan 

15 that—

16 ‘‘(i) provides standard cov17 erage (or alternative prescription 

18 drug coverage the actuarial value 

19 is equivalent to that of standard 

20 coverage), the plan’s PDP pre21 mium; or 

22 ‘‘(ii) provides alternative pre23 scription drug coverage the actu24 arial value of which is greater 

25 than that of standard coverage, 
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1 the plan’s PDP premium multi2 plied by the ratio of (I) the actu3 arial value of standard coverage, 

4 to (II) the actuarial value of the 

5 alternative coverage; 

6 ‘‘(B) an EFFS plan, the EFFS 

7 monthly prescription drug bene8 ficiary premium (as defined in sec9 tion 1860E–4(a)(3)(B)); or 

10 ‘‘(C) a Medicare Advantage, the 

11 Medicare Advantage monthly pre12 scription drug beneficiary premium 

13 (as defined in section 1854(b)(2)(B)). 

14 For purposes of subparagraph (A), the 

15 term ‘PDP premium’ means, with respect 

16 to a prescription drug plan, the premium 

17 amount for enrollment under the plan 

18 under this part (determined without re19 gard to any low-income subsidy under 

20 section 1860D–7 or any late enrollment 

21 penalty under section 1860D–1(c)(2)(B)). 
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1 ‘‘SEC. 1860D–7. PREMIUM AND COST-SHARING SUBSIDIES 

2 FOR LOW-INCOME INDIVIDUALS.

3 ‘‘(a) INCOME-RELATED SUBSIDIES FOR INDI4 VIDUALS WITH INCOME BELOW 150 PERCENT OF

5 FEDERAL POVERTY LEVEL.—

6 ‘‘(1) FULL PREMIUM SUBSIDY AND REDUC7 TION OF COST-SHARING FOR INDIVIDUALS

8 WITH INCOME BELOW 135 PERCENT OF FED9 ERAL POVERTY LEVEL.—In the case of a 

10 subsidy eligible individual (as defined in 

11 paragraph (4)) who is determined to have 

12 income that does not exceed 135 percent 

13 of the Federal poverty level, the indi14 vidual is entitled under this section—

15 ‘‘(A) to an income-related pre16 mium subsidy equal to 100 percent of 

17 the amount described in subsection 

18 (b)(1); and 

19 ‘‘(B) subject to subsection (c), to 

20 the substitution for the beneficiary 

21 cost-sharing described in paragraphs 

22 (1) and (2) of section 1860D–2(b) (up 

23 to the initial coverage limit specified 

24 in paragraph (3) of such section) of 

25 amounts that do not exceed $2 for a 

26 multiple source or generic drug (as 
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1 described in section 1927(k)(7)(A)) 

2 and $5 for a non-preferred drug.

3 ‘‘(2) SLIDING SCALE PREMIUM SUBSIDY

4 FOR INDIVIDUALS WITH INCOME ABOVE 135, 

5 BUT BELOW 150 PERCENT, OF FEDERAL POV6 ERTY LEVEL.—In the case of a subsidy eli7 gible individual who is determined to 

8 have income that exceeds 135 percent, 

9 but does not exceed 150 percent, of the 

10 Federal poverty level, the individual is 

11 entitled under this section to an income12 related premium subsidy determined on 

13 a linear sliding scale ranging from 100 

14 percent of the amount described in sub15 section (b)(1) for individuals with in16 comes at 135 percent of such level to 0 

17 percent of such amount for individuals 

18 with incomes at 150 percent of such level. 

19 ‘‘(3) CONSTRUCTION.—Nothing in this 

20 section shall be construed as preventing 

21 a PDP sponsor or entity offering a MA22 EFFS Rx plan from reducing to 0 the 

23 cost-sharing otherwise applicable to ge24 neric drugs. 

25 ‘‘(4) DETERMINATION OF ELIGIBILITY.—
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1 ‘‘(A) SUBSIDY ELIGIBLE INDIVIDUAL

2 DEFINED.—For purposes of this sec3 tion, subject to subparagraph (D), the 

4 term ‘subsidy eligible individual’

5 means an individual who—

6 ‘‘(i) is eligible to elect, and has 

7 elected, to obtain qualified pre8 scription drug coverage under 

9 this part; 

10 ‘‘(ii) has income below 150 

11 percent of the Federal poverty 

12 line; and 

13 ‘‘(iii) meets the resources re14 quirement described in subpara15 graph (D) . 

16 ‘‘(B) DETERMINATIONS.—The deter17 mination of whether an individual re18 siding in a State is a subsidy eligible 

19 individual and the amount of such in20 dividual’s income shall be determined 

21 under the State medicaid plan for the 

22 State under section 1935(a) or by the 

23 Social Security Administration. In the 

24 case of a State that does not operate 

25 such a medicaid plan (either under 
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1 title XIX or under a statewide waiver 

2 granted under section 1115), such de3 termination shall be made under ar4 rangements made by the Adminis5 trator. There are authorized to be ap6 propriated to the Social Security Ad7 ministration such sums as may be 

8 necessary for the determination of 

9 eligibility under this subparagraph. 

10 ‘‘(C) INCOME DETERMINATIONS.—For 

11 purposes of applying this section—

12 ‘‘(i) income shall be deter13 mined in the manner described in 

14 section 1905(p)(1)(B); and 

15 ‘‘(ii) the term ‘Federal poverty 

16 line’ means the official poverty 

17 line (as defined by the Office of 

18 Management and Budget, and re19 vised annually in accordance 

20 with section 673(2) of the Omni21 bus Budget Reconciliation Act of 

22 1981) applicable to a family of the 

23 size involved. 

24 ‘‘(D) RESOURCE STANDARD APPLIED

25 TO BE BASED ON TWICE SSI RESOURCE
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1 STANDARD.—The resource requirement 

2 of this subparagraph is that an indi3 vidual’s resources (as determined 

4 under section 1613 for purposes of 

5 the supplemental security income 

6 program) do not exceed—

7 ‘‘(i) for 2006 twice the max8 imum amount of resources that 

9 an individual may have and ob10 tain benefits under that program; 

11 and 

12 ‘‘(ii) for a subsequent year the 

13 resource limitation established 

14 under this clause for the previous 

15 year increased by the annual per16 centage increase in the consumer 

17 price index (all items; U.S. city av18 erage) as of September of such 

19 previous year. 

20 Any resource limitation established 

21 under clause (ii) that is not a multiple 

22 of $10 shall be rounded to the nearest 

23 multiple of $10. 

24 ‘‘(E) TREATMENT OF TERRITORIAL

25 RESIDENTS.—In the case of an indi-
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1 vidual who is not a resident of the 50 

2 States or the District of Columbia, the 

3 individual is not eligible to be a sub4 sidy eligible individual but may be el5 igible for financial assistance with 

6 prescription drug expenses under 

7 section 1935(e). 

8 ‘‘(F) TREATMENT OF CONFORMING

9 MEDIGAP POLICIES.—For purposes of 

10 this section, the term ‘qualified pre11 scription drug coverage’ includes a 

12 medicare supplemental policy de13 scribed in section 1860D–8(b)(4). 

14 ‘‘(5) INDEXING DOLLAR AMOUNTS.—

15 ‘‘(A) FOR 2007.—The dollar 

16 amounts applied under paragraphs 

17 (1)(B) for 2007 shall be the dollar 

18 amounts specified in such paragraph 

19 increased by the annual percentage 

20 increase described in section 1860D–

21 2(b)(5) for 2007. 

22 ‘‘(B) FOR SUBSEQUENT YEARS.—The 

23 dollar amounts applied under para24 graph (1)(B) for a year after 2007 

25 shall be the amounts (under this 
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1 paragraph) applied under paragraph 

2 (1)(B) for the preceding year in3 creased by the annual percentage in4 crease described in section 1860D–

5 2(b)(5) (relating to growth in medi6 care prescription drug costs per ben7 eficiary) for the year involved. 

8 ‘‘(b) PREMIUM SUBSIDY AMOUNT.—

9 ‘‘(1) IN GENERAL.—The premium sub10 sidy amount described in this subsection 

11 for an individual residing in an area is 

12 the benchmark premium amount (as de13 fined in paragraph (2)) for qualified pre14 scription drug coverage offered by the 

15 prescription drug plan or the MA-EFFS 

16 Rx plan in which the individual is en17 rolled. 

18 ‘‘(2) BENCHMARK PREMIUM AMOUNT DE19 FINED.—For purposes of this subsection, 

20 the term ‘benchmark premium amount’

21 means, with respect to qualified prescrip22 tion drug coverage offered under—

23 ‘‘(A) a prescription drug plan 

24 that—
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1 ‘‘(i) provides standard cov2 erage (or alternative prescription 

3 drug coverage the actuarial value 

4 of which is equivalent to that of 

5 standard coverage), the premium 

6 amount for enrollment under the 

7 plan under this part (determined 

8 without regard to any subsidy 

9 under this section or any late en10 rollment penalty under section 

11 1860D–1(c)(2)(B)); or 

12 ‘‘(ii) provides alternative pre13 scription drug coverage the actu14 arial value of which is greater 

15 than that of standard coverage, 

16 the premium amount described in 

17 clause (i) multiplied by the ratio 

18 of (I) the actuarial value of stand19 ard coverage, to (II) the actuarial 

20 value of the alternative coverage; 

21 or 

22 ‘‘(B) a MA-EFFS Rx plan, the por23 tion of the premium amount that is 

24 attributable to statutory drug bene-
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1 fits (described in section 

2 1853(a)(1)(A)(ii)(II)). 

3 ‘‘(c) RULES IN APPLYING COST-SHARING SUB4 SIDIES.—

5 ‘‘(1) IN GENERAL.—In applying sub6 section (a)(1)(B), nothing in this part 

7 shall be construed as preventing a plan 

8 or provider from waiving or reducing the 

9 amount of cost-sharing otherwise appli10 cable. 

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

12 case of an individual receiving cost-shar13 ing subsidies under subsection (a)(1)(B), 

14 the PDP sponsor or entity offering a MA15 EFFS Rx plan may not charge more than 

16 $5 per prescription. 

17 ‘‘(3) APPLICATION OF INDEXING RULES.—

18 The provisions of subsection (a)(5) shall 

19 apply to the dollar amount specified in 

20 paragraph (2) in the same manner as they 

21 apply to the dollar amounts specified in 

22 subsections (a)(1)(B). 

23 ‘‘(d) ADMINISTRATION OF SUBSIDY PRO24 GRAM.—The Administrator shall provide a 

25 process whereby, in the case of an individual 
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1 who is determined to be a subsidy eligible in2 dividual and who is enrolled in prescription 

3 drug plan or is enrolled in a MA-EFFS Rx 

4 plan—

5 ‘‘(1) the Administrator provides for a 

6 notification of the PDP sponsor or the en7 tity offering the MA-EFFS Rx plan in8 volved that the individual is eligible for a 

9 subsidy and the amount of the subsidy 

10 under subsection (a); 

11 ‘‘(2) the sponsor or entity involved re12 duces the premiums or cost-sharing oth13 erwise imposed by the amount of the ap14 plicable subsidy and submits to the Ad15 ministrator information on the amount of 

16 such reduction; and 

17 ‘‘(3) the Administrator periodically 

18 and on a timely basis reimburses the 

19 sponsor or entity for the amount of such 

20 reductions. 

21 The reimbursement under paragraph (3) with 

22 respect to cost-sharing subsidies may be com23 puted on a capitated basis, taking into ac24 count the actuarial value of the subsidies and 
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1 with appropriate adjustments to reflect dif2 ferences in the risks actually involved. 

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

4 ‘‘(1) IN GENERAL.—For provisions pro5 viding for eligibility determinations, and 

6 additional financing, under the medicaid 

7 program, see section 1935. 

8 ‘‘(2) MEDICAID PROVIDING WRAP AROUND

9 BENEFITS.—The coverage provided under 

10 this part is primary payor to benefits for 

11 prescribed drugs provided under the 

12 medicaid program under title XIX con13 sistent with section 1935(d)(1). 

14 ‘‘(3) COORDINATION.—The Adminis15 trator shall develop and implement a 

16 plan for the coordination of prescription 

17 drug benefits under this part with the 

18 benefits provided under the medicaid 

19 program under title XIX, with particular 

20 attention to insuring coordination of pay21 ments and prevention of fraud and abuse. 

22 In developing and implementing such 

23 plan, the Administrator shall involve the 

24 Secretary, the States, the data processing 

25 industry, pharmacists, and pharma-
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1 ceutical manufacturers, and other ex2 perts.

3 ‘‘SEC. 1860D–8. SUBSIDIES FOR ALL MEDICARE BENE4 FICIARIES FOR QUALIFIED PRESCRIPTION 

5 DRUG COVERAGE. 

6 ‘‘(a) SUBSIDY PAYMENT.—In order to reduce 

7 premium levels applicable to qualified pre8 scription drug coverage for all medicare bene9 ficiaries consistent with an overall subsidy 

10 level of 73 percent, to reduce adverse selec11 tion among prescription drug plans and MA12 EFFS Rx plans, and to promote the participa13 tion of PDP sponsors under this part, the Ad14 ministrator shall provide in accordance with 

15 this section for payment to a qualifying entity 

16 (as defined in subsection (b)) of the following 

17 subsidies: 

18 ‘‘(1) DIRECT SUBSIDY.—In the case of 

19 an enrollee enrolled for a month in a pre20 scription drug plan or a MA-EFFS Rx 

21 plan, a direct subsidy equal to 43 percent 

22 of the national average monthly bid 

23 amount (computed under subsection (g)) 

24 for that month.
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1 ‘‘(2) SUBSIDY THROUGH REINSURANCE.—

2 In the case of an enrollee enrolled for a 

3 month in a prescription drug plan or a 

4 MA-EFFS Rx plan, the reinsurance pay5 ment amount (as defined in subsection 

6 (c)), which in the aggregate is 30 percent 

7 of the total payments made by qualifying 

8 entities for standard coverage under the 

9 respective plan, for excess costs incurred 

10 in providing qualified prescription drug 

11 coverage—

12 ‘‘(A) for enrollees with a prescrip13 tion drug plan under this part; and 

14 ‘‘(B) for enrollees with a MA-EFFS 

15 Rx plan. 

16 ‘‘(3) EMPLOYER AND UNION FLEXI17 BILITY.—In the case of an individual who 

18 is a participant or beneficiary in a quali19 fied retiree prescription drug plan (as de20 fined in subsection (f)(1)) and who is not 

21 enrolled in a prescription drug plan or in 

22 a MA-EFFS Rx plan, the special subsidy 

23 payments under subsection (f)(3). 

24 This section constitutes budget authority in 

25 advance of appropriations Acts and rep-
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1 resents the obligation of the Administrator to 

2 provide for the payment of amounts provided 

3 under this section. In applying the percent4 ages under paragraphs (1) and (2), there shall 

5 be taken into account under the respective 

6 paragraphs the portion of the employer and 

7 union special subsidy payments under sub8 section (f)(3) that reflect payments that would 

9 have been made under the respective para10 graphs if such paragraphs had applied to 

11 qualified retiree prescription drug plans in12 stead of paragraph (3). 

13 ‘‘(b) QUALIFYING ENTITY DEFINED.—For 

14 purposes of this section, the term ‘qualifying 

15 entity’ means any of the following that has en16 tered into an agreement with the Adminis17 trator to provide the Administrator with such 

18 information as may be required to carry out 

19 this section: 

20 ‘‘(1) A PDP sponsor offering a pre21 scription drug plan under this part. 

22 ‘‘(2) An entity that offers a MA-EFFS 

23 Rx plan. 
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1 ‘‘(3) The sponsor of a qualified retiree 

2 prescription drug plan (as defined in sub3 section (f)). 

4 ‘‘(c) REINSURANCE PAYMENT AMOUNT.—

5 ‘‘(1) IN GENERAL.—Subject to sub6 section (d)(1)(B) and paragraph (4), the 

7 reinsurance payment amount under this 

8 subsection for a qualifying covered indi9 vidual (as defined in paragraph (5)) for a 

10 coverage year (as defined in subsection 

11 (h)(2)) is equal to the sum of the fol12 lowing: 

13 ‘‘(A) REINSURANCE BETWEEN INITIAL

14 REINSURANCE THRESHOLD AND THE INI15 TIAL COVERAGE LIMIT.—For the portion 

16 of the individual’s gross covered pre17 scription drug costs (as defined in 

18 paragraph (3)) for the year that ex19 ceeds the initial reinsurance thresh20 old specified in paragraph (4), but 

21 does not exceed the initial coverage 

22 limit specified in section 1860D–

23 2(b)(3), an amount equal to 20 percent 

24 of the allowable costs (as defined in 
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1 paragraph (2)) attributable to such 

2 gross covered prescription drug costs. 

3 ‘‘(B) REINSURANCE ABOVE ANNUAL

4 OUT-OF-POCKET THRESHOLD.—For the 

5 portion of the individual’s gross cov6 ered prescription drug costs for the 

7 year that exceeds the annual out-of8 pocket threshold specified in 1860D–

9 2(b)(4)(B), an amount equal to 80 per10 cent of the allowable costs attrib11 utable to such gross covered prescrip12 tion drug costs. 

13 ‘‘(2) ALLOWABLE COSTS.—For purposes 

14 of this section, the term ‘allowable costs’

15 means, with respect to gross covered pre16 scription drug costs under a plan de17 scribed in subsection (b) offered by a 

18 qualifying entity, the part of such costs 

19 that are actually paid (net of discounts, 

20 chargebacks, and average percentage re21 bates) under the plan, but in no case 

22 more than the part of such costs that 

23 would have been paid under the plan if 

24 the prescription drug coverage under the 

25 plan were standard coverage. 
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1 ‘‘(3) GROSS COVERED PRESCRIPTION

2 DRUG COSTS.—For purposes of this sec3 tion, the term ‘gross covered prescription 

4 drug costs’ means, with respect to an en5 rollee with a qualifying entity under a 

6 plan described in subsection (b) during a 

7 coverage year, the costs incurred under 

8 the plan (including costs attributable to 

9 administrative costs) for covered pre10 scription drugs dispensed during the 

11 year, including costs relating to the de12 ductible, whether paid by the enrollee or 

13 under the plan, regardless of whether the 

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

16 payment for such drugs is made. 

17 ‘‘(4) INITIAL REINSURANCE THRESHOLD.—

18 The initial reinsurance threshold speci19 fied in this paragraph—

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

21 ‘‘(B) for a subsequent year, is 

22 equal to the payment threshold speci23 fied in this paragraph for the pre24 vious year, increased by the annual 

25 percentage increase described in sec-
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1 tion 1860D–2(b)(5) for the year in2 volved. 

3 Any amount determined under subpara4 graph (B) that is not a multiple of $10 

5 shall be rounded to the nearest multiple 

6 of $10.

7 ‘‘(5) QUALIFYING COVERED INDIVIDUAL

8 DEFINED.—For purposes of this sub9 section, the term ‘qualifying covered indi10 vidual’ means an individual who—

11 ‘‘(A) is enrolled with a prescrip12 tion drug plan under this part; or 

13 ‘‘(B) is enrolled with a MA-EFFS 

14 Rx plan. 

15 ‘‘(d) ADJUSTMENT OF PAYMENTS.—

16 ‘‘(1) ADJUSTMENT OF REINSURANCE PAY17 MENTS TO ASSURE 30 PERCENT LEVEL OF SUB18 SIDY THROUGH REINSURANCE.—

19 ‘‘(A) ESTIMATION OF PAYMENTS.—

20 The Administrator shall estimate—

21 ‘‘(i) the total payments to be 

22 made (without regard to this sub23 section) during a year under sub24 sections (a)(2) and (c); and 
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1 ‘‘(ii) the total payments to be 

2 made by qualifying entities for 

3 standard coverage under plans 

4 described in subsection (b) during 

5 the year. 

6 ‘‘(B) ADJUSTMENT.—The Adminis7 trator shall proportionally adjust the 

8 payments made under subsections 

9 (a)(2) and (c) for a coverage year in 

10 such manner so that the total of the 

11 payments made under such sub12 sections (and under subsection (f)(3) 

13 insofar as such payments reflect pay14 ments that would have been made 

15 under such subsections if such sub16 sections had applied to qualified re17 tiree prescription drug plans instead 

18 of subsections (a)(3) and (f)(3)) for the 

19 year is equal to 30 percent of the total 

20 payments described in subparagraph 

21 (A)(ii). 

22 ‘‘(2) RISK ADJUSTMENT FOR DIRECT SUB23 SIDIES.—To the extent the Administrator 

24 determines it appropriate to avoid risk 

25 selection, the payments made for direct 
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1 subsidies under subsection (a)(1) are sub2 ject to adjustment based upon risk fac3 tors specified by the Administrator. Any 

4 such risk adjustment shall be designed in 

5 a manner as to not result in a change in 

6 the aggregate payments made under such 

7 subsection. 

8 ‘‘(e) PAYMENT METHODS.—

9 ‘‘(1) IN GENERAL.—Payments under 

10 this section shall be based on such a 

11 method as the Administrator determines. 

12 The Administrator may establish a pay13 ment method by which interim payments 

14 of amounts under this section are made 

15 during a year based on the Administra16 tor’s best estimate of amounts that will 

17 be payable after obtaining all of the in18 formation. 

19 ‘‘(2) SOURCE OF PAYMENTS.—Payments 

20 under this section shall be made from the 

21 Medicare Prescription Drug Trust Fund. 

22 ‘‘(f) RULES RELATING TO QUALIFIED RETIREE

23 PRESCRIPTION DRUG PLAN.—

24 ‘‘(1) DEFINITION.—For purposes of this 

25 section, the term ‘qualified retiree pre-
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1 scription drug plan’ means employment2 based retiree health coverage (as defined 

3 in paragraph (4)(A)) if, with respect to an 

4 individual who is a participant or bene5 ficiary under such coverage and is eligi6 ble to be enrolled in a prescription drug 

7 plan or a MA-EFFS Rx plan under this 

8 part, the following requirements are met: 

9 ‘‘(A) ACTUARIAL EQUIVALENCE TO

10 STANDARD COVERAGE.—The Adminis11 trator determines (based on an actu12 arial analysis by the Administrator) 

13 that coverage provides at least the 

14 same actuarial value as standard cov15 erage. Such determination may be 

16 made on an annual basis. 

17 ‘‘(B) AUDITS.—The sponsor (and 

18 the plan) shall maintain, and afford 

19 the Administrator access to, such 

20 records as the Administrator may re21 quire for purposes of audits and 

22 other oversight activities necessary 

23 to ensure the adequacy of prescrip24 tion drug coverage and the accuracy 

25 of payments made. 
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1 ‘‘(C) PROVISION OF CERTIFICATION

2 OF PRESCRIPTION DRUG COVERAGE.—

3 The sponsor of the plan shall provide 

4 for issuance of certifications of the 

5 type described in section 1860D–

6 1(c)(2)(D). 

7 ‘‘(2) LIMITATION ON BENEFIT ELIGI8 BILITY.—No payment shall be provided 

9 under this section with respect to a par10 ticipant or beneficiary in a qualified re11 tiree prescription drug plan unless the 

12 individual is—

13 ‘‘(A) is covered under the plan; 

14 and 

15 ‘‘(B) is eligible to obtain qualified 

16 prescription drug coverage under 

17 section 1860D–1 but did not elect such 

18 coverage under this part (either 

19 through a prescription drug plan or 

20 through a MA-EFFS Rx plan). 

21 ‘‘(3) EMPLOYER AND UNION SPECIAL SUB22 SIDY AMOUNTS.—

23 ‘‘(A) IN GENERAL.—For purposes of 

24 subsection (a), the special subsidy 

25 payment amount under this para-
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1 graph for a qualifying covered retiree 

2 (as defined in paragraph (6)) for a 

3 coverage year (as defined in sub4 section (h)) enrolled in a qualifying 

5 entity described in subsection (b)(3) 

6 under a qualified retiree prescription 

7 drug plan is, for the portion of the in8 dividual’s gross covered prescription 

9 drug costs for the year that exceeds 

10 the deductible amount specified in 

11 subparagraph (B), an amount equal 

12 to, subject to subparagraph (D), 28 

13 percent of the allowable costs attrib14 utable to such gross covered prescrip15 tion drug costs, but only to the extent 

16 such costs exceed the deductible 

17 under subparagraph (B) and do not 

18 exceed the cost limit under such sub19 paragraph in the case of any such in20 dividual for the plan year. 

21 ‘‘(B) DEDUCTIBLE AND COST LIMIT

22 APPLICABLE.—Subject to subpara23 graph (C)—
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1 ‘‘(i) the deductible under this 

2 subparagraph is equal to $250 for 

3 plan years that end in 2006; and 

4 ‘‘(ii) the cost limit under this 

5 subparagraph is equal to $5,000 

6 for plan years that end in 2006. 

7 ‘‘(C) INDEXING.—The deductible 

8 and cost limit amounts specified in 

9 subparagraphs (B) for a plan year 

10 that ends after 2006 shall be adjusted 

11 in the same manner as the annual de12 ductible under section 1860D–2(b)(1) 

13 is annually adjusted under such sec14 tion. 

15 ‘‘(D) ADJUSTMENT CONTINGENCY.—

16 The Secretary may adjust the per17 centage specified in subparagraph (A) 

18 with respect to plan years that end in 

19 a year in a manner so that the aggre20 gate expenditures in the year under 

21 this section are the same as the ag22 gregate expenditures that would have 

23 been made under this section (taking 

24 into account the effect of any adjust25 ment under subsection (d)(1)(B)) if 
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1 paragraphs (1) and (2) of subsection 

2 (a) had applied to qualified prescrip3 tion drug coverage instead of this 

4 paragraph and subsection (a)(3).

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

6 this section: 

7 ‘‘(A) EMPLOYMENT-BASED RETIREE

8 HEALTH COVERAGE.—The term ‘employ9 ment-based retiree health coverage’

10 means health insurance or other cov11 erage of health care costs for individ12 uals eligible to enroll in a prescrip13 tion drug plan or MA-EFFS Rx plan 

14 under this part (or for such individ15 uals and their spouses and depend16 ents) under a group health plan (in17 cluding such a plan that is estab18 lished or maintained under or pursu19 ant to one or more collective bar20 gaining agreements) based on their 

21 status as retired participants in such 

22 plan. 

23 ‘‘(B) QUALIFYING COVERED RE24 TIREE.—The term ‘qualifying covered 

25 retiree’ means an individual who is 
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1 eligible to obtain qualified prescrip2 tion drug coverage under section 

3 1860D–1 but did not elect such cov4 erage under this part (either through 

5 a prescription drug plan or through a 

6 MA-EFFS Rx plan) but is covered 

7 under a qualified retiree prescription 

8 drug plan. 

9 ‘‘(C) SPONSOR.—The term ‘sponsor’

10 means a plan sponsor, as defined in 

11 section 3(16)(B) of the Employee Re12 tirement Income Security Act of 1974, 

13 except that, in the case of a single14 employer plan (as defined in section 

15 3(41) of such Act), such term means 

16 the employer of the plan participants 

17 if such employer has been designated 

18 as the plan sponsor in all prior sum19 mary plan descriptions and annual 

20 reports issued with respect to the 

21 plan under part 1 of subtitle B of title 

22 I of such Act. 

23 ‘‘(5) CONSTRUCTION.—Nothing in this 

24 subsection shall be construed as—
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1 ‘‘(A) precluding an individual who 

2 is covered under employment-based 

3 retiree health coverage from enroll4 ing in a prescription drug plan or in 

5 a MA-EFFS plan; 

6 ‘‘(B) precluding such employment7 based retiree health coverage or an 

8 employer or other person from pay9 ing all or any portion of any premium 

10 required for coverage under such a 

11 prescription drug plan or MA-EFFS 

12 plan on behalf of such an individual; 

13 or 

14 ‘‘(C) preventing such employment15 based retiree health coverage from 

16 providing coverage for retirees—

17 ‘‘(i) who are covered under a 

18 qualified retiree prescription plan 

19 that is better than standard cov20 erage; or 

21 ‘‘(ii) who are not covered 

22 under a qualified retiree prescrip23 tion plan but who are enrolled in 

24 a prescription drug plan or a MA25 EFFS Rx plan, that is supple-
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1 mental to the benefits provided 

2 under such prescription drug 

3 plan or MA-EFFS Rx plan, except 

4 that any such supplemental cov5 erage (not including payment of 

6 any premium referred to in sub7 paragraph (B)) shall be treated as 

8 primary coverage to which sec9 tion 1862(b)(2)(A)(i) is deemed to 

10 apply. 

11 ‘‘(g) COMPUTATION OF NATIONAL AVERAGE

12 MONTHLY BID AMOUNT.—

13 ‘‘(1) IN GENERAL.—For each year (be14 ginning with 2006) the Administrator 

15 shall compute a national average month16 ly bid amount equal to the average of the 

17 benchmark bid amounts for each pre18 scription drug plan and for each MA19 EFFS Rx plan (as computed under para20 graph (2), but excluding plans described 

21 in section 1851(a)(2)(C))) adjusted under 

22 paragraph (4) to take into account rein23 surance payments. 

24 ‘‘(2) BENCHMARK BID AMOUNT DE25 FINED.—For purposes of this subsection, 
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1 the term ‘benchmark bid amount’ means, 

2 with respect to qualified prescription 

3 drug coverage offered under—

4 ‘‘(A) a prescription drug plan 

5 that—

6 ‘‘(i) provides standard cov7 erage (or alternative prescription 

8 drug coverage the actuarial value 

9 of which is equivalent to that of 

10 standard coverage), the PDP bid; 

11 or 

12 ‘‘(ii) provides alternative pre13 scription drug coverage the actu14 arial value of which is greater 

15 than that of standard coverage, 

16 the PDP bid multiplied by the 

17 ratio of (I) the actuarial value of 

18 standard coverage, to (II) the ac19 tuarial value of the alternative 

20 coverage; or 

21 ‘‘(B) a MA-EFFS Rx plan, the por22 tion of the bid amount that is attrib23 utable to statutory drug benefits (de24 scribed in section 

25 1853(a)(1)(A)(ii)(II)). 
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1 For purposes of subparagraph (A), the 

2 term ‘PDP bid’ means, with respect to a 

3 prescription drug plan, the bid amount 

4 for enrollment under the plan under this 

5 part (determined without regard to any 

6 low-income subsidy under section 1860D–

7 7 or any late enrollment penalty under 

8 section 1860D–1(c)(2)(B)). 

9 ‘‘(3) WEIGHTED AVERAGE.—

10 ‘‘(A) IN GENERAL.—The monthly 

11 national average monthly bid amount 

12 computed under paragraph (1) shall 

13 be a weighted average, with the 

14 weight for each plan being equal to 

15 the average number of beneficiaries 

16 enrolled under such plan in the pre17 vious year. 

18 ‘‘(B) SPECIAL RULE FOR 2006.—For 

19 purposes of applying this subsection 

20 for 2006, the Administrator shall es21 tablish procedures for determining 

22 the weighted average under subpara23 graph (A) for 2005. 

24 ‘‘(4) ADJUSTMENT TO ADD BACK IN VALUE

25 OF REINSURANCE SUBSIDIES.—The adjust-
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1 ment under this paragraph, to take into 

2 account reinsurance payments under 

3 subsection (c) making up 30 percent of 

4 total payments, is such an adjustment as 

5 will make the national average monthly 

6 bid amount represent represent 100 per7 cent, instead of representing 70 percent, 

8 of average payments under this part.

9 ‘‘(h) COVERAGE YEAR DEFINED.—For pur10 poses of this section, the term ‘coverage year’

11 means a calendar year in which covered out12 patient drugs are dispensed if a claim for pay13 ment is made under the plan for such drugs, 

14 regardless of when the claim is paid. 

15 ‘‘SEC. 1860D–9. MEDICARE PRESCRIPTION DRUG TRUST 

16 FUND. 

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

18 books of the Treasury of the United States a 

19 trust fund to be known as the ‘Medicare Pre20 scription Drug Trust Fund’ (in this section re21 ferred to as the ‘Trust Fund’). The Trust Fund 

22 shall consist of such gifts and bequests as may 

23 be made as provided in section 201(i)(1), and 

24 such amounts as may be deposited in, or ap25 propriated to, such fund as provided in this 
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1 part. Except as otherwise provided in this sec2 tion, the provisions of subsections (b) through 

3 (i) of section 1841 shall apply to the Trust 

4 Fund in the same manner as they apply to the 

5 Federal Supplementary Medical Insurance 

6 Trust Fund under such section. 

7 ‘‘(b) PAYMENTS FROM TRUST FUND.—

8 ‘‘(1) IN GENERAL.—The Managing 

9 Trustee shall pay from time to time from 

10 the Trust Fund such amounts as the Ad11 ministrator certifies are necessary to 

12 make—

13 ‘‘(A) payments under section 

14 1860D–7 (relating to low-income sub15 sidy payments); 

16 ‘‘(B) payments under section 

17 1860D–8 (relating to subsidy pay18 ments); and 

19 ‘‘(C) payments with respect to ad20 ministrative expenses under this part 

21 in accordance with section 201(g). 

22 ‘‘(2) TRANSFERS TO MEDICAID ACCOUNT

23 FOR INCREASED ADMINISTRATIVE COSTS.—

24 The Managing Trustee shall transfer from 

25 time to time from the Trust Fund to the 
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1 Grants to States for Medicaid account 

2 amounts the Administrator certifies are 

3 attributable to increases in payment re4 sulting from the application of a higher 

5 Federal matching percentage under sec6 tion 1935(b). 

7 ‘‘(c) DEPOSITS INTO TRUST FUND.—

8 ‘‘(1) LOW-INCOME TRANSFER.—There is 

9 hereby transferred to the Trust Fund, 

10 from amounts appropriated for Grants to 

11 States for Medicaid, amounts equivalent 

12 to the aggregate amount of the reduc13 tions in payments under section 

14 1903(a)(1) attributable to the application 

15 of section 1935(c). 

16 ‘‘(2) APPROPRIATIONS TO COVER GOV17 ERNMENT CONTRIBUTIONS.—There are au18 thorized to be appropriated from time to 

19 time, out of any moneys in the Treasury 

20 not otherwise appropriated, to the Trust 

21 Fund, an amount equivalent to the 

22 amount of payments made from the Trust 

23 Fund under subsection (b), reduced by 

24 the amount transferred to the Trust Fund 

25 under paragraph (1). 
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1 ‘‘(d) RELATION TO SOLVENCY REQUIRE2 MENTS.—Any provision of law that relates to 

3 the solvency of the Trust Fund under this 

4 part shall take into account the Trust Fund 

5 and amounts receivable by, or payable from, 

6 the Trust Fund. 

7 ‘‘SEC. 1860D–10. DEFINITIONS; APPLICATION TO MEDICARE 

8 ADVANTAGE AND EFFS PROGRAMS; TREAT9 MENT OF REFERENCES TO PROVISIONS IN 

10 PART C. 

11 ‘‘(a) DEFINITIONS.—For purposes of this 

12 part: 

13 ‘‘(1) COVERED OUTPATIENT DRUGS.—The 

14 term ‘covered outpatient drugs’ is defined 

15 in section 1860D–2(f). 

16 ‘‘(2) INITIAL COVERAGE LIMIT.—The 

17 term ‘initial coverage limit’ means such 

18 limit as established under section 1860D–

19 2(b)(3), or, in the case of coverage that is 

20 not standard coverage, the comparable 

21 limit (if any) established under the cov22 erage. 

23 ‘‘(3) MEDICARE PRESCRIPTION DRUG

24 TRUST FUND.—The term ‘Medicare Pre25 scription Drug Trust Fund’ means the 
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1 Trust Fund created under section 1860D–

2 9(a). 

3 ‘‘(4) PDP SPONSOR.—The term ‘PDP 

4 sponsor’ means an entity that is certified 

5 under this part as meeting the require6 ments and standards of this part for such 

7 a sponsor. 

8 ‘‘(5) PRESCRIPTION DRUG PLAN.—The 

9 term ‘prescription drug plan’ means 

10 health benefits coverage that—

11 ‘‘(A) is offered under a policy, con12 tract, or plan by a PDP sponsor pur13 suant to, and in accordance with, a 

14 contract between the Administrator 

15 and the sponsor under section 1860D–

16 4(b); 

17 ‘‘(B) provides qualified prescrip18 tion drug coverage; and 

19 ‘‘(C) meets the applicable require20 ments of the section 1860D–3 for a 

21 prescription drug plan. 

22 ‘‘(6) QUALIFIED PRESCRIPTION DRUG

23 COVERAGE.—The term ‘qualified prescrip24 tion drug coverage’ is defined in section 

25 1860D–2(a). 
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1 ‘‘(7) STANDARD COVERAGE.—The term 

2 ‘standard coverage’ is defined in section 

3 1860D–2(b). 

4 ‘‘(b) OFFER OF QUALIFIED PRESCRIPTION

5 DRUG COVERAGE UNDER MEDICARE ADVANTAGE

6 AND EFFS PROGRAMS.—

7 ‘‘(1) AS PART OF MEDICARE ADVANTAGE

8 PLAN.—Medicare Advantage organizations 

9 are required to offer Medicare Advantage 

10 plans that include qualified prescription 

11 drug coverage under part C pursuant to 

12 section 1851(j). 

13 ‘‘(2) AS PART OF EFFS PLAN.—EFFS or14 ganizations are required to offer EFFS 

15 plans that include qualified prescription 

16 drug coverage under part E pursuant to 

17 section 1860E–2(d). 

18 ‘‘(c) APPLICATION OF PART C PROVISIONS

19 UNDER THIS PART.—For purposes of applying 

20 provisions of part C under this part with re21 spect to a prescription drug plan and a PDP 

22 sponsor, unless otherwise provided in this 

23 part such provisions shall be applied as if—
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1 ‘‘(1) any reference to a Medicare Ad2 vantage or other plan included a ref3 erence to a prescription drug plan; 

4 ‘‘(2) any reference to a provider-spon5 sored organization included a reference 

6 to a PDP sponsor; 

7 ‘‘(3) any reference to a contract under 

8 section 1857 included a reference to a 

9 contract under section 1860D–4(b); and 

10 ‘‘(4) any reference to part C included 

11 a reference to this part. 

12 ‘‘(d) REPORT ON PHARMACY SERVICES PRO13 VIDED TO NURSING FACILITY PATIENTS.—

14 ‘‘(1) REVIEW.—Within 6 months after 

15 the date of the enactment of this section, 

16 the Secretary shall review the current 

17 standards of practice for pharmacy serv18 ices provided to patients in nursing fa19 cilities. 

20 ‘‘(2) EVALUATIONS AND RECOMMENDA21 TIONS.—Specifically in the review under 

22 paragraph (1), the Secretary shall—

23 ‘‘(A) assess the current standards 

24 of practice, clinical services, and 

25 other service requirements generally 
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1 utilized for pharmacy services in the 

2 long-term care setting; 

3 ‘‘(B) evaluate the impact of those 

4 standards with respect to patient 

5 safety, reduction of medication errors 

6 and quality of care; and 

7 ‘‘(C) recommend (in the Sec8 retary’s report under paragraph (3)) 

9 necessary actions and appropriate re10 imbursement to ensure the provision 

11 of prescription drugs to medicare 

12 beneficiaries residing in nursing fa13 cilities in a manner consistent with 

14 existing patient safety and quality of 

15 care standards under applicable 

16 State and Federal laws. 

17 ‘‘(3) REPORT.—The Secretary shall 

18 submit a report to the Congress on the 

19 Secretary’s findings and recommenda20 tions under this subsection, including a 

21 detailed description of the Secretary’s 

22 plans to implement this part in a manner 

23 consistent with applicable State and Fed24 eral laws designed to protect the safety 
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1 and quality of care of nursing facility pa2 tients.’’. 

3 (b) ADDITIONAL CONFORMING CHANGES.—

4 (1) CONFORMING REFERENCES TO PRE5 VIOUS PART D.—Any reference in law (in 

6 effect before the date of the enactment of 

7 this Act) to part D of title XVIII of the So8 cial Security Act is deemed a reference to 

9 part F of such title (as in effect after such 

10 date). 

11 (2) CONFORMING AMENDMENT PERMIT12 TING WAIVER OF COST-SHARING.—Section 

13 1128B(b)(3) (42 U.S.C. 1320a–7b(b)(3)) is 

14 amended—

15 (A) by striking ‘‘and’’ at the end of 

16 subparagraph (E); 

17 (B) by striking the period at the 

18 end of subparagraph (F) and insert19 ing ‘‘; and’’; and 

20 (C) by adding at the end the fol21 lowing new subparagraph: 

22 ‘‘(G) the waiver or reduction of any 

23 cost-sharing imposed under part D of 

24 title XVIII.’’. 
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1 (3) SUBMISSION OF LEGISLATIVE PRO2 POSAL.—Not later than 6 months after the 

3 date of the enactment of this Act, the Sec4 retary of Health and Human Services 

5 shall submit to the appropriate commit6 tees of Congress a legislative proposal 

7 providing for such technical and con8 forming amendments in the law as are re9 quired by the provisions of this subtitle. 

10 (c) STUDY ON TRANSITIONING PART B PRE11 SCRIPTION DRUG COVERAGE.—Not later than 

12 January 1, 2005, the Medicare Benefits Ad13 ministrator shall submit a report to Congress 

14 that makes recommendations regarding 

15 methods for providing benefits under part D 

16 of title XVIII of the Social Security Act for out17 patient prescription drugs for which benefits 

18 are provided under part B of such title. 

19 SEC. 102. OFFERING OF QUALIFIED PRESCRIPTION DRUG 

20 COVERAGE UNDER MEDICARE ADVANTAGE 

21 AND ENHANCED FEE-FOR-SERVICE (EFFS) 

22 PROGRAM. 

23 (a) MEDICARE ADVANTAGE.—Section 1851 

24 (42 U.S.C. 1395w–21) is amended by adding at 

25 the end the following new subsection: 
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1 ‘‘(j) AVAILABILITY OF PRESCRIPTION DRUG

2 BENEFITS AND SUBSIDIES.—

3 ‘‘(1) OFFERING OF QUALIFIED PRESCRIP4 TION DRUG COVERAGE.—A Medicare Advan5 tage organization on and after January 1, 

6 2006—

7 ‘‘(A) may not offer a Medicare Ad8 vantage plan described in section 

9 1851(a)(2)(A) in an area unless either 

10 that plan (or another Medicare Ad11 vantage plan offered by the organiza12 tion in that area) includes qualified 

13 prescription drug coverage; and 

14 ‘‘(B) may not offer the prescrip15 tion drug coverage (other than that 

16 required under parts A and B) to an 

17 enrollee under a Medicare Advantage 

18 plan, unless such drug coverage is at 

19 least qualified prescription drug cov20 erage and unless the requirements of 

21 this subsection with respect to such 

22 coverage are met. 

23 ‘‘(2) REQUIREMENT FOR ELECTION OF

24 PART D COVERAGE TO OBTAIN QUALIFIED

25 PRESCRIPTION DRUG COVERAGE.—For pur-
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1 poses of this part, an individual who has 

2 not elected qualified prescription drug 

3 coverage under section 1860D–1(b) shall 

4 be treated as being ineligible to enroll in 

5 a Medicare Advantage plan under this 

6 part that offers such coverage. 

7 ‘‘(3) COMPLIANCE WITH CERTAIN ADDI8 TIONAL BENEFICIARY PROTECTIONS FOR PRE9 SCRIPTION DRUG COVERAGE.—With respect 

10 to the offering of qualified prescription 

11 drug coverage by a Medicare Advantage 

12 organization under this part on and after 

13 January 1, 2006, the organization and 

14 plan shall meet the requirements of sub15 sections (a) through (d) of section 1860D–

16 3 in the same manner as they apply to a 

17 PDP sponsor and a prescription drug 

18 plan under part D and shall submit to the 

19 Administrator the information described 

20 in section 1860D–6(a)(2). The Adminis21 trator shall waive such requirements to 

22 the extent the Administrator determines 

23 that such requirements duplicate re24 quirements otherwise applicable to the 

25 organization or plan under this part. 
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1 ‘‘(4) AVAILABILITY OF PREMIUM AND

2 COST-SHARING SUBSIDIES.—In the case of 

3 low-income individuals who are enrolled 

4 in a Medicare Advantage plan that pro5 vides qualified prescription drug cov6 erage, premium and cost-sharing sub7 sidies are provided for such coverage 

8 under section 1860D–7. 

9 ‘‘(5) AVAILABILITY OF DIRECT AND REIN10 SURANCE SUBSIDIES TO REDUCE BIDS AND

11 PREMIUMS.—Medicare Advantage organi12 zations are provided direct and reinsur13 ance subsidy payments for providing 

14 qualified prescription drug coverage 

15 under this part under section 1860D–8. 

16 ‘‘(6) CONSOLIDATION OF DRUG AND NON17 DRUG PREMIUMS.—In the case of a Medi18 care Advantage plan that includes quali19 fied prescription drug coverage, with re20 spect to an enrollee in such plan there 

21 shall be a single premium for both drug 

22 and non-drug coverage provided under 

23 the plan. 

24 ‘‘(7) TRANSITION IN INITIAL ENROLLMENT

25 PERIOD.—Notwithstanding any other pro-
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1 vision of this part, the annual, coordi2 nated election period under subsection 

3 (e)(3)(B) for 2006 shall be the 6-month pe4 riod beginning with November 2005. 

5 ‘‘(8) QUALIFIED PRESCRIPTION DRUG

6 COVERAGE; STANDARD COVERAGE.—For pur7 poses of this part, the terms ‘qualified 

8 prescription drug coverage’ and ‘stand9 ard coverage’ have the meanings given 

10 such terms in section 1860D–2. 

11 ‘‘(9) SPECIAL RULES FOR PRIVATE FEE12 FOR-SERVICE PLANS.— With respect to a 

13 Medicare Advantage plan described in 

14 section 1851(a)(2)(C) that offers qualified 

15 prescription drug coverage—

16 ‘‘(A) REQUIREMENTS REGARDING NE17 GOTIATED PRICES.—Subsections (a)(1) 

18 and (d)(1) of section 1860D–2 shall not 

19 be construed to require the plan to 

20 negotiate prices or discounts but 

21 shall apply to the extent the plan 

22 does so. 

23 ‘‘(B) MODIFICATION OF PHARMACY

24 PARTICIPATION REQUIREMENT.—If the 

25 plan provides access, without charg-
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1 ing additional copayments, to all 

2 pharmacies without regard to wheth3 er they are participating pharmacies 

4 in a network, section 1860D5 3(c)(1)(A)(iii) shall not apply to the 

6 plan. 

7 ‘‘(C) DRUG UTILIZATION MANAGE8 MENT PROGRAM NOT REQUIRED.—The 

9 requirements of section 1860D10 3(d)(1)(A) shall not apply to the plan. 

11 ‘‘(D) NON-PARTICIPATING PHARMACY

12 DISCLOSURE EXCEPTION.—If the plan 

13 provides coverage for drugs pur14 chased from all pharmacies, without 

15 entering into contracts or agreements 

16 with pharmacies to provide drugs to 

17 enrollees covered by the plan, section 

18 1860D-3(d)(5) shall not apply to the 

19 plan.’’. 

20 (b) APPLICATION TO EFFS PLANS.—Sub21 section (d) of section 1860E–2, as added by 

22 section 201(a), is amended to read as follows: 

23 ‘‘(d) AVAILABILITY OF PRESCRIPTION DRUG

24 BENEFITS AND SUBSIDIES.—
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1 ‘‘(1) OFFERING OF QUALIFIED PRESCRIP2 TION DRUG COVERAGE.—An EFFS organiza3 tion—

4 ‘‘(A) may not offer an EFFS plan 

5 in an area unless either that plan (or 

6 another EFFS plan offered by the or7 ganization in that area) includes 

8 qualified prescription drug coverage; 

9 and 

10 ‘‘(B) may not offer the prescrip11 tion drug coverage (other than that 

12 required under parts A and B) to an 

13 enrollee under an EFFS plan, unless 

14 such drug coverage is at least quali15 fied prescription drug coverage and 

16 unless the requirements of this sub17 section with respect to such coverage 

18 are met. 

19 ‘‘(2) REQUIREMENT FOR ELECTION OF

20 PART D COVERAGE TO OBTAIN QUALIFIED

21 PRESCRIPTION DRUG COVERAGE.—For pur22 poses of this part, an individual who has 

23 not elected qualified prescription drug 

24 coverage under section 1860D–1(b) shall 

25 be treated as being ineligible to enroll in 
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1 an EFFS plan under this part that offers 

2 such coverage. 

3 ‘‘(3) COMPLIANCE WITH CERTAIN ADDI4 TIONAL BENEFICIARY PROTECTIONS FOR PRE5 SCRIPTION DRUG COVERAGE.—With respect 

6 to the offering of qualified prescription 

7 drug coverage by an EFFS organization 

8 under this part, the organization and 

9 plan shall meet the requirements of sub10 sections (a) through (d) of section 1860D–

11 3 in the same manner as they apply to a 

12 PDP sponsor and a prescription drug 

13 plan under part D and shall submit to the 

14 Administrator the information described 

15 in section 1860D–6(a)(2). The Adminis16 trator shall waive such requirements to 

17 the extent the Administrator determines 

18 that such requirements duplicate re19 quirements otherwise applicable to the 

20 organization or plan under this part. 

21 ‘‘(4) AVAILABILITY OF PREMIUM AND

22 COST-SHARING SUBSIDIES.—In the case of 

23 low-income individuals who are enrolled 

24 in an EFFS plan that provides qualified 

25 prescription drug coverage, premium and 
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1 cost-sharing subsidies are provided for 

2 such coverage under section 1860D–7. 

3 ‘‘(5) AVAILABILITY OF DIRECT AND REIN4 SURANCE SUBSIDIES TO REDUCE BIDS AND

5 PREMIUMS.—EFFS organizations are pro6 vided direct and reinsurance subsidy 

7 payments for providing qualified pre8 scription drug coverage under this part 

9 under section 1860D–8. 

10 ‘‘(6) CONSOLIDATION OF DRUG AND NON11 DRUG PREMIUMS.—In the case of an EFFS 

12 plan that includes qualified prescription 

13 drug coverage, with respect to an en14 rollee in such plan there shall be a single 

15 premium for both drug and non-drug cov16 erage provided under the plan. 

17 ‘‘(7) QUALIFIED PRESCRIPTION DRUG

18 COVERAGE; STANDARD COVERAGE.—For pur19 poses of this part, the terms ‘qualified 

20 prescription drug coverage’ and ‘stand21 ard coverage’ have the meanings given 

22 such terms in section 1860D–2.’’. 

23 (c) CONFORMING AMENDMENTS.—Section 

24 1851 (42 U.S.C. 1395w–21) is amended—

25 (1) in subsection (a)(1)—
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1 (A) by inserting ‘‘(other than 

2 qualified prescription drug benefits)’’

3 after ‘‘benefits’’; 

4 (B) by striking the period at the 

5 end of subparagraph (B) and insert6 ing a comma; and 

7 (C) by adding after and below 

8 subparagraph (B) the following: 

9 ‘‘and may elect qualified prescription 

10 drug coverage in accordance with section 

11 1860D–1.’’; and 

12 (2) in subsection (g)(1), by inserting 

13 ‘‘and section 1860D–1(c)(2)(B)’’ after ‘‘in 

14 this subsection’’. 

15 (d) EFFECTIVE DATE.—The amendments 

16 made by this section apply to coverage pro17 vided on or after January 1, 2006.

18 SEC. 103. MEDICAID AMENDMENTS. 

19 (a) DETERMINATIONS OF ELIGIBILITY FOR

20 LOW-INCOME SUBSIDIES.—

21 (1) REQUIREMENT.—Section 1902(a) (42 

22 U.S.C. 1396a(a)) is amended—

23 (A) by striking ‘‘and’’ at the end of 

24 paragraph (64); 
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1 (B) by striking the period at the 

2 end of paragraph (65) and inserting ‘‘; 

3 and’’; and 

4 (C) by inserting after paragraph 

5 (65) the following new paragraph: 

6 ‘‘(66) provide for making eligibility 

7 determinations under section 1935(a).’’. 

8 (2) NEW SECTION.—Title XIX is further 

9 amended—

10 (A) by redesignating section 1935 

11 as section 1936; and 

12 (B) by inserting after section 1934 

13 the following new section: 

14 ‘‘SPECIAL PROVISIONS RELATING TO MEDICARE

15 PRESCRIPTION DRUG BENEFIT

16 ‘‘SEC. 1935. (a) REQUIREMENT FOR MAKING

17 ELIGIBILITY DETERMINATIONS FOR LOW-INCOME

18 SUBSIDIES.—As a condition of its State plan 

19 under this title under section 1902(a)(66) and 

20 receipt of any Federal financial assistance 

21 under section 1903(a), a State shall—

22 ‘‘(1) make determinations of eligibility 

23 for premium and cost-sharing subsidies 

24 under (and in accordance with) section 

25 1860D–7; 
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1 ‘‘(2) inform the Administrator of the 

2 Medicare Benefits Administration of such 

3 determinations in cases in which such 

4 eligibility is established; and 

5 ‘‘(3) otherwise provide such Adminis6 trator with such information as may be 

7 required to carry out part D of title XVIII 

8 (including section 1860D–7). 

9 ‘‘(b) PAYMENTS FOR ADDITIONAL ADMINIS10 TRATIVE COSTS.—

11 ‘‘(1) IN GENERAL.—The amounts ex12 pended by a State in carrying out sub13 section (a) are, subject to paragraph (2), 

14 expenditures reimbursable under the ap15 propriate paragraph of section 1903(a); 

16 except that, notwithstanding any other 

17 provision of such section, the applicable 

18 Federal matching rates with respect to 

19 such expenditures under such section 

20 shall be increased as follows (but in no 

21 case shall the rate as so increased exceed 

22 100 percent):

23 ‘‘(A) For expenditures attrib24 utable to costs incurred during 2005, 

25 the otherwise applicable Federal 
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1 matching rate shall be increased by 

2 10 percent of the percentage other3 wise payable (but for this subsection) 

4 by the State. 

5 ‘‘(B)(i) For expenditures attrib6 utable to costs incurred during 2006 

7 and each subsequent year through 

8 2013, the otherwise applicable Fed9 eral matching rate shall be increased 

10 by the applicable percent (as defined 

11 in clause (ii)) of the percentage other12 wise payable (but for this subsection) 

13 by the State. 

14 ‘‘(ii) For purposes of clause (i), the 

15 ‘applicable percent’ for—

16 ‘‘(I) 2006 is 20 percent; or 

17 ‘‘(II) a subsequent year is the 

18 applicable percent under this 

19 clause for the previous year in20 creased by 10 percentage points. 

21 ‘‘(C) For expenditures attrib22 utable to costs incurred after 2013, 

23 the otherwise applicable Federal 

24 matching rate shall be increased to 

25 100 percent.
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1 ‘‘(2) COORDINATION.—The State shall 

2 provide the Administrator with such in3 formation as may be necessary to prop4 erly allocate administrative expenditures 

5 described in paragraph (1) that may oth6 erwise be made for similar eligibility de7 terminations.’’. 

8 (b) PHASED-IN FEDERAL ASSUMPTION OF

9 MEDICAID RESPONSIBILITY FOR PREMIUM AND

10 COST-SHARING SUBSIDIES FOR DUALLY ELIGIBLE

11 INDIVIDUALS.—

12 (1) IN GENERAL.—Section 1903(a)(1) (42 

13 U.S.C. 1396b(a)(1)) is amended by insert14 ing before the semicolon the following: ‘‘

, 

15 reduced by the amount computed under 

16 section 1935(c)(1) for the State and the 

17 quarter’’. 

18 (2) AMOUNT DESCRIBED.—Section 1935, 

19 as inserted by subsection (a)(2), is amend20 ed by adding at the end the following 

21 new subsection: 

22 ‘‘(c) FEDERAL ASSUMPTION OF MEDICAID

23 PRESCRIPTION DRUG COSTS FOR DUALLY-ELIGI24 BLE BENEFICIARIES.—
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1 ‘‘(1) IN GENERAL.—For purposes of sec2 tion 1903(a)(1), for a State that is one of 

3 the 50 States or the District of Columbia 

4 for a calendar quarter in a year (begin5 ning with 2005) the amount computed 

6 under this subsection is equal to the 

7 product of the following: 

8 ‘‘(A) MEDICARE SUBSIDIES.—The 

9 total amount of payments made in the 

10 quarter under section 1860D–7 (relat11 ing to premium and cost-sharing pre12 scription drug subsidies for low-in13 come medicare beneficiaries) that are 

14 attributable to individuals who are 

15 residents of the State and are entitled 

16 to benefits with respect to prescribed 

17 drugs under the State plan under this 

18 title (including such a plan operating 

19 under a waiver under section 1115). 

20 ‘‘(B) STATE MATCHING RATE.—A pro21 portion computed by subtracting 

22 from 100 percent the Federal medical 

23 assistance percentage (as defined in 

24 section 1905(b)) applicable to the 

25 State and the quarter. 
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1 ‘‘(C) PHASE-OUT PROPORTION.—The 

2 phase-out proportion (as defined in 

3 paragraph (2)) for the quarter. 

4 ‘‘(2) PHASE-OUT PROPORTION.—For pur5 poses of paragraph (1)(C), the ‘phase-out 

6 proportion’ for a calendar quarter in—

‘‘(A) 2006 is 93-1 7 ⁄3 percent; 

8 ‘‘(B) a subsequent year before 

9 2021, is the phase-out proportion for 

10 calendar quarters in the previous 

year decreased by 6-2 11 ⁄3 percentage 

12 points; or 

13 ‘‘(C) a year after 2020 is 0 per14 cent.’’. 

15 (c) MEDICAID PROVIDING WRAP-AROUND

16 BENEFITS.—Section 1935, as so inserted and 

17 amended, is further amended by adding at the 

18 end the following new subsection: 

19 ‘‘(d) ADDITIONAL PROVISIONS.—

20 ‘‘(1) MEDICAID AS SECONDARY PAYOR.—

21 In the case of an individual who is enti22 tled to qualified prescription drug cov23 erage under a prescription drug plan 

24 under part D of title XVIII (or under a 

25 MA-EFFS Rx plan under part C or E of 
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1 such title) and medical assistance for pre2 scribed drugs under this title, medical as3 sistance shall continue to be provided 

4 under this title (other than for copay5 ment amounts specified in section 1860D–

6 7(a)(1)(B), notwithstanding section 1916) 

7 for prescribed drugs to the extent pay8 ment is not made under the prescription 

9 drug plan or MA-EFFS Rx plan selected 

10 by the individual. 

11 ‘‘(2) CONDITION.—A State may require, 

12 as a condition for the receipt of medical 

13 assistance under this title with respect to 

14 prescription drug benefits for an indi15 vidual eligible to obtain qualified pre16 scription drug coverage described in 

17 paragraph (1), that the individual elect 

18 qualified prescription drug coverage 

19 under section 1860D–1.’’. 

20 (d) TREATMENT OF TERRITORIES.—

21 (1) IN GENERAL.—Section 1935, as so 

22 inserted and amended, is further amend23 ed—

24 (A) in subsection (a) in the matter 

25 preceding paragraph (1), by inserting 
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1 ‘‘subject to subsection (e)’’ after ‘‘sec2 tion 1903(a)’’; 

3 (B) in subsection (c)(1), by insert4 ing ‘‘subject to subsection (e)’’ after 

5 ‘‘1903(a)(1)’’; and 

6 (C) by adding at the end the fol7 lowing new subsection: 

8 ‘‘(e) TREATMENT OF TERRITORIES.—

9 ‘‘(1) IN GENERAL.—In the case of a 

10 State, other than the 50 States and the 

11 District of Columbia—

12 ‘‘(A) the previous provisions of 

13 this section shall not apply to resi14 dents of such State; and 

15 ‘‘(B) if the State establishes a plan 

16 described in paragraph (2) (for pro17 viding medical assistance with re18 spect to the provision of prescription 

19 drugs to medicare beneficiaries), the 

20 amount otherwise determined under 

21 section 1108(f) (as increased under 

22 section 1108(g)) for the State shall be 

23 increased by the amount specified in 

24 paragraph (3). 
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1 ‘‘(2) PLAN.—The plan described in this 

2 paragraph is a plan that—

3 ‘‘(A) provides medical assistance 

4 with respect to the provision of cov5 ered outpatient drugs (as defined in 

6 section 1860D–2(f)) to low-income 

7 medicare beneficiaries; and 

8 ‘‘(B) assures that additional 

9 amounts received by the State that 

10 are attributable to the operation of 

11 this subsection are used only for such 

12 assistance. 

13 ‘‘(3) INCREASED AMOUNT.—

14 ‘‘(A) IN GENERAL.—The amount 

15 specified in this paragraph for a 

16 State for a year is equal to the prod17 uct of—

18 ‘‘(i) the aggregate amount 

19 specified in subparagraph (B); 

20 and 

21 ‘‘(ii) the amount specified in 

22 section 1108(g)(1) for that State, 

23 divided by the sum of the 

24 amounts specified in such section 

25 for all such States. 
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1 ‘‘(B) AGGREGATE AMOUNT.—The ag2 gregate amount specified in this sub3 paragraph for—

4 ‘‘(i) 2006, is equal to 

5 $25,000,000; or 

6 ‘‘(ii) a subsequent year, is 

7 equal to the aggregate amount 

8 specified in this subparagraph for 

9 the previous year increased by 

10 annual percentage increase speci11 fied in section 1860D–2(b)(5) for 

12 the year involved. 

13 ‘‘(4) REPORT.—The Administrator shall 

14 submit to Congress a report on the appli15 cation of this subsection and may include 

16 in the report such recommendations as 

17 the Administrator deems appropriate.’’. 

18 (2) CONFORMING AMENDMENT.—Section 

19 1108(f) (42 U.S.C. 1308(f)) is amended by 

20 inserting ‘‘and section 1935(e)(1)(B)’’ after 

21 ‘‘Subject to subsection (g)’’. 

22 (e) AMENDMENT TO BEST PRICE.—Section 

23 1927(c)(1)(C)(i) (42 U.S.C. 1396r–8(c)(1)(C)(i)) is 

24 amended—
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1 (1) by striking ‘‘and’’ at the end of 

2 subclause (III); 

3 (2) by striking the period at the end 

4 of subclause (IV) and inserting ‘‘; and’’; 

5 and 

6 (3) by adding at the end the following 

7 new subclause: 

8 ‘‘(V) any prices charged 

9 which are negotiated by a 

10 prescription drug plan under 

11 part D of title XVIII, by a MA12 EFFS Rx plan under part C or 

13 E of such title with respect to 

14 covered outpatient drugs, or 

15 by a qualified retiree pre16 scription drug plan (as de17 fined in section 1860D–8(f)(1)) 

18 with respect to such drugs on 

19 behalf of individuals entitled 

20 to benefits under part A or 

21 enrolled under part B of such 

22 title.’’. 
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1 SEC. 104. MEDIGAP TRANSITION. 

2 (a) IN GENERAL.—Section 1882 (42 U.S.C. 

3 1395ss) is amended by adding at the end the 

4 following new subsection: 

5 ‘‘(v) COVERAGE OF PRESCRIPTION DRUGS.—

6 ‘‘(1) IN GENERAL.—Notwithstanding 

7 any other provision of law, except as pro8 vided in paragraph (3) no new medicare 

9 supplemental policy that provides cov10 erage of expenses for prescription drugs 

11 may be issued under this section on or 

12 after January 1, 2006, to an individual 

13 unless it replaces a medicare supple14 mental policy that was issued to that in15 dividual and that provided some cov16 erage of expenses for prescription drugs. 

17 Nothing in this subsection shall be con18 strued as preventing the policy holder of 

19 a medicare supplemental policy issued 

20 before January 1, 2006, from continuing 

21 to receive benefits under such policy on 

22 and after such date. 

23 ‘‘(2) ISSUANCE OF SUBSTITUTE POLICIES

24 FOR BENEFICIARIES ENROLLED WITH A PLAN

25 UNDER PART D.—
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1 ‘‘(A) IN GENERAL.—The issuer of a 

2 medicare supplemental policy—

3 ‘‘(i) may not deny or condition 

4 the issuance or effectiveness of a 

5 medicare supplemental policy 

6 that has a benefit package classi7 fied as ‘A’

, ‘B’, ‘C’, ‘D’, ‘E’, ‘F’, or ‘G’

8 (under the standards established 

9 under subsection (p)(2)) and that 

10 is offered and is available for 

11 issuance to new enrollees by such 

12 issuer; 

13 ‘‘(ii) may not discriminate in 

14 the pricing of such policy, be15 cause of health status, claims ex16 perience, receipt of health care, 

17 or medical condition; and 

18 ‘‘(iii) may not impose an ex19 clusion of benefits based on a pre20 existing condition under such pol21 icy, 

22 in the case of an individual described 

23 in subparagraph (B) who seeks to en24 roll under the policy not later than 63 

25 days after the date of the termination 
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1 of enrollment described in such para2 graph and who submits evidence of 

3 the date of termination or 

4 disenrollment along with the applica5 tion for such medicare supplemental 

6 policy. 

7 ‘‘(B) INDIVIDUAL COVERED.—An in8 dividual described in this subpara9 graph is an individual who—

10 ‘‘(i) enrolls in a prescription 

11 drug plan under part D; and 

12 ‘‘(ii) at the time of such enroll13 ment was enrolled and terminates 

14 enrollment in a medicare supple15 mental policy which has a benefit 

16 package classified as ‘H’, ‘I’, or ‘J’

17 under the standards referred to 

18 in subparagraph (A)(i) or termi19 nates enrollment in a policy to 

20 which such standards do not 

21 apply but which provides benefits 

22 for prescription drugs. 

23 ‘‘(C) ENFORCEMENT.—The provi24 sions of paragraph (4) of subsection 

25 (s) shall apply with respect to the re-
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1 quirements of this paragraph in the 

2 same manner as they apply to the re3 quirements of such subsection. 

4 ‘‘(3) NEW STANDARDS.—In applying 

5 subsection (p)(1)(E) (including permitting 

6 the NAIC to revise its model regulations 

7 in response to changes in law) with re8 spect to the change in benefits resulting 

9 from title I of the Medicare Prescription 

10 Drug and Modernization Act of 2003, with 

11 respect to policies issued to individuals 

12 who are enrolled in a plan under part D, 

13 the changes in standards shall only pro14 vide for substituting (for the benefit 

15 packages described in paragraph 

16 (2)(B)(ii) that included coverage for pre17 scription drugs) two benefit packages 

18 that may provide for coverage of cost19 sharing (other than the prescription drug 

20 deductible) with respect to qualified pre21 scription drug coverage under such part. 

22 The two benefit packages shall be con23 sistent with the following: 

24 ‘‘(A) FIRST NEW POLICY.—The pol25 icy described in this subparagraph 
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1 has the following benefits, notwith2 standing any other provision of this 

3 section relating to a core benefit 

4 package: 

5 ‘‘(i) Coverage of 50 percent of 

6 the cost-sharing otherwise appli7 cable under parts A and B, except 

8 coverage of 100 percent of any 

9 cost-sharing otherwise applicable 

10 for preventive benefits. 

11 ‘‘(ii) No coverage of the part B 

12 deductible. 

13 ‘‘(iii) Coverage for all hospital 

14 coinsurance for long stays (as in 

15 the current core benefit package). 

16 ‘‘(iv) A limitation on annual 

17 out-of-pocket expenditures under 

18 parts A and B to $4,000 in 2005 

19 (or, in a subsequent year, to such 

20 limitation for the previous year 

21 increased by an appropriate infla22 tion adjustment specified by the 

23 Secretary). 

24 ‘‘(B) SECOND NEW POLICY.—The pol25 icy described in this subparagraph 
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1 has the same benefits as the policy 

2 described in subparagraph (A), ex3 cept as follows: 

4 ‘‘(i) Substitute ‘75 percent’ for 

5 ‘50 percent’ in clause (i) of such 

6 subparagraph. 

7 ‘‘(ii) Substitute ‘$2,000’ for 

8 ‘$4,000’ in clause (iv) of such sub9 paragraph. 

10 ‘‘(4) CONSTRUCTION.—Any provision in 

11 this section or in a medicare supple12 mental policy relating to guaranteed re13 newability of coverage shall be deemed to 

14 have been met through the offering of 

15 other coverage under this subsection.’’. 

16 (b) NAIC REPORT TO CONGRESS ON MEDIGAP

17 MODERNIZATION.—The Secretary shall request 

18 the National Association of Insurance Com19 missioners to submit to Congress, not later 

20 than 18 months after the date of the enact21 ment of this Act, a report that includes rec22 ommendations on the modernization of cov23 erage under the medigap program under sec24 tion 1882 of the Social Security Act (42 U.S.C. 

25 1395ss). 
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1 SEC. 105. MEDICARE PRESCRIPTION DRUG DISCOUNT 

2 CARD ENDORSEMENT PROGRAM. 

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

4 by inserting after section 1806 the following 

5 new sections: 

6 ‘‘MEDICARE PRESCRIPTION DRUG DISCOUNT CARD

7 ENDORSEMENT PROGRAM

8 ‘‘SEC. 1807. (a) ESTABLISHMENT OF PRO9 GRAM.—

10 ‘‘(1) IN GENERAL.—The Secretary (or 

11 the Medicare Benefits Administrator pur12 suant to section 1809(c)(3)(C)) shall estab13 lish a program to endorse prescription 

14 drug discount card programs (each such 

15 program referred to as an ‘endorsed pro16 gram’) that meet the requirements of this 

17 section in order to provide access to pre18 scription drug discounts for medicare 

19 beneficiaries throughout the United 

20 States. The Secretary shall make avail21 able to medicare beneficiaries informa22 tion regarding endorsed programs under 

23 this section. 

24 ‘‘(2) LIMITED PERIOD OF OPERATION.—

25 The Secretary shall begin the program 

26 under this section as soon as possible, 
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1 but in no case later than 90 days after the 

2 date of the enactment of this section. The 

3 Secretary shall provide for an appro4 priate transition and discontinuation of 

5 such program at the time medicare pre6 scription drug benefits first become 

7 available under part D. 

8 ‘‘(b) REQUIREMENTS FOR CARD ENDORSE9 MENT PROGRAM.—The Secretary may not en10 dorse a prescription drug discount card pro11 gram under this section unless the program 

12 meets the following requirements: 

13 ‘‘(1) SAVINGS TO MEDICARE BENE14 FICIARIES.—The program passes on to 

15 medicare beneficiaries who enroll in the 

16 program discounts, rebates, and other 

17 price concessions on prescription drugs, 

18 including discounts negotiated with 

19 pharmacies and manufacturers. 

20 ‘‘(2) PROHIBITION ON APPLICATION ONLY

21 TO MAIL ORDER.—The program applies to 

22 drugs that are available other than solely 

23 through mail order. 

24 ‘‘(3) BENEFICIARY SERVICES.—The pro25 gram provides pharmaceutical support 
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1 services, such as education and coun2 seling, and services to prevent adverse 

3 drug interactions. 

4 ‘‘(4) INFORMATION.—The program 

5 makes available to medicare beneficiaries 

6 through the Internet and otherwise infor7 mation, including information on enroll8 ment fees, prices charged to bene9 ficiaries, and services offered under the 

10 program, that the Secretary identifies as 

11 being necessary to provide for informed 

12 choice by beneficiaries among endorsed 

13 programs. 

14 ‘‘(5) DEMONSTRATED EXPERIENCE.—The 

15 program is operated directly, or through 

16 arrangements with affiliated organiza17 tion, by an entity that has demonstrated 

18 experience and expertise in operating 

19 such a program or a similar program. 

20 ‘‘(6) QUALITY ASSURANCE.—Such oper21 ating entity has in place adequate proce22 dures for assuring quality service under 

23 the program. 

24 ‘‘(7) ENROLLMENT FEES.—The program 

25 may charge an annual enrollment fee, but 
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1 the amount of such annual fee may not 

2 exceed $30. A State may pay some or all 

3 of the fee for individuals residing in the 

4 State. 

5 ‘‘(8) CONFIDENTIALITY PROTECTIONS.—

6 The program implements policies and 

7 procedures to safeguard the use and dis8 closure of program beneficiaries’ individ9 ually identifiable health information in a 

10 manner consistent with the Federal regu11 lations (concerning the privacy of indi12 vidually identifiable health information) 

13 promulgated under section 264(c) of the 

14 Health Insurance Portability and Ac15 countability Act of 1996. 

16 ‘‘(9) PERIODIC REPORTS TO SEC17 RETARY.—The entity operating the pro18 gram shall submit to the Secretary peri19 odic reports on performance, utilization, 

20 finances, and such other matters as the 

21 Secretary may specify. 

22 ‘‘(10) ADDITIONAL BENEFICIARY PROTEC23 TIONS.—The program meets such addi24 tional requirements as the Secretary 

25 identifies to protect and promote the in-
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1 terest of medicare beneficiaries, includ2 ing requirements that ensure that bene3 ficiaries are not charged more than the 

4 lower of the negotiated retail price or the 

5 usual and customary price. 

6 The prices negotiated by a prescription drug 

7 discount card program endorsed under this 

8 section shall (notwithstanding any other pro9 vision of law) not be taken into account for 

10 the purposes of establishing the best price 

11 under section 1927(c)(1)(C). 

12 ‘‘(c) PROGRAM OPERATION.—The Secretary 

13 shall operate the program under this section 

14 consistent with the following: 

15 ‘‘(1) PROMOTION OF INFORMED

16 CHOICE.—In order to promote informed 

17 choice among endorsed prescription drug 

18 discount card programs, the Secretary 

19 shall provide for the dissemination of in20 formation which compares the prices and 

21 services of such programs in a manner 

22 coordinated with the dissemination of 

23 educational information on Medicare Ad24 vantage plans under part C. 
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1 ‘‘(2) OVERSIGHT.—The Secretary shall 

2 provide appropriate oversight to ensure 

3 compliance of endorsed programs with 

4 the requirements of this section, includ5 ing verification and disclosure (upon re6 quest) of the discounts and services pro7 vided, the amount of dispensing fees rec8 ognized, and audits under section 1860D–

9 2(d)(3). 

10 ‘‘(3) USE OF MEDICARE TOLL-FREE NUM11 BER.—The Secretary shall provide 

12 through the 1-800-medicare toll free tele13 phone number for the receipt and re14 sponse to inquiries and complaints con15 cerning the program and programs en16 dorsed under this section. 

17 ‘‘(4) SANCTIONS FOR ABUSIVE PRAC18 TICES.—The Secretary may implement in19 termediate sanctions or may revoke the 

20 endorsement of a program in the case of 

21 a program that the Secretary determines 

22 no longer meets the requirements of this 

23 section or that has engaged in false or 

24 misleading marketing practices. 
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1 ‘‘(5) ENROLLMENT PRACTICES.—A medi2 care beneficiary may not be enrolled in 

3 more than one endorsed program at any 

4 time. A medicare beneficiary may change 

5 the endorsed program in which the bene6 ficiary is enrolled, but may not make 

7 such change until the beneficiary has 

8 been enrolled in a program for a min9 imum period of time specified by the Sec10 retary. 

11 ‘‘(d) AUTHORIZATION OF APPROPRIATIONS.—

12 There are authorized to be appropriated such 

13 sums as may be necessary to carry out this 

14 section. 

15 ‘‘(e) INTERIM, FINAL REGULATORY AUTHOR16 ITY.—In order to carry out this section in a 

17 timely manner, the Secretary may promulgate 

18 regulations that take effect on an interim 

19 basis, after notice and pending opportunity 

20 for public comment. 

21 ‘‘TRANSITIONAL PRESCRIPTION DRUG ASSISTANCE

22 PROGRAM FOR LOW-INCOME BENEFICIARIES

23 ‘‘SEC. 1807A. (a) PURPOSE.—The purpose of 

24 this section is to provide low-income medi25 care beneficiaries with incomes below 150 

26 percent of the Federal poverty level imme-
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1 diate assistance in the purchase of covered 

2 outpatient prescription drugs during the pe3 riod before the program under part D be4 comes effective. 

5 ‘‘(b) APPROPRIATIONS.—For the purpose of 

6 carrying out this section, there is appro7 priated, out of any money in the Treasury not 

8 otherwise appropriated—

9 ‘‘(1) for fiscal year 2004, 

10 $2,000,000,000; and 

11 ‘‘(2) for fiscal year 2005, 

12 $3,000,000,000. 

13 ‘‘(c) ELIGIBILITY.—

14 ‘‘(1) IN GENERAL.—The Secretary shall 

15 establish eligibility standards consistent 

16 with this subsection. 

17 ‘‘(2) SPECIFICS.—In no case shall an in18 dividual be eligible for assistance under 

19 this section unless the individual—

20 ‘‘(A) is entitled to benefits under 

21 part A or enrolled under part B; 

22 ‘‘(B) has income that is at or 

23 below 150 percent of the Federal pov24 erty line; 
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1 ‘‘(C) meets the resources require2 ment described in section 

3 1905(p)(1)(C); 

4 ‘‘(D) is enrolled under a prescrip5 tion drug discount card program 

6 under section 1807 (or under an alter7 native program authorized under 

8 subsection (d)(2)); and 

9 ‘‘(E) is not eligible for coverage of, 

10 or assistance for, outpatient prescrip11 tion drugs under any of the following: 

12 ‘‘(i) A medicaid plan under 

13 title XIX (including under any 

14 waiver approved under section 

15 1115). 

16 ‘‘(ii) Enrollment under a 

17 group health plan or health insur18 ance coverage. 

19 ‘‘(iii) Enrollment under a 

20 medicare supplemental insurance 

21 policy. 

22 ‘‘(iv) Chapter 55 of title 10, 

23 United States Code (relating to 

24 medical and dental care for mem25 bers of the uniformed services). 
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1 ‘‘(v) Chapter 17 of title 38, 

2 United States Code (relating to 

3 Veterans’ medical care). 

4 ‘‘(vi) Enrollment under a plan 

5 under chapter 89 of title 5, United 

6 States Code (relating to the Fed7 eral employees’ health benefits 

8 program). 

9 ‘‘(vii) The Indian Health Care 

10 Improvement Act (25 U.S.C. 1601 

11 et seq.). 

12 ‘‘(d) FORM OF ASSISTANCE.—

13 ‘‘(1) IN GENERAL.—Subject to para14 graph (2), the assistance under this sec15 tion to an eligible individual shall be in 

16 such form as the Secretary shall specify, 

17 including the use of a debit card mecha18 nism to pay for drugs purchased through 

19 the use of the prescription drug discount 

20 card program to eligible individuals who 

21 are enrolled in such program. 

22 ‘‘(2) THROUGH ALTERNATIVE STATE PRO23 GRAM.—A State may apply to the Sec24 retary for authorization to provide the 

25 assistance under this section to an eligi-
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1 ble individual through a State pharma2 ceutical assistance program or private 

3 program of pharmaceutical assistance. 

4 The Secretary shall not authorize the use 

5 of such a program unless the Secretary 

6 finds that the program—

7 ‘‘(A) was in existence before the 

8 date of the enactment of this section; 

9 and 

10 ‘‘(B) is reasonably designed to 

11 provide for pharmaceutical assist12 ance for a number of individuals, and 

13 in a scope, that is not less than the 

14 number of individuals, and minimum 

15 required amount, that would occur if 

16 the provisions of this paragraph had 

17 not applied in the State. 

18 ‘‘(3) RELATIONSHIP TO DISCOUNTS.—The 

19 assistance provided under this section is 

20 in addition to the discount otherwise 

21 available to individuals enrolled in pre22 scription drug discount card programs 

23 who are not eligible individuals. 

24 ‘‘(4) LIMITATION ON ASSISTANCE.—
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1 ‘‘(A) IN GENERAL.—The assistance 

2 under this section for an eligible indi3 vidual shall be limited to assistance—

4 ‘‘(i) for covered outpatient 

5 drugs (as defined for purposes of 

6 part D) and for enrollment fees 

7 imposed under prescription drug 

8 discount card programs; and 

9 ‘‘(ii) for expenses incurred—

10 ‘‘(I) on and after the date 

11 the individual is both enrolled 

12 in the prescription drug dis13 count card program and de14 termined to be an eligible in15 dividual under this section; 

16 and 

17 ‘‘(II) before the date bene18 fits are first available under 

19 the program under part D. 

20 ‘‘(B) AUTHORITY.—The Secretary 

21 shall take such steps as may be nec22 essary to assure compliance with the 

23 expenditure limitations described in 

24 subsection (b). 
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1 ‘‘(e) PAYMENT OF FEDERAL SUBSIDY TO

2 SPONSORS.—

3 ‘‘(1) IN GENERAL.—Insofar as assist4 ance is provided under this section 

5 through programs under section 1807, the 

6 Secretary shall make payment (within 

7 the amounts under subsection (b), less 

8 the administrative costs relating to deter9 minations of eligibility) to the sponsor of 

10 the prescription drug discount card pro11 gram (or to a State or other entity oper12 ating an alternative program under sub13 section (d)(2)) in which an eligible indi14 vidual is enrolled of the amount of the as15 sistance provided by the sponsor pursu16 ant to this section. 

17 ‘‘(2) PERIODIC PAYMENTS.—Payments 

18 under this subsection shall be made on a 

19 monthly or other periodic installment 

20 basis, based upon estimates of the Sec21 retary and shall be reduced or increased 

22 to the extent of any overpayment or un23 derpayment which the Secretary deter24 mines was made under this section for 

25 any prior period and with respect to 
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1 which adjustment has not already been 

2 made under this paragraph. 

3 ‘‘(f) DEFINITIONS.—For purposes of this 

4 section: 

5 ‘‘(1) ELIGIBLE INDIVIDUAL.—The term 

6 ‘eligible individual’ means an individual 

7 who is determined by a State to be eligi8 ble for assistance under this section. 

9 ‘‘(2) PRESCRIPTION DRUG DISCOUNT

10 CARD PROGRAM.—The term ‘prescription 

11 drug discount card program’ means such 

12 a program that is endorsed under section 

13 1807. 

14 ‘‘(3) SPONSOR.—The term ‘sponsor’

15 means the sponsor of a prescription drug 

16 discount card program, or, in the case of 

17 an alternative program authorized under 

18 subsection (d)(2), the State or other enti19 ty operating the program.’’. 

20 (b) CONFORMING AMENDMENT.—Section 

21 1927(c)(1)(C)(i)(V) (42 U.S.C. 1396r–

22 8(c)(1)(C)(i)(V)), as added by section 103(e), is 

23 amended by striking ‘‘or by a qualified retiree 

24 prescription drug plan (as defined in section 

25 1860D–8(f)(1))’’ and inserting ‘‘by a qualified 
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1 retiree prescription drug plan (as defined in 

2 section 1860D–8(f)(1)), or by a prescription 

3 drug discount card program endorsed under 

4 section 1807’’. 

5 SEC. 106. DISCLOSURE OF RETURN INFORMATION FOR 

6 PURPOSES OF CARRYING OUT MEDICARE 

7 CATASTROPHIC PRESCRIPTION DRUG PRO8 GRAM. 

9 (a) IN GENERAL.—Subsection (l) of section 

10 6103 of the Internal Revenue Code of 1986 (re11 lating to disclosure of returns and return in12 formation for purposes other than tax admin13 istration) is amended by adding at the end the 

14 following new paragraph: 

15 ‘‘(19) DISCLOSURE OF RETURN INFORMA16 TION FOR PURPOSES OF CARRYING OUT MEDI17 CARE CATASTROPHIC PRESCRIPTION DRUG

18 PROGRAM.—

19 ‘‘(A) IN GENERAL.—The Secretary 

20 may, upon written request from the 

21 Secretary of Health and Human Serv22 ices under section 1860D–2(b)(4)(E)(i) 

23 of the Social Security Act, disclose to 

24 officers and employees of the Depart25 ment of Health and Human Services 
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1 with respect to a specified taxpayer 

2 for the taxable year specified by the 

3 Secretary of Health and Human Serv4 ices in such request—

5 ‘‘(i) the taxpayer identity in6 formation with respect to such 

7 taxpayer, and 

8 ‘‘(ii) the adjusted gross income 

9 of such taxpayer for the taxable 

10 year (or, if less, the income 

11 threshold limit specified in sec12 tion 1860D–2(b)(4)(D)(ii) for the 

13 calendar year specified by such 

14 Secretary in such request). 

15 ‘‘(B) SPECIFIED TAXPAYER.—For 

16 purposes of this paragraph, the term 

17 ‘specified taxpayer’ means any tax18 payer who—

19 ‘‘(i) is identified by the Sec20 retary of Health and Human Serv21 ices in the request referred to in 

22 subparagraph (A), and 

23 ‘‘(ii) either—

24 ‘‘(I) has an adjusted gross 

25 income for the taxable year 
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1 referred to in subparagraph 

2 (A) in excess of the income 

3 threshold specified in section 

4 1860D–2(b)(4)(D)(ii) of such 

5 Act for the calendar year re6 ferred to in such subpara7 graph, or 

8 ‘‘(II) is identified by such 

9 Secretary under subpara10 graph (A) as being an indi11 vidual who elected to use 

12 more recent information 

13 under section 1860D–

14 2(b)(4)(D)(v) of such Act. 

15 ‘‘(C) JOINT RETURNS.—In the case 

16 of a joint return, the Secretary shall, 

17 for purposes of applying this para18 graph, treat each spouse as a sepa19 rate taxpayer having an adjusted 

20 gross income equal to one-half of the 

21 adjusted gross income determined 

22 with respect to such return. 

23 ‘‘(D) RESTRICTION ON USE OF DIS24 CLOSED INFORMATION.—Return infor25 mation disclosed under subparagraph 
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1 (A) may be used by officers and em2 ployees of the Department of Health 

3 and Human Services only for the pur4 pose of administering the prescrip5 tion drug benefit under title XVIII of 

6 the Social Security Act. Such officers 

7 and employees may disclose the an8 nual out-of-pocket threshold which 

9 applies to an individual under such 

10 part to the entity that offers the plan 

11 referred to in section 1860D–

12 2(b)(4)(E)(ii) of such Act in which 

13 such individual is enrolled. Such 

14 sponsor may use such information 

15 only for purposes of administering 

16 such benefit.’’. 

17 (b) CONFIDENTIALITY.—Paragraph (3) of 

18 section 6103(a) of such Code is amended by 

19 striking ‘‘or (16)’’ and inserting ‘‘(16), or (19)’’. 

20 (c) PROCEDURES AND RECORDKEEPING RE21 LATED TO DISCLOSURES.—Subsection (p)(4) of 

22 section 6103 of such Code is amended by strik23 ing ‘‘any other person described in subsection 

24 (l)(16) or (17)’’ each place it appears and in-
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1 serting ‘‘any other person described in sub2 section (l)(16), (17), or (19)’’. 

3 (d) UNAUTHORIZED DISCLOSURE.—Para4 graph (2) of section 7213(a) of such Code is 

5 amended by striking ‘‘or (16)’’ and inserting 

6 ‘‘(16), or (19)’’. 

7 (e) UNAUTHORIZED INSPECTION.—Subpara8 graph (B) of section 7213A(a)(1) of such Code 

9 is amended by inserting ‘‘or (19)’’ after ‘‘sub10 section (l)(18)’’.

11 SEC. 107. STATE PHARMACEUTICAL ASSISTANCE TRANSI12 TION COMMISSION. 

13 (a) ESTABLISHMENT.—

14 (1) IN GENERAL.—There is established, 

15 as of the first day of the third month be16 ginning after the date of the enactment of 

17 this Act, a State Pharmaceutical Assist18 ance Transition Commission (in this sec19 tion referred to as the ‘‘Commission’’) to 

20 develop a proposal for addressing the 

21 unique transitional issues facing State 

22 pharmaceutical assistance programs, and 

23 program participants, due to the imple24 mentation of the medicare prescription 
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1 drug program under part D of title XVIII 

2 of the Social Security Act. 

3 (2) DEFINITIONS.—For purposes of this 

4 section: 

5 (A) STATE PHARMACEUTICAL ASSIST6 ANCE PROGRAM DEFINED.—The term 

7 ‘‘State pharmaceutical assistance pro8 gram’’ means a program (other than 

9 the medicaid program) operated by a 

10 State (or under contract with a State) 

11 that provides as of the date of the en12 actment of this Act assistance to low13 income medicare beneficiaries for the 

14 purchase of prescription drugs. 

15 (B) PROGRAM PARTICIPANT.—The 

16 term ‘‘program participant’’ means a 

17 low-income medicare beneficiary who 

18 is a participant in a State pharma19 ceutical assistance program. 

20 (b) COMPOSITION.—The Commission shall 

21 include the following: 

22 (1) A representative of each governor 

23 of each State that the Secretary identifies 

24 as operating on a statewide basis a State 

25 pharmaceutical assistance program that 
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1 provides for eligibility and benefits that 

2 are comparable or more generous than 

3 the low-income assistance eligibility and 

4 benefits offered under part D of title 

5 XVIII of the Social Security Act. 

6 (2) Representatives from other States 

7 that the Secretary identifies have in op8 eration other State pharmaceutical as9 sistance programs, as appointed by the 

10 Secretary. 

11 (3) Representatives of organizations 

12 that have an inherent interest in pro13 gram participants or the program itself, 

14 as appointed by the Secretary but not to 

15 exceed the number of representatives 

16 under paragraphs (1) and (2). 

17 (4) Representatives of Medicare Ad18 vantage organizations and other private 

19 health insurance plans, as appointed by 

20 the Secretary. 

21 (5) The Secretary (or the Secretary’s 

22 designee) and such other members as the 

23 Secretary may specify 
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1 The Secretary shall designate a member to 

2 serve as chair of the Commission and the 

3 Commission shall meet at the call of the chair. 

4 (c) DEVELOPMENT OF PROPOSAL.—The Com5 mission shall develop the proposal described 

6 in subsection (a) in a manner consistent with 

7 the following principles: 

8 (1) Protection of the interests of pro9 gram participants in a manner that is the 

10 least disruptive to such participants and 

11 that includes a single point of contact for 

12 enrollment and processing of benefits. 

13 (2) Protection of the financial and 

14 flexibility interests of States so that 

15 States are not financially worse off as a 

16 result of the enactment of this title. 

17 (3) Principles of medicare moderniza18 tion provided under title II of this Act. 

19 (d) REPORT.—By not later than January 1, 

20 2005, the Commission shall submit to the 

21 President and the Congress a report that con22 tains a detailed proposal (including specific 

23 legislative or administrative recommenda24 tions, if any) and such other recommenda25 tions as the Commission deems appropriate. 
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1 (e) SUPPORT.—The Secretary shall provide 

2 the Commission with the administrative sup3 port services necessary for the Commission to 

4 carry out its responsibilities under this sec5 tion. 

6 (f) TERMINATION.—The Commission shall 

7 terminate 30 days after the date of submission 

8 of the report under subsection (d).

9 TITLE II—MEDICARE ENHANCED 

10 FEE-FOR-SERVICE AND MEDI11 CARE ADVANTAGE PRO12 GRAMS; MEDICARE COMPETI13 TION 

14 SEC. 200. MEDICARE MODERNIZATION AND REVITALIZA15 TION. 

16 This title provides for—

17 (1) establishment of the medicare en18 hanced fee-for-service (EFFS) program 

19 under which medicare beneficiaries are 

20 provided access to a range of enhanced 

21 fee-for-service (EFFS) plans that may use 

22 preferred provider networks to offer an 

23 enhanced range of benefits; 

24 (2) establishment of a Medicare Ad25 vantage program that offers improved 
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1 managed care plans with coordinated 

2 care; and 

3 (3) competitive bidding, in the style of 

4 the Federal Employees Health Benefits 

5 program (FEHBP), among enhanced fee6 for-service plans and Medicare Advan7 tage plans in order to promote greater ef8 ficiency and responsiveness to medicare 

9 beneficiaries.

10 Subtitle A—Medicare Enhanced 

11 Fee-for-Service Program 

12 SEC. 201. ESTABLISHMENT OF ENHANCED FEE-FOR-SERV13 ICE (EFFS) PROGRAM UNDER MEDICARE. 

14 (a) IN GENERAL.—Title XVIII, as amended 

15 by section 101(a), is amended—

16 (1) by redesignating part E as part F; 

17 and 

18 (2) by inserting after part D the fol19 lowing new part:

20 ‘‘PART E—ENHANCED FEE-FOR-SERVICE

21 PROGRAM

22 ‘‘OFFERING OF ENHANCED FEE-FOR-SERVICE

23 PLANS THROUGHOUT THE UNITED STATES

24 ‘‘SEC. 1860E–1. (a) ESTABLISHMENT OF PRO25 GRAM.—
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1 ‘‘(1) IN GENERAL.—The Administrator 

2 shall establish under this part beginning 

3 January 1, 2006, an enhanced fee-for4 service program under which enhanced 

5 fee-for-service plans (as defined in sub6 section (b)) are offered to EFFS-eligible 

7 individuals (as so defined) in EFFS re8 gions throughout the United States. 

9 ‘‘(2) EFFS REGIONS.—For purposes of 

10 this part the Administrator shall estab11 lish EFFS regions throughout the United 

12 States by dividing the entire United 

13 States into at least 10 such regions. Be14 fore establishing such regions, the Ad15 ministrator shall conduct a market sur16 vey and analysis, including an examina17 tion of current insurance markets, to de18 termine how the regions should be estab19 lished. The regions shall be established in 

20 a manner to take into consideration 

21 maximizing full access for all EFFS-eligi22 ble individuals, especially those residing 

23 in rural areas. 

24 ‘‘(b) DEFINITIONS.—For purposes of this 

25 part: 
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1 ‘‘(1) EFFS ORGANIZATION.—The ‘EFFS 

2 organization’ means an entity that the 

3 Administrator certifies as meeting the re4 quirements and standards applicable to 

5 such organization under this part. 

6 ‘‘(2) ENHANCED FEE-FOR-SERVICE PLAN; 

7 EFFS PLAN.—The terms ‘enhanced fee-for8 service plan’ and ‘EFFS plan’ mean 

9 health benefits coverage offered under a 

10 policy, contract, or plan by an EFFS orga11 nization pursuant to and in accordance 

12 with a contract pursuant to section 

13 1860E–4(c), but only if the plan provides 

14 either fee-for-service coverage described 

15 in the following subparagraph (A) or pre16 ferred provider coverage described in the 

17 following subparagraph (B): 

18 ‘‘(A) FEE-FOR-SERVICE COVERAGE.—

19 The plan—

20 ‘‘(i) reimburses hospitals, phy21 sicians, and other providers at a 

22 rate determined by the plan on a 

23 fee-for-service basis without plac24 ing the provider at financial risk; 
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1 ‘‘(ii) does not vary such rates 

2 for such a provider based on utili3 zation relating to such provider; 

4 and 

5 ‘‘(iii) does not restrict the se6 lection of providers among those 

7 who are lawfully authorized to 

8 provide the covered services and 

9 agree to accept the terms and 

10 conditions of payment established 

11 by the plan. 

12 ‘‘(B) PREFERRED PROVIDER COV13 ERAGE.—The plan—

14 ‘‘(i) has a network of pro15 viders that have agreed to a con16 tractually specified reimburse17 ment for covered benefits with 

18 the organization offering the 

19 plan; and 

20 ‘‘(ii) provides for reimburse21 ment for all covered benefits re22 gardless of whether such benefits 

23 are provided within such network 

24 of providers. 
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1 ‘‘(3) EFFS ELIGIBLE INDIVIDUAL.—The 

2 term ‘EFFS eligible individual’ means an 

3 eligible individual described in section 

4 1851(a)(3). 

5 ‘‘(4) EFFS REGION.—The term ‘EFFS 

6 region’ means a region established under 

7 subsection (a)(2). 

8 ‘‘(c) APPLICATION OF CERTAIN ELIGIBILITY, 

9 ENROLLMENT, ETC. REQUIREMENTS.—The provi10 sions of section 1851 (other than subsection 

11 (h)(4)(A)) shall apply to EFFS plans offered by 

12 an EFFS organization in an EFFS region, in13 cluding subsection (g) (relating to guaranteed 

14 issue and renewal). 

15 ‘‘OFFERING OF ENHANCED FEE-FOR-SERVICE

16 (EFFS) PLANS

17 ‘‘SEC. 1860E–2. (a) PLAN REQUIREMENTS.—

18 No EFFS plan may be offered under this part 

19 in an EFFS region unless the requirements of 

20 this part are met with respect to the plan and 

21 EFFS organization offering the plan. 

22 ‘‘(b) AVAILABLE TO ALL EFFS BENEFICIARIES

23 IN THE ENTIRE REGION.—With respect to an 

24 EFFS plan offered in an EFFS region—
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1 ‘‘(1) IN GENERAL.—The plan must be 

2 offered to all EFFS-eligible individuals 

3 residing in the region. 

4 ‘‘(2) ASSURING ACCESS TO SERVICES.—

5 The plan shall comply with the require6 ments of section 1852(d)(4). 

7 ‘‘(c) BENEFITS.—

8 ‘‘(1) IN GENERAL.—Each EFFS plan 

9 shall provide to members enrolled in the 

10 plan under this part benefits, through 

11 providers and other persons that meet 

12 the applicable requirements of this title 

13 and part A of title XI—

14 ‘‘(A) for the items and services de15 scribed in section 1852(a)(1); 

16 ‘‘(B) that are uniform for the plan 

17 for all EFFS eligible individuals re18 siding in the same EFFS region; 

19 ‘‘(C) that include a single deduct20 ible applicable to benefits under 

21 parts A and B and include a cata22 strophic limit on out-of-pocket ex23 penditures for such covered benefits; 

24 and 
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1 ‘‘(D) that include benefits for pre2 scription drug coverage for each en3 rollee who elects under part D to be 

4 provided qualified prescription drug 

5 coverage through the plan.

6 ‘‘(2) DISAPPROVAL AUTHORITY.—The Ad7 ministrator shall not approve a plan of 

8 an EFFS organization if the Adminis9 trator determines (pursuant to the last 

10 sentence of section 1852(b)(1)(A)) that the 

11 benefits are designed to substantially dis12 courage enrollment by certain EFFS eli13 gible individuals with the organization. 

14 ‘‘(d) OUTPATIENT PRESCRIPTION DRUG COV15 ERAGE.—For rules concerning the offering of 

16 prescription drug coverage under EFFS 

17 plans, see the amendment made by section 

18 102(b) of the Medicare Prescription Drug and 

19 Modernization Act of 2003. 

20 ‘‘(e) OTHER ADDITIONAL PROVISIONS.—The 

21 provisions of section 1852 (other than sub22 section (a)(1)) shall apply under this part to 

23 EFFS plans. For the application of chronic 

24 care improvement provisions, see the amend25 ment made by section 722(b). 
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1 ‘‘SUBMISSION OF BIDS; BENEFICIARY SAVINGS; 

2 PAYMENT OF PLANS

3 ‘‘SEC. 1860E–3. (a) SUBMISSION OF BIDS.—

4 ‘‘(1) REQUIREMENT.—

5 ‘‘(A) EFFS MONTHLY BID AMOUNT.—

6 For each year (beginning with 2006), 

7 an EFFS organization shall submit to 

8 the Administrator an EFFS monthly 

9 bid amount for each EFFS plan of10 fered in each region. Each such bid is 

11 referred to in this section as the 

12 ‘EFFS monthly bid amount’. 

13 ‘‘(B) FORM.—Such bid amounts 

14 shall be submitted for each such plan 

15 and region in a form and manner and 

16 time specified by the Administrator, 

17 and shall include information de18 scribed in paragraph (3)(A).

19 ‘‘(2) UNIFORM BID AMOUNTS.—Each 

20 EFFS monthly bid amount submitted 

21 under paragraph (1) by an EFFS organi22 zation under this part for an EFFS plan 

23 in an EFFS region may not vary among 

24 EFFS eligible individuals residing in the 

25 EFFS region involved. 
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1 ‘‘(3) SUBMISSION OF BID AMOUNT INFOR2 MATION BY EFFS ORGANIZATIONS.—

3 ‘‘(A) INFORMATION TO BE SUB4 MITTED.—The information described 

5 in this subparagraph is as follows: 

6 ‘‘(i) The EFFS monthly bid 

7 amount for provision of all items 

8 and services under this part, 

9 which amount shall be based on 

10 average costs for a typical bene11 ficiary residing in the region, and 

12 the actuarial basis for deter13 mining such amount. 

14 ‘‘(ii) The proportions of such 

15 bid amount that are attributable 

16 to—

17 ‘‘(I) the provision of statu18 tory non-drug benefits (such 

19 portion referred to in this 

20 part as the ‘unadjusted EFFS 

21 statutory non-drug monthly 

22 bid amount’); 

23 ‘‘(II) the provision of stat24 utory prescription drug bene25 fits; and 
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1 ‘‘(III) the provision of non2 statutory benefits; 

3 and the actuarial basis for deter4 mining such proportions. 

5 ‘‘(iii) Such additional informa6 tion as the Administrator may re7 quire to verify the actuarial bases 

8 described in clauses (i) and (ii). 

9 ‘‘(B) STATUTORY BENEFITS DE10 FINED.—For purposes of this part: 

11 ‘‘(i) The term ‘statutory non12 drug benefits’ means benefits 

13 under section 1852(a)(1). 

14 ‘‘(ii) The term ‘statutory pre15 scription drug benefits’ means 

16 benefits under part D. 

17 ‘‘(iii) The term ‘statutory ben18 efits’ means statutory prescrip19 tion drug benefits and statutory 

20 non-drug benefits.

21 ‘‘(C) ACCEPTANCE AND NEGOTIATION

22 OF BID AMOUNTS.—The Administrator 

23 has the authority to negotiate regard24 ing monthly bid amounts submitted 

25 under subparagraph (A) (and the pro-
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1 portion described in subparagraph 

2 (A)(ii)), and for such purpose, the Ad3 ministrator has negotiation authority 

4 that the Director of the Office of Per5 sonnel Management has with respect 

6 to health benefits plans under chap7 ter 89 of title 5, United States Code. 

8 The Administrator may reject such a 

9 bid amount or proportion if the Ad10 ministrator determines that such 

11 amount or proportion is not sup12 ported by the actuarial bases pro13 vided under subparagraph (A). 

14 ‘‘(D) CONTRACT AUTHORITY.—The 

15 Administrator may, taking into ac16 count the unadjusted EFFS statutory 

17 non-drug monthly bid amounts ac18 cepted under subparagraph (C), enter 

19 into contracts for the offering of up 

20 to 3 EFFS plans in any region.

21 ‘‘(b) PROVISION OF BENEFICIARY SAVINGS

22 FOR CERTAIN PLANS.—

23 ‘‘(1) BENEFICIARY REBATE RULE.—

24 ‘‘(A) REQUIREMENT.—The EFFS 

25 plan shall provide to the enrollee a 
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1 monthly rebate equal to 75 percent of 

2 the average per capita savings (if 

3 any) described in paragraph (2) appli4 cable to the plan and year involved. 

5 ‘‘(B) FORM OF REBATE.—A rebate 

6 required under this paragraph shall 

7 be provided—

8 ‘‘(i) through the crediting of 

9 the amount of the rebate towards 

10 the EFFS monthly prescription 

11 drug beneficiary premium (as de12 fined in section 1860E–4(a)(3)(B)) 

13 and the EFFS monthly supple14 mental beneficiary premium (as 

15 defined in section 1860E–

16 4(a)(3)(C)); 

17 ‘‘(ii) through a direct monthly 

18 payment (through electronic 

19 funds transfer or otherwise); or 

20 ‘‘(iii) through other means ap21 proved by the Medicare Benefits 

22 Administrator, 

23 or any combination thereof. 

24 ‘‘(2) COMPUTATION OF AVERAGE PER

25 CAPITA MONTHLY SAVINGS.—For purposes 
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1 of paragraph (1)(A), the average per cap2 ita monthly savings referred to in such 

3 paragraph for an EFFS plan and year is 

4 computed as follows: 

5 ‘‘(A) DETERMINATION OF REGION6 WIDE AVERAGE RISK ADJUSTMENT.—

7 ‘‘(i) IN GENERAL.—The Medi8 care Benefits Administrator shall 

9 determine, at the same time rates 

10 are promulgated under section 

11 1853(b)(1) (beginning with 2006), 

12 for each EFFS region the average 

13 of the risk adjustment factors de14 scribed in subsection (c)(3) to be 

15 applied to enrollees under this 

16 part in that region. In the case of 

17 an EFFS region in which an EFFS 

18 plan was offered in the previous 

19 year, the Administrator may com20 pute such average based upon 

21 risk adjustment factors applied 

22 under subsection (c)(3) in that re23 gion in a previous year. 

24 ‘‘(ii) TREATMENT OF NEW RE25 GIONS.—In the case of a region in 
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1 which no EFFS plan was offered 

2 in the previous year, the Adminis3 trator shall estimate such aver4 age. In making such estimate, the 

5 Administrator may use average 

6 risk adjustment factors applied to 

7 comparable EFFS regions or ap8 plied on a national basis. 

9 ‘‘(B) DETERMINATION OF RISK AD10 JUSTED BENCHMARK AND RISK-ADJUSTED

11 BID.—For each EFFS plan offered in 

12 an EFFS region, the Administrator 

13 shall—

14 ‘‘(i) adjust the EFFS region15 specific non-drug monthly bench16 mark amount (as defined in para17 graph (3)) by the applicable aver18 age risk adjustment factor com19 puted under subparagraph (A); 

20 and 

21 ‘‘(ii) adjust the unadjusted 

22 EFFS statutory non-drug monthly 

23 bid amount by such applicable av24 erage risk adjustment factor. 
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1 ‘‘(C) DETERMINATION OF AVERAGE

2 PER CAPITA MONTHLY SAVINGS.—The av3 erage per capita monthly savings de4 scribed in this subparagraph is equal 

5 to the amount (if any) by which—

6 ‘‘(i) the risk-adjusted bench7 mark amount computed under 

8 subparagraph (B)(i), exceeds 

9 ‘‘(ii) the risk-adjusted bid 

10 computed under subparagraph 

11 (B)(ii). 

12 ‘‘(3) COMPUTATION OF EFFS REGION-SPE13 CIFIC NON-DRUG MONTHLY BENCHMARK

14 AMOUNT.—For purposes of this part, the 

15 term ‘EFFS region-specific non-drug 

16 monthly benchmark amount’ means, with 

17 respect to an EFFS region for a month in 

a year, an amount equal to 1 18 ⁄12 of the av19 erage (weighted by number of EFFS eligi20 ble individuals in each payment area de21 scribed in section 1853(d)) of the annual 

22 capitation rate as calculated under sec23 tion 1853(c)(1) for that area. 

24 ‘‘(c) PAYMENT OF PLANS BASED ON BID

25 AMOUNTS.—
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1 ‘‘(1) NON-DRUG BENEFITS.—Under a 

2 contract under section 1860E–4(c) and 

3 subject to section 1853(g) (as made appli4 cable under subsection (d)), the Adminis5 trator shall make monthly payments 

6 under this subsection in advance to each 

7 EFFS organization, with respect to cov8 erage of an individual under this part in 

9 an EFFS region for a month, in an 

10 amount determined as follows: 

11 ‘‘(A) PLANS WITH BIDS BELOW

12 BENCHMARK.—In the case of a plan for 

13 which there are average per capita 

14 monthly savings described in sub15 section (b)(2)(C), the payment under 

16 this subsection is equal to the 

17 unadjusted EFFS statutory non-drug 

18 monthly bid amount, adjusted under 

19 paragraphs (3) and (4), plus the 

20 amount of the monthly rebate com21 puted under subsection (b)(1)(A) for 

22 that plan and year. 

23 ‘‘(B) PLANS WITH BIDS AT OR ABOVE

24 BENCHMARK.—In the case of a plan for 

25 which there are no average per cap-
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1 ita monthly savings described in sub2 section (b)(2)(C), the payment amount 

3 under this subsection is equal to the 

4 EFFS region-specific non-drug 

5 monthly benchmark amount, adjusted 

6 under paragraphs (3) and (4). 

7 ‘‘(2) FOR FEDERAL DRUG SUBSIDIES.—In 

8 the case in which an enrollee who elects 

9 under part D to be provided qualified 

10 prescription drug coverage through the 

11 plan, the EFFS organization offering 

12 such plan also is entitled—

13 ‘‘(A) to direct subsidy payment 

14 under section 1860D–8(a)(1); 

15 ‘‘(B) to reinsurance subsidy pay16 ments under section 1860D–8(a)(2); 

17 and 

18 ‘‘(C) to reimbursement for pre19 mium and cost-sharing reductions for 

20 low-income individuals under section 

21 1860D–7(c)(3). 

22 ‘‘(3) DEMOGRAPHIC RISK ADJUSTMENT, 

23 INCLUDING ADJUSTMENT FOR HEALTH STA24 TUS.—The Administrator shall adjust 

25 under paragraph (1)(A) the unadjusted 
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1 EFFS statutory non-drug monthly bid 

2 amount and under paragraph (1)(B) the 

3 EFFS region-specific non-drug monthly 

4 benchmark amount for such risk factors 

5 as age, disability status, gender, institu6 tional status, and such other factors as 

7 the Administrator determines to be ap8 propriate, including adjustment for 

9 health status under section 1853(a)(3) (as 

10 applied under subsection (d)), so as to en11 sure actuarial equivalence. The Adminis12 trator may add to, modify, or substitute 

13 for such adjustment factors if such 

14 changes will improve the determination 

15 of actuarial equivalence. 

16 ‘‘(4) ADJUSTMENT FOR INTRA-REGIONAL

17 GEOGRAPHIC VARIATIONS.—The Adminis18 trator shall also adjust such amounts in a 

19 manner to take into account variations in 

20 payments rates under part C among the 

21 different payment areas under such part 

22 included in each EFFS region. 

23 ‘‘(d) APPLICATION OF ADDITIONAL PAYMENT

24 RULES.—The provisions of section 1853 (other 

25 than subsections (a)(1)(A), (d), and (e)) shall 
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1 apply to an EFFS plan under this part, except 

2 as otherwise provided in this section. 

3 ‘‘PREMIUMS; ORGANIZATIONAL AND FINANCIAL RE4 QUIREMENTS; ESTABLISHMENT OF STAND5 ARDS; CONTRACTS WITH EFFS ORGANIZATIONS

6 ‘‘SEC. 1860E–4. (a) PREMIUMS.—

7 ‘‘(1) IN GENERAL.—The provisions of 

8 section 1854 (other than subsections 

9 (a)(6)(C) and (h)), including subsection 

10 (b)(5) relating to the consolidation of 

11 drug and non-drug beneficiary premiums 

12 and subsection (c) relating to uniform 

13 bids and premiums, shall apply to an 

14 EFFS plan under this part, subject to 

15 paragraph (2). 

16 ‘‘(2) CROSS-WALK.—In applying para17 graph (1), any reference in section 

18 1854(b)(1)(A) or 1854(d) to—

19 ‘‘(A) a Medicare Advantage 

20 monthly basic beneficiary premium is 

21 deemed a reference to the EFFS 

22 monthly basic beneficiary premium 

23 (as defined in paragraph (3)(A)); 

24 ‘‘(B) a Medicare Advantage 

25 monthly prescription drug bene26 ficiary premium is deemed a ref-
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1 erence to the EFFS monthly prescrip2 tion drug beneficiary premium (as de3 fined in paragraph (3)(B)); and 

4 ‘‘(C) a Medicare Advantage 

5 monthly supplemental beneficiary 

6 premium is deemed a reference to the 

7 EFFS monthly supplemental bene8 ficiary premium (as defined in para9 graph (3)(C)). 

10 ‘‘(3) DEFINITIONS.—For purposes of 

11 this part: 

12 ‘‘(A) EFFS MONTHLY BASIC BENE13 FICIARY PREMIUM.—The term ‘EFFS 

14 monthly basic beneficiary premium’

15 means, with respect to an EFFS 

16 plan—

17 ‘‘(i) described in section 

18 1860E–3(c)(1)(A) (relating to plans 

19 providing rebates), zero; or 

20 ‘‘(ii) described in section 

21 1860E–3(c)(1)(B), the amount (if 

22 any) by which the unadjusted 

23 EFFS statutory non-drug monthly 

24 bid amount exceeds the EFFS re25 gion-specific non-drug monthly 
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1 benchmark amount (as defined in 

2 section 1860E–3(b)(3)). 

3 ‘‘(B) EFFS MONTHLY PRESCRIPTION

4 DRUG BENEFICIARY PREMIUM.—The 

5 term ‘EFFS monthly prescription 

6 drug beneficiary premium’ means, 

7 with respect to an EFFS plan, the 

8 portion of the aggregate monthly bid 

9 amount submitted under clause (i) of 

10 section 1860E–3(a)(3)(A) for the year 

11 that is attributable under such sec12 tion to the provision of statutory pre13 scription drug benefits. 

14 ‘‘(C) EFFS MONTHLY SUPPLEMENTAL

15 BENEFICIARY PREMIUM.—The term 

16 ‘EFFS monthly supplemental bene17 ficiary premium’ means, with respect 

18 to an EFFS plan, the portion of the 

19 aggregate monthly bid amount sub20 mitted under clause (i) of section 

21 1860E–3(a)(3)(A) for the year that is 

22 attributable under such section to the 

23 provision of nonstatutory benefits.

24 ‘‘(b) ORGANIZATIONAL AND FINANCIAL RE25 QUIREMENTS.—The provisions of section 1855 
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1 shall apply to an EFFS plan offered by an 

2 EFFS organization under this part. 

3 ‘‘(c) CONTRACTS WITH EFFS ORGANIZA4 TIONS.—The provisions of section 1857 shall 

5 apply to an EFFS plan offered by an EFFS or6 ganization under this part, except that any 

7 reference in such section to part C is deemed 

8 a reference to this part.’’. 

9 (b) PROHIBITION ON COVERAGE UNDER

10 MEDIGAP PLANS OF DEDUCTIBLE IMPOSED

11 UNDER EFFS PLANS.—Section 1882 (42 U.S.C. 

12 1395ss), as amended by section 104(a), is 

13 amended by adding at the end the following 

14 new subsection: 

15 ‘‘(w) PROHIBITION ON COVERAGE OF DEDUCT16 IBLE AND CERTAIN COST-SHARING IMPOSED

17 UNDER EFFS PLANS.—Notwithstanding any 

18 other provision of law, no medicare supple19 mental policy (other than the 2 benefit pack20 ages described in subsection (v)(3)) may pro21 vide for coverage of the single deductible or 

22 more than 50 percent of other cost-sharing 

23 imposed under an EFFS plan under part E.’’. 

24 (c) CONFORMING PROVISIONS.—Section 1882 

25 of the Social Security Act (42 U.S.C. 1395ss) 
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1 shall be administered as if any reference to a 

2 Medicare+Choice organization offering a 

3 Medicare+Choice plan under part C of title 

4 XVIII of such Act were a reference both to a 

5 Medicare Advantage organization offering a 

6 Medicare Advantage plan under such part 

7 and an EFFS organization offering an EFFS 

8 plan under part E of such title. 

9 Subtitle B—Medicare Advantage 

10 Program 

11 CHAPTER 1—IMPLEMENTATION OF 

12 PROGRAM 

13 SEC. 211. IMPLEMENTATION OF MEDICARE ADVANTAGE 

14 PROGRAM. 

15 (a) IN GENERAL.—There is hereby estab16 lished the Medicare Advantage program. The 

17 Medicare Advantage program shall consist of 

18 the program under part C of title XVIII of the 

19 Social Security Act, as amended by this title. 

20 (b) REFERENCES.—Any reference to the 

21 program under part C of title XVIII of the So22 cial Security Act shall be deemed a reference 

23 to the Medicare Advantage program and, with 

24 respect to such part, any reference to 
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1 ‘‘Medicare+Choice’’ is deemed a reference to 

2 ‘‘Medicare Advantage’’. 

3 SEC. 212. MEDICARE ADVANTAGE IMPROVEMENTS. 

4 (a) EQUALIZING PAYMENTS WITH FEE-FOR5 SERVICE.—

6 (1) IN GENERAL.—Section 1853(c)(1) (42 

7 U.S.C. 1395w–23(c)(1)) is amended by add8 ing at the end the following: 

9 ‘‘(D) BASED ON 100 PERCENT OF FEE10 FOR-SERVICE COSTS.—

11 ‘‘(i) IN GENERAL.—For 2004, the 

12 adjusted average per capita cost 

13 for the year involved, determined 

14 under section 1876(a)(4) for the 

15 Medicare Advantage payment 

16 area for services covered under 

17 parts A and B for individuals enti18 tled to benefits under part A and 

19 enrolled under part B who are 

20 not enrolled in a Medicare Advan21 tage under this part for the year, 

22 but adjusted to exclude costs at23 tributable to payments under sec24 tion 1886(h). 
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1 ‘‘(ii) INCLUSION OF COSTS OF VA

2 AND DOD MILITARY FACILITY SERV3 ICES TO MEDICARE-ELIGIBLE BENE4 FICIARIES.—In determining the ad5 justed average per capita cost 

6 under clause (i) for a year, such 

7 cost shall be adjusted to include 

8 the Secretary’s estimate, on a per 

9 capita basis, of the amount of ad10 ditional payments that would 

11 have been made in the area in12 volved under this title if individ13 uals entitled to benefits under 

14 this title had not received serv15 ices from facilities of the Depart16 ment of Veterans Affairs or the 

17 Department of Defense.’’.

18 (2) CONFORMING AMENDMENT.—Such 

19 section is further amended, in the matter 

20 before subparagraph (A), by striking ‘‘or 

21 (C)’’ and inserting ‘‘(C), or (D)’’. 

22 (b) CHANGE IN BUDGET NEUTRALITY FOR

23 BLEND.—Section 1853(c) (42 U.S.C. 1395w–

24 23(c)) is amended—
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1 (1) in paragraph (1)(A), by inserting 

2 ‘‘(for a year other than 2004)’’ after ‘‘mul3 tiplied’’; and 

4 (2) in paragraph (5), by inserting 

5 ‘‘(other than 2004)’’ after ‘‘for each year’’.

6 (c) INCREASING MINIMUM PERCENTAGE IN7 CREASE TO NATIONAL GROWTH RATE.—

8 (1) IN GENERAL.—Section 1853(c)(1) (42 

9 U.S.C. 1395w–23(c)(1)) is amended—

10 (A) in subparagraph (B)(iv), by 

11 striking ‘‘and each succeeding year’’

12 and inserting ‘‘, 2003, and 2004’’; 

13 (B) in subparagraph (C)(iv), by 

14 striking ‘‘and each succeeding year’’

15 and inserting ‘‘and 2003’’; and 

16 (C) by adding at the end of sub17 paragraph (C) the following new 

18 clause: 

19 ‘‘(v) For 2004 and each suc20 ceeding year, the greater of—

21 ‘‘(I) 102 percent of the an22 nual Medicare Advantage 

23 capitation rate under this 

24 paragraph for the area for the 

25 previous year; or 
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1 ‘‘(II) the annual Medicare 

2 Advantage capitation rate 

3 under this paragraph for the 

4 area for the previous year in5 creased by the national per 

6 capita Medicare Advantage 

7 growth percentage, described 

8 in paragraph (6) for that suc9 ceeding year, but not taking 

10 into account any adjustment 

11 under paragraph (6)(C) for a 

12 year before 2004.’’. 

13 (2) CONFORMING AMENDMENT.—Section 

14 1853(c)(6)(C) (42 U.S.C. 1395w–23(c)(6)(C)) 

15 is amended by inserting before the period 

16 at the end the following: ‘‘, except that for 

17 purposes of paragraph (1)(C)(v)(II), no 

18 such adjustment shall be made for a year 

19 before 2004’’.

20 (d) INCLUSION OF COSTS OF DOD AND VA 

21 MILITARY FACILITY SERVICES TO MEDICARE-ELI22 GIBLE BENEFICIARIES IN CALCULATION OF

23 MEDICARE+CHOICE PAYMENT RATES.—Section 

24 1853(c)(3) (42 U.S.C. 1395w–23(c)(3)) is amend25 ed—
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1 (1) in subparagraph (A), by striking 

2 ‘‘subparagraph (B)’’ and inserting ‘‘sub3 paragraphs (B) and (E)’’, and 

4 (2) by adding at the end the following 

5 new subparagraph: 

6 ‘‘(E) INCLUSION OF COSTS OF DOD

7 AND VA MILITARY FACILITY SERVICES TO

8 MEDICARE-ELIGIBLE BENEFICIARIES.—In 

9 determining the area-specific 

10 Medicare+Choice capitation rate 

11 under subparagraph (A) for a year 

12 (beginning with 2004), the annual per 

13 capita rate of payment for 1997 deter14 mined under section 1876(a)(1)(C) 

15 shall be adjusted to include in the 

16 rate the Secretary’s estimate, on a per 

17 capita basis, of the amount of addi18 tional payments that would have 

19 been made in the area involved under 

20 this title if individuals entitled to 

21 benefits under this title had not re22 ceived services from facilities of the 

23 Department of Defense or the Depart24 ment of Veterans Affairs.’’. 
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1 (e) EXTENDING SPECIAL RULE FOR CERTAIN

2 INPATIENT HOSPITAL STAYS TO REHABILITATION

3 HOSPITALS.—

4 (1) IN GENERAL.—Section 1853(g) (42 

5 U.S.C. 1395w–23(g)) is amended—

6 (A) by inserting ‘‘or from a reha7 bilitation facility (as defined in sec8 tion 1886(j)(1)(A))’’ after 

9 ‘‘1886(d)(1)(B))’’; and 

10 (B) in paragraph (2)(B), by insert11 ing ‘‘or section 1886(j), as the case 

12 may be,’’ after ‘‘1886(d)’’. 

13 (2) EFFECTIVE DATE.—The amendments 

14 made by paragraph (1) shall apply to con15 tract years beginning on or after January 

16 1, 2004. 

17 (f) MEDPAC STUDY OF AAPCC.—

18 (1) STUDY.—The Medicare Payment 

19 Advisory Commission shall conduct a 

20 study that assesses the method used for 

21 determining the adjusted average per 

22 capita cost (AAPCC) under section 

23 1876(a)(4) of the Social Security Act (42 

24 U.S.C. 1395mm(a)(4)) as applied under 

25 section 1853(c)(1)(A) of such Act (as 
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1 amended by subsection (a)). Such study 

2 shall include an examination of—

3 (A) the bases for variation in such 

4 costs between different areas, includ5 ing differences in input prices, utili6 zation, and practice patterns; 

7 (B) the appropriate geographic 

8 area for payment under the Medicare 

9 Advantage program under part C of 

10 title XVIII of such Act; and 

11 (C) the accuracy of risk adjust12 ment methods in reflecting dif13 ferences in costs of providing care to 

14 different groups of beneficiaries 

15 served under such program. 

16 (2) REPORT.—Not later than 18 months 

17 after the date of the enactment of this 

18 Act, the Commission shall submit to Con19 gress a report on the study conducted 

20 under paragraph (1). 

21 (g) REPORT ON IMPACT OF INCREASED FINAN22 CIAL ASSISTANCE TO MEDICARE ADVANTAGE

23 PLANS.—Not later than July 1, 2006, the Medi24 care Benefits Administrator shall submit to 

25 Congress a report that describes the impact 
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1 of additional financing provided under this 

2 Act and other Acts (including the Medicare, 

3 Medicaid, and SCHIP Balanced Budget Re4 finement Act of 1999 and BIPA) on the avail5 ability of Medicare Advantage plans in dif6 ferent areas and its impact on lowering pre7 miums and increasing benefits under such 

8 plans. 

9 CHAPTER 2—IMPLEMENTATION OF 

10 COMPETITION PROGRAM

11 SEC. 221. COMPETITION PROGRAM BEGINNING IN 2006. 

12 (a) SUBMISSION OF EFFS-LIKE BIDDING IN13 FORMATION BEGINNING IN 2006.—Section 1854 

14 (42 U.S.C. 1395w–24) is amended—

15 (1) by amending the section heading 

16 to read as follows: 

17 ‘‘PREMIUMS AND BID AMOUNT’’; 

18 (2) in subsection (a)(1)(A)—

19 (A) by striking ‘‘(A)’’ and inserting 

20 ‘‘(A)(i) if the following year is before 

21 2006,’’; and 

22 (B) by inserting before the semi23 colon at the end the following: ‘‘or (ii) 

24 if the following year is 2006 or later, 

25 the information described in para-
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1 graph (3) or (6)(A) for the type of plan 

2 involved’’; and 

3 (3) by adding at the end of subsection 

4 (a) the following: 

5 ‘‘(6) SUBMISSION OF BID AMOUNTS BY

6 MEDICARE ADVANTAGE ORGANIZATIONS.—

7 ‘‘(A) INFORMATION TO BE SUB8 MITTED.—The information described 

9 in this subparagraph is as follows: 

10 ‘‘(i) The monthly aggregate 

11 bid amount for provision of all 

12 items and services under this 

13 part, which amount shall be 

14 based on average costs for a typ15 ical beneficiary residing in the 

16 area, and the actuarial basis for 

17 determining such amount. 

18 ‘‘(ii) The proportions of such 

19 bid amount that are attributable 

20 to—

21 ‘‘(I) the provision of statu22 tory non-drug benefits (such 

23 portion referred to in this 

24 part as the ‘unadjusted Medi-
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1 care Advantage statutory non2 drug monthly bid amount’); 

3 ‘‘(II) the provision of stat4 utory prescription drug bene5 fits; and 

6 ‘‘(III) the provision of non7 statutory benefits; 

8 and the actuarial basis for deter9 mining such proportions. 

10 ‘‘(iii) Such additional informa11 tion as the Administrator may re12 quire to verify the actuarial bases 

13 described in clauses (i) and (ii). 

14 ‘‘(B) STATUTORY BENEFITS DE15 FINED.—For purposes of this part: 

16 ‘‘(i) The term ‘statutory non17 drug benefits’ means benefits 

18 under section 1852(a)(1). 

19 ‘‘(ii) The term ‘statutory pre20 scription drug benefits’ means 

21 benefits under part D. 

22 ‘‘(iii) The term ‘statutory ben23 efits’ means statutory prescrip24 tion drug benefits and statutory 

25 non-drug benefits.
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1 ‘‘(C) ACCEPTANCE AND NEGOTIATION

2 OF BID AMOUNTS.—

3 ‘‘(i) IN GENERAL.—Subject to 

4 clause (ii)—

5 ‘‘(I) the Administrator has 

6 the authority to negotiate re7 garding monthly bid amounts 

8 submitted under subpara9 graph (A) (and the proportion 

10 described in subparagraph 

11 (A)(ii)), and for such purpose 

12 and subject to such clause, 

13 the Administrator has nego14 tiation authority that the Di15 rector of the Office of Per16 sonnel Management has with 

17 respect to health benefits 

18 plans under chapter 89 of title 

19 5, United States Code; and 

20 ‘‘(II) the Administrator 

21 may reject such a bid amount 

22 or proportion if the Adminis23 trator determines that such 

24 amount or proportion is not 

25 supported by the actuarial 
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1 bases provided under sub2 paragraph (A). 

3 ‘‘(ii) EXCEPTION.—In the case 

4 of a plan described in section 

5 1851(a)(2)(C), the provisions of 

6 clause (i) shall not apply and the 

7 provisions of paragraph (5)(B), 

8 prohibiting the review, approval, 

9 or disapproval of amounts de10 scribed in such paragraph, shall 

11 apply to the negotiation and re12 jection of the monthly bid 

13 amounts and proportion referred 

14 to in subparagraph (A).’’. 

15 (b) PROVIDING FOR BENEFICIARY SAVINGS

16 FOR CERTAIN PLANS.—

17 (1) IN GENERAL.—Section 1854(b) (42 

18 U.S.C. 1395w–24(b)) is amended—

19 (A) by adding at the end of para20 graph (1) the following new subpara21 graph: 

22 ‘‘(C) BENEFICIARY REBATE RULE.—

23 ‘‘(i) REQUIREMENT.—The Medi24 care Advantage plan shall provide 

25 to the enrollee a monthly rebate 
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1 equal to 75 percent of the average 

2 per capita savings (if any) de3 scribed in paragraph (3) applica4 ble to the plan and year involved. 

5 ‘‘(iii) FORM OF REBATE.—A re6 bate required under this subpara7 graph shall be provided—

8 ‘‘(I) through the crediting 

9 of the amount of the rebate 

10 towards the Medicare Advan11 tage monthly supplementary 

12 beneficiary premium or the 

13 premium imposed for pre14 scription drug coverage under 

15 part D; 

16 ‘‘(II) through a direct 

17 monthly payment (through 

18 electronic funds transfer or 

19 otherwise); or 

20 ‘‘(III) through other means 

21 approved by the Medicare 

22 Benefits Administrator, 

23 or any combination thereof.’’; and 

24 (B) by adding at the end the fol25 lowing new paragraphs: 
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1 ‘‘(3) COMPUTATION OF AVERAGE PER

2 CAPITA MONTHLY SAVINGS.—For purposes 

3 of paragraph (1)(C)(i), the average per 

4 capita monthly savings referred to in 

5 such paragraph for a Medicare Advan6 tage plan and year is computed as fol7 lows: 

8 ‘‘(A) DETERMINATION OF STATE-WIDE

9 AVERAGE RISK ADJUSTMENT.—

10 ‘‘(i) IN GENERAL.—The Medi11 care Benefits Administrator shall 

12 determine, at the same time rates 

13 are promulgated under section 

14 1853(b)(1) (beginning with 2006), 

15 for each State the average of the 

16 risk adjustment factors to be ap17 plied under section 1853(a)(1)(A) 

18 to payment for enrollees in that 

19 State. In the case of a State in 

20 which a Medicare Advantage plan 

21 was offered in the previous year, 

22 the Administrator may compute 

23 such average based upon risk ad24 justment factors applied in that 

25 State in a previous year. 
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1 ‘‘(ii) TREATMENT OF NEW

2 STATES.—In the case of a State in 

3 which no Medicare Advantage 

4 plan was offered in the previous 

5 year, the Administrator shall esti6 mate such average. In making 

7 such estimate, the Administrator 

8 may use average risk adjustment 

9 factors applied to comparable 

10 States or applied on a national 

11 basis. 

12 ‘‘(B) DETERMINATION OF RISK AD13 JUSTED BENCHMARK AND RISK-ADJUSTED

14 BID.—For each Medicare Advantage 

15 plan offered in a State, the Adminis16 trator shall—

17 ‘‘(i) adjust the Medicare Ad18 vantage area-specific non-drug 

19 monthly benchmark amount (as 

20 defined in subsection (j)) by the 

21 applicable average risk adjust22 ment factor computed under sub23 paragraph (A); and 

24 ‘‘(ii) adjust the unadjusted 

25 Medicare Advantage statutory 
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1 non-drug monthly bid amount by 

2 such applicable average risk ad3 justment factor. 

4 ‘‘(C) DETERMINATION OF AVERAGE

5 PER CAPITA MONTHLY SAVINGS.—The av6 erage per capita monthly savings de7 scribed in this subparagraph is equal 

8 to the amount (if any) by which—

9 ‘‘(i) the risk-adjusted bench10 mark amount computed under 

11 subparagraph (B)(i), exceeds 

12 ‘‘(ii) the risk-adjusted bid 

13 computed under subparagraph 

14 (B)(ii). 

15 ‘‘(D) AUTHORITY TO DETERMINE RISK

16 ADJUSTMENT FOR AREAS OTHER THAN

17 STATES.—The Administrator may pro18 vide for the determination and appli19 cation of risk adjustment factors 

20 under this paragraph on the basis of 

21 areas other than States. 

22 ‘‘(4) BENEFICIARY’S OPTION OF PAYMENT

23 THROUGH WITHHOLDING FROM SOCIAL SECU24 RITY PAYMENT OR USE OF ELECTRONIC FUNDS

25 TRANSFER MECHANISM.—In accordance 
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1 with regulations, a Medicare Advantage 

2 organization shall permit each enrollee, 

3 at the enrollee’s option, to make payment 

4 of premiums under this part to the orga5 nization indirectly through withholding 

6 from benefit payments in the manner 

7 provided under section 1840 with respect 

8 to monthly premiums under section 1839 

9 or through an electronic funds transfer 

10 mechanism (such as automatic charges of 

11 an account at a financial institution or a 

12 credit or debit card account) or other13 wise. All premium payments that are 

14 withheld under this paragraph that are 

15 credited to the Federal Supplementary 

16 Medical Insurance Drug Trust Fund shall 

17 be paid to the Medicare Advantage orga18 nization involved.’’. 

19 (2) PROVISION OF SINGLE CONSOLIDATED

20 PREMIUM.—Section 1854(b) (42 U.S.C. 

21 1395w–24(b)), as amended by paragraph 

22 (1), is further amended by adding at the 

23 end the following new paragraph: 

24 ‘‘(5) SINGLE CONSOLIDATED PREMIUM.—

25 In the case of an enrollee in a Medicare 
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1 Advantage plan who elects under part D 

2 to be provided qualified prescription 

3 drug coverage through the plan, the Ad4 ministrator shall provide a mechanism 

5 for the consolidation of the beneficiary 

6 premium amount for non-drug benefits 

7 under this part with the premium 

8 amount for prescription drug coverage 

9 under part D provided through the 

10 plan.’’. 

11 (3) COMPUTATION OF MEDICARE ADVAN12 TAGE AREA-SPECIFIC NON-DRUG BENCH13 MARK.—Section 1853 (42 U.S.C. 1395w–23) 

14 is amended by adding at the end the fol15 lowing new subsection: 

16 ‘‘(j) COMPUTATION OF MEDICARE ADVANTAGE

17 AREA-SPECIFIC NON-DRUG MONTHLY BENCH18 MARK AMOUNT.—For purposes of this part, the 

19 term ‘Medicare Advantage area-specific non20 drug monthly benchmark amount’ means, 

21 with respect to a Medicare Advantage pay22 ment area for a month in a year, an amount 

equal to 1 23 ⁄12 of the annual Medicare Advan24 tage capitation rate under section 1853(c)(1) 

25 for the area for the year.’’. 
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1 (c) PAYMENT OF PLANS BASED ON BID

2 AMOUNTS.—

3 (1) IN GENERAL.—Section 1853(a)(1)(A) 

4 (42 U.S.C. 1395w–23) is amended by strik5 ing ‘‘in an amount’’ and all that follows 

6 and inserting the following: ‘‘in an 

7 amount determined as follows: 

8 ‘‘(i) PAYMENT BEFORE 2006.—For 

9 years before 2006, the payment 

amount shall be equal to 1 10 ⁄12 of 

11 the annual Medicare Advantage 

12 capitation rate (as calculated 

13 under subsection (c)(1)) with re14 spect to that individual for that 

15 area, reduced by the amount of 

16 any reduction elected under sec17 tion 1854(f )(1)(E) and adjusted 

18 under clause (iv). 

19 ‘‘(ii) PAYMENT FOR STATUTORY

20 NON-DRUG BENEFITS BEGINNING

21 WITH 2006.—For years beginning 

22 with 2006—

23 ‘‘(I) PLANS WITH BIDS

24 BELOW BENCHMARK.—In the 

25 case of a plan for which there 
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1 are average per capita month2 ly savings described in sec3 tion 1854(b)(3)(C), the pay4 ment under this subsection is 

5 equal to the unadjusted Medi6 care Advantage statutory non7 drug monthly bid amount, ad8 justed under clause (iv), plus 

9 the amount of the monthly re10 bate computed under section 

11 1854(b)(1)(C)(i) for that plan 

12 and year. 

13 ‘‘(II) PLANS WITH BIDS AT

14 OR ABOVE BENCHMARK.—In the 

15 case of a plan for which there 

16 are no average per capita 

17 monthly savings described in 

18 section 1854(b)(3)(C), the pay19 ment amount under this sub20 section is equal to the Medi21 care Advantage area-specific 

22 non-drug monthly benchmark 

23 amount, adjusted under 

24 clause (iv). 
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1 ‘‘(iii) FOR FEDERAL DRUG SUB2 SIDIES.—In the case in which an 

3 enrollee who elects under part D 

4 to be provided qualified prescrip5 tion drug coverage through the 

6 plan, the Medicare Advantage or7 ganization offering such plan also 

8 is entitled—

9 ‘‘(I) to direct subsidy pay10 ment under section 1860D–

11 8(a)(1); 

12 ‘‘(II) to reinsurance sub13 sidy payments under section 

14 1860D–8(a)(2); and 

15 ‘‘(III) to reimbursement 

16 for premium and cost-sharing 

17 reductions for low-income in18 dividuals under section 

19 1860D–7(c)(3). 

20 ‘‘(iv) DEMOGRAPHIC ADJUST21 MENT, INCLUDING ADJUSTMENT FOR

22 HEALTH STATUS.—The Adminis23 trator shall adjust the payment 

24 amount under clause (i), the 

25 unadjusted Medicare Advantage 
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1 statutory non-drug monthly bid 

2 amount under clause (ii)(I), and 

3 the Medicare Advantage area-spe4 cific non-drug monthly bench5 mark amount under clause (ii)(II) 

6 for such risk factors as age, dis7 ability status, gender, institu8 tional status, and such other fac9 tors as the Administrator deter10 mines to be appropriate, includ11 ing adjustment for health status 

12 under paragraph (3), so as to en13 sure actuarial equivalence. The 

14 Administrator may add to, mod15 ify, or substitute for such adjust16 ment factors if such changes will 

17 improve the determination of ac18 tuarial equivalence.’’. 

19 (d) CONFORMING AMENDMENTS.—

20 (1) PROTECTION AGAINST BENEFICIARY

21 SELECTION.—Section 1852(b)(1)(A) (42 

22 U.S.C. 1395w–22(b)(1)(A)) is amended by 

23 adding at the end the following: ‘‘The Ad24 ministrator shall not approve a plan of 

25 an organization if the Administrator de-
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1 termines that the benefits are designed to 

2 substantially discourage enrollment by 

3 certain Medicare Advantage eligible indi4 viduals with the organization.’’. 

5 (2) CONFORMING AMENDMENT TO PRE6 MIUM TERMINOLOGY.—Section 1854(b)(2) 

7 (42 U.S.C. 1395w–24(b)(2)) is amended by 

8 redesignating subparagraph (C) as sub9 paragraph (D) and by striking subpara10 graphs (A) and (B) and inserting the fol11 lowing: 

12 ‘‘(A) MEDICARE ADVANTAGE MONTH13 LY BASIC BENEFICIARY PREMIUM.—The 

14 term ‘Medicare Advantage monthly 

15 basic beneficiary premium’ means, 

16 with respect to a Medicare Advantage 

17 plan—

18 ‘‘(i) described in section 

19 1853(a)(1)(A)(ii)(I) (relating to 

20 plans providing rebates), zero; or 

21 ‘‘(ii) described in section 

22 1853(a)(1)(A)(ii)(II), the amount (if 

23 any) by which the unadjusted 

24 Medicare Advantage statutory 

25 non-drug monthly bid amount ex-
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1 ceeds the Medicare Advantage 

2 area-specific non-drug monthly 

3 benchmark amount. 

4 ‘‘(B) MEDICARE ADVANTAGE MONTH5 LY PRESCRIPTION DRUG BENEFICIARY

6 PREMIUM.—The term ‘Medicare Advan7 tage monthly prescription drug bene8 ficiary premium’ means, with respect 

9 to a Medicare Advantage plan, that 

10 portion of the bid amount submitted 

11 under clause (i) of subsection 

12 (a)(6)(A) for the year that is attrib13 utable under such section to the pro14 vision of statutory prescription drug 

15 benefits. 

16 ‘‘(C) MEDICARE ADVANTAGE MONTH17 LY SUPPLEMENTAL BENEFICIARY PRE18 MIUM.—The term ‘Medicare Advantage 

19 monthly supplemental beneficiary 

20 premium’ means, with respect to a 

21 Medicare Advantage plan, the portion 

22 of the aggregate monthly bid amount 

23 submitted under clause (i) of sub24 section (a)(6)(A) for the year that is 
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1 attributable under such section to the 

2 provision of nonstatutory benefits.’’. 

3 (3) REQUIREMENT FOR UNIFORM PRE4 MIUM AND BID AMOUNTS.—Section 1854(c) 

5 (42 U.S.C. 1395w–24(c)) is amended to 

6 read as follows: 

7 ‘‘(c) UNIFORM PREMIUM AND BID AMOUNTS.—

8 The Medicare Advantage monthly bid amount 

9 submitted under subsection (a)(6), the Medi10 care Advantage monthly basic, prescription 

11 drug, and supplemental beneficiary pre12 miums, and the Medicare Advantage monthly 

13 MSA premium charged under subsection (b) 

14 of a Medicare Advantage organization under 

15 this part may not vary among individuals en16 rolled in the plan.’’. 

17 (4) PERMITTING BENEFICIARY RE18 BATES.—

19 (A) Section 1851(h)(4)(A) (42 

20 U.S.C. 1395w–21(h)(4)(A)) is amended 

21 by inserting ‘‘except as provided 

22 under section 1854(b)(1)(C)’’ after ‘‘or 

23 otherwise’’. 

24 (B) Section 1854(d) (42 U.S.C. 

25 1395w–24(d)) is amended by inserting 
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1 ‘‘, except as provided under sub2 section (b)(1)(C),’’ after ‘‘and may not 

3 provide’’. 

4 (5) OTHER CONFORMING AMENDMENTS

5 RELATING TO BIDS.—Section 1854 (42 U.S.C. 

6 1395w–24) is amended—

7 (A) in the heading of subsection 

8 (a), by inserting ‘‘AND BID AMOUNTS’’

9 after ‘‘PREMIUMS’’; and 

10 (B) in subsection (a)(5)(A), by in11 serting ‘‘paragraphs (2), (3), and (4) 

12 of’’ after ‘‘filed under’’. 

13 (e) ADDITIONAL CONFORMING AMEND14 MENTS.—

15 (1) ANNUAL DETERMINATION AND AN16 NOUNCEMENT OF CERTAIN FACTORS.—Sec17 tion 1853(b)(1) (42 U.S.C. 1395w–23(b)(1)) 

18 is amended by striking ‘‘the respective 

19 calendar year’’ and all that follows and 

20 inserting the following: ‘‘the calendar 

21 year concerned with respect to each 

22 Medicare Advantage payment area, the 

23 following: 
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1 ‘‘(A) PRE-COMPETITION INFORMA2 TION.—For years before 2006, the fol3 lowing: 

4 ‘‘(i) MEDICARE ADVANTAGE CAPI5 TATION RATES.—The annual Medi6 care Advantage capitation rate 

7 for each Medicare Advantage pay8 ment area for the year. 

9 ‘‘(ii) ADJUSTMENT FACTORS.—

10 The risk and other factors to be 

11 used in adjusting such rates 

12 under subsection (a)(1)(A) for 

13 payments for months in that year. 

14 ‘‘(B) COMPETITION INFORMATION.—

15 For years beginning with 2006, the 

16 following: 

17 ‘‘(i) BENCHMARK.—The Medi18 care Advantage area-specific non19 drug benchmark under section 

20 1853(j). 

21 ‘‘(ii) ADJUSTMENT FACTORS.—

22 The adjustment factors applied 

23 under section 1853(a)(1)(A)(iv) (re24 lating to demographic adjust25 ment), section 1853(a)(1)(B) (relat-
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1 ing to adjustment for end-stage 

2 renal disease), and section 

3 1853(a)(3) (relating to health sta4 tus adjustment).’’. 

5 (2) REPEAL OF PROVISIONS RELATING TO

6 ADJUSTED COMMUNITY RATE (ACR).—

7 (A) IN GENERAL.—Subsections (e) 

8 and (f) of section 1854 (42 U.S.C. 

9 1395w–24) are repealed. 

10 (B) CONFORMING AMENDMENTS.—(i) 

11 Section 1839(a)(2) (42 U.S.C. 

12 1395r(a)(2)) is amended by striking ‘‘, 

13 and to reflect’’ and all that follows 

14 and inserting a period. 

15 (ii) Section 1852(a)(1) (42 U.S.C. 

16 1395w–22(a)(1)) is amended by strik17 ing ‘‘title XI’’ and all that follows and 

18 inserting the following: ‘‘title XI those 

19 items and services (other than hos20 pice care) for which benefits are 

21 available under parts A and B to indi22 viduals residing in the area served by 

23 the plan.’’. 

24 (iii) Section 1857(d)(1) (42 U.S.C. 

25 1395w–27(d)(1)) is amended by strik-
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1 ing ‘‘, costs, and computation of the 

2 adjusted community rate’’ and insert3 ing ‘‘and costs’’. 

4 (f) REFERENCES UNDER PART E.—Section 

5 1859 (42 U.S.C. 1395w–29) is amended by add6 ing at the end the following new subsection: 

7 ‘‘(f) APPLICATION UNDER PART E.—In the 

8 case of any reference under part E to a re9 quirement or provision of this part in the re10 lation to an EFFS plan or organization under 

11 such part, except as otherwise specified any 

12 such requirement or provision shall be ap13 plied to such organization or plan in the same 

14 manner as such requirement or provision ap15 plies to a Medicare Advantage private fee-for16 service plan (and the Medicare Advantage or17 ganization that offers such plan) under this 

18 part.’’. 

19 (g) EFFECTIVE DATE.—The amendments 

20 made by this section shall apply to payments 

21 and premiums for months beginning with 

22 January 2006. 
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1 CHAPTER 3—ADDITIONAL REFORMS

2 SEC. 231. MAKING PERMANENT CHANGE IN MEDICARE AD3 VANTAGE REPORTING DEADLINES AND AN4 NUAL, COORDINATED ELECTION PERIOD. 

5 (a) CHANGE IN REPORTING DEADLINE.—Sec6 tion 1854(a)(1) (42 U.S.C. 1395w–24(a)(1)), as 

7 amended by section 532(b)(1) of the Public 

8 Health Security and Bioterrorism Prepared9 ness and Response Act of 2002, is amended by 

10 striking ‘‘2002, 2003, and 2004 (or July 1 of 

11 each other year)’’ and inserting ‘‘2002 and 

12 each subsequent year’’. 

13 (b) DELAY IN ANNUAL, COORDINATED ELEC14 TION PERIOD.—Section 1851(e)(3)(B) (42 U.S.C. 

15 1395w–21(e)(3)(B)), as amended by section 

16 532(c)(1)(A) of the Public Health Security and 

17 Bioterrorism Preparedness and Response Act 

18 of 2002, is amended—

19 (1) by striking ‘‘and after 2005’’; and 

20 (2) by striking ‘‘, 2004, and 2005’’ and 

21 inserting ‘‘and any subsequent year’’. 

22 (c) ANNUAL ANNOUNCEMENT OF PAYMENT

23 RATES.—Section 1853(b)(1) (42 U.S.C. 1395w–

24 23(b)(1)), as amended by section 532(d)(1) of 

25 the Public Health Security and Bioterrorism 
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1 Preparedness and Response Act of 2002, is 

2 amended—

3 (1) by striking ‘‘and after 2005’’; and 

4 (2) by striking ‘‘and 2005’’ and insert5 ing ‘‘and each subsequent year’’. 

6 (d) REQUIRING PROVISION OF AVAILABLE IN7 FORMATION COMPARING PLAN OPTIONS.—The 

8 first sentence of section 1851(d)(2)(A)(ii) (42 

9 U.S.C. 1395w–21(d)(2)(A)(ii)) is amended by in10 serting before the period the following: ‘‘to 

11 the extent such information is available at the 

12 time of preparation of materials for the mail13 ing’’. 

14 SEC. 232. AVOIDING DUPLICATIVE STATE REGULATION. 

15 (a) IN GENERAL.—Section 1856(b)(3) (42 

16 U.S.C. 1395w–26(b)(3)) is amended to read as 

17 follows: 

18 ‘‘(3) RELATION TO STATE LAWS.—The 

19 standards established under this sub20 section shall supersede any State law or 

21 regulation (other than State licensing 

22 laws or State laws relating to plan sol23 vency) with respect to Medicare Advan24 tage plans which are offered by Medicare 
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1 Advantage organizations under this 

2 part.’’. 

3 (b) EFFECTIVE DATE.—The amendment 

4 made by subsection (a) shall take effect on the 

5 date of the enactment of this Act. 

6 SEC. 233. SPECIALIZED MEDICARE ADVANTAGE PLANS FOR 

7 SPECIAL NEEDS BENEFICIARIES. 

8 (a) TREATMENT AS COORDINATED CARE

9 PLAN.—Section 1851(a)(2)(A) (42 U.S.C. 1395w–

10 21(a)(2)(A)) is amended by adding at the end 

11 the following new sentence: ‘‘Specialized 

12 Medicare Advantage plans for special needs 

13 beneficiaries (as defined in section 1859(b)(4)) 

14 may be any type of coordinated care plan.’’. 

15 (b) SPECIALIZED MEDICARE ADVANTAGE

16 PLAN FOR SPECIAL NEEDS BENEFICIARIES DE17 FINED.—Section 1859(b) (42 U.S.C. 1395w–

18 29(b)) is amended by adding at the end the fol19 lowing new paragraph: 

20 ‘‘(4) SPECIALIZED MEDICARE ADVANTAGE

21 PLANS FOR SPECIAL NEEDS BENEFICIARIES.—

22 ‘‘(A) IN GENERAL.—The term ‘spe23 cialized Medicare Advantage plan for 

24 special needs beneficiaries’ means a 

25 Medicare Advantage plan that exclu-
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1 sively serves special needs bene2 ficiaries (as defined in subparagraph 

3 (B)). 

4 ‘‘(B) SPECIAL NEEDS BENEFICIARY.—

5 The term ‘special needs beneficiary’

6 means a Medicare Advantage eligible 

7 individual who—

8 ‘‘(i) is institutionalized (as de9 fined by the Secretary); 

10 ‘‘(ii) is entitled to medical as11 sistance under a State plan under 

12 title XIX; or 

13 ‘‘(iii) meets such requirements 

14 as the Secretary may determine 

15 would benefit from enrollment in 

16 such a specialized Medicare Ad17 vantage plan described in sub18 paragraph (A) for individuals 

19 with severe or disabling chronic 

20 conditions.’’. 

21 (c) RESTRICTION ON ENROLLMENT PER22 MITTED.—Section 1859 (42 U.S.C. 1395w–29) is 

23 amended by adding at the end the following 

24 new subsection: 
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1 ‘‘(f) RESTRICTION ON ENROLLMENT FOR SPE2 CIALIZED MEDICARE ADVANTAGE PLANS FOR SPE3 CIAL NEEDS BENEFICIARIES.—In the case of a 

4 specialized Medicare Advantage plan (as de5 fined in subsection (b)(4)), notwithstanding 

6 any other provision of this part and in accord7 ance with regulations of the Secretary and for 

8 periods before January 1, 2007, the plan may 

9 restrict the enrollment of individuals under 

10 the plan to individuals who are within one or 

11 more classes of special needs beneficiaries.’’. 

12 (d) REPORT TO CONGRESS.—Not later than 

13 December 31, 2005, the Medicare Benefits Ad14 ministrator shall submit to Congress a report 

15 that assesses the impact of specialized Medi16 care Advantage plans for special needs bene17 ficiaries on the cost and quality of services 

18 provided to enrollees. Such report shall in19 clude an assessment of the costs and savings 

20 to the medicare program as a result of amend21 ments made by subsections (a), (b), and (c). 

22 (e) EFFECTIVE DATES.—

23 (1) IN GENERAL.—The amendments 

24 made by subsections (a), (b), and (c) shall 
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1 take effect upon the date of the enact2 ment of this Act. 

3 (2) DEADLINE FOR ISSUANCE OF RE4 QUIREMENTS FOR SPECIAL NEEDS BENE5 FICIARIES; TRANSITION.—No later than 6 

6 months after the date of the enactment of 

7 this Act, the Secretary shall issue interim 

8 final regulations to establish require9 ments for special needs beneficiaries 

10 under section 1859(b)(4)(B)(iii) of the So11 cial Security Act, as added by subsection 

12 (b). 

13 SEC. 234. MEDICARE MSAS. 

14 (a) EXEMPTION FROM REPORTING ENROLLEE

15 ENCOUNTER DATA.—

16 (1) IN GENERAL.—Section 1852(e)(1) (42 

17 U.S.C. 1395w–22(e)(1)) is amended by in18 serting ‘‘(other than MSA plans)’’ after 

19 ‘‘plans’’. 

20 (2) CONFORMING AMENDMENTS.—Sec21 tion 1852 (42 U.S.C. 1395w–22) is amend22 ed—

23 (A) in subsection (c)(1)(I), by in24 serting before the period at the end 
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1 the following: ‘‘if required under such 

2 section’’; and 

3 (B) in subparagraphs (A) and (B) 

4 of subsection (e)(2), by striking ‘‘, a 

5 non-network MSA plan,’’ and ‘‘

, NON6 NETWORK MSA PLANS,

’’ each place it ap7 pears. 

8 (b) MAKING PROGRAM PERMANENT AND

9 ELIMINATING CAP.—Section 1851(b)(4) (42 

10 U.S.C. 1395w–21(b)(4)) is amended—

11 (1) in the heading, by striking ‘‘ON A

12 DEMONSTRATION BASIS’’; 

13 (2) by striking the first sentence of 

14 subparagraph (A); and 

15 (3) by striking the second sentence of 

16 subparagraph (C). 

17 (c) APPLYING LIMITATIONS ON BALANCE

18 BILLING.—Section 1852(k)(1) (42 U.S.C. 1395w–

19 22(k)(1)) is amended by inserting ‘‘or with an 

20 organization offering a MSA plan’’ after ‘‘sec21 tion 1851(a)(2)(A)’’. 

22 (d) ADDITIONAL AMENDMENT.—Section 

23 1851(e)(5)(A) (42 U.S.C. 1395w–21(e)(5)(A)) is 

24 amended—
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1 (1) by adding ‘‘or’’ at the end of clause 

2 (i); 

3 (2) by striking ‘‘, or’’ at the end of 

4 clause (ii) and inserting a semicolon; and 

5 (3) by striking clause (iii). 

6 SEC. 235. EXTENSION OF REASONABLE COST CONTRACTS. 

7 Subparagraph (C) of section 1876(h)(5) (42 

8 U.S.C. 1395mm(h)(5)) is amended to read as 

9 follows: 

10 ‘‘(C)(i) Subject to clause (ii), may be ex11 tended or renewed under this subsection in12 definitely. 

13 ‘‘(ii) For any period beginning on or after 

14 January 1, 2008, a reasonable cost reimburse15 ment contract under this subsection may not 

16 be extended or renewed for a service area in17 sofar as such area, during the entire previous 

18 year, was within the service area of 2 or more 

19 plans which were coordinated care Medicare 

20 Advantage plans under part C or 2 or more 

21 enhanced fee-for-service plans under part E 

22 and each of which plan for that previous year 

23 for the area involved meets the following min24 imum enrollment requirements: 
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1 ‘‘(I) With respect to any portion of the 

2 area involved that is within a Metropoli3 tan Statistical Area with a population of 

4 more than 250,000 and counties contig5 uous to such Metropolitan Statistical 

6 Area, 5,000 individuals. 

7 ‘‘(II) With respect to any other por8 tion of such area, 1,500 individuals.’’. 

9 SEC. 236. EXTENSION OF MUNICIPAL HEALTH SERVICE 

10 DEMONSTRATION PROJECTS. 

11 Section 9215(a) of the Consolidated Omni12 bus Budget Reconciliation Act of 1985 (42 

13 U.S.C. 1395b–1 note), as amended by section 

14 6135 of the Omnibus Budget Reconciliation 

15 Act of 1989, section 13557 of the Omnibus 

16 Budget Reconciliation Act of 1993, section 

17 4017 of BBA, section 534 of BBRA (113 Stat. 

18 1501A–390), and section 633 of BIPA, is amend19 ed by striking ‘‘December 31, 2004’’ and insert20 ing ‘‘December 31, 2009’’.
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1 Subtitle C—Application of FEHBP2 Style Competitive Reforms

3 SEC. 241. APPLICATION OF FEHBP-STYLE COMPETITIVE RE4 FORM BEGINNING IN 2010.

5 (a) IDENTIFICATION OF COMPETITIVE EFFS 

6 REGIONS; COMPUTATION OF COMPETITIVE EFFS 

7 NON-DRUG BENCHMARKS UNDER EFFS PRO8 GRAM.—

9 (1) IN GENERAL.—Section 1860E–3, as 

10 added by section 201(a), is amended by 

11 adding at the end the following new sub12 section: 

13 ‘‘(e) APPLICATION OF COMPETITION.—

14 ‘‘(1) DETERMINATION OF COMPETITIVE

15 EFFS REGIONS.—

16 ‘‘(A) IN GENERAL.—For purposes of 

17 this part, the term ‘competitive EFFS 

18 region’ means, for a year beginning 

19 with 2010, an EFFS region that the 

20 Administrator finds—

21 ‘‘(i) there will be offered in 

22 the region during the annual, co23 ordinated election period under 

24 section 1851(e)(3)(B) (as applied 

25 under section 1860E–1(c)) before 
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1 the beginning of the year at least 

2 2 EFFS plans (in addition to the 

3 fee-for-service program under 

4 parts A and B), each offered by a 

5 different EFFS organization and 

6 each of which met the minimum 

7 enrollment requirements of para8 graph (1) of section 1857(b) (as ap9 plied without regard to para10 graph (3) thereof) as of March of 

11 the previous year; and 

12 ‘‘(ii) during March of the pre13 vious year at least the percentage 

14 specified in subparagraph (C) of 

15 the number of EFFS eligible indi16 viduals who reside in the region 

17 were enrolled in an EFFS plan. 

18 ‘‘(B) PERCENTAGE SPECIFIED.—

19 ‘‘(i) IN GENERAL.—For purposes 

20 of subparagraph (A), subject to 

21 clause (ii), the percentage speci22 fied in this subparagraph for a 

23 year is equal the lesser of 20 per24 cent or to the sum of—
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1 ‘‘(I) the percentage, as es2 timated by the Administrator, 

3 of EFFS eligible individuals in 

4 the United States who are en5 rolled in EFFS plans during 

6 March of the previous year; 

7 and 

8 ‘‘(II) the percentage, as es9 timated by the Administrator, 

10 of Medicare Advantage eligi11 ble individuals in the United 

12 States who are enrolled in 

13 Medicare Advantage plans 

14 during March of the previous 

15 year. 

16 ‘‘(ii) EXCEPTION.—In the case 

17 of an EFFS region that was a 

18 competitive EFFS region for the 

19 previous year, the Medicare Bene20 fits Administrator may continue 

21 to treat the region as meeting the 

22 requirement of subparagraph 

23 (A)(ii) if the region would meet 

24 such requirement but for a de 
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1 minimis reduction below the per2 centage specified in clause (i). 

3 ‘‘(2) COMPETITIVE EFFS NON-DRUG

4 MONTHLY BENCHMARK AMOUNT.—For pur5 poses of this part, the term ‘competitive 

6 EFFS non-drug monthly benchmark 

7 amount’ means, with respect to an EFFS 

8 region for a month in a year and subject 

9 to paragraph (8), the sum of the 2 compo10 nents described in paragraph (3) for the 

11 region and year. The Administrator shall 

12 compute such benchmark amount for 

13 each competitive EFFS region before the 

14 beginning of each annual, coordinated 

15 election period under section 

16 1851(e)(3)(B) for each year (beginning 

17 with 2010) in which it is designated as 

18 such a region. 

19 ‘‘(3) 2 COMPONENTS.—For purposes of 

20 paragraph (2), the 2 components de21 scribed in this paragraph for an EFFS re22 gion and a year are the following: 

23 ‘‘(A) EFFS COMPONENT.—The prod24 uct of the following: 
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1 ‘‘(i) WEIGHTED AVERAGE OF

2 PLAN BIDS IN REGION.—The weight3 ed average of the EFFS plan bids 

4 for the region and year (as deter5 mined under paragraph (4)(A)). 

6 ‘‘(ii) NON-FFS MARKET SHARE.—

7 1 minus the fee-for-service market 

8 share percentage determined 

9 under paragraph (5) for the re10 gion and the year. 

11 ‘‘(B) FEE-FOR-SERVICE COMPO12 NENT.—The product of the following: 

13 ‘‘(i) FEE-FOR-SERVICE REGION14 SPECIFIC NON-DRUG AMOUNT.—The 

15 fee-for-service region-specific 

16 non-drug amount (as defined in 

17 paragraph (6)) for the region and 

18 year. 

19 ‘‘(ii) FEE-FOR-SERVICE MARKET

20 SHARE.—The fee-for-service mar21 ket share percentage (determined 

22 under paragraph (5)) for the re23 gion and the year. 

24 ‘‘(4) DETERMINATION OF WEIGHTED AV25 ERAGE EFFS PLAN BIDS FOR A REGION.—
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1 ‘‘(A) IN GENERAL.—For purposes of 

2 paragraph (3)(A)(i), the weighted av3 erage of EFFS plan bids for an EFFS 

4 region and a year is the sum of the 

5 following products for EFFS plans de6 scribed in subparagraph (C) in the re7 gion and year: 

8 ‘‘(i) UNADJUSTED EFFS STATU9 TORY NON-DRUG MONTHLY BID

10 AMOUNT.—The unadjusted EFFS 

11 statutory non-drug monthly bid 

12 amount (as defined in subsection 

13 (a)(3)(A)(ii)(I)) for the region and 

14 year. 

15 ‘‘(ii) PLAN’S SHARE OF EFFS EN16 ROLLMENT IN REGION.—The num17 ber of individuals described in 

18 subparagraph (B), divided by the 

19 total number of such individuals 

20 for all EFFS plans described in 

21 subparagraph (C) for that region 

22 and year. 

23 ‘‘(B) COUNTING OF INDIVIDUALS.—

24 The Administrator shall count, for 

25 each EFFS plan described in subpara-
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1 graph (C) for an EFFS region and 

2 year, the number of individuals who 

3 reside in the region and who were en4 rolled under such plan under this 

5 part during March of the previous 

6 year. 

7 ‘‘(C) EXCLUSION OF PLANS NOT OF8 FERED IN PREVIOUS YEAR.—For an 

9 EFFS region and year, the EFFS 

10 plans described in this subparagraph 

11 are plans that are offered in the re12 gion and year and were offered in the 

13 region in March of the previous year. 

14 ‘‘(5) COMPUTATION OF FEE-FOR-SERVICE

15 MARKET SHARE PERCENTAGE.—The Admin16 istrator shall determine, for a year and 

17 an EFFS region, the proportion (in this 

18 subsection referred to as the ‘fee-for-serv19 ice market share percentage’) of the 

20 EFFS eligible individuals who are resi21 dents of the region during March of the 

22 previous year, of such individuals who 

23 were not enrolled in an EFFS plan or in 

24 a Medicare Advantage plan (or, if greater, 
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1 such proportion determined for individ2 uals nationally). 

3 ‘‘(6) FEE-FOR-SERVICE REGION-SPECIFIC

4 NON-DRUG AMOUNT.—

5 ‘‘(A) IN GENERAL.—For purposes of 

6 paragraph (3)(B)(i) and section 

7 1839(h)(2)(A), subject to subpara8 graph (B), the term ‘fee-for-service re9 gion-specific non-drug amount’

10 means, for a competitive EFFS region 

11 and a year, the adjusted average per 

12 capita cost for the year involved, de13 termined under section 1876(a)(4) for 

14 such region for services covered 

15 under parts A and B for individuals 

16 entitled to benefits under part A and 

17 enrolled under this part who are not 

18 enrolled in an EFFS plan under part 

19 E or a Medicare Advantage plan 

20 under part C for the year, but ad21 justed to exclude costs attributable to 

22 payments under section 1886(h). 

23 ‘‘(B) INCLUSION OF COSTS OF VA AND

24 DOD MILITARY FACILITY SERVICES TO

25 MEDICARE-ELIGIBLE BENEFICIARIES.—In 
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1 determining the adjusted average per 

2 capita cost under subparagraph (A) 

3 for a year, such cost shall be adjusted 

4 to include the Administrator’s esti5 mate, on a per capita basis, of the 

6 amount of additional payments that 

7 would have been made in the region 

8 involved under this title if individ9 uals entitled to benefits under this 

10 title had not received services from 

11 facilities of the Department of Vet12 erans Affairs or the Department of 

13 Defense. 

14 ‘‘(7) APPLICATION OF COMPETITION.—In 

15 the case of an EFFS region that is a com16 petitive EFFS region for a year, for pur17 poses of applying subsections (b) and 

18 (c)(1) and section 1860E–4(a), any ref19 erence to an EFFS region-specific non20 drug monthly benchmark amount shall 

21 be treated as a reference to the competi22 tive EFFS non-drug monthly benchmark 

23 amount under paragraph (2) for the re24 gion and year. 
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1 ‘‘(8) PHASE-IN OF BENCHMARK FOR EACH

2 REGION.—

3 ‘‘(A) USE OF BLENDED BENCH4 MARK.—In the case of a region that 

5 has not been a competitive EFFS re6 gion for each of the previous 4 years, 

7 the competitive EFFS non-drug 

8 monthly benchmark amount shall be 

9 equal to the sum of the following: 

10 ‘‘(i) NEW COMPETITIVE COMPO11 NENT.—The product of—

12 ‘‘(I) the weighted average 

13 phase-in proportion for that 

14 area and year, as specified in 

15 subparagraph (B); and 

16 ‘‘(II) the competitive EFFS 

17 non-drug monthly benchmark 

18 amount for the region and 

19 year, determined under para20 graph (2) without regard to 

21 this paragraph. 

22 ‘‘(ii) OLD COMPETITIVE COMPO23 NENT.—The product of—
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1 ‘‘(I) 1 minus the weighted 

2 average phase-in proportion 

3 for that region and year; and 

4 ‘‘(II) the EFFS region-spe5 cific non-drug benchmark 

6 amount for the region and the 

7 year. 

8 ‘‘(B) COMPUTATION OF WEIGHTED

9 AVERAGE PHASE-IN PROPORTION.—For 

10 purposes of this paragraph, the 

11 ‘weighted average phase-in propor12 tion’ for an EFFS region for a year 

13 shall be determined as follows: 

14 ‘‘(i) FIRST YEAR (AND REGION

15 NOT COMPETITIVE REGION IN PRE16 VIOUS YEAR).—If the area was not 

17 a competitive EFFS region in the 

18 previous year, the weighted aver19 age phase-in proportion for the 

region for the year is equal to 1 20 ⁄5. 

21 ‘‘(ii) COMPETITIVE REGION IN

22 PREVIOUS YEAR.—If the region was 

23 a competitive EFFS region in the 

24 previous year, the weighted aver25 age phase-in proportion for the 
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1 region for the year is equal to the 

2 weighted average phase-in pro3 portion determined under this 

4 subparagraph for the region for 

the previous year plus 1 5 ⁄5, but in 

6 no case more than 1.’’. 

7 (2) CONFORMING AMENDMENTS.—

8 (A) Such section 1860E–3 is fur9 ther amended—

10 (i) in subsection (b), by adding 

11 at the end the following new 

12 paragraph: 

13 ‘‘(4) APPLICATION IN COMPETITIVE

14 REGIONS.—For special rules applying 

15 this subsection in competitive EFFS 

16 regions, see subsection (e)(7).’’; 

17 (ii) in subsection (c)(1), by in18 serting ‘‘and subsection (e)(7)’’

19 after ‘‘(as made applicable under 

20 subsection (d))’’; and 

21 (iii) in subsection (d) , by 

22 striking ‘‘and (e)’’ and inserting 

23 ‘‘(e), and (k) ’’. 

24 (B) Section 1860E–4(a)(1), as in25 serted by section 201(a)(2), is amend-
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1 ed by inserting ‘‘, except as provided 

2 in section 1860E–3(e)(7)’’ after ‘‘para3 graph (2)’’.

4 (b) IDENTIFICATION OF COMPETITIVE MEDI5 CARE ADVANTAGE AREAS; APPLICATION OF COM6 PETITIVE MEDICARE ADVANTAGE NON-DRUG

7 BENCHMARKS UNDER MEDICARE ADVANTAGE

8 PROGRAM.—

9 (1) IN GENERAL.—Section 1853, as 

10 amended by section 221(b)(3), is amended 

11 by adding at the end the following new 

12 subsection: 

13 ‘‘(k) APPLICATION OF COMPETITION.—

14 ‘‘(1) DETERMINATION OF COMPETITIVE

15 MEDICARE ADVANTAGE AREAS.—

16 ‘‘(A) IN GENERAL.—For purposes of 

17 this part, the terms ‘competitive 

18 Medicare Advantage area’ and ‘CMA 

19 area’ mean, for a year beginning with 

20 2010, an area (which is a metropoli21 tan statistical area or other area with 

22 a substantial number of Medicare Ad23 vantage enrollees) that the Adminis24 trator finds—
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1 ‘‘(i) there will be offered dur2 ing the annual, coordinated elec3 tion period under section 

4 1851(e)(3)(B) under this part be5 fore the beginning of the year at 

6 least 2 Medicare Advantage plans 

7 (in addition to the fee-for-service 

8 program under parts A and B), 

9 each offered by a different Medi10 care Advantage organization and 

11 each of which met the minimum 

12 enrollment requirements of para13 graph (1) of section 1857(b) (as ap14 plied without regard to para15 graph (3) thereof) as of March of 

16 the previous year with respect to 

17 the area; and 

18 ‘‘(ii) during March of the pre19 vious year at least the percentage 

20 specified in subparagraph (B) of 

21 the number of Medicare Advan22 tage eligible individuals who re23 side in the area were enrolled in 

24 a Medicare Advantage plan. 

25 ‘‘(B) PERCENTAGE SPECIFIED.—
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1 ‘‘(i) IN GENERAL.—For purposes 

2 of subparagraph (A), subject to 

3 clause (ii), the percentage speci4 fied in this subparagraph for a 

5 year is equal the lesser of 20 per6 cent or to the sum of—

7 ‘‘(I) the percentage, as es8 timated by the Administrator, 

9 of EFFS eligible individuals in 

10 the United States who are en11 rolled in EFFS plans during 

12 March of the previous year; 

13 and 

14 ‘‘(II) the percentage, as es15 timated by the Administrator, 

16 of Medicare Advantage eligi17 ble individuals in the United 

18 States who are enrolled in 

19 Medicare Advantage plans 

20 during March of the previous 

21 year. 

22 ‘‘(ii) EXCEPTION.—In the case 

23 of an area that was a competitive 

24 area for the previous year, the 

25 Medicare Benefits Administrator 
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1 may continue to treat the area as 

2 meeting the requirement of sub3 paragraph (A)(ii) if the area 

4 would meet such requirement but 

5 for a de minimis reduction below 

6 the percentage specified in clause 

7 (i). 

8 ‘‘(2) COMPETITIVE MEDICARE ADVANTAGE

9 NON-DRUG MONTHLY BENCHMARK AMOUNT.—

10 For purposes of this part, the term ‘com11 petitive Medicare Advantage non-drug 

12 monthly benchmark amount’ means, with 

13 respect to a competitive Medicare Advan14 tage area for a month in a year subject to 

15 paragraph (8), the sum of the 2 compo16 nents described in paragraph (3) for the 

17 area and year. The Administrator shall 

18 compute such benchmark amount for 

19 each competitive Medicare Advantage 

20 area before the beginning of each annual, 

21 coordinated election period under sec22 tion 1851(e)(3)(B) for each year (begin23 ning with 2010) in which it is designated 

24 as such an area. 
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1 ‘‘(3) 2 COMPONENTS.—For purposes of 

2 paragraph (2), the 2 components de3 scribed in this paragraph for a competi4 tive Medicare Advantage area and a year 

5 are the following: 

6 ‘‘(A) MEDICARE ADVANTAGE COMPO7 NENT.—The product of the following: 

8 ‘‘(i) WEIGHTED AVERAGE OF

9 MEDICARE ADVANTAGE PLAN BIDS IN

10 AREA.—The weighted average of 

11 the plan bids for the area and 

12 year (as determined under para13 graph (4)(A)). 

14 ‘‘(ii) NON-FFS MARKET SHARE.—

15 1 minus the fee-for-service market 

16 share percentage, determined 

17 under paragraph (5) for the area 

18 and year. 

19 ‘‘(B) FEE-FOR-SERVICE COMPO20 NENT.—The product of the following: 

21 ‘‘(i) FEE-FOR-SERVICE AREA-SPE22 CIFIC NON-DRUG AMOUNT.—The fee23 for-service area-specific non-drug 

24 amount (as defined in paragraph 

25 (6)) for the area and year. 
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1 ‘‘(ii) FEE-FOR-SERVICE MARKET

2 SHARE.—The fee-for-service mar3 ket share percentage, determined 

4 under paragraph (5) for the area 

5 and year. 

6 ‘‘(4) DETERMINATION OF WEIGHTED AV7 ERAGE MEDICARE ADVANTAGE BIDS FOR AN

8 AREA.—

9 ‘‘(A) IN GENERAL.—For purposes of 

10 paragraph (3)(A)(i), the weighted av11 erage of plan bids for an area and a 

12 year is the sum of the following prod13 ucts for Medicare Advantage plans 

14 described in subparagraph (C) in the 

15 area and year: 

16 ‘‘(i) MONTHLY MEDICARE ADVAN17 TAGE STATUTORY NON-DRUG BID

18 AMOUNT.—The unadjusted Medi19 care Advantage statutory non20 drug monthly bid amount. 

21 ‘‘(ii) PLAN’S SHARE OF MEDICARE

22 ADVANTAGE ENROLLMENT IN AREA.—

23 The number of individuals de24 scribed in subparagraph (B), di25 vided by the total number of such 
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1 individuals for all Medicare Ad2 vantage plans described in sub3 paragraph (C) for that area and 

4 year. 

5 ‘‘(B) COUNTING OF INDIVIDUALS.—

6 The Administrator shall count, for 

7 each Medicare Advantage plan de8 scribed in subparagraph (C) for an 

9 area and year, the number of individ10 uals who reside in the area and who 

11 were enrolled under such plan under 

12 this part during March of the pre13 vious year. 

14 ‘‘(C) EXCLUSION OF PLANS NOT OF15 FERED IN PREVIOUS YEAR.—For an area 

16 and year, the Medicare Advantage 

17 plans described in this subparagraph 

18 are plans described in the first sen19 tence of section 1851(a)(2)(A) that are 

20 offered in the area and year and were 

21 offered in the area in March of the 

22 previous year. 

23 ‘‘(5) COMPUTATION OF FEE-FOR-SERVICE

24 MARKET SHARE PERCENTAGE.—The Admin25 istrator shall determine, for a year and a 
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1 competitive Medicare Advantage area, 

2 the proportion (in this subsection re3 ferred to as the ‘fee-for-service market 

4 share percentage’) of Medicare Advan5 tage eligible individuals residing in the 

6 area who during March of the previous 

7 year were not enrolled in a Medicare Ad8 vantage plan or in an EFFS plan (or, if 

9 greater, such proportion determined for 

10 individuals nationally). 

11 ‘‘(6) FEE-FOR-SERVICE AREA-SPECIFIC

12 NON-DRUG AMOUNT.—

13 ‘‘(A) IN GENERAL.—For purposes of 

14 paragraph (3)(B)(i) and section 

15 1839(h)(1)(A), subject to subpara16 graph (B), the term ‘fee-for-service 

17 area-specific non-drug amount’

18 means, for a competitive Medicare 

19 Advantage area and a year, the ad20 justed average per capita cost for the 

21 year involved, determined under sec22 tion 1876(a)(4) for such area for serv23 ices covered under parts A and B for 

24 individuals entitled to benefits under 

25 part A and enrolled under this part 
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1 who are not enrolled in a Medicare 

2 Advantage plan under part C or an 

3 EFFS plan under part E for the year, 

4 but adjusted to exclude costs attrib5 utable to payments under section 

6 1886(h). 

7 ‘‘(B) INCLUSION OF COSTS OF VA AND

8 DOD MILITARY FACILITY SERVICES TO

9 MEDICARE-ELIGIBLE BENEFICIARIES.—In 

10 determining the adjusted average per 

11 capita cost under subparagraph (A) 

12 for a year, such cost shall be adjusted 

13 to include the Administrator’s esti14 mate, on a per capita basis, of the 

15 amount of additional payments that 

16 would have been made in the area in17 volved under this title if individuals 

18 entitled to benefits under this title 

19 had not received services from facili20 ties of the Department of Veterans Af21 fairs or the Department of Defense. 

22 ‘‘(7) APPLICATION OF COMPETITION.—In 

23 the case of an area that is a competitive 

24 Medicare Advantage area for a year, for 

25 purposes of applying subsection 
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1 (a)(1)(A)(ii) and sections 1854(b)(2)(A)(ii) 

2 and 1854(b)(3)(B)(i), any reference to a 

3 Medicare Advantage area-specific non4 drug monthly benchmark amount shall 

5 be treated as a reference to the competi6 tive Medicare Advantage non-drug 

7 monthly benchmark amount under para8 graph (2) for the area and year. 

9 ‘‘(8) PHASE-IN OF BENCHMARK FOR EACH

10 AREA.—

11 ‘‘(A) USE OF BLENDED BENCH12 MARK.—In the case of an area that has 

13 not been a competitive Medicare Ad14 vantage area for each of the previous 

15 4 years, the competitive Medicare Ad16 vantage non-drug monthly bench17 mark amount shall be equal to the 

18 sum of the following: 

19 ‘‘(i) NEW COMPETITIVE COMPO20 NENT.—The product of—

21 ‘‘(I) the weighted average 

22 phase-in proportion for that 

23 area and year, as specified in 

24 subparagraph (B); and 
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1 ‘‘(II) the competitive Medi2 care Advantage non-drug 

3 monthly benchmark amount 

4 for the area and year, deter5 mined under paragraph (2) 

6 without regard to this para7 graph. 

8 ‘‘(ii) OLD COMPETITIVE COMPO9 NENT.—The product of—

10 ‘‘(I) 1 minus the weighted 

11 average phase-in proportion 

12 for that area and year; and 

13 ‘‘(II) the Medicare Advan14 tage area-wide non-drug 

15 benchmark amount for the 

16 area and the year. 

17 ‘‘(B) COMPUTATION OF WEIGHTED

18 AVERAGE PHASE-IN PROPORTION.—For 

19 purposes of this paragraph, the 

20 ‘weighted average phase-in propor21 tion’ for a Medicare Advantage pay22 ment area for a year shall be deter23 mined as follows: 

24 ‘‘(i) FIRST YEAR (AND AREA NOT

25 COMPETITIVE AREA IN PREVIOUS
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1 YEAR).—If the area was not a 

2 Medicare Advantage competitive 

3 area in the previous year, the 

4 weighted average phase-in pro5 portion for the area for the year 

is equal to 1 6 ⁄5. 

7 ‘‘(ii) COMPETITIVE AREA IN PRE8 VIOUS YEAR.—If the area was a 

9 competitive Medicare Advantage 

10 area in the previous year, the 

11 weighted average phase-in pro12 portion for the area for the year 

13 is equal to the weighted average 

14 phase-in proportion determined 

15 under this subparagraph for the 

area for the previous year plus 1 16 ⁄5, 

17 but in no case more than 1. 

18 ‘‘(C) MEDICARE ADVANTAGE AREA19 WIDE NON-DRUG BENCHMARK AMOUNT.—

20 For purposes of subparagraph 

21 (A)(ii)(II), the term ‘Medicare Advan22 tage area-wide non-drug benchmark 

23 amount’ means, for an area and year, 

24 the weighted average of the amounts 

25 described in section 1853(j) for Medi-
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1 care Advantage payment area or 

2 areas included in the area (based on 

3 the number of traditional fee-for-serv4 ice enrollees in such payment area or 

5 areas) and year.’’. 

6 (2) APPLICATION.—Section 1854 (42 

7 U.S.C. 1395w–24) is amended—

8 (A) in subsection (b)(1)(C)(i), as 

9 added by section 221(b)(1)(A), by 

10 striking ‘‘(i) REQUIREMENT.—The’’ and 

11 inserting ‘‘(i) REQUIREMENT FOR NON12 COMPETITIVE AREAS.—In the case of a 

13 Medicare Advantage payment area 

14 that is not a competitive Medicare 

15 Advantage area designated under sec16 tion 1853(k)(1), the’’; 

17 (B) in subsection (b)(1)(C), as so 

18 added, by inserting after clause (i) 

19 the following new clause: 

20 ‘‘(ii) REQUIREMENT FOR COM21 PETITIVE MEDICARE ADVANTAGE

22 AREAS.—In the case of a Medicare 

23 Advantage payment area that is 

24 designated as a competitive Medi25 care Advantage area under sec-
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1 tion 1853(k)(1), if there are aver2 age per capita monthly savings 

3 described in paragraph (6) for a 

4 Medicare Advantage plan and 

5 year, the Medicare Advantage 

6 plan shall provide to the enrollee 

7 a monthly rebate equal to 75 per8 cent of such savings.’’; and 

9 (C) by adding at the end of sub10 section (b), as amended by sections 

11 221(b)(1)(B) and 221(b)(2), the fol12 lowing new paragraph: 

13 ‘‘(6) COMPUTATION OF AVERAGE PER

14 CAPITA MONTHLY SAVINGS FOR COMPETITIVE

15 MEDICARE ADVANTAGE AREAS.—For pur16 poses of paragraph (1)(C)(ii), the average 

17 per capita monthly savings referred to in 

18 such paragraph for a Medicare Advan19 tage plan and year shall be computed in 

20 the same manner as the average per cap21 ita monthly savings is computed under 

22 paragraph (3) except that the reference 

23 to the Medicare Advantage area-specific 

24 non-drug monthly benchmark amount in 

25 paragraph (3)(B)(i) (or to the benchmark 
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1 amount as adjusted under paragraph 

2 (3)(C)(i)) is deemed to be a reference to 

3 the competitive Medicare Advantage non4 drug monthly benchmark amount (or 

5 such amount as adjusted in the manner 

6 described in paragraph (3)(B)(i)).’’. 

7 (3) ADDITIONAL CONFORMING AMEND8 MENTS.—

9 (A) PAYMENT OF PLANS.—Section 

10 1853(a)(1)(A)(ii), as amended by sec11 tion 221(c)(1), is amended—

12 (i) in subclauses (I) and (II), 

13 by inserting ‘‘(or, insofar as such 

14 payment area is a competitive 

15 Medicare Advantage area, de16 scribed in section 1854(b)(6))’’

17 after ‘‘section 1854(b)(3)(C)’’; and 

18 (ii) in subclause (II), by insert19 ing ‘‘(or, insofar as such payment 

20 area is a competitive Medicare 

21 Advantage area, the competitive 

22 Medicare Advantage non-drug 

23 monthly benchmark amount)’’

24 after ‘‘Medicare Advantage area-
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1 specific non-drug monthly bench2 mark amount’’; and 

3 (B) DISCLOSURE OF INFORMATION.—

4 Section 1853(b)(1)(B), as amended by 

5 section 221(e)(1), is amended to read 

6 as follows: 

7 ‘‘(B) COMPETITION INFORMATION.—

8 For years beginning with 2006, the 

9 following: 

10 ‘‘(i) BENCHMARKS.—The Medi11 care Advantage area-specific non12 drug benchmark under section 

13 1853(j) and, if applicable, the com14 petitive Medicare Advantage non15 drug benchmark under section 

16 1853(k)(2), for the year and com17 petitive Medicare Advantage area 

18 involved and the national fee-for19 service market share percentage 

20 for the area and year. 

21 ‘‘(ii) ADJUSTMENT FACTORS.—

22 The adjustment factors applied 

23 under section 1853(a)(1)(A)(iv) (re24 lating to demographic adjust25 ment), section 1853(a)(1)(B) (relat-
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1 ing to adjustment for end-stage 

2 renal disease), and section 

3 1853(a)(3) (relating to health sta4 tus adjustment). 

5 ‘‘(iii) CERTAIN BENCHMARKS AND

6 AMOUNTS.—In the case of a com7 petitive Medicare Advantage 

8 area, the Medicare Advantage 

9 area-wide non-drug benchmark 

10 amount (as defined in subsection 

11 (k)(8)(C)) and the fee-for-service 

12 area-specific non-drug amount (as 

13 defined in section 1853(k)(6)) for 

14 the area. 

15 ‘‘(iv) INDIVIDUALS.—The num16 ber of individuals counted under 

17 subsection (k)(4)(B) and enrolled 

18 in each Medicare Advantage plan 

19 in the area.’’. 

20 (C) DEFINITION OF MONTHLY BASIC

21 PREMIUM.—Section 1854(b)(2)(A)(ii), as 

22 amended by section 221(d)(2), is 

23 amended by inserting ‘‘(or, in the case 

24 of a competitive Medicare Advantage 

25 area, the competitive Medicare Ad-
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1 vantage non-drug monthly bench2 mark amount or, in applying this 

3 paragraph under part E in the case of 

4 a competitive EFFS region, the com5 petitive EFFS non-drug monthly 

6 benchmark amount)’’ after ‘‘bench7 mark amount’’. 

8 (c) PREMIUM ADJUSTMENT.—

9 (1) IN GENERAL.—Section 1839 (42 

10 U.S.C. 1395r) is amended by adding at the 

11 end the following new subsection: 

12 ‘‘(h)(1)(A) In the case of an individual who 

13 resides in a competitive Medicare Advantage 

14 area under section 1853(k)(1) (regardless of 

15 whether such area is in a competitive EFFS 

16 region under section 1860E–3(e)) and who is 

17 not enrolled in a Medicare Advantage plan 

18 under part C or in an EFFS plan under part 

19 E, the monthly premium otherwise applied 

20 under this part (determined without regard 

21 to subsections (b) and (f) or any adjustment 

22 under this subsection) shall be adjusted as fol23 lows: If the fee-for-service area-specific non24 drug amount (as defined in section 1853(k)(6)) 
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1 for the competitive Medicare Advantage area 

2 in which the individual resides for a month—

3 ‘‘(i) does not exceed the competitive 

4 Medicare Advantage non-drug bench5 mark (as determined under paragraph (2) 

6 of section 1853(k), without regard to 

7 paragraph (8) thereof) for such area, the 

8 amount of the premium for the individual 

9 for the month shall be reduced by an 

10 amount equal to the product of the ad11 justment factor under subparagraph (C) 

12 and 75 percent of the amount by which 

13 such competitive benchmark exceeds 

14 such fee-for-service area-specific non15 drug amount; or 

16 ‘‘(ii) exceeds such competitive Medi17 care Advantage non-drug benchmark, the 

18 amount of the premium for the individual 

19 for the month shall be adjusted to ensure, 

20 subject to subparagraph (B), that—

21 ‘‘(I) the sum of the amount of the 

22 adjusted premium and the competi23 tive Medicare Advantage non-drug 

24 benchmark for the area, is equal to 
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1 ‘‘(II) the sum of the unadjusted 

2 premium plus amount of the fee-for3 service area-specific non-drug 

4 amount for the area. 

5 ‘‘(B) In no case shall the actual amount of 

6 an adjustment under subparagraph (A)(ii) ex7 ceed the product of the adjustment factor 

8 under subparagraph (C) and the amount of 

9 the adjustment otherwise computed under 

10 subparagraph (A)(ii) without regard to this 

11 subparagraph. 

12 ‘‘(C) The adjustment factor under this sub13 paragraph for an area for a year is equal to—

14 ‘‘(i) the number of consecutive years 

15 (in the 5-year period ending with the 

16 year involved) in which such area was a 

17 competitive Medicare Advantage area; di18 vided by 

19 ‘‘(ii) 5. 

20 ‘‘(2)(A) In the case of an individual who re21 sides in an area that is within a competitive 

22 EFFS region under section 1860E–3(e) but is 

23 not within a competitive Medicare Advantage 

24 area under section 1853(k)(1) and who is not 

25 enrolled in a Medicare Advantage plan under 
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1 part C or in an EFFS plan under part E, the 

2 monthly premium otherwise applied under 

3 this part (determined without regard to sub4 sections (b) and (f) or any adjustment under 

5 this subsection) shall be adjusted as follows: 

6 If the fee-for-service region-specific non-drug 

7 amount (as defined in section 1860E–3(e)(6)) 

8 for a region for a month—

9 ‘‘(i) does not exceed the competitive 

10 EFFS non-drug monthly benchmark 

11 amount (as determined under paragraph 

12 (2) of section 1860E–3(e), without regard 

13 to paragraph (8) thereof) for such region, 

14 the amount of the premium for the indi15 vidual for the month shall be reduced by 

16 an amount equal to the product of the ad17 justment factor under subparagraph (C) 

18 and 75 percent of the amount by which 

19 such competitive benchmark amount ex20 ceeds such fee-for-service region-specific 

21 non-drug benchmark amount; or 

22 ‘‘(ii) exceeds such competitive EFFS 

23 non-drug monthly benchmark amount, 

24 the amount of the premium for the indi25 vidual for the month shall be adjusted to 
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1 ensure, subject to subparagraph (B), 

2 that—

3 ‘‘(I) the sum of the amount of the 

4 adjusted premium and the competi5 tive EFFS non-drug monthly bench6 mark amount for the region, is equal 

7 to 

8 ‘‘(II) the sum of the unadjusted 

9 premium plus the amount of the 

10 EFFS region-specific non-drug 

11 monthly bid for the region. 

12 ‘‘(B) In no case shall the actual amount of 

13 an adjustment under subparagraph (A)(ii) ex14 ceed the product of the adjustment factor 

15 under subparagraph (C) and the amount of 

16 the adjustment otherwise computed under 

17 subparagraph (A)(ii) without regard to this 

18 subparagraph. 

19 ‘‘(C) The adjustment factor under this sub20 paragraph for an EFFS region for a year is 

21 equal to—

22 ‘‘(i) the number of consecutive years 

23 (in the 5-year period ending with the 

24 year involved) in which such region was 

25 a competitive EFFS region; divided by 
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1 ‘‘(ii) 5. 

2 ‘‘(3) Nothing in this subsection shall be 

3 construed as preventing a reduction under 

4 paragraph (1)(A) or paragraph (2)(A) in the 

5 premium otherwise applicable under this part 

6 to zero or from requiring the provision of a 

7 rebate to the extent such premium would oth8 erwise be required to be less than zero. 

9 ‘‘(4) The adjustment in the premium under 

10 this subsection shall be effected in such man11 ner as the Medicare Benefits Administrator 

12 determines appropriate. 

13 ‘‘(5) In order to carry out this subsection 

14 (insofar as it is effected through the manner 

15 of collection of premiums under 1840(a)), the 

16 Medicare Benefits Administrator shall trans17 mit to the Commissioner of Social Security—

18 ‘‘(A) at the beginning of each year, the 

19 name, social security account number, 

20 and the amount of the adjustment (if any) 

21 under this subsection for each individual 

22 enrolled under this part for each month 

23 during the year; and 

24 ‘‘(B) periodically throughout the year, 

25 information to update the information 
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1 previously transmitted under this para2 graph for the year.’’. 

3 (2) CONFORMING AMENDMENT.—Section 

4 1844(c) (42 U.S.C. 1395w(c)) is amended 

5 by inserting ‘‘and without regard to any 

6 premium adjustment effected under sec7 tion 1839(h)’’ before the period at the end. 

8 (d) EFFECTIVE DATE.—The amendments 

9 made by this section shall take effect on Janu10 ary 1, 2010.

11 TITLE III—COMBATTING WASTE, 

12 FRAUD, AND ABUSE 

13 SEC. 301. MEDICARE SECONDARY PAYOR (MSP) PROVI14 SIONS. 

15 (a) TECHNICAL AMENDMENT CONCERNING

16 SECRETARY’S AUTHORITY TO MAKE CONDITIONAL

17 PAYMENT WHEN CERTAIN PRIMARY PLANS DO

18 NOT PAY PROMPTLY.—

19 (1) IN GENERAL.—Section 1862(b)(2) (42 

20 U.S.C. 1395y(b)(2)) is amended—

21 (A) in subparagraph (A)(ii), by 

22 striking ‘‘promptly (as determined in 

23 accordance with regulations)’’; 

24 (B) in subparagraph (B)—
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1 (i) by redesignating clauses (i) 

2 through (iii) as clauses (ii) 

3 through (iv), respectively; and 

4 (ii) by inserting before clause 

5 (ii), as so redesignated, the fol6 lowing new clause: 

7 ‘‘(i) AUTHORITY TO MAKE CONDI8 TIONAL PAYMENT.—The Secretary 

9 may make payment under this 

10 title with respect to an item or 

11 service if a primary plan de12 scribed in subparagraph (A)(ii) 

13 has not made or cannot reason14 ably be expected to make pay15 ment with respect to such item or 

16 service promptly (as determined 

17 in accordance with regulations). 

18 Any such payment by the Sec19 retary shall be conditioned on re20 imbursement to the appropriate 

21 Trust Fund in accordance with 

22 the succeeding provisions of this 

23 subsection.’’. 

24 (2) EFFECTIVE DATE.—The amendments 

25 made by paragraph (1) shall be effective 
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1 as if included in the enactment of title III 

2 of the Medicare and Medicaid Budget 

3 Reconciliation Amendments of 1984 (Pub4 lic Law 98-369). 

5 (b) CLARIFYING AMENDMENTS TO CONDI6 TIONAL PAYMENT PROVISIONS.—Section 

7 1862(b)(2) (42 U.S.C. 1395y(b)(2)) is further 

8 amended—

9 (1) in subparagraph (A), in the matter 

10 following clause (ii), by inserting the fol11 lowing sentence at the end: ‘‘An entity 

12 that engages in a business, trade, or pro13 fession shall be deemed to have a self-in14 sured plan if it carries its own risk 

15 (whether by a failure to obtain insurance, 

16 or otherwise) in whole or in part.’’; 

17 (2) in subparagraph (B)(ii), as redesig18 nated by subsection (a)(2)(B)—

19 (A) by striking the first sentence 

20 and inserting the following: ‘‘A pri21 mary plan, and an entity that re22 ceives payment from a primary plan, 

23 shall reimburse the appropriate Trust 

24 Fund for any payment made by the 

25 Secretary under this title with re-
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1 spect to an item or service if it is 

2 demonstrated that such primary plan 

3 has or had a responsibility to make 

4 payment with respect to such item or 

5 service. A primary plan’s responsi6 bility for such payment may be dem7 onstrated by a judgment, a payment 

8 conditioned upon the recipient’s com9 promise, waiver, or release (whether 

10 or not there is a determination or ad11 mission of liability) of payment for 

12 items or services included in a claim 

13 against the primary plan or the pri14 mary plan’s insured, or by other 

15 means.’’; and 

16 (B) in the final sentence, by strik17 ing ‘‘on the date such notice or other 

18 information is received’’ and insert19 ing ‘‘on the date notice of, or informa20 tion related to, a primary plan’s re21 sponsibility for such payment or 

22 other information is received’’; and 

23 (3) in subparagraph (B)(iii), as redes24 ignated by subsection (a)(2)(B), by strik25 ing the first sentence and inserting the 
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1 following: ‘‘In order to recover payment 

2 made under this title for an item or serv3 ice, the United States may bring an ac4 tion against any or all entities that are or 

5 were required or responsible (directly, as 

6 an insurer or self-insurer, as a third7 party administrator, as an employer that 

8 sponsors or contributes to a group health 

9 plan, or large group health plan, or other10 wise) to make payment with respect to 

11 the same item or service (or any portion 

12 thereof) under a primary plan. The 

13 United States may, in accordance with 

14 paragraph (3)(A) collect double damages 

15 against any such entity. In addition, the 

16 United States may recover under this 

17 clause from any entity that has received 

18 payment from a primary plan or from the 

19 proceeds of a primary plan’s payment to 

20 any entity.’’. 

21 (c) CLERICAL AMENDMENTS.—Section 

22 1862(b) (42 U.S.C. 1395y(b)) is amended—

23 (1) in paragraph (1)(A), by moving the 

24 indentation of clauses (ii) through (v) 2 

25 ems to the left; and 
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1 (2) in paragraph (3)(A), by striking 

2 ‘‘such’’ before ‘‘paragraphs’’. 

3 SEC. 302. COMPETITIVE ACQUISITION OF CERTAIN ITEMS 

4 AND SERVICES. 

5 (a) IN GENERAL.—Section 1847 (42 U.S.C. 

6 1395w–3) is amended to read as follows:

7 ‘‘COMPETITIVE ACQUISITION OF CERTAIN ITEMS

8 AND SERVICES

9 ‘‘SEC. 1847. (a) ESTABLISHMENT OF COMPETI10 TIVE ACQUISITION PROGRAMS.—

11 ‘‘(1) IMPLEMENTATION OF PROGRAMS.—

12 ‘‘(A) IN GENERAL.—The Secretary 

13 shall establish and implement pro14 grams under which competitive ac15 quisition areas are established 

16 throughout the United States for con17 tract award purposes for the fur18 nishing under this part of competi19 tively priced items and services (de20 scribed in paragraph (2)) for which 

21 payment is made under this part. 

22 Such areas may differ for different 

23 items and services. 

24 ‘‘(B) PHASED-IN IMPLEMENTATION.—

25 The programs shall be phased-in—
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1 ‘‘(i) among competitive acqui2 sition areas over a period of not 

3 longer than 3 years in a manner 

4 so that the competition under the 

5 programs occurs in—

‘‘(I) at least 1 6 ⁄3 of such 

7 areas in 2005; and 

‘‘(II) at least 2 8 ⁄3 of such 

9 areas in 2006; and 

10 ‘‘(ii) among items and services 

11 in a manner such that the pro12 grams apply to the highest cost 

13 and highest volume items and 

14 services first. 

15 ‘‘(C) WAIVER OF CERTAIN PROVI16 SIONS.—In carrying out the programs, 

17 the Secretary may waive such provi18 sions of the Federal Acquisition Reg19 ulation as are necessary for the effi20 cient implementation of this section, 

21 other than provisions relating to con22 fidentiality of information and such 

23 other provisions as the Secretary de24 termines appropriate. 
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1 ‘‘(2) ITEMS AND SERVICES DESCRIBED.—

2 The items and services referred to in 

3 paragraph (1) are the following: 

4 ‘‘(A) DURABLE MEDICAL EQUIPMENT

5 AND MEDICAL SUPPLIES.—Covered 

6 items (as defined in section 

7 1834(a)(13)) for which payment is oth8 erwise made under section 1834(a), 

9 including items used in infusion and 

10 drugs and supplies used in conjunc11 tion with durable medical equipment, 

12 but excluding class III devices under 

13 the Federal Food, Drug, and Cosmetic 

14 Act. 

15 ‘‘(B) OTHER EQUIPMENT AND SUP16 PLIES.—Items, equipment, and sup17 plies (as described in section 

18 1842(s)(2)(D) other than enteral nutri19 ents). 

20 ‘‘(C) OFF-THE-SHELF ORTHOTICS.—

21 Orthotics (described in section 

22 1861(s)(9)) for which payment is oth23 erwise made under section 1834(h) 

24 which require minimal self-adjust25 ment for appropriate use and does 
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1 not require expertise in trimming, 

2 bending, molding, assembling, or cus3 tomizing to fit to the patient. 

4 ‘‘(3) EXCEPTION AUTHORITY.—In car5 rying out the programs under this sec6 tion, the Secretary may exempt—

7 ‘‘(A) rural areas and areas with 

8 low population density within urban 

9 areas that are not competitive, unless 

10 there is a significant national market 

11 through mail order for a particular 

12 item or service; and 

13 ‘‘(B) items and services for which 

14 the application of competitive acqui15 sition is not likely to result in signifi16 cant savings. 

17 ‘‘(4) SPECIAL RULE FOR CERTAIN RENTED

18 ITEMS OF DURABLE MEDICAL EQUIPMENT.—In 

19 the case of a covered item for which pay20 ment is made on a rental basis under sec21 tion 1834(a), the Secretary shall establish 

22 a process by which rental agreements for 

23 the covered items entered into before the 

24 application of the competitive acquisition 

25 program under this section for the item 
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1 may be continued notwithstanding this 

2 section. In the case of any such continu3 ation, the supplier involved shall provide 

4 for appropriate servicing and replace5 ment, as required under section 1834(a). 

6 ‘‘(5) PHYSICIAN AUTHORIZATION.—The 

7 Secretary may establish a process under 

8 which a physician may prescribe a par9 ticular brand or mode of delivery of an 

10 item or service if the item or service in11 volved is clinically more appropriate 

12 than other similar items or services. 

13 ‘‘(6) APPLICATION.—For each competi14 tive acquisition area in which the pro15 gram is implemented under this sub16 section with respect to items and serv17 ices, the payment basis determined under 

18 the competition conducted under sub19 section (b) shall be substituted for the 

20 payment basis otherwise applied under 

21 section 1834(a). 

22 ‘‘(b) PROGRAM REQUIREMENTS.—

23 ‘‘(1) IN GENERAL.—The Secretary shall 

24 conduct a competition among entities 

25 supplying items and services described in 
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1 subsection (a)(2) for each competitive ac2 quisition area in which the program is 

3 implemented under subsection (a) with 

4 respect to such items and services. 

5 ‘‘(2) CONDITIONS FOR AWARDING CON6 TRACT.—

7 ‘‘(A) IN GENERAL.—The Secretary 

8 may not award a contract to any enti9 ty under the competition conducted 

10 in an competitive acquisition area 

11 pursuant to paragraph (1) to furnish 

12 such items or services unless the Sec13 retary finds all of the following: 

14 ‘‘(i) The entity meets quality 

15 and financial standards specified 

16 by the Secretary or developed by 

17 the Program Advisory and Over18 sight Committee established 

19 under subsection (c). 

20 ‘‘(ii) The total amounts to be 

21 paid under the contract (includ22 ing costs associated with the ad23 ministration of the contract) are 

24 expected to be less than the total 
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1 amounts that would otherwise be 

2 paid. 

3 ‘‘(iii) Beneficiary access to a 

4 choice of multiple suppliers in the 

5 area is maintained. 

6 ‘‘(iv) Beneficiary liability is 

7 limited to 20 percent of the appli8 cable contract award price, ex9 cept in such cases where a sup10 plier has furnished an upgraded 

11 item and has executed an ad12 vanced beneficiary notice. 

13 ‘‘(B) DEVELOPMENT OF QUALITY

14 STANDARDS FOR DME PRODUCTS.—

15 ‘‘(i) IN GENERAL.—The quality 

16 standards specified under sub17 paragraph (A)(i) shall not be less 

18 than the quality standards that 

19 would otherwise apply if this sec20 tion did not apply and shall in21 clude consumer services stand22 ards. Not later than July 1, 2004, 

23 the Secretary shall establish new 

24 quality standards for products 

25 subject to competitive acquisition 
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1 under this section. Such stand2 ards shall be applied prospec3 tively and shall be published on 

4 the website of the Department of 

5 Health and Human Services. 

6 ‘‘(ii) CONSULTATION WITH PRO7 GRAM ADVISORY AND OVERSIGHT

8 COMMITTEE.—The Secretary shall 

9 consult with the Program Advi10 sory and Oversight Committee 

11 (established under subsection (c)) 

12 to review (and advise the Sec13 retary concerning) the quality 

14 standards referred to in clause (i). 

15 ‘‘(3) CONTENTS OF CONTRACT.—

16 ‘‘(A) IN GENERAL.—A contract en17 tered into with an entity under the 

18 competition conducted pursuant to 

19 paragraph (1) is subject to terms and 

20 conditions that the Secretary may 

21 specify. 

22 ‘‘(B) TERM OF CONTRACTS.—The 

23 Secretary shall recompete contracts 

24 under this section not less often than 

25 once every 3 years. 
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1 ‘‘(4) LIMIT ON NUMBER OF CONTRAC2 TORS.—

3 ‘‘(A) IN GENERAL.—The Secretary 

4 may limit the number of contractors 

5 in a competitive acquisition area to 

6 the number needed to meet projected 

7 demand for items and services cov8 ered under the contracts. In award9 ing contracts, the Secretary shall take 

10 into account the ability of bidding en11 tities to furnish items or services in 

12 sufficient quantities to meet the an13 ticipated needs of beneficiaries for 

14 such items or services in the geo15 graphic area covered under the con16 tract on a timely basis. 

17 ‘‘(B) MULTIPLE WINNERS.—The Sec18 retary shall award contracts to mul19 tiple entities submitting bids in each 

20 area for an item or service. 

21 ‘‘(5) PAYMENT.—Payment under this 

22 part for competitively priced items and 

23 services described in subsection (a)(2) 

24 shall be based on the bids submitted and 
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1 accepted under this section for such 

2 items and services. 

3 ‘‘(6) PARTICIPATING CONTRACTORS.—

4 Payment shall not be made for items and 

5 services described in subsection (a)(2) 

6 furnished by a contractor and for which 

7 competition is conducted under this sec8 tion unless—

9 ‘‘(A) the contractor has submitted 

10 a bid for such items and services 

11 under this section; and 

12 ‘‘(B) the Secretary has awarded a 

13 contract to the contractor for such 

14 items and services under this section. 

15 In this section, the term ‘bid’ means a re16 quest for a proposal for an item or serv17 ice that includes the cost of the item or 

18 service, and where appropriate, any serv19 ices that are attendant to the provision of 

20 the item or service. 

21 ‘‘(7) CONSIDERATION IN DETERMINING

22 CATEGORIES FOR BIDS.—The Secretary 

23 shall consider the similarity of the clin24 ical efficiency and value of specific codes 

25 and products, including products that 
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1 may provide a therapeutic advantage to 

2 beneficiaries, before delineating the cat3 egories and products that will be subject 

4 to bidding. 

5 ‘‘(8) AUTHORITY TO CONTRACT FOR EDU6 CATION, MONITORING, OUTREACH AND COM7 PLAINT SERVICES.—The Secretary may 

8 enter into a contract with an appropriate 

9 entity to address complaints from bene10 ficiaries who receive items and services 

11 from an entity with a contract under this 

12 section and to conduct appropriate edu13 cation of and outreach to such bene14 ficiaries and monitoring quality of serv15 ices with respect to the program. 

16 ‘‘(c) PROGRAM ADVISORY AND OVERSIGHT

17 COMMITTEE.—

18 ‘‘(1) ESTABLISHMENT.—There is estab19 lished a Program Advisory and Oversight 

20 Committee (hereinafter in this section re21 ferred to as the ‘Committee’). 

22 ‘‘(2) MEMBERSHIP; TERMS.—The Com23 mittee shall consist of such members as 

24 the Secretary may appoint who shall 
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1 serve for such term as the Secretary may 

2 specify. 

3 ‘‘(3) DUTIES.—

4 ‘‘(A) TECHNICAL ASSISTANCE.—The 

5 Committee shall provide advice and 

6 technical assistance to the Secretary 

7 with respect to the following func8 tions: 

9 ‘‘(i) The implementation of the 

10 program under this section. 

11 ‘‘(ii) The establishment of re12 quirements for collection of data. 

13 ‘‘(iii) The development of pro14 posals for efficient interaction 

15 among manufacturers and dis16 tributors of the items and serv17 ices and providers and bene18 ficiaries. 

19 ‘‘(B) ADDITIONAL DUTIES.—The 

20 Committee shall perform such addi21 tional functions to assist the Sec22 retary in carrying out this section as 

23 the Secretary may specify. 
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1 ‘‘(4) INAPPLICABILITY OF FACA.—The 

2 provisions of the Federal Advisory Com3 mittee Act (5 U.S.C. App.) shall not apply. 

4 ‘‘(d) ANNUAL REPORTS.—The Secretary 

5 shall submit to Congress an annual manage6 ment report on the programs under this sec7 tion. Each such report shall include informa8 tion on savings, reductions in beneficiary 

9 cost-sharing, access to and quality of items 

10 and services, and beneficiary satisfaction. 

11 ‘‘(e) DEMONSTRATION PROJECT FOR CLINICAL

12 LABORATORY SERVICES.—

13 ‘‘(1) IN GENERAL.—The Secretary shall 

14 conduct a demonstration project on the 

15 application of competitive acquisition 

16 under this section to clinical diagnostic 

17 laboratory tests—

18 ‘‘(A) for which payment is other19 wise made under section 1833(h) or 

20 1834(d)(1) (relating to colorectal can21 cer screening tests); and 

22 ‘‘(B) which are furnished by enti23 ties that did not have a face-to-face 

24 encounter with the individual. 
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1 ‘‘(2) TERMS AND CONDITIONS.—Such 

2 project shall be under the same condi3 tions as are applicable to items and serv4 ices described in subsection (a)(2). 

5 ‘‘(3) REPORT.—The Secretary shall 

6 submit to Congress—

7 ‘‘(A) an initial report on the 

8 project not later than December 31, 

9 2005; and 

10 ‘‘(B) such progress and final re11 ports on the project after such date 

12 as the Secretary determines appro13 priate.’’. 

14 (b) CONFORMING AMENDMENTS.—

15 (1) DURABLE MEDICAL EQUIPMENT; 

16 ELIMINATION OF INHERENT REASONABLENESS

17 AUTHORITY.—Section 1834(a) (42 U.S.C. 

18 1395m(a)) is amended—

19 (A) in paragraph (1)(B), by strik20 ing ‘‘The payment basis’’ and insert21 ing ‘‘Subject to subparagraph (E)(i), 

22 the payment basis’’; 

23 (B) in paragraph (1)(C), by strik24 ing ‘‘This subsection’’ and inserting 
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1 ‘‘Subject to subparagraph (E)(ii), this 

2 subsection’’; 

3 (C) by adding at the end of para4 graph (1) the following new subpara5 graph: 

6 ‘‘(E) APPLICATION OF COMPETITIVE

7 ACQUISITION; ELIMINATION OF INHERENT

8 REASONABLENESS AUTHORITY.—In the 

9 case of covered items and services 

10 that are included in a competitive ac11 quisition program in a competitive 

12 acquisition area under section 

13 1847(a)—

14 ‘‘(i) the payment basis under 

15 this subsection for such items and 

16 services furnished in such area 

17 shall be the payment basis deter18 mined under such competitive ac19 quisition program; and 

20 ‘‘(ii) the Secretary may use in21 formation on the payment deter22 mined under such competitive ac23 quisition programs to adjust the 

24 payment amount otherwise recog25 nized under subparagraph (B)(ii) 
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1 for an area that is not a competi2 tive acquisition area under sec3 tion 1847 and in the case of such 

4 adjustment, paragraph (10)(B) 

5 shall not be applied.’’; and 

6 (D) in paragraph (10)(B), by in7 serting ‘‘in an area and with respect 

8 to covered items and services for 

9 which the Secretary does not make a 

10 payment amount adjustment under 

11 paragraph (1)(E)’’ after ‘‘under this 

12 subsection’’. 

13 (2) OFF-THE-SHELF ORTHOTICS; ELIMI14 NATION OF INHERENT REASONABLENESS AU15 THORITY.—Section 1834(h) (42 U.S.C. 

16 1395m(h)) is amended—

17 (A) in paragraph (1)(B), by strik18 ing ‘‘and (E)’’ and inserting ‘‘, (E) , 

19 and (H)(i)’’; 

20 (B) in paragraph (1)(D), by strik21 ing ‘‘This subsection’’ and inserting 

22 ‘‘Subject to subparagraph (H)(ii), this 

23 subsection’’; 
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1 (C) by adding at the end of para2 graph (1) the following new subpara3 graph: 

4 ‘‘(H) APPLICATION OF COMPETITIVE

5 ACQUISITION TO ORTHOTICS; ELIMI6 NATION OF INHERENT REASONABLENESS

7 AUTHORITY.—In the case of orthotics 

8 described in paragraph (2)(B) of sec9 tion 1847(a) that are included in a 

10 competitive acquisition program in a 

11 competitive acquisition area under 

12 such section—

13 ‘‘(i) the payment basis under 

14 this subsection for such orthotics 

15 furnished in such area shall be 

16 the payment basis determined 

17 under such competitive acquisi18 tion program; and 

19 ‘‘(ii) the Secretary may use in20 formation on the payment deter21 mined under such competitive ac22 quisition programs to adjust the 

23 payment amount otherwise recog24 nized under subparagraph (B)(ii) 

25 for an area that is not a competi-
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1 tive acquisition area under sec2 tion 1847, and in the case of such 

3 adjustment, paragraphs (8) and 

4 (9) of section 1842(b) shall not be 

5 applied.’’. 

6 (c) REPORT ON ACTIVITIES OF SUPPLIERS.—

7 The Secretary shall conduct a study to deter8 mine the extent to which (if any) suppliers of 

9 covered items of durable medical equipment 

10 that are subject to the competitive acquisition 

11 program under section 1847 of the Social Se12 curity Act, as amended by subsection (a), are 

13 soliciting physicians to prescribe certain 

14 brands or modes of delivery of covered items 

15 based on profitability.

16 SEC. 303. COMPETITIVE ACQUISITION OF COVERED OUT17 PATIENT DRUGS AND BIOLOGICALS.

18 (a) ADJUSTMENT TO PHYSICIAN FEE SCHED19 ULE.—

20 (1) ADJUSTMENT IN PRACTICE EXPENSE

21 RELATIVE VALUE UNITS.—Section 1848(c)(2) 

22 (42 U.S.C. 1395w–4(c)(2)) is amended—

23 (A) in subparagraph (B)—

24 (i) in clause (ii)(II), by striking 

25 ‘‘The adjustments’’ and inserting 
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1 ‘‘Subject to clause (iv), the adjust2 ments’’; and 

3 (ii) by adding at the end of 

4 subparagraph (B), the following 

5 new clause: 

6 ‘‘(iv) EXCEPTION TO BUDGET

7 NEUTRALITY.—The additional ex8 penditures attributable to clauses 

9 (ii) and (iii) of subparagraph (H) 

10 shall not be taken into account in 

11 applying clause (ii)(II) for 2005.’’; 

12 and 

13 (B) by adding at the end the fol14 lowing new subparagraph: 

15 ‘‘(H) ADJUSTMENTS IN PRACTICE EX16 PENSE RELATIVE VALUE UNITS FOR

17 2004.—

18 ‘‘(i) IN GENERAL.—As part of 

19 the annual process of establishing 

20 the physician fee schedule under 

21 subsection (b) for 2004, the Sec22 retary shall increase the practice 

23 expense relative value units for 

24 2004 consistent with clauses (ii) 

25 and (iii). 
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1 ‘‘(ii) USE OF SUPPLEMENTAL

2 SURVEY DATA.—For 2004 for any 

3 specialty that submitted survey 

4 data that included expenses for 

5 the administration of drugs and 

6 biologicals for which payment is 

7 made under section 1842(o) (or 

8 section 1847A), the Secretary 

9 shall use such supplemental sur10 vey data in carrying out this sub11 paragraph insofar as they are col12 lected and provided by entities 

13 and organizations consistent with 

14 the criteria established by the 

15 Secretary pursuant to section 

16 212(a) of the Medicare, Medicaid, 

17 and SCHIP Balanced Budget Re18 finement Act of 1999 and insofar 

19 as such data are submitted to the 

20 Secretary by the date of the en21 actment of this subparagraph.

22 ‘‘(iii) EXPEDITING CONSIDER23 ATION OF CPT CODES FOR AFFECTED

24 PHYSICIAN SPECIALTIES.—The Sec25 retary shall, in cooperation with 
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1 representatives of physician spe2 cialities affected by section 1847A, 

3 take such actions as are nec4 essary to expedite considerations 

5 of CPT codes, or expand the abil6 ity to appropriately bill for physi7 cians’ services under existing 

8 CPT codes, for costs associated 

9 with the administration of cov10 ered outpatient drugs. The Sec11 retary shall consult with rep12 resentatives of advisory physician 

13 groups in expediting such consid14 erations. 

15 ‘‘(iv) SUBSEQUENT, BUDGET NEU16 TRAL ADJUSTMENTS PERMITTED.—

17 Nothing in this subparagraph 

18 shall be construed as preventing 

19 the Secretary from providing for 

20 adjustments in practice expense 

21 relative value units under (and 

22 consistent with) subparagraph (B) 

23 for years after 2004. 

24 ‘‘(v) CONSULTATION.—Before 

25 publishing the notice of proposed 
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1 rulemaking to carry out this sub2 paragraph, the Secretary shall 

3 consult with the Comptroller Gen4 eral of the United States and with 

5 groups representing the physi6 cian specialties involved. 

7 ‘‘(vi) TREATMENT AS CHANGE IN

8 LAW AND REGULATION IN SUSTAIN9 ABLE GROWTH RATE DETERMINA10 TION.—The enactment of subpara11 graph (B)(iv) and this subpara12 graph shall be treated as a 

13 change in law for purposes of ap14 plying subsection (f)(2)(D).’’. 

15 (2) PROHIBITION OF ADMINISTRATIVE

16 AND JUDICIAL REVIEW.—Section 1848(i)(1) 

17 (42 U.S.C. 1395w–4(i)(1)) is amended—

18 (A) by striking ‘‘and’’ at the end of 

19 subparagraph (D); 

20 (B) by striking the period at the end 

21 of subparagraph (E) and inserting ‘‘, 

22 and’’; and 

23 (C) by adding at the end the following 

24 new subparagraph: 
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1 ‘‘(F) adjustments in practice ex2 pense relative value units for 2005 

3 under subsection (c)(2)(H).’’. 

4 (3) TREATMENT OF OTHER SERVICES

5 CURRENTLY IN THE NON-PHYSICIAN WORK

6 POOL.—The Secretary shall make adjust7 ments to the non-physician work pool 

8 methodology (as such term is used in the 

9 regulations promulgated by the Secretary 

10 in the Federal Register as of December 

11 31, 2002) for determination of practice ex12 pense relative value units under the phy13 sician fee schedule described in section 

14 1848(c)(2)(C)(ii) of the Social Security Act 

15 so that the practice expense relative 

16 value units for services determined 

17 under such methodology are not dis18 proportionately reduced relative to the 

19 practice expense relative value units of 

20 other services not determined under such 

21 non-physician work pool methodology, as 

22 the result of amendments made by para23 graph (1). 

24 (4) SUBMISSION OF PRACTICE EXPENSE

25 SURVEY DATA.—Any physician specialty 
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1 may submit survey data related to prac2 tice expenses to the Secretary through 

3 Decmeber 31, 2004. Nothing in this para4 graph shall be construed as waiving the 

5 application of budget neutrality under 

6 section 1848 of the Social Security Act.

7 (b) PAYMENT BASED ON COMPETITION.—Title 

8 XVIII is amended by inserting after section 

9 1847 (42 U.S.C. 1395w–3), as amended by sec10 tion 302, the following new sections: 

11 ‘‘COMPETITIVE ACQUISITION OF COVERED

12 OUTPATIENT DRUGS AND BIOLOGICALS

13 ‘‘SEC. 1847A. (a) IMPLEMENTATION OF COM14 PETITIVE ACQUISITION.—

15 ‘‘(1) IMPLEMENTATION OF PROGRAM.—

16 ‘‘(A) IN GENERAL.—The Secretary 

17 shall establish and implement a com18 petitive acquisition program under 

19 which—

20 ‘‘(i) competitive acquisition 

21 areas are established throughout 

22 the United States for contract 

23 award purposes for acquisition of 

24 and payment for categories of 

25 covered outpatient drugs and 
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1 biologicals (as defined in para2 graph (2)) under this part; and 

3 ‘‘(ii) each physician who does 

4 not elect section 1847B to apply 

5 makes an annual selection, under 

6 paragraph (5) of the contractor 

7 through which drugs and 

8 biologicals within a category of 

9 drugs and biologicals will be ac10 quired and delivered to the physi11 cian under this part. 

12 ‘‘(B) IMPLEMENTATION.—The Sec13 retary shall implement the program 

14 so that the program applies to—

15 ‘‘(i) the oncology category be16 ginning in 2005; and 

17 ‘‘(ii) the non-oncology cat18 egory beginning in 2006. 

19 This section shall not apply in the 

20 case of a physician who elects section 

21 1847B to apply. 

22 ‘‘(C) WAIVER OF CERTAIN PROVI23 SIONS.—In order to promote competi24 tion, efficient service, and product 

25 quality, in carrying out the program 
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1 the Secretary may waive such provi2 sions of the Federal Acquisition Reg3 ulation as are necessary for the effi4 cient implementation of this section, 

5 other than provisions relating to con6 fidentiality of information and such 

7 other provisions as the Secretary de8 termines appropriate. 

9 ‘‘(D) EXCLUSION AUTHORITY.—The 

10 Secretary may exclude covered out11 patient drugs and biologicals (includ12 ing a class of such drugs and 

13 biologicals) from the competitive bid14 ding system under this section if the 

15 drugs or biologicals (or class) are not 

16 appropriate for competitive bidding 

17 due to low volume of utilization by 

18 beneficiaries under this part or a 

19 unique mode or method of delivery or 

20 similar reasons.

21 ‘‘(2) COVERED OUTPATIENT DRUGS AND

22 BIOLOGICALS, CATEGORIES, PROGRAM DE23 FINED.—For purposes of this section—

24 ‘‘(A) COVERED OUTPATIENT DRUGS

25 AND BIOLOGICALS DEFINED.—The term 
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1 ‘covered outpatient drugs and 

2 biologicals’ means drugs and 

3 biologicals to which section 1842(o) 

4 applies and which are not covered 

5 under section 1847 (relating to com6 petitive acquisition for items of dura7 ble medical equipment). Such term 

8 does not include the following: 

9 ‘‘(i) Blood clotting factors. 

10 ‘‘(ii) Drugs and biologicals fur11 nished to individuals in connec12 tion with the treatment of end 

13 stage renal disease. 

14 ‘‘(iii) Radiopharmaceuticals. 

15 ‘‘(B) 2 CATEGORIES.—Each of the 

16 following shall be a separate category 

17 of covered outpatient drugs and 

18 biologicals, as identified by the Sec19 retary: 

20 ‘‘(i) ONCOLOGY CATEGORY.—A 

21 category (in this section referred 

22 to as the ‘oncology category’) con23 sisting of those covered out24 patient drugs and biologicals 

25 that, as determined by the Sec-
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1 retary, are typically primarily 

2 billed by oncologists or are other3 wise used to treat cancer. 

4 ‘‘(ii) NON-ONCOLOGY CAT5 EGORIES.—Such numbers of cat6 egories (in this section referred to 

7 as the ‘non-oncology categories’) 

8 consisting of covered outpatient 

9 drugs and biologicals not de10 scribed in clause (i), and appro11 priate subcategories of such 

12 drugs and biologicals as the Sec13 retary may specify. 

14 ‘‘(C) PROGRAM.—The term ‘pro15 gram’ means the competitive acquisi16 tion program under this section. 

17 ‘‘(D) COMPETITIVE ACQUISITION

18 AREA; AREA.—The terms ‘competitive 

19 acquisition area’ and ‘area’ mean an 

20 appropriate geographic region estab21 lished by the Secretary under the 

22 program. 

23 ‘‘(E) CONTRACTOR.—The term ‘con24 tractor’ means an entity that has en-
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1 tered into a contract with the Sec2 retary under this section. 

3 ‘‘(3) APPLICATION OF PROGRAM PAYMENT

4 METHODOLOGY.—With respect to covered 

5 outpatient drugs and biologicals which 

6 are supplied under the program in an 

7 area and which are prescribed by a phy8 sician who has not elected section 1847B 

9 to apply—

10 ‘‘(A) the claim for such drugs and 

11 biologicals shall be submitted by the 

12 contractor that supplied the drugs 

13 and biologicals; 

14 ‘‘(B) collection of amounts of any 

15 deductible and coinsurance applica16 ble with respect to such drugs and 

17 biologicals shall be the responsibility 

18 of such contractor and shall not be 

19 collected unless the drug or biological 

20 is administered to the beneficiary in21 volved; and 

22 ‘‘(C) the payment under this sec23 tion (and related coinsurance 

24 amounts) for such drugs and 

25 biologicals—
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1 ‘‘(i) shall be made only to such 

2 contractor; 

3 ‘‘(ii) shall be conditioned upon 

4 the administration of such drugs 

5 and biologicals; and 

6 ‘‘(iii) shall be based on the av7 erage of the bid prices for such 

8 drugs and biologicals in the area, 

9 as computed under subsection (d). 

10 The Secretary shall provide a process 

11 for recoupment in the case in which 

12 payment is made for drugs and 

13 biologicals which were billed at the 

14 time of dispensing but which were 

15 not actually administered. 

16 ‘‘(4) CONTRACT REQUIRED.—

17 ‘‘(A) IN GENERAL.—Payment may 

18 not be made under this part for cov19 ered outpatient drugs and biologicals 

20 prescribed by a physician who has 

21 not elected section 1847B to apply 

22 within a category and a competitive 

23 acquisition area with respect to 

24 which the program applies unless—
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1 ‘‘(i) the drugs or biologicals 

2 are supplied by a contractor with 

3 a contract under this section for 

4 such category of drugs and 

5 biologicals and area; and 

6 ‘‘(ii) the physician has elected 

7 such contractor under paragraph 

8 (5) for such category and area. 

9 ‘‘(B) PHYSICIAN CHOICE.—Subpara10 graph (A) shall not apply for a cat11 egory of drugs for an area if the phy12 sician prescribing the covered out13 patient drug in such category and 

14 area has elected to apply section 

15 1847B instead of this section.

16 ‘‘(5) CONTRACTOR SELECTION PROCESS.—

17 ‘‘(A) IN GENERAL.—The Secretary 

18 shall provide a process for the selec19 tion of a contractor, on an annual 

20 basis and in such exigent cir21 cumstances as the Secretary may pro22 vide and with respect to each cat23 egory of covered outpatient drugs 

24 and biologicals for an area, by physi25 cians prescribing such drugs and 
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1 biologicals in the area of the con2 tractor under this section that will 

3 supply the drugs and biologicals 

4 within that category and area. Such 

5 selection shall also include the elec6 tion described in section 1847B(a). 

7 ‘‘(B) INFORMATION ON CONTRAC8 TORS.—The Secretary shall make 

9 available to physicians on an ongoing 

10 basis, through a directory posted on 

11 the Department’s Internet website or 

12 otherwise and upon request, a list of 

13 the contractors under this section in 

14 the different competitive acquisition 

15 areas. 

16 ‘‘(C) SELECTING PHYSICIAN DE17 FINED.—For purposes of this section, 

18 the term ‘selecting physician’ means, 

19 with respect to a contractor and cat20 egory and competitive acquisition 

21 area, a physician who has not elected 

22 section 1847B to apply and has se23 lected to apply under this section 

24 such contractor for such category 

25 and area. 
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1 ‘‘(b) PROGRAM REQUIREMENTS.—

2 ‘‘(1) CONTRACT FOR COVERED OUT3 PATIENT DRUGS AND BIOLOGICALS.—The 

4 Secretary shall conduct a competition 

5 among entities for the acquisition of a 

6 covered outpatient drug or biological 

7 within each HCPCS code within each cat8 egory for each competitive acquisition 

9 area. 

10 ‘‘(2) CONDITIONS FOR AWARDING CON11 TRACT.—

12 ‘‘(A) IN GENERAL.—The Secretary 

13 may not award a contract to any enti14 ty under the competition conducted 

15 in a competitive acquisition area pur16 suant to paragraph (1) with respect to 

17 the acquisition of covered outpatient 

18 drugs and biologicals within a cat19 egory unless the Secretary finds that 

20 the entity meets all of the following 

21 with respect to the contract period 

22 involved: 

23 ‘‘(i) CAPACITY TO SUPPLY COV24 ERED OUTPATIENT DRUG OR BIOLOGI25 CAL WITHIN CATEGORY.—
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1 ‘‘(I) IN GENERAL.—The enti2 ty has sufficient arrange3 ments to acquire and to de4 liver covered outpatient drugs 

5 and biologicals within such 

6 category in the area specified 

7 in the contract at the bid 

8 price specified in the contract 

9 for all physicians that may 

10 elect such entity. 

11 ‘‘(II) SHIPMENT METHOD12 OLOGY.—The entity has ar13 rangements in effect for the 

14 shipment at least 5 days each 

15 week of covered outpatient 

16 drugs and biologicals under 

17 the contract and for the time18 ly delivery (including for 

19 emergency situations) of such 

20 drugs and biologicals in the 

21 area under the contract. 

22 ‘‘(ii) QUALITY, SERVICE, FINAN23 CIAL PERFORMANCE AND SOLVENCY

24 STANDARDS.—The entity meets 

25 quality, service, financial per-
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1 formance, and solvency standards 

2 specified by the Secretary, includ3 ing—

4 ‘‘(I) the establishment of 

5 procedures for the prompt re6 sponse and resolution of phy7 sician and beneficiary com8 plaints and inquiries regard9 ing the shipment of covered 

10 outpatient drugs and 

11 biologicals; and 

12 ‘‘(II) a grievance process 

13 for the resolution of disputes. 

14 ‘‘(B) ADDITIONAL CONSIDER15 ATIONS.—The Secretary may refuse to 

16 award a contract under this section, 

17 and may terminate such a contract, 

18 with an entity based upon—

19 ‘‘(i) the suspension or revoca20 tion, by the Federal Government 

21 or a State government, of the en22 tity’s license for the distribution 

23 of drugs or biologicals (including 

24 controlled substances); or 
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1 ‘‘(ii) the exclusion of the enti2 ty under section 1128 from par3 ticipation under this title. 

4 ‘‘(C) APPLICATION OF MEDICARE

5 PROVIDER OMBUDSMAN.—For provision 

6 providing for a program-wide Medi7 care Provider Ombudsman to review 

8 complaints, see section 1868(b), as 

9 added by section 923 of the Medicare 

10 Prescription Drug and Modernization 

11 Act of 2003. 

12 ‘‘(3) AWARDING MULTIPLE CONTRACTS

13 FOR A CATEGORY AND AREA.—In order to 

14 provide a choice of at least 2 contractors 

15 in each competitive acquisition area for a 

16 category of drugs and biologicals, the 

17 Secretary may limit (but not below 2) the 

18 number of qualified entities that are 

19 awarded such contracts for any category 

20 and area. The Secretary shall select 

21 among qualified entities based on the fol22 lowing: 

23 ‘‘(A) The bid prices for covered 

24 outpatient drugs and biologicals 

25 within the category and area. 
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1 ‘‘(B) Bid price for distribution of 

2 such drugs and biologicals. 

3 ‘‘(C) Ability to ensure product in4 tegrity. 

5 ‘‘(D) Customer service. 

6 ‘‘(E) Past experience in the dis7 tribution of drugs and biologicals, in8 cluding controlled substances. 

9 ‘‘(F) Such other factors as the Sec10 retary may specify. 

11 ‘‘(4) TERMS OF CONTRACTS.—

12 ‘‘(A) IN GENERAL.—A contract en13 tered into with an entity under the 

14 competition conducted pursuant to 

15 paragraph (1) is subject to terms and 

16 conditions that the Secretary may 

17 specify consistent with this section. 

18 ‘‘(B) PERIOD OF CONTRACTS.—A 

19 contract under this section shall be 

20 for a term of 2 years, but may be ter21 minated by the Secretary or the enti22 ty with appropriate, advance notice. 

23 ‘‘(C) INTEGRITY OF DRUG AND BIO24 LOGICAL DISTRIBUTION SYSTEM.—The 

25 Secretary—
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1 ‘‘(i) shall require that for all 

2 drug and biological products dis3 tributed by a contractor under 

4 this section be acquired directly 

5 from the manufacturer or from a 

6 distributor that has acquired the 

7 products directly from the manu8 facturer; and 

9 ‘‘(ii) may require, in the case 

10 of such products that are particu11 larly susceptible to counterfeit or 

12 diversion, that the contractor 

13 comply with such additional 

14 product integrity safeguards as 

15 may be determined to be nec16 essary. 

17 ‘‘(D) IMPLEMENTATION OF ANTI18 COUNTERFEITING, QUALITY, SAFETY, AND

19 RECORD KEEPING REQUIREMENTS.—The 

20 Secretary shall require each con21 tractor to implement (through its offi22 cers, agents, representatives, and em23 ployees) requirements relating to the 

24 storage and handling of covered out25 patient drugs and biologicals and for 
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1 the establishment and maintenance 

2 of distribution records for such drugs 

3 and biologicals. A contract under this 

4 section may include requirements re5 lating to the following: 

6 ‘‘(i) Secure facilities. 

7 ‘‘(ii) Safe and appropriate 

8 storage of drugs and biologicals. 

9 ‘‘(iii) Examination of drugs 

10 and biologicals received and dis11 pensed. 

12 ‘‘(iv) Disposition of damaged 

13 and outdated drugs and 

14 biologicals. 

15 ‘‘(v) Record keeping and writ16 ten policies and procedures. 

17 ‘‘(vi) Compliance personnel. 

18 ‘‘(E) COMPLIANCE WITH CODE OF

19 CONDUCT AND FRAUD AND ABUSE

20 RULES.—Under the contract—

21 ‘‘(i) the contractor shall com22 ply with a code of conduct, speci23 fied or recognized by the Sec24 retary, that includes standards 
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1 relating to conflicts of interest; 

2 and 

3 ‘‘(ii) the contractor shall com4 ply with all applicable provisions 

5 relating to prevention of fraud 

6 and abuse, including compliance 

7 with applicable guidelines of the 

8 Department of Justice and the In9 spector General of the Depart10 ment of Health and Human Serv11 ices. 

12 ‘‘(F) DIRECT DELIVERY OF DRUGS

13 AND BIOLOGICALS TO PHYSICIANS.—

14 Under the contract the contractor 

15 shall only supply covered outpatient 

16 drugs and biologicals directly to the 

17 selecting physicians and not directly 

18 to beneficiaries, except under cir19 cumstances and settings where a ben20 eficiary currently receives a drug or 

21 biological in the beneficiary’s home 

22 or other non-physician office setting 

23 as the Secretary may provide. The 

24 contractor shall not deliver drugs 

25 and biologicals to a selecting physi-
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1 cian except upon receipt of a pre2 scription for such drugs and 

3 biologicals, and such necessary data 

4 as may be required by the Secretary 

5 to carry out this section. This section 

6 does not require a physician to sub7 mit a prescription for each individual 

8 treatment and does not change the 

9 physician’s flexibility in terms of 

10 writing a prescription for drugs for a 

11 single treatment or a course of treat12 ment. 

13 ‘‘(5) PERMITTING ACCESS TO DRUGS AND

14 BIOLOGICALS.—The Secretary shall estab15 lish rules under this section under which 

16 drugs and biologicals which are acquired 

17 through a contractor under this section 

18 may be used to resupply inventories of 

19 such drugs and biologicals which are ad20 ministered consistent with safe drug 

21 practices and with adequate safeguards 

22 against fraud and abuse. The previous 

23 sentence shall apply—
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1 ‘‘(A) in cases in which the drugs 

2 or biologicals are immediately re3 quired; 

4 ‘‘(B) in cases in which the physi5 cian could not have reasonably an6 ticipated the immediate requirement 

7 for the drugs or biologicals; 

8 ‘‘(C) in cases in which the con9 tractor could not deliver to the physi10 cian the drugs or biologicals in a 

11 timely manner; and 

12 ‘‘(D) in emergency situations. 

13 ‘‘(6) CONSTRUCTION.—Nothing in this 

14 section shall be construed as waiving ap15 plicable State requirements relating to li16 censing of pharmacies.

17 ‘‘(c) BIDDING PROCESS.—

18 ‘‘(1) IN GENERAL.—In awarding a con19 tract for a category of drugs and 

20 biologicals in an area under the program, 

21 the Secretary shall consider with respect 

22 to each entity seeking to be awarded a 

23 contract the prices bid to acquire and 

24 supply the covered outpatient drugs and 

25 biologicals for that category and area and 
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1 the other factors referred to in sub2 section (b)(3). 

3 ‘‘(2) PRICES BID.—The prices bid by an 

4 entity under paragraph (1) shall be the 

5 prices in effect and available for the sup6 ply of contracted drugs and biologicals in 

7 the area through the entity for the con8 tract period.

9 ‘‘(3) REJECTION OF CONTRACT OFFER.—

10 The Secretary shall reject the contract 

11 offer of an entity with respect to a cat12 egory of drugs and biologicals for an area 

13 if the Secretary estimates that the prices 

14 bid, in the aggregate on average, would 

15 exceed 120 percent of the average sales 

16 price (as determined under section 

17 1847B).

18 ‘‘(4) BIDDING ON A NATIONAL OR RE19 GIONAL BASIS.—Nothing in this section 

20 shall be construed as precluding a bidder 

21 from bidding for contracts in all areas of 

22 the United States or as requiring a bid23 der to submit a bid for all areas of the 

24 United States. 
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1 ‘‘(5) UNIFORMITY OF BIDS WITHIN

2 AREA.—The amount of the bid submitted 

3 under a contract offer for any covered 

4 outpatient drug or biological for an area 

5 shall be the same for that drug or biologi6 cal for all portions of that area. 

7 ‘‘(6) CONFIDENTIALITY OF BIDS.—The 

8 provisions of subparagraph (D) of section 

9 1927(b)(3) shall apply to a bid submitted 

10 in a contract offer for a covered out11 patient drug or biological under this sec12 tion in the same manner as it applies to 

13 information disclosed under such section, 

14 except that any reference—

15 ‘‘(A) in that subparagraph to a 

16 ‘manufacturer or wholesaler’ is 

17 deemed a reference to a ‘bidder’

18 under this section; 

19 ‘‘(B) in that section to ‘prices 

20 charged for drugs’ is deemed a ref21 erence to a ‘bid’ submitted under this 

22 section; and 

23 ‘‘(C) in clause (i) of that section to 

24 ‘this section’, is deemed a reference to 

25 ‘part B of title XVIII’. 
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1 ‘‘(7) INCLUSION OF COSTS.—The bid 

2 price submitted in a contract offer for a 

3 covered outpatient drug or biological 

4 shall—

5 ‘‘(A) include all costs related to 

6 the delivery of the drug or biological 

7 to the selecting physician (or other 

8 point of delivery); and 

9 ‘‘(B) include the costs of dis10 pensing (including shipping) of such 

11 drug or biological and management 

12 fees, but shall not include any costs 

13 related to the administration of the 

14 drug or biological, or wastage, spill15 age, or spoilage. 

16 ‘‘(8) PRICE ADJUSTMENTS DURING CON17 TRACT PERIOD; DISCLOSURE OF COSTS.—

18 Each contract awarded shall provide 

19 for—

20 ‘‘(A) disclosure to the Secretary 

21 the contractor’s reasonable, net ac22 quisition costs for periods specified 

23 by the Secretary, not more often than 

24 quarterly, of the contract; and 
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1 ‘‘(B) appropriate price adjust2 ments over the period of the contract 

3 to reflect significant increases or de4 creases in a contractor’s reasonable, 

5 net acquisition costs, as so disclosed.

6 ‘‘(d) COMPUTATION OF AVERAGE BID PRICES

7 FOR A CATEGORY AND AREA.—

8 ‘‘(1) IN GENERAL.—For each year or 

9 other contract period for each covered 

10 outpatient drug or biological and area 

11 with respect to which a competition is 

12 conducted under the program, the Sec13 retary shall compute an area average of 

14 the bid prices submitted, in contract of15 fers accepted for the category and area, 

16 for that year or other contract period. 

17 ‘‘(2) SPECIAL RULES.—The Secretary 

18 shall establish rules regarding the use 

19 under this section of the alternative pay20 ment amount provided under section 

21 1847B to the use of a price for specific 

22 covered outpatient drugs and biologicals 

23 in the following cases: 

24 ‘‘(A) NEW DRUGS AND

25 BIOLOGICALS.—A covered outpatient 
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1 drug or biological for which an aver2 age bid price has not been previously 

3 determined. 

4 ‘‘(B) OTHER CASES.—Such other ex5 ceptional cases as the Secretary may 

6 specify in regulations. 

7 Such alternative payment amount shall 

8 be based upon actual market price infor9 mation and in no case shall it exceed the 

10 average sales price (as determined under 

11 section 1847B). 

12 ‘‘(e) COINSURANCE.—

13 ‘‘(1) IN GENERAL.—Coinsurance under 

14 this part with respect to a covered out15 patient drug or biological for which pay16 ment is payable under this section shall 

17 be based on 20 percent of the payment 

18 basis under this section. 

19 ‘‘(2) COLLECTION.—Such coinsurance 

20 shall be collected by the contractor that 

21 supplies the drug or biological involved 

22 and, subject to subsection (a)(3)(B), in the 

23 same manner as coinsurance is collected 

24 for durable medical equipment under 

25 this part. 
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1 ‘‘(f) SPECIAL PAYMENT RULES.—

2 ‘‘(1) IN GENERAL.—The Secretary may 

3 not provide for an adjustment to reim4 bursement for covered outpatient drugs 

5 and biologicals unless adjustments to the 

6 practice expense payment adjustment are 

7 made on the basis of supplemental sur8 veys under section 1848(c)(2)(H)(ii) of the 

9 Social Security Act, as added by sub10 section (a)(1)(B). 

11 ‘‘(B) USE IN EXCLUSION CASES.—If 

12 the Secretary excludes a drug or bio13 logical (or class of drugs or 

14 biologicals) under subsection 

15 (a)(1)(D), the Secretary may provide 

16 for reimbursement to be made under 

17 this part for such drugs and 

18 biologicals (or class) using the pay19 ment methodology under section 

20 1847B or other market based pricing 

21 system. 

22 ‘‘(2) COORDINATION RULES.—The provi23 sions of section 1842(h)(3) shall apply to a 

24 contractor with respect to covered out25 patients drugs and biologicals supplied 
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1 by that contractor in the same manner as 

2 they apply to a participating supplier. In 

3 order to administer this section, the Sec4 retary may condition payment under this 

5 part to a person for the administration of 

6 a drug or biological supplied under this 

7 section upon person’s provision of infor8 mation on such administration. 

9 ‘‘(3) APPLICATION OF REQUIREMENT FOR

10 ASSIGNMENT.—For provision requiring as11 signment of claims for covered outpatient 

12 drugs and biologicals, see section 

13 1842(o)(3). 

14 ‘‘(4) PROTECTION FOR BENEFICIARY IN

15 CASE OF MEDICAL NECESSITY DENIAL.—For 

16 protection of beneficiaries against liabil17 ity in the case of medical necessity deter18 minations, see section 

19 1842(b)(3)(B)(ii)(III). 

20 ‘‘(5) PHYSICIAN ROLE IN APPEALS PROC21 ESS.—The Secretary shall establish a pro22 cedure under which a physician who pre23 scribes a drug or biological for which 

24 payment is made under this section has 

25 appeal rights that are similar to those 
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1 provided to a physician who prescribes 

2 durable medical equipment or a labora3 tory test. 

4 ‘‘(g) ADVISORY COMMITTEE.—The Secretary 

5 shall establish an advisory committee that in6 cludes representatives of parties affected by 

7 the program under this section, including 

8 physicians, specialty pharmacies, distribu9 tors, manufacturers, and beneficiaries. The 

10 committee shall advise the Secretary on 

11 issues relating to the effective implementa12 tion of this section. 

13 ‘‘(h) ANNUAL REPORTS.—The Secretary 

14 shall submit to Congress an annual report in 

15 each of 2004, 2005, and 2006, on the program. 

16 Each such report shall include information on 

17 savings, reductions in cost-sharing, access to 

18 covered outpatient drugs and biologicals, the 

19 range of choices of contractors available to 

20 providers, and beneficiary and provider satis21 faction. 

22 ‘‘OPTIONAL USE OF AVERAGE SALES PRICE

23 PAYMENT METHODOLOGY

24 ‘‘SEC. 1847B. (a) IN GENERAL.—In connec25 tion with the election made by a physician 

26 under section 1847A(a)(5), the physician may 
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1 elect to apply this section to the payment for 

2 covered outpatient drugs instead of the pay3 ment methodology under section 1847A. For 

4 purposes of this section, the term ‘covered 

5 outpatient drug’ has the meaning given such 

6 term in section 1847A(a)(2)(A). 

7 ‘‘(b) COMPUTATION OF PAYMENT AMOUNT.—

8 ‘‘(1) IN GENERAL.—If this section ap9 plies with respect to a covered outpatient 

10 drug, the amount payable for the drug 

11 (based on a minimum dosage unit) is, 

12 subject to applicable deductible and coin13 surance—

14 ‘‘(A) in the case of a multiple 

15 source drug (as defined in subsection 

16 (c)(6)(C)), the amount determined 

17 under paragraph (3); or 

18 ‘‘(B) in the case of a single source 

19 drug (as defined in subsection 

20 (c)(6)(D)), the amount determined 

21 under paragraph (4). 

22 ‘‘(2) SPECIFICATION OF UNIT.—

23 ‘‘(A) SPECIFICATION BY MANUFAC24 TURER.—The manufacturer of a cov25 ered outpatient drug shall specify the 
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1 unit associated with each National 

2 Drug Code as part of the submission 

3 of data under section 

4 1927(b)(3)(A)(iii). 

5 ‘‘(B) UNIT DEFINED.—In this sec6 tion, the term ‘unit’ means, with re7 spect to a covered outpatient drug, 

8 the lowest identifiable quantity (such 

9 as a capsule or tablet, milligram of 

10 molecules, or grams) of the drug that 

11 is dispensed, exclusive of any diluent 

12 without reference to volume meas13 ures pertaining to liquids. 

14 ‘‘(3) MULTIPLE SOURCE DRUG.—For all 

15 drug products included within the same 

16 multiple source drug, the amount speci17 fied in this paragraph is the volume18 weighted average of the average sales 

19 prices reported under section 

20 1927(b)(3)(A)(iii) computed as follows: 

21 ‘‘(A) Compute the sum of the 

22 products (for each national drug code 

23 assigned to such drug products) of—
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1 ‘‘(i) the manufacturer’s aver2 age sales price (as defined in sub3 section (c)); and 

4 ‘‘(ii) the total number of units 

5 specified under paragraph (2) 

6 sold, as reported under section 

7 1927(b)(3)(A)(iii). 

8 ‘‘(B) Divide the sum computed 

9 under subparagraph (A) by the sum 

10 of the total number of units under 

11 subparagraph (A)(ii) for all national 

12 drug codes assigned to such drug 

13 products. 

14 ‘‘(4) SINGLE SOURCE DRUG.—The 

15 amount specified in this paragraph for a 

16 single source drug is the lesser of the fol17 lowing: 

18 ‘‘(A) MANUFACTURER’S AVERAGE

19 SALES PRICE.—The manufacturer’s av20 erage sales price for a national drug 

21 code, as computed using the method22 ology applied under paragraph (3). 

23 ‘‘(B) WHOLESALE ACQUISITION COST

24 (WAC).—The wholesale acquisition cost 
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1 (as defined in subsection (c)(6)(B)) re2 ported for the single source drug. 

3 ‘‘(5) BASIS FOR DETERMINATION.—The 

4 payment amount shall be determined 

5 under this subsection based on informa6 tion reported under subsection (e) and 

7 without regard to any special packaging, 

8 labeling, or identifiers on the dosage 

9 form or product or package. 

10 ‘‘(c) MANUFACTURER’S AVERAGE SALES

11 PRICE.—

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

13 subsection, subject to paragraphs (2) and 

14 (3), the manufacturer’s ‘average sales 

15 price’ means, of a covered outpatient 

16 drug for a NDC code for a calendar quar17 ter for a manufacturer for a unit—

18 ‘‘(A) the manufacturer’s total sales 

19 (as defined by the Secretary in regu20 lations for purposes of section 

21 1927(c)(1)) in the United States for 

22 such drug in the calendar quarter; di23 vided by 
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1 ‘‘(B) the total number of such 

2 units of such drug sold by the manu3 facturer in such quarter. 

4 ‘‘(2) CERTAIN SALES EXEMPTED FROM

5 COMPUTATION.—In calculating the manu6 facturer’s average sales price under this 

7 subsection, the following sales shall be 

8 excluded: 

9 ‘‘(A) SALES EXEMPT FROM BEST

10 PRICE.—Sales exempt from the inclu11 sion in the determination of ‘best 

12 price’ under section 1927(c)(1)(C)(i). 

13 ‘‘(B) SALES AT NOMINAL CHARGE.—

14 Such other sales as the Secretary 

15 identifies by regulation as sales to an 

16 entity that are nominal in price or do 

17 not reflect a market price paid by an 

18 entity to which payment is made 

19 under this section. 

20 ‘‘(3) SALE PRICE NET OF DISCOUNTS.—In 

21 calculating the manufacturer’s average 

22 sales price under this subsection, such 

23 price shall be determined taking into ac24 count volume discounts, prompt pay dis25 counts, cash discounts, the free goods 
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1 that are contingent on any purchase re2 quirement, chargebacks, and rebates 

3 (other than rebates under section 1927), 

4 that result in a reduction of the cost to 

5 the purchaser. A rebate to a payor or 

6 other entity that does not take title to a 

7 covered outpatient drug shall not be 

8 taken into account in determining such 

9 price unless the manufacturer has an 

10 agreement with the payor or other entity 

11 under which the purchaser’s price for the 

12 drug is reduced as a consequence of such 

13 rebate. 

14 ‘‘(4) AUTHORITY TO DISREGARD AVERAGE

15 SALES PRICE DURING FIRST QUARTER OF

16 SALES.—In the case of a covered out17 patient drug during an initial period (not 

18 to exceed a full calendar quarter) in 

19 which data on the prices for sales for the 

20 drug is not sufficiently available from the 

21 manufacturer to compute an average 

22 sales price for the drug, the Secretary 

23 may determine the amount payable 

24 under this section for the drug without 

25 considering the manufacturer’s average 
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1 sales price of that manufacturer for that 

2 drug. 

3 ‘‘(5) FREQUENCY OF DETERMINATIONS.—

4 ‘‘(A) IN GENERAL ON A QUARTERLY

5 BASIS.—The manufacturer’s average 

6 sales price, for a covered outpatient 

7 drug of a manufacturer, shall be de8 termined by such manufacturer 

9 under this subsection on a quarterly 

10 basis. In making such determination 

11 insofar as there is a lag in the report12 ing of the information on rebates and 

13 chargebacks under paragraph (3) so 

14 that adequate data are not available 

15 on a timely basis, the manufacturer 

16 shall apply a methodology established 

17 by the Secretary based on a 12-month 

18 rolling average for the manufacturer 

19 to estimate costs attributable to re20 bates and chargebacks. 

21 ‘‘(B) UPDATES IN RATES.—The pay22 ment rates under subsection (b)(1) 

23 and (b)(2)(A) shall be updated by the 

24 Secretary on a quarterly basis and 

25 shall be applied based upon the man-
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1 ufacturer’s average sales price deter2 mined for the most recent calendar 

3 quarter. 

4 ‘‘(C) USE OF CONTRACTORS; IMPLE5 MENTATION.—The Secretary may use a 

6 carrier, fiscal intermediary, or other 

7 contractor to determine the payment 

8 amount under subsection (b). Not9 withstanding any other provision of 

10 law, the Secretary may implement, by 

11 program memorandum or otherwise, 

12 any of the provisions of this section. 

13 ‘‘(6) DEFINITIONS AND OTHER RULES.—In 

14 this section: 

15 ‘‘(A) MANUFACTURER.—The term 

16 ‘manufacturer’ means, with respect to 

17 a covered outpatient drug, the manu18 facturer (as defined in section 

19 1927(k)(5)) whose national drug code 

20 appears on such drug. 

21 ‘‘(ii) WHOLESALE ACQUISITION

22 COST.—The term ‘wholesale acquisi23 tion cost’ means, with respect to a 

24 covered outpatient drug, the manu25 facturer’s list price for the drug to 
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1 wholesalers or direct purchasers in 

2 the United States, not including 

3 prompt pay or other discounts, re4 bates or reductions in price, for the 

5 most recent month for which the in6 formation is available, as reported in 

7 wholesale price guides or other publi8 cations of drug pricing data. 

9 ‘‘(C) MULTIPLE SOURCE DRUG.—The 

10 term ‘multiple source drug’ means, 

11 for a calendar quarter, a covered out12 patient drug for which there are 2 or 

13 more drug products which—

14 ‘‘(i) are rated as therapeuti15 cally equivalent (under the Food 

16 and Drug Administration’s most 

17 recent publication of ‘Approved 

18 Drug Products with Therapeutic 

19 Equivalence Evaluations’), 

20 ‘‘(ii) except as provided in 

21 subparagraph (E), are pharma22 ceutically equivalent and bio23 equivalent, as determined under 

24 subparagraph (F) and as deter-
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1 mined by the Food and Drug Ad2 ministration, and 

3 ‘‘(iii) are sold or marketed in 

4 the United States during the 

5 quarter. 

6 ‘‘(D) SINGLE SOURCE DRUG.—The 

7 term ‘single source drug’ means a 

8 covered outpatient drug which is not 

9 a multiple source drug and which is 

10 produced or distributed under an 

11 original new drug application ap12 proved by the Food and Drug Admin13 istration, including a drug product 

14 marketed by any cross-licensed pro15 ducers or distributors operating 

16 under the new drug application, or 

17 which is a biological. 

18 ‘‘(E) EXCEPTION FROM PHARMA19 CEUTICAL EQUIVALENCE AND BIOEQUIVA20 LENCE REQUIREMENT.—Subparagraph 

21 (C)(ii) shall not apply if the Food and 

22 Drug Administration changes by reg23 ulation the requirement that, for pur24 poses of the publication described in 

25 subparagraph (C)(i), in order for drug 
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1 products to be rated as therapeuti2 cally equivalent, they must be phar3 maceutically equivalent and bio4 equivalent, as defined in subpara5 graph (F). 

6 ‘‘(F) DETERMINATION OF PHARMA7 CEUTICAL EQUIVALENCE AND BIOEQUIVA8 LENCE.—For purposes of this para9 graph—

10 ‘‘(i) drug products are phar11 maceutically equivalent if the 

12 products contain identical 

13 amounts of the same active drug 

14 ingredient in the same dosage 

15 form and meet compendial or 

16 other applicable standards of 

17 strength, quality, purity, and 

18 identity; and 

19 ‘‘(ii) drugs are bioequivalent if 

20 they do not present a known or 

21 potential bioequivalence problem, 

22 or, if they do present such a prob23 lem, they are shown to meet an 

24 appropriate standard of bio25 equivalence. 
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1 ‘‘(G) INCLUSION OF VACCINES.—In 

2 applying provisions of section 1927 

3 under this section, ‘other than a vac4 cine’ is deemed deleted from section 

5 1927(k)(2)(B). 

6 ‘‘(d) MONITORING PRICE INFORMATION.—

7 ‘‘(1) IN GENERAL.—The Secretary shall 

8 monitor available pricing information, in9 cluding information on average sales 

10 price and average manufacturer price. 

11 ‘‘(2) RESPONSE TO SIGNIFICANT DISCREP12 ANCIES.—

13 ‘‘(A) REPORT TO CONGRESS.—If the 

14 Secretary finds that there are signifi15 cant discrepancies among such prices 

16 and that the manufacturer’s average 

17 sales price does not reflect a broad18 based market price or a reasonable 

19 approximation of the acquisition cost 

20 of the covered outpatient drug in21 volved to purchasers reimbursed 

22 under this section, the Secretary shall 

23 submit to Congress a report. 

24 ‘‘(B) CONFIDENTIALITY OF INFORMA25 TION REPORTED.—Consistent with re-
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1 quirements relating to maintaining 

2 the confidentiality of information re3 ported on manufacturer’s average 

4 prices under section 1927(b)(3)(D), 

5 such report shall include details re6 garding such discrepancies and rec7 ommendations on how to best ad8 dress such discrepancies. Such report 

9 shall not disclose average manufac10 turer prices or average sales prices. 

11 ‘‘(C) RECOMMENDATIONS.—Such 

12 recommendations may include other 

13 changes in payment methodology. 

14 ‘‘(D) AUTHORITY TO MODIFY PAY15 MENT METHODOLOGY BY RULE.—Upon 

16 submission of such report, the Sec17 retary may commence a rulemaking 

18 to change such percent or payment 

19 methodologies under paragraph 

20 (1)(D) and (2) as applied to the cov21 ered outpatient drug involved under 

22 this section. 

23 ‘‘(3) RESPONSE TO PUBLIC HEALTH EMER24 GENCY.—In the case of a public health 

25 emergency under section 319 of the Pub-
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1 lic Health Service Act in which there is a 

2 documented inability to access covered 

3 outpatient drugs, and a concomitant in4 crease in the price, of a drug which is not 

5 reflected in the manufacturer’s average 

6 sales price for one or more quarters, the 

7 Secretary may use the wholesale acquisi8 tion cost (or other reasonable measure of 

9 drug price) instead of the manufacturer’s 

10 average sales price for such quarters and 

11 for subsequent quarters until the price 

12 and availability of the drug has stabilized 

13 and is substantially reflected in the appli14 cable manufacturer’s average sales price. 

15 ‘‘(4) ANNUAL REPORT TO CONGRESS.—

16 The Secretary shall submit to the Com17 mittees on Energy and Commerce and 

18 Ways and Means of the House of Rep19 resentatives and the Committee on Fi20 nance of the Senate an annual report on 

21 the operation of this section. Such report 

22 shall be submitted in coordination with 

23 the submission of reports under section 

24 1927(i). Such report shall include infor25 mation on the following: 
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1 ‘‘(A) Trends in average sales price 

2 under subsection (b). 

3 ‘‘(B) Administrative costs associ4 ated with compliance with this sec5 tion. 

6 ‘‘(C) Total value of payments 

7 made under this section. 

8 ‘‘(D) Comparison of the average 

9 manufacturer price as applied under 

10 section 1927 for a covered outpatient 

11 drug with the manufacturer’s average 

12 sales price for the drug under this 

13 section. 

14 ‘‘(e) REPORTS ON PRICING INFORMATION.—

15 ‘‘(1) REFERENCE TO REPORTING RE16 QUIREMENT ON AVERAGE SALES PRICE.—For 

17 requirements for reporting the manufac18 turer’s average sales price (and, if re19 quired to make payment, the manufactur20 er’s wholesale acquisition cost) for the 

21 covered outpatient drug, see section 

22 1927(b)(3). 

23 ‘‘(2) MEDPAC REVIEW.—The Medicare 

24 Payment Advisory Commission shall peri25 odically review the payment methodology 
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1 established under this section and submit 

2 to Congress such recommendations on 

3 such methodology as it deems appro4 priate as part of its annual reports to 

5 Congress. 

6 ‘‘(3) CONSTRUCTION.—Nothing in this 

7 subsection shall be construed as author8 izing the Secretary to review for pur9 poses of this section information reported 

10 only under section 1927(b)(3). 

11 ‘‘(f) RESTRICTION ON ADMINISTRATIVE AND

12 JUDICIAL REVIEW.—There shall be no adminis13 trative or judicial review under section 1869, 

14 section 1878, or otherwise, of determinations 

15 of manufacturer’s average sales price under 

16 subsection (c).’’. 

17 (c) CONTINUATION OF PAYMENT METHOD18 OLOGY FOR RADIOPHARMACEUTICALS.—Nothing 

19 in the amendments made by this section shall 

20 be construed as changing the payment meth21 odology under part B of title XVIII of the So22 cial Security Act for radiopharmaceuticals, 

23 including the use by carriers of invoice pric24 ing methodology.

25 (d) CONFORMING AMENDMENTS.—
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1 (1) IN GENERAL.—Section 1842(o) (42 

2 U.S.C. 1395u(o)) is amended—

3 (A) in paragraph (1), by inserting 

4 ‘‘, subject to section 1847A and 

5 1847B,’’ before ‘‘the amount payable 

6 for the drug or biological’’; and 

7 (B) by adding at the end of para8 graph (2) the following: ‘‘This para9 graph shall not apply in the case of 

10 payment under section 1847A or 

11 1847B.’’. 

12 (2) NO CHANGE IN COVERAGE BASIS.—

13 Section 1861(s)(2)(A) (42 U.S.C. 

14 1395x(s)(2)(A)) is amended by inserting 

15 ‘‘(or would have been so included but for 

16 the application of section 1847A or 

17 1847B)’’ after ‘‘included in the physicians’

18 bills’’. 

19 (3) PAYMENT.—Section 1833(a)(1)(S) 

20 (42 U.S.C. 1395l(a)(1)(S)) is amended by 

21 inserting ‘‘(or, if applicable, under section 

22 1847A or 1847B)’’ after ‘‘1842(o)’’. 

23 (4) CONSOLIDATED REPORTING OF PRIC24 ING INFORMATION.—Section 1927 (42 U.S.C. 

25 1396r–8) is amended—
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1 (A) in subsection (a)(1), by insert2 ing ‘‘or under part B of title XVIII’’

3 after ‘‘section 1903(a)’’; 

4 (B) in subsection (b)(3)(A)—

5 (i) in clause (i), by striking 

6 ‘‘and’’ at the end; 

7 (ii) in clause (ii), by striking 

8 the period and inserting ‘‘; and’’; 

9 and 

10 (iii) by adding at the end the 

11 following new clause: 

12 ‘‘(iii) for calendar quarters be13 ginning on or after April 1, 2004, 

14 in conjunction with reporting re15 quired under clause (i) and by na16 tional drug code (NDC)—

17 ‘‘(I) the manufacturer’s av18 erage sales price (as defined 

19 in section 1847B(c)) and the 

20 total number of units speci21 fied under section 

22 1847B(b)(2)(A); 

23 ‘‘(II) if required to make 

24 payment under section 1847B, 

25 the manufacturer’s wholesale 
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1 acquisition cost, as defined in 

2 subsection (c)(6) of such sec3 tion; and 

4 ‘‘(III) information on those 

5 sales that were made at a 

6 nominal price or otherwise 

7 described in section 

8 1847B(c)(2)(B), which informa9 tion is subject to audit by the 

10 Inspector General of the De11 partment of Health and 

12 Human Services; 

13 for a covered outpatient drug for 

14 which payment is made under 

15 section 1847B.’’; 

16 (C) in subsection (b)(3)(B)—

17 (i) in the heading, by insert18 ing ‘‘AND MANUFACTURER’S AVERAGE

19 SALES PRICE’’ after ‘‘PRICE’’; and 

20 (ii) by inserting ‘‘and manu21 facturer’s average sales prices (in22 cluding wholesale acquisition 

23 cost) if required to make pay24 ment’’ after ‘‘manufacturer 

25 prices’’; and 
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1 (D) in subsection (b)(3)(D)(i), by 

2 inserting ‘‘and section 1847B’’ after 

3 ‘‘this section’’. 

4 (e) GAO STUDY.—

5 (1) STUDY.—The Comptroller General 

6 of the United States shall conduct a study 

7 to assess the impact of the amendments 

8 made by this section on the delivery of 

9 services, including their impact on—

10 (A) beneficiary access to drugs 

11 and biologicals for which payment is 

12 made under part B of title XVIII of 

13 the Social Security Act; and 

14 (B) the site of delivery of such 

15 services. 

16 (2) REPORT.—Not later than 2 years 

17 after the year in which the amendment 

18 made by subsection (a)(1) first takes ef19 fect, the Comptroller General shall sub20 mit to Congress a report on the study 

21 conducted under paragraph (1). 

22 (f) MEDPAC RECOMMENDATIONS ON BLOOD

23 CLOTTING FACTORS.—The Medicare Payment 

24 Advisory Commission shall submit to Con25 gress, in its annual report in 2004, specific 
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1 recommendations regarding a payment 

2 amount (or amounts) for blood clotting fac3 tors and its administration under the medi4 care program. 

5 (g) ESTABLISHMENT OF PHARMACEUTICAL

6 MANAGEMENT FEE WHERE DRUGS PROVIDED

7 THROUGH A CONTRACTOR.—Section 1848(a) (42 

8 U.S.C. 1395w–4(a)) is amended by adding at 

9 the end the following new paragraph: 

10 ‘‘(5) RECOGNITION OF PHARMACEUTICAL

11 MANAGEMENT FEE IN CERTAIN CASES.—In es12 tablishing the fee schedule under this 

13 section, the Secretary shall provide for a 

14 separate payment with respect to physi15 cians’ services consisting of the unique 

16 administrative and management costs as17 sociated with covered drugs and 

18 biologicals which are furnished to physi19 cians through a contractor under section 

20 1847A (compared with such costs if such 

21 drugs and biologicals were acquired di22 rectly by such physicians).’’. 
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1 SEC. 304. DEMONSTRATION PROJECT FOR USE OF RECOV2 ERY AUDIT CONTRACTORS. 

3 (a) IN GENERAL.—The Secretary of Health 

4 and Human Services shall conduct a dem5 onstration project under this section (in this 

6 section referred to as the ‘‘project’’) to dem7 onstrate the use of recovery audit contractors 

8 under the Medicare Integrity Program in 

9 identifying underpayments and overpay10 ments and recouping overpayments under the 

11 medicare program for services for which pay12 ment is made under part A or part B of title 

13 XVIII of the Social Security Act. Under the 

14 project—

15 (1) payment may be made to such a 

16 contractor on a contingent basis; 

17 (2) a percentage of the amount recov18 ered may be retained by the Secretary 

19 and shall be available to the program 

20 management account of the Centers for 

21 Medicare & Medicaid Services; and 

22 (3) the Secretary shall examine the ef23 ficacy of such use with respect to dupli24 cative payments, accuracy of coding, and 

25 other payment policies in which inac26 curate payments arise. 
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1 (b) SCOPE AND DURATION.—

2 (1) SCOPE.—The project shall cover at 

3 least 2 States that are among the States 

4 with—

5 (A) the highest per capita utiliza6 tion rates of medicare services, and 

7 (B) at least 3 contractors. 

8 (2) DURATION.—The project shall last 

9 for not longer than 3 years. 

10 (c) WAIVER.—The Secretary of Health and 

11 Human Services shall waive such provisions 

12 of title XVIII of the Social Security Act as may 

13 be necessary to provide for payment for serv14 ices under the project in accordance with sub15 section (a). 

16 (d) QUALIFICATIONS OF CONTRACTORS.—

17 (1) IN GENERAL.—The Secretary shall 

18 enter into a recovery audit contract 

19 under this section with an entity only if 

20 the entity has staff that has the appro21 priate clinical knowledge of and experi22 ence with the payment rules and regula23 tions under the medicare program or the 

24 entity has or will contract with another 
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1 entity that has such knowledgeable and 

2 experienced staff. 

3 (2) INELIGIBILITY OF CERTAIN CONTRAC4 TORS.—The Secretary may not enter into 

5 a recovery audit contract under this sec6 tion with an entity to the extent that the 

7 entity is a fiscal intermediary under sec8 tion 1816 of the Social Security Act (42 

9 U.S.C. 1395h), a carrier under section 

10 1842 of such Act (42 U.S.C. 1395u), or a 

11 Medicare Administrative Contractor 

12 under section 1874A of such Act. 

13 (3) PREFERENCE FOR ENTITIES WITH

14 DEMONSTRATED PROFICIENCY WITH PRIVATE

15 INSURERS.—In awarding contracts to re16 covery audit contractors under this sec17 tion, the Secretary shall give preference 

18 to those risk entities that the Secretary 

19 determines have demonstrated more than 

20 3 years direct management experience 

21 and a proficiency in recovery audits with 

22 private insurers or under the medicaid 

23 program under title XIX of such Act. 

24 (e) CONSTRUCTION RELATING TO CONDUCT

25 OF INVESTIGATION OF FRAUD.—A recovery of an 
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1 overpayment to a provider by a recovery 

2 audit contractor shall not be construed to 

3 prohibit the Secretary or the Attorney Gen4 eral from investigating and prosecuting, if ap5 propriate, allegations of fraud or abuse aris6 ing from such overpayment. 

7 (f) REPORT.—The Secretary of Health and 

8 Human Services shall submit to Congress a 

9 report on the project not later than 6 months 

10 after the date of its completion. Such reports 

11 shall include information on the impact of the 

12 project on savings to the medicare program 

13 and recommendations on the cost-effective14 ness of extending or expanding the project.

15 TITLE IV—RURAL HEALTH CARE 

16 IMPROVEMENTS 

17 SEC. 401. ENHANCED DISPROPORTIONATE SHARE HOS18 PITAL (DSH) TREATMENT FOR RURAL HOS19 PITALS AND URBAN HOSPITALS WITH FEWER 

20 THAN 100 BEDS. 

21 (a) DOUBLING THE CAP.—

22 (1) IN GENERAL.—Section 1886(d)(5)(F) 

23 (42 U.S.C. 1395ww(d)(5)(F)) is amended by 

24 adding at the end the following new 

25 clause: 
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1 ‘‘(xiv)(I) In the case of discharges in a fis2 cal year beginning on or after October 1, 2003, 

3 subject to subclause (II), there shall be sub4 stituted for the disproportionate share adjust5 ment percentage otherwise determined under 

6 clause (iv) (other than subclause (I)) or under 

7 clause (viii), (x), (xi), (xii), or (xiii), the dis8 proportionate share adjustment percentage 

9 determined under clause (vii) (relating to 

10 large, urban hospitals). 

11 ‘‘(II) Under subclause (I), the dispropor12 tionate share adjustment percentage shall not 

13 exceed 10 percent for a hospital that is not 

14 classified as a rural referral center under sub15 paragraph (C).’’. 

16 (2) CONFORMING AMENDMENTS.—Sec17 tion 1886(d)(5)(F) (42 U.S.C. 

18 1395ww(d)(5)(F)) is amended—

19 (A) in each of subclauses (II), (III), 

20 (IV), (V), and (VI) of clause (iv), by in21 serting ‘‘subject to clause (xiv) and’’

22 before ‘‘for discharges occurring’’; 

23 (B) in clause (viii), by striking 

24 ‘‘The formula’’ and inserting ‘‘Subject 

25 to clause (xiv), the formula’’; and 
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1 (C) in each of clauses (x), (xi), 

2 (xii), and (xiii), by striking ‘‘For pur3 poses’’ and inserting ‘‘Subject to 

4 clause (xiv), for purposes’’. 

5 (b) EFFECTIVE DATE.—The amendments 

6 made by this section shall apply with respect 

7 to discharges occurring on or after October 1, 

8 2003.

9 SEC. 402. IMMEDIATE ESTABLISHMENT OF UNIFORM 

10 STANDARDIZED AMOUNT IN RURAL AND 

11 SMALL URBAN AREAS. 

12 (a) IN GENERAL.—Section 1886(d)(3)(A) (42 

13 U.S.C. 1395ww(d)(3)(A)) is amended—

14 (1) in clause (iv), by inserting ‘‘and 

15 ending on or before September 30, 2003,’’

16 after ‘‘October 1, 1995,’’; and 

17 (2) by redesignating clauses (v) and 

18 (vi) as clauses (vii) and (viii), respec19 tively, and inserting after clause (iv) the 

20 following new clauses: 

21 ‘‘(v) For discharges occurring in the 

22 fiscal year beginning on October 1, 2003, 

23 the average standardized amount for hos24 pitals located in areas other than a large 

25 urban area shall be equal to the average 
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1 standardized amount for hospitals lo2 cated in a large urban area.’’. 

3 (b) CONFORMING AMENDMENTS.—

4 (1) COMPUTING DRG-SPECIFIC RATES.—

5 Section 1886(d)(3)(D) (42 U.S.C. 

6 1395ww(d)(3)(D)) is amended—

7 (A) in the heading, by striking ‘‘IN

8 DIFFERENT AREAS’’; 

9 (B) in the matter preceding clause 

10 (i), by striking ‘‘, each of’’; 

11 (C) in clause (i)—

12 (i) in the matter preceding 

13 subclause (I), by inserting ‘‘for fis14 cal years before fiscal year 2004,’’

15 before ‘‘for hospitals’’; and 

16 (ii) in subclause (II), by strik17 ing ‘‘and’’ after the semicolon at 

18 the end; 

19 (D) in clause (ii)—

20 (i) in the matter preceding 

21 subclause (I), by inserting ‘‘for fis22 cal years before fiscal year 2004,’’

23 before ‘‘for hospitals’’; and 
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1 (ii) in subclause (II), by strik2 ing the period at the end and in3 serting ‘‘; and’’; and 

4 (E) by adding at the end the fol5 lowing new clause: 

6 ‘‘(iii) for a fiscal year beginning 

7 after fiscal year 2003, for hospitals lo8 cated in all areas, to the product of—

9 ‘‘(I) the applicable standard10 ized amount (computed under 

11 subparagraph (A)), reduced under 

12 subparagraph (B), and adjusted 

13 or reduced under subparagraph 

14 (C) for the fiscal year; and 

15 ‘‘(II) the weighting factor (de16 termined under paragraph (4)(B)) 

17 for that diagnosis-related group.’’. 

18 (2) TECHNICAL CONFORMING SUNSET.—

19 Section 1886(d)(3) (42 U.S.C. 

20 1395ww(d)(3)) is amended—

21 (A) in the matter preceding sub22 paragraph (A), by inserting ‘‘, for fis23 cal years before fiscal year 1997,’’ be24 fore ‘‘a regional adjusted DRG pro25 spective payment rate’’; and 
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1 (B) in subparagraph (D), in the 

2 matter preceding clause (i), by insert3 ing ‘‘, for fiscal years before fiscal 

4 year 1997,’’ before ‘‘a regional DRG 

5 prospective payment rate for each re6 gion,’’.

7 SEC. 403. ESTABLISHMENT OF ESSENTIAL RURAL HOS8 PITAL CLASSIFICATION. 

9 (a) CLASSIFICATION.—Section 1861(mm) (42 

10 U.S.C. 1395x(mm)) is amended—

11 (1) in the heading by adding ‘‘ESSEN12 TIAL RURAL HOSPITALS’’ at the end; and 

13 (2) by adding at the end the following 

14 new paragraphs: 

15 ‘‘(4)(A) The term ‘essential rural hospital’

16 means a subsection (d) hospital (as defined in 

17 section 1886(d)(1)(B)) that is located in a rural 

18 area (as defined for purposes of section 

19 1886(d)), has more than 25 licensed acute care 

20 inpatient beds, has applied to the Secretary 

21 for classification as such a hospital, and with 

22 respect to which the Secretary has deter23 mined that the closure of the hospital would 

24 significantly diminish the ability of medicare 
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1 beneficiaries to obtain essential health care 

2 services. 

3 ‘‘(B) The determination under subpara4 graph (A) shall be based on the following cri5 teria: 

6 ‘‘(i) HIGH PROPORTION OF MEDICARE

7 BENEFICIARIES RECEIVING CARE FROM HOS8 PITAL.—(I) A high percentage of such 

9 beneficiaries residing in the area of the 

10 hospital who are hospitalized (during the 

11 most recent year for which complete data 

12 are available) receive basic inpatient 

13 medical care at the hospital. 

14 ‘‘(II) For a hospital with more than 

15 200 licensed beds, a high percentage of 

16 such beneficiaries residing in such area 

17 who are hospitalized (during such recent 

18 year) receive specialized surgical inpa19 tient care at the hospital. 

20 ‘‘(III) Almost all physicians described 

21 in section 1861(r)(1) in such area have 

22 privileges at the hospital and provide 

23 their inpatient services primarily at the 

24 hospital. 
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1 ‘‘(ii) SIGNIFICANT ADVERSE IMPACT IN

2 ABSENCE OF HOSPITAL.—If the hospital 

3 were to close—

4 ‘‘(I) there would be a significant 

5 amount of time needed for residents 

6 to reach emergency treatment, result7 ing in a potential significant harm to 

8 beneficiaries with critical illnesses or 

9 injuries; 

10 ‘‘(II) there would be an inability 

11 in the community to stablize emer12 gency cases for transfers to another 

13 acute care setting, resulting in a po14 tential for significant harm to medi15 care beneficiaries; and 

16 ‘‘(III) any other nearby hospital 

17 lacks the physical and clinical capac18 ity to take over the hospital’s typical 

19 admissions. 

20 ‘‘(C) In making such determination, the 

21 Secretary may also consider the following: 

22 ‘‘(i) Free-standing ambulatory surgery 

23 centers, office-based oncology care, and 

24 imaging center services are insufficient 
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1 in the hospital’s area to handle the out2 patient care of the hospital. 

3 ‘‘(ii) Beneficiaries in nearby areas 

4 would be adversely affected if the hos5 pital were to close as the hospital pro6 vides specialized knowledge and services 

7 to a network of smaller hospitals and 

8 critical access hospitals. 

9 ‘‘(iii) Medicare beneficiaries would 

10 have difficulty in accessing care if the 

11 hospital were to close as the hospital pro12 vides significant subsidies to support am13 bulatory care in local clinics, including 

14 mental health clinics and to support post 

15 acute care. 

16 ‘‘(iv) The hospital has a committment 

17 to provide graduate medical education in 

18 a rural area. 

19 ‘‘(C) QUALITY CARE.—The hospital in20 patient score for quality of care is not 

21 less than the median hospital score for 

22 qualify of care for hospitals in the State, 

23 as established under standards of the uti24 lization and quality control peer review 

25 organization under part B of title XI or 
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1 other quality standards recognized by the 

2 Secretary. 

3 A hospital classified as an essential rural hos4 pital may not change such classification and 

5 a hospital so classified shall not be treated as 

6 a sole community hospital, medicare depend7 ent hospital, or rural referral center for pur8 poses of section 1886.’’. 

9 (b) PAYMENT BASED ON 102 PERCENT OF AL10 LOWED COSTS.—

11 (1) INPATIENT HOSPITAL SERVICES.—Sec12 tion 1886(d) (42 U.S.C. 1395ww(d)) is 

13 amended by adding at the end the fol14 lowing: 

15 ‘‘(11) In the case of a hospital classified as 

16 an essential rural hospital under section 

17 1861(mm)(4) for a cost reporting period, the 

18 payment under this subsection for inpatient 

19 hospital services for discharges occurring 

20 during the period shall be based on 102 per21 cent of the reasonable costs for such services. 

22 Nothing in this paragraph shall be construed 

23 as affecting the application or amount of 

24 deductibles or copayments otherwise applica25 ble to such services under part A or as 
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1 waiving any requirement for billing for such 

2 services.’’. 

3 (2) HOSPITAL OUTPATIENT SERVICES.—

4 Section 1833(t)(13) (42 U.S.C. 1395l(t)(13)) 

5 is amended by adding at the end the fol6 lowing new subparagraph: 

7 ‘‘(B) SPECIAL RULE FOR ESSENTIAL

8 RURAL HOSPITALS.—In the case of a 

9 hospital classified as an essential 

10 rural hospital under section 

11 1861(mm)(4) for a cost reporting pe12 riod, the payment under this sub13 section for covered OPD services dur14 ing the period shall be based on 102 

15 percent of the reasonable costs for 

16 such services. Nothing in this sub17 paragraph shall be construed as af18 fecting the application or amount of 

19 deductibles or copayments otherwise 

20 applicable to such services under this 

21 part or as waiving any requirement 

22 for billing for such services.’’. 

23 (c) EFFECTIVE DATE.—The amendments 

24 made by this section shall apply to cost re-
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1 porting periods beginning on or after October 

2 1, 2004. 

3 SEC. 404. MORE FREQUENT UPDATE IN WEIGHTS USED IN 

4 HOSPITAL MARKET BASKET. 

5 (a) MORE FREQUENT UPDATES IN WEIGHTS.—

6 After revising the weights used in the hospital 

7 market basket under section 1886(b)(3)(B)(iii) 

8 of the Social Security Act (42 U.S.C. 

9 1395ww(b)(3)(B)(iii)) to reflect the most cur10 rent data available, the Secretary shall estab11 lish a frequency for revising such weights, in12 cluding the labor share, in such market bas13 ket to reflect the most current data available 

14 more frequently than once every 5 years. 

15 (b) REPORT.—Not later than October 1, 

16 2004, the Secretary shall submit a report to 

17 Congress on the frequency established under 

18 subsection (a), including an explanation of 

19 the reasons for, and options considered, in de20 termining such frequency. 

21 SEC. 405. IMPROVEMENTS TO CRITICAL ACCESS HOSPITAL 

22 PROGRAM. 

23 (a) INCREASE IN PAYMENT AMOUNTS.—

24 (1) IN GENERAL.—Sections 1814(l), 

25 1834(g)(1), and 1883(a)(3) (42 U.S.C. 
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1 1395f(l); 1395m(g)(1); 42 U.S.C. 

2 1395tt(a)(3)) are each amended by insert3 ing ‘‘equal to 102 percent of’’ before ‘‘the 

4 reasonable costs’’. 

5 (2) EFFECTIVE DATE.—The amendments 

6 made by paragraph (1) shall apply to pay7 ments for services furnished during cost 

8 reporting periods beginning on or after 

9 October 1, 2003. 

10 (b) COVERAGE OF COSTS FOR CERTAIN EMER11 GENCY ROOM ON-CALL PROVIDERS.—

12 (1) IN GENERAL.—Section 1834(g)(5) (42 

13 U.S.C. 1395m(g)(5)) is amended—

14 (A) in the heading—

15 (i) by inserting ‘‘CERTAIN’’ be16 fore ‘‘EMERGENCY’’; and 

17 (ii) by striking ‘‘PHYSICIANS’’

18 and inserting ‘‘PROVIDERS’’; 

19 (B) by striking ‘‘emergency room 

20 physicians who are on-call (as de21 fined by the Secretary)’’ and inserting 

22 ‘‘physicians, physician assistants, 

23 nurse practitioners, and clinical 

24 nurse specialists who are on-call (as 
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1 defined by the Secretary) to provide 

2 emergency services’’; and 

3 (C) by striking ‘‘physicians’ serv4 ices’’ and inserting ‘‘services covered 

5 under this title’’. 

6 (2) EFFECTIVE DATE.—The amendment 

7 made by paragraph (1) shall apply with 

8 respect to costs incurred for services pro9 vided on or after January 1, 2004. 

10 (c) MODIFICATION OF THE ISOLATION TEST

11 FOR COST-BASED CAH AMBULANCE SERVICES.—

12 (1) IN GENERAL.—Section 1834(l)(8) (42 

13 U.S.C. 1395m(l)), as added by section 

14 205(a) of BIPA (114 Stat. 2763A–482), is 

15 amended by adding at the end the fol16 lowing: ‘‘The limitation described in the 

17 matter following subparagraph (B) in the 

18 previous sentence shall not apply if the 

19 ambulance services are furnished by such 

20 a provider or supplier of ambulance serv21 ices who is a first responder to emer22 gencies (as determined by the Sec23 retary).’’. 

24 (2) EFFECTIVE DATE.—The amendment 

25 made by paragraph (1) shall apply to am-
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1 bulances services furnished on or after 

2 the first cost reporting period that begins 

3 after the date of the enactment of this 

4 Act. 

5 (d) REINSTATEMENT OF PERIODIC INTERIM

6 PAYMENT (PIP).—

7 (1) IN GENERAL.—Section 1815(e)(2) (42 

8 U.S.C. 1395g(e)(2)) is amended—

9 (A) in the matter before subpara10 graph (A), by inserting ‘‘, in the cases 

11 described in subparagraphs (A) 

12 through (D)’’ after ‘‘1986’’; and 

13 (B) by striking ‘‘and’’ at the end of 

14 subparagraph (C); 

15 (C) by adding ‘‘and’’ at the end of 

16 subparagraph (D); and 

17 (D) by inserting after subpara18 graph (D) the following new subpara19 graph: 

20 ‘‘(E) inpatient critical access hospital 

21 services;’’. 

22 (2) DEVELOPMENT OF ALTERNATIVE

23 METHODS OF PERIODIC INTERIM PAYMENTS.—

24 With respect to periodic interim pay25 ments to critical access hospitals for in-
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1 patient critical access hospital services 

2 under section 1815(e)(2)(E) of the Social 

3 Security Act, as added by paragraph (1), 

4 the Secretary shall develop alternative 

5 methods for such payments that are 

6 based on expenditures of the hospital. 

7 (3) REINSTATEMENT OF PIP.—The 

8 amendments made by paragraph (1) shall 

9 apply to payments made on or after Jan10 uary 1, 2004. 

11 (e) CONDITION FOR APPLICATION OF SPECIAL

12 PHYSICIAN PAYMENT ADJUSTMENT.—

13 (1) IN GENERAL.—Section 1834(g)(2) (42 

14 U.S.C. 1395m(g)(2)) is amended by adding 

15 after and below subparagraph (B) the fol16 lowing: 

17 ‘‘The Secretary may not require, as a con18 dition for applying subparagraph (B) 

19 with respect to a critical access hospital, 

20 that each physician providing profes21 sional services in the hospital must as22 sign billing rights with respect to such 

23 services, except that such subparagraph 

24 shall not apply to those physicians who 

25 have not assigned such billing rights.’’. 
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1 (2) EFFECTIVE DATE.—The amendment 

2 made by paragraph (1) shall be effective 

3 as if included in the enactment of section 

4 403(d) of the Medicare, Medicaid, and 

5 SCHIP Balanced Budget Refinement Act 

6 of 1999 (113 Stat. 1501A–371). 

7 (f) FLEXIBILITY IN BED LIMITATION FOR HOS8 PITALS.—Section 1820 (42 U.S.C. 1395i–4) is 

9 amended—

10 (1) in subsection (c)(2)(B)(iii), by in11 serting ‘‘subject to paragraph (3)’’ after 

12 ‘‘(iii) provides’’; 

13 (2) by adding at the end of subsection 

14 (c) the following new paragraph: 

15 ‘‘(3) INCREASE IN MAXIMUM NUMBER OF

16 BEDS FOR HOSPITALS WITH STRONG SEA17 SONAL CENSUS FLUCTUATIONS.—

18 ‘‘(A) IN GENERAL.—Subject to sub19 paragraph (C), in the case of a hos20 pital that demonstrates that it meets 

21 the standards established under sub22 paragraph (B) and has not made the 

23 election described in subsection 

24 (f)(2)(A), the bed limitations other25 wise applicable under paragraph 
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1 (2)(B)(iii) and subsection (f) shall be 

2 increased by 5 beds. 

3 ‘‘(B) STANDARDS.—The Secretary 

4 shall specify standards for deter5 mining whether a critical access hos6 pital has sufficiently strong seasonal 

7 variations in patient admissions to 

8 justify the increase in bed limitation 

9 provided under subparagraph (A).’’; 

10 and 

11 (3) in subsection (f)—

12 (A) by inserting ‘‘(1)’’ after ‘‘(f)’’; 

13 and 

14 (B) by adding at the end the fol15 lowing new paragraph: 

16 ‘‘(2)(A) A hospital may elect to treat the 

17 reference in paragraph (1) to ‘15 beds’ as a ref18 erence to ‘25 beds’, but only if no more than 

19 10 beds in the hospital are at any time used 

20 for non-acute care services. A hospital that 

21 makes such an election is not eligible for the 

22 increase provided under subsection (c)(3)(A). 

23 ‘‘(B) The limitations in numbers of beds 

24 under the first sentence of paragraph (1) are 
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1 subject to adjustment under subsection 

2 (c)(3).’’. 

3 (4) EFFECTIVE DATE.—The amendments 

4 made by this subsection shall apply to 

5 designations made before, on, or after 

6 January 1, 2004. 

7 (g) ADDITIONAL 5-YEAR PERIOD OF FUNDING

8 FOR GRANT PROGRAM.—

9 (1) IN GENERAL.—Section 1820(g) (42 

10 U.S.C. 1395i–4(g)) is amended by adding 

11 at the end the following new paragraph: 

12 ‘‘(4) FUNDING.—

13 ‘‘(A) IN GENERAL.—Subject to sub14 paragraph (B), payment for grants 

15 made under this subsection during 

16 fiscal years 2004 through 2008 shall 

17 be made from the Federal Hospital 

18 Insurance Trust Fund. 

19 ‘‘(B) ANNUAL AGGREGATE LIMITA20 TION.—In no case may the amount of 

21 payment provided for under subpara22 graph (A) for a fiscal year exceed 

23 $25,000,000.’’. 
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1 (2) CONFORMING AMENDMENT.—Section 

2 1820 (42 U.S.C. 1395i–4) is amended by 

3 striking subsection (j).

4 SEC. 406. REDISTRIBUTION OF UNUSED RESIDENT POSI5 TIONS. 

6 (a) IN GENERAL.—Section 1886(h)(4) (42 

7 U.S.C. 1395ww(h)(4)) is amended—

8 (1) in subparagraph (F)(i), by insert9 ing ‘‘subject to subparagraph (I),’’ after 

10 ‘‘October 1, 1997,’’; 

11 (2) in subparagraph (H)(i), by insert12 ing ‘‘subject to subparagraph (I),’’ after 

13 ‘‘subparagraphs (F) and (G),’’; and 

14 (3) by adding at the end the following 

15 new subparagraph: 

16 ‘‘(I) REDISTRIBUTION OF UNUSED

17 RESIDENT POSITIONS.—

18 ‘‘(i) REDUCTION IN LIMIT BASED

19 ON UNUSED POSITIONS.—

20 ‘‘(I) IN GENERAL.—If a hos21 pital’s resident level (as de22 fined in clause (iii)(I)) is less 

23 than the otherwise applicable 

24 resident limit (as defined in 

25 clause (iii)(II)) for each of the 
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1 reference periods (as defined 

2 in subclause (II)), effective for 

3 cost reporting periods begin4 ning on or after January 1, 

5 2004, the otherwise applicable 

6 resident limit shall be re7 duced by 75 percent of the dif8 ference between such limit 

9 and the reference resident 

10 level specified in subclause 

11 (III) (or subclause (IV) if ap12 plicable). 

13 ‘‘(II) REFERENCE PERIODS

14 DEFINED.—In this clause, the 

15 term ‘reference periods’

16 means, for a hospital, the 3 

17 most recent consecutive cost 

18 reporting periods of the hos19 pital for which cost reports 

20 have been settled (or, if not, 

21 submitted) on or before Sep22 tember 30, 2002. 

23 ‘‘(III) REFERENCE RESIDENT

24 LEVEL.—Subject to subclause 

25 (IV), the reference resident 
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1 level specified in this sub2 clause for a hospital is the 

3 highest resident level for the 

4 hospital during any of the ref5 erence periods. 

6 ‘‘(IV) ADJUSTMENT PROC7 ESS.—Upon the timely request 

8 of a hospital, the Secretary 

9 may adjust the reference resi10 dent level for a hospital to be 

11 the resident level for the hos12 pital for the cost reporting pe13 riod that includes July 1, 

14 2003. 

15 ‘‘(V) AFFILIATION.—With re16 spect to hospitals which are 

17 members of the same affili18 ated group (as defined by the 

19 Secretary under subpara20 graph (H)(ii)), the provisions 

21 of this section shall be applied 

22 with respect to such an affili23 ated group by deeming the af24 filiated group to be a single 

25 hospital. 
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1 ‘‘(ii) REDISTRIBUTION.—

2 ‘‘(I) IN GENERAL.—The Sec3 retary is authorized to in4 crease the otherwise applica5 ble resident limits for hos6 pitals by an aggregate num7 ber estimated by the Sec8 retary that does not exceed 

9 the aggregate reduction in 

10 such limits attributable to 

11 clause (i) (without taking into 

12 account any adjustment 

13 under subclause (IV) of such 

14 clause). 

15 ‘‘(II) EFFECTIVE DATE.—No 

16 increase under subclause (I) 

17 shall be permitted or taken 

18 into account for a hospital for 

19 any portion of a cost report20 ing period that occurs before 

21 July 1, 2004, or before the 

22 date of the hospital’s applica23 tion for an increase under 

24 this clause. No such increase 

25 shall be permitted for a hos-
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1 pital unless the hospital has 

2 applied to the Secretary for 

3 such increase by December 

4 31, 2005. 

5 ‘‘(III) CONSIDERATIONS IN

6 REDISTRIBUTION.—In deter7 mining for which hospitals 

8 the increase in the otherwise 

9 applicable resident limit is 

10 provided under subclause (I), 

11 the Secretary shall take into 

12 account the need for such an 

13 increase by specialty and lo14 cation involved, consistent 

15 with subclause (IV). 

16 ‘‘(IV) PRIORITY FOR RURAL

17 AND SMALL URBAN AREAS.—In 

18 determining for which hos19 pitals and residency training 

20 programs an increase in the 

21 otherwise applicable resident 

22 limit is provided under sub23 clause (I), the Secretary shall 

24 first distribute the increase to 

25 programs of hospitals located 
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1 in rural areas or in urban 

2 areas that are not large urban 

3 areas (as defined for purposes 

4 of subsection (d)) on a first5 come-first-served basis (as de6 termined by the Secretary) 

7 based on a demonstration 

8 that the hospital will fill the 

9 positions made available 

10 under this clause and not to 

11 exceed an increase of 25 full12 time equivalent positions with 

13 respect to any hospital. 

14 ‘‘(V) APPLICATION OF LO15 CALITY ADJUSTED NATIONAL AV16 ERAGE PER RESIDENT AMOUNT.—

17 With respect to additional 

18 residency positions in a hos19 pital attributable to the in20 crease provided under this 

21 clause, notwithstanding any 

22 other provision of this sub23 section, the approved FTE 

24 resident amount is deemed to 

25 be equal to the locality ad-
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1 justed national average per 

2 resident amount computed 

3 under subparagraph (E) for 

4 that hospital. 

5 ‘‘(VI) CONSTRUCTION.—

6 Nothing in this clause shall be 

7 construed as permitting the 

8 redistribution of reductions 

9 in residency positions attrib10 utable to voluntary reduction 

11 programs under paragraph (6) 

12 or as affecting the ability of a 

13 hospital to establish new med14 ical residency training pro15 grams under subparagraph 

16 (H). 

17 ‘‘(iii) RESIDENT LEVEL AND

18 LIMIT DEFINED.—In this subpara19 graph: 

20 ‘‘(I) RESIDENT LEVEL.—The 

21 term ‘resident level’ means, 

22 with respect to a hospital, the 

23 total number of full-time 

24 equivalent residents, before 

25 the application of weighting 
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1 factors (as determined under 

2 this paragraph), in the fields 

3 of allopathic and osteopathic 

4 medicine for the hospital. 

5 ‘‘(II) OTHERWISE APPLICA6 BLE RESIDENT LIMIT.—The term 

7 ‘otherwise applicable resident 

8 limit’ means, with respect to a 

9 hospital, the limit otherwise 

10 applicable under subpara11 graphs (F)(i) and (H) on the 

12 resident level for the hospital 

13 determined without regard to 

14 this subparagraph.’’. 

15 (b) CONFORMING AMENDMENT TO IME.—Sec16 tion 1886(d)(5)(B)(v) (42 U.S.C. 

17 1395ww(d)(5)(B)(v)) is amended by adding at 

18 the end the following: ‘‘The provisions of sub19 paragraph (I) of subsection (h)(4) shall apply 

20 with respect to the first sentece of this clause 

21 in the same manner as it applies with respect 

22 to subparagraph (F) of such subsection.’’. 

23 (c) REPORT ON EXTENSION OF APPLICATIONS

24 UNDER REDISTRIBUTION PROGRAM.—Not later 

25 than July 1, 2005, the Secretary shall submit 
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1 to Congress a report containing recommenda2 tions regarding whether to extend the dead3 line for applications for an increase in resi4 dent limits under section 1886(h)(4)(I)(ii)(II) 

5 of the Social Security Act (as added by sub6 section (a)). 

7 SEC. 407. TWO-YEAR EXTENSION OF HOLD HARMLESS PRO8 VISIONS FOR SMALL RURAL HOSPITALS AND 

9 SOLE COMMUNITY HOSPITALS UNDER PRO10 SPECTIVE PAYMENT SYSTEM FOR HOSPITAL 

11 OUTPATIENT DEPARTMENT SERVICES. 

12 (a) HOLD HARMLESS PROVISIONS.—

13 (1) IN GENERAL.—Section 

14 1833(t)(7)(D)(i) (42 U.S.C. 1395l(t)(7)(D)(i)) 

15 is amended—

16 (A) in the heading, by striking 

17 ‘‘SMALL’’ and inserting ‘‘CERTAIN’’; 

18 (B) by inserting ‘‘or a sole commu19 nity hospital (as defined in section 

20 1886(d)(5)(D)(iii)) located in a rural 

21 area’’ after ‘‘100 beds’’; and 

22 (C) by striking ‘‘2004’’ and insert23 ing ‘‘2006’’. 

24 (2) EFFECTIVE DATE.—The amendment 

25 made by subsection (a)(2) shall apply 
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1 with respect to payment for OPD services 

2 furnished on and after January 1, 2004. 

3 (b) STUDY; ADJUSTMENT.—

4 (1) STUDY.—The Secretary shall con5 duct a study to determine if, under the 

6 prospective payment system for hospital 

7 outpatient department services under 

8 section 1833(t) of the Social Security Act 

9 (42 U.S.C. 1395l(t)), costs incurred by 

10 rural providers of services by ambulatory 

11 payment classification groups (APCs) ex12 ceed those costs incurred by urban pro13 viders of services. 

14 (2) ADJUSTMENT.—Insofar as the Sec15 retary determines under paragraph (1) 

16 that costs incurred by rural providers ex17 ceed those costs incurred by urban pro18 viders of services, the Secretary shall 

19 provide for an appropriate adjustment 

20 under such section 1833(t) to reflect those 

21 higher costs by January 1, 2005. 
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1 SEC. 408. EXCLUSION OF CERTAIN RURAL HEALTH CLINIC 

2 AND FEDERALLY QUALIFIED HEALTH CEN3 TER SERVICES FROM THE PROSPECTIVE PAY4 MENT SYSTEM FOR SKILLED NURSING FA5 CILITIES. 

6 (a) IN GENERAL.—Section 1888(e)(2)(A) (42 

7 U.S.C. 1395yy(e)(2)(A)) is amended—

8 (1) in clause (i)(II), by striking 

9 ‘‘clauses (ii) and (iii)’’ and inserting 

10 ‘‘clauses (ii), (iii), and (iv)’’; and 

11 (2) by adding at the end the following 

12 new clause: 

13 ‘‘(iv) EXCLUSION OF CERTAIN

14 RURAL HEALTH CLINIC AND FEDER15 ALLY QUALIFIED HEALTH CENTER

16 SERVICES.—Services described in 

17 this clause are—

18 ‘‘(I) rural health clinic 

19 services (as defined in para20 graph (1) of section 1861(aa)); 

21 and 

22 ‘‘(II) Federally qualified 

23 health center services (as de24 fined in paragraph (3) of such 

25 section); 
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1 that would be described in clause 

2 (ii) if such services were not fur3 nished by an individual affiliated 

4 with a rural health clinic or a 

5 Federally qualified health cen6 ter.’’. 

7 (b) EFFECTIVE DATE.—The amendments 

8 made by subsection (a) shall apply to services 

9 furnished on or after January 1, 2004. 

10 SEC. 409. RECOGNITION OF ATTENDING NURSE PRACTI11 TIONERS AS ATTENDING PHYSICIANS TO 

12 SERVE HOSPICE PATIENTS. 

13 (a) IN GENERAL.—Section 1861(dd)(3)(B) 

14 (42 U.S.C. 1395x(dd)(3)(B)) is amended by in15 serting ‘‘or nurse practitioner (as defined in 

16 subsection (aa)(5))’’ after ‘‘the physician (as 

17 defined in subsection (r)(1))’’. 

18 (b) PROHIBITION ON NURSE PRACTITIONER

19 CERTIFYING NEED FOR HOSPICE.—Section 

20 1814(a)(7)(A)(i)(I) (42 U.S.C. 

21 1395f(a)(7)(A)(i)(I)) is amended by inserting 

22 ‘‘(which for purposes of this subparagraph 

23 does not include a nurse practitioner)’’ after 

24 ‘‘attending physician (as defined in section 

25 1861(dd)(3)(B))’’. 
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1 SEC. 410. IMPROVEMENT IN PAYMENTS TO RETAIN EMER2 GENCY CAPACITY FOR AMBULANCE SERV3 ICES IN RURAL AREAS. 

4 Section 1834(l) (42 U.S.C. 1395m(l)) is 

5 amended—

6 (1) by redesignating paragraph (8), as 

7 added by section 221(a) of BIPA (114 Stat. 

8 2763A–486), as paragraph (9); and 

9 (2) by adding at the end the following 

10 new paragraph: 

11 ‘‘(10) ASSISTANCE FOR RURAL PROVIDERS

12 FURNISHING SERVICES IN LOW MEDICARE

13 POPULATION DENSITY AREAS.—

14 ‘‘(A) IN GENERAL.—In the case of 

15 ground ambulance services furnished 

16 on or after January 1, 2004, for which 

17 the transportation originates in a 

18 qualified rural area (as defined in 

19 subparagraph (B)), the Secretary 

20 shall provide for an increase in the 

21 base rate of the fee schedule for mile22 age for a trip established under this 

23 subsection. In establishing such in24 crease, the Secretary shall, based on 

25 the relationship of cost and volume, 

26 estimate the average increase in cost 
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1 per trip for such services as com2 pared with the cost per trip for the 

3 average ambulance service. 

4 ‘‘(B) QUALIFIED RURAL AREA DE5 FINED.—For purposes of subpara6 graph (A), the term ‘qualified rural 

7 area’ is a rural area (as defined in 

8 section 1886(d)(2)(D)) with a popu9 lation density of medicare bene10 ficiaries residing in the area that is in 

11 the lowest quartile of all rural county 

12 populations.’’. 

13 SEC. 411. TWO-YEAR INCREASE FOR HOME HEALTH SERV14 ICES FURNISHED IN A RURAL AREA. 

15 (a) IN GENERAL.—In the case of home 

16 health services furnished in a rural area (as 

17 defined in section 1886(d)(2)(D) of the Social 

18 Security Act (42 U.S.C. 1395ww(d)(2)(D))) dur19 ing 2004 and 2005, the Secretary shall in20 crease the payment amount otherwise made 

21 under section 1895 of such Act (42 U.S.C. 

22 1395fff ) for such services by 5 percent. 

23 (b) WAIVING BUDGET NEUTRALITY.—The 

24 Secretary shall not reduce the standard pro25 spective payment amount (or amounts) under 
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1 section 1895 of the Social Security Act (42 

2 U.S.C. 1395fff ) applicable to home health serv3 ices furnished during a period to offset the in4 crease in payments resulting from the appli5 cation of subsection (a). 

6 SEC. 412. PROVIDING SAFE HARBOR FOR CERTAIN COL7 LABORATIVE EFFORTS THAT BENEFIT MEDI8 CALLY UNDERSERVED POPULATIONS. 

9 (a) IN GENERAL.—Section 1128B(b)(3) (42 

10 U.S.C. 1320a–7(b)(3)), as amended by section 

11 101(b)(2), is amended—

12 (1) in subparagraph (F), by striking 

13 ‘‘and’’ after the semicolon at the end; 

14 (2) in subparagraph (G), by striking 

15 the period at the end and inserting ‘‘; 

16 and’’; and 

17 (3) by adding at the end the following 

18 new subparagraph: 

19 ‘‘(H) any remuneration between a 

20 public or nonprofit private health 

21 center entity described under clause 

22 (i) or (ii) of section 1905(l)(2)(B) and 

23 any individual or entity providing 

24 goods, items, services, donations or 

25 loans, or a combination thereof, to 
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1 such health center entity pursuant to 

2 a contract, lease, grant, loan, or other 

3 agreement, if such agreement con4 tributes to the ability of the health 

5 center entity to maintain or increase 

6 the availability, or enhance the qual7 ity, of services provided to a medi8 cally underserved population served 

9 by the health center entity.’’. 

10 (b) RULEMAKING FOR EXCEPTION FOR

11 HEALTH CENTER ENTITY ARRANGEMENTS.—

12 (1) ESTABLISHMENT.—

13 (A) IN GENERAL.—The Secretary of 

14 Health and Human Services (in this 

15 subsection referred to as the ‘‘Sec16 retary’’) shall establish, on an expe17 dited basis, standards relating to the 

18 exception described in section 

19 1128B(b)(3)(H) of the Social Security 

20 Act, as added by subsection (a), for 

21 health center entity arrangements to 

22 the antikickback penalties. 

23 (B) FACTORS TO CONSIDER.—The 

24 Secretary shall consider the following 

25 factors, among others, in establishing 
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1 standards relating to the exception 

2 for health center entity arrangements 

3 under subparagraph (A): 

4 (i) Whether the arrangement 

5 between the health center entity 

6 and the other party results in sav7 ings of Federal grant funds or in8 creased revenues to the health 

9 center entity. 

10 (ii) Whether the arrangement 

11 between the health center entity 

12 and the other party restricts or 

13 limits a patient’s freedom of 

14 choice. 

15 (iii) Whether the arrangement 

16 between the health center entity 

17 and the other party protects a 

18 health care professional’s inde19 pendent medical judgment re20 garding medically appropriate 

21 treatment. 

22 The Secretary may also include other 

23 standards and criteria that are con24 sistent with the intent of Congress in 
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1 enacting the exception established 

2 under this section. 

3 (2) INTERIM FINAL EFFECT.—No later 

4 than 180 days after the date of enactment 

5 of this Act, the Secretary shall publish a 

6 rule in the Federal Register consistent 

7 with the factors under paragraph (1)(B). 

8 Such rule shall be effective and final im9 mediately on an interim basis, subject to 

10 such change and revision, after public 

11 notice and opportunity (for a period of 

12 not more than 60 days) for public com13 ment, as is consistent with this sub14 section. 

15 SEC. 413. GAO STUDY OF GEOGRAPHIC DIFFERENCES IN 

16 PAYMENTS FOR PHYSICIANS’ SERVICES. 

17 (a) STUDY.—The Comptroller General of 

18 the United States shall conduct a study of dif19 ferences in payment amounts under the phy20 sician fee schedule under section 1848 of the 

21 Social Security Act (42 U.S.C. 1395w–4) for 

22 physicians’ services in different geographic 

23 areas. Such study shall include—
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1 (1) an assessment of the validity of 

2 the geographic adjustment factors used 

3 for each component of the fee schedule; 

4 (2) an evaluation of the measures 

5 used for such adjustment, including the 

6 frequency of revisions; and 

7 (3) an evaluation of the methods used 

8 to determine professional liability insur9 ance costs used in computing the mal10 practice component, including a review 

11 of increases in professional liability in12 surance premiums and variation in such 

13 increases by State and physician spe14 cialty and methods used to update the ge15 ographic cost of practice index and rel16 ative weights for the malpractice compo17 nent. 

18 (b) REPORT.—Not later than 1 year after 

19 the date of the enactment of this Act, the 

20 Comptroller General shall submit to Congress 

21 a report on the study conducted under sub22 section (a). The report shall include rec23 ommendations regarding the use of more cur24 rent data in computing geographic cost of 

25 practice indices as well as the use of data di-
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1 rectly representative of physicians’ costs 

2 (rather than proxy measures of such costs). 

3 SEC. 414. TREATMENT OF MISSING COST REPORTING PERI4 ODS FOR SOLE COMMUNITY HOSPITALS. 

5 (a) IN GENERAL.—Section 1886(b)(3)(I) (42 

6 U.S.C. 1395ww(b)(3)(I)) is amended by adding 

7 at the end the following new clause: 

8 ‘‘(iii) In no case shall a hospital be denied 

9 treatment as a sole community hospital or 

10 payment (on the basis of a target rate as such 

11 as a hospital) because data are unavailable 

12 for any cost reporting period due to changes 

13 in ownership, changes in fiscal inter14 mediaries, or other extraordinary cir15 cumstances, so long as data for at least one 

16 applicable base cost reporting period is avail17 able.’’. 

18 (b) EFFECTIVE DATE.—The amendment 

19 made by subsection (a) shall apply to cost re20 porting periods beginning on or after January 

21 1, 2004. 

22 SEC. 415. EXTENSION OF TELEMEDICINE DEMONSTRATION 

23 PROJECT. 

24 Section 4207 of Balanced Budget Act of 

25 1997 (Public Law 105–33) is amended—
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1 (1) in subsection (a)(4), by striking ‘‘4-

2 year’’ and inserting ‘‘8-year’’; and 

3 (2) in subsection (d)(3), by striking 

4 ‘‘$30,000,000’’ and inserting ‘‘$60,000,000’’. 

5 SEC. 416. ADJUSTMENT TO THE MEDICARE INPATIENT HOS6 PITAL PPS WAGE INDEX TO REVISE THE 

7 LABOR-RELATED SHARE OF SUCH INDEX. 

8 (a) IN GENERAL.—Section 1886(d)(3)(E) (42 

9 U.S.C. 1395ww(d)(3)(E)) is amended—

10 (1) by striking ‘‘WAGE LEVELS.—The 

11 Secretary’’ and inserting ‘‘WAGE LEVELS.—

12 ‘‘(i) IN GENERAL.—Except as pro13 vided in clause (ii), the Secretary’’; 

14 and 

15 (2) by adding at the end the following 

16 new clause: 

17 ‘‘(ii) ALTERNATIVE PROPORTION TO

18 BE ADJUSTED BEGINNING IN FISCAL YEAR

19 2004.—

20 ‘‘(I) IN GENERAL.—Except as 

21 provided in subclause (II), for dis22 charges occurring on or after Oc23 tober 1, 2003, the Secretary shall 

24 substitute the ‘62 percent’ for the 
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1 proportion described in the first 

2 sentence of clause (i). 

3 ‘‘(II) HOLD HARMLESS FOR CER4 TAIN HOSPITALS.—If the applica5 tion of subclause (I) would result 

6 in lower payments to a hospital 

7 than would otherwise be made, 

8 then this subparagraph shall be 

9 applied as if this clause had not 

10 been enacted.’’. 

11 (b) WAIVING BUDGET NEUTRALITY.—Section 

12 1886(d)(3)(E) (42 U.S.C. 1395ww(d)(3)(E)), as 

13 amended by subsection (a), is amended by 

14 adding at the end of clause (i) the following 

15 new sentence: ‘‘The Secretary shall apply the 

16 previous sentence for any period as if the 

17 amendments made by section 402(a) of the 

18 Medicare Prescription Drug and Moderniza19 tion Act of 2003 had not been enacted.’’. 

20 SEC. 417. MEDICARE INCENTIVE PAYMENT PROGRAM IM21 PROVEMENTS FOR PHYSICIAN SCARCITY. 

22 (a) ADDITIONAL BONUS PAYMENT FOR CER23 TAIN PHYSICIAN SCARCITY AREAS.—
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1 (1) IN GENERAL.—Section 1833 (42 

2 U.S.C. 1395l) is amended by adding at the 

3 end the following new subsection: 

4 ‘‘(u) INCENTIVE PAYMENTS FOR PHYSICIAN

5 SCARCITY AREAS.—

6 ‘‘(1) IN GENERAL.—In the case of physi7 cians’ services furnished in a year—

8 ‘‘(A) by a primary care physician 

9 in a primary care scarcity county 

10 (identified under paragraph (4)); or 

11 ‘‘(B) by a physician who is not a 

12 primary care physician in a specialist 

13 care scarcity county (as so identified), 

14 in addition to the amount of payment 

15 that would otherwise be made for such 

16 services under this part, there also shall 

17 be paid an amount equal to 5 percent of 

18 the payment amount for the service 

19 under this part. 

20 ‘‘(2) DETERMINATION OF RATIOS OF PHY21 SICIANS TO MEDICARE BENEFICIARIES IN

22 AREA.—Based upon available data, the 

23 Secretary shall periodically determine, 

24 for each county or equivalent area in the 

25 United States, the following: 
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1 ‘‘(A) NUMBER OF PHYSICIANS PRAC2 TICING IN THE AREA.—The number of 

3 physicians who furnish physicians’

4 services in the active practice of med5 icine or osteopathy in that county or 

6 area, other than physicians whose 

7 practice is exclusively for the Federal 

8 Government, physicians who are re9 tired, or physicians who only provide 

10 administrative services. Of such num11 ber, the number of such physicians 

12 who are—

13 ‘‘(i) primary care physicians; 

14 or 

15 ‘‘(ii) physicians who are not 

16 primary care physicians. 

17 ‘‘(B) NUMBER OF MEDICARE BENE18 FICIARIES RESIDING IN THE AREA.—The 

19 number of individuals who are resid20 ing in the county and are entitled to 

21 benefits under part A or enrolled 

22 under this part, or both. 

23 ‘‘(C) DETERMINATION OF RATIOS.—

24 ‘‘(i) PRIMARY CARE RATIO.—The 

25 ratio (in this paragraph referred 
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1 to as the ‘primary care ratio’) of 

2 the number of primary care phy3 sicians (determined under sub4 paragraph (A)(i)), to number of 

5 medicare beneficiaries deter6 mined under subparagraph (B). 

7 ‘‘(ii) SPECIALIST CARE RATIO.—

8 The ratio (in this paragraph re9 ferred to as the ‘specialist care 

10 ratio’) of the number of other 

11 physicians (determined under 

12 subparagraph (A)(ii)), to number 

13 of medicare beneficiaries deter14 mined under subparagraph (B). 

15 ‘‘(3) RANKING OF COUNTIES.—The Sec16 retary shall rank each such county or 

17 area based separately on its primary care 

18 ratio and its specialist care ratio. 

19 ‘‘(4) IDENTIFICATION OF COUNTIES.—The 

20 Secretary shall identify—

21 ‘‘(A) those counties and areas (in 

22 this paragraph referred to as ‘pri23 mary care scarcity counties’) with the 

24 lowest primary care ratios that rep25 resent, if each such county or area 
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1 were weighted by the number of 

2 medicare beneficiaries determined 

3 under paragraph (2)(B), an aggregate 

4 total of 20 percent of the total of the 

5 medicare beneficiaries determined 

6 under such paragraph; and 

7 ‘‘(B) those counties and areas (in 

8 this subsection referred to as ‘spe9 cialist care scarcity counties’) with 

10 the lowest specialist care ratios that 

11 represent, if each such county or area 

12 were weighted by the number of 

13 medicare beneficiaries determined 

14 under paragraph (2)(B), an aggregate 

15 total of 20 percent of the total of the 

16 medicare beneficiaries determined 

17 under such paragraph. 

18 There is no administrative or judicial re19 view respecting the identification of a 

20 county or area or the assignment of a 

21 specialty of any physician under this 

22 paragraph. 

23 ‘‘(5) RURAL CENSUS TRACKS.—To the ex24 tent feasible, the Secretary shall treat a 

25 rural census tract of a metropolitan sta-
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1 tistical area (as determined under the 

2 most recent modification of the Gold3 smith Modification, originally published 

4 in the Federal Register on February 27, 

5 1992 (57 Fed. Reg. 6725) as an equivalent 

6 area for purposes of qualifying as a pri7 mary care scarcity county or specialist 

8 care scarcity county under this sub9 section. 

10 ‘‘(6) PHYSICIAN DEFINED.—For pur11 poses of this paragraph, the term ‘physi12 cian’ means a physician described in sec13 tion 1861(r)(1) and the term ‘primary care 

14 physician’ means a physician who is iden15 tified in the available data as a general 

16 practitioner, family practice practitioner, 

17 general internist, or obstetrician or gyne18 cologist. 

19 ‘‘(7) PUBLICATION OF LIST OF COUN20 TIES.—In carrying out this subsection for 

21 a year, the Secretary shall include, as 

22 part of the proposed and final rule to im23 plement the physician fee schedule under 

24 section 1848 for the year, a list of all 

25 areas which will qualify as a primary 
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1 care scarcity county or specialist care 

2 scarcity county under this subsection for 

3 the year involved.’’. 

4 (2) EFFECTIVE DATE.—The amendments 

5 made by subsection (a) shall apply to 

6 physicians’ services furnished or after 

7 January 1, 2004. 

8 (b) IMPROVEMENT TO MEDICARE INCENTIVE

9 PAYMENT PROGRAM.—

10 (1) IN GENERAL.—Section 1833(m) (42 

11 U.S.C. 1395l(m)) is amended—

12 (A) by inserting ‘‘(1)’’ after ‘‘(m)’’; 

13 and 

14 (B) by adding at the end the fol15 lowing new paragraphs: 

16 ‘‘(2) The Secretary shall establish proce17 dures under which the Secretary, and not the 

18 physician furnishing the service, is respon19 sible for determining when a payment is re20 quired to be made under paragraph (1). 

21 ‘‘(3) In carrying out paragraph (1) for a 

22 year, the Secretary shall include, as part of 

23 the proposed and final rule to implement the 

24 physician fee schedule under section 1848 for 

25 the year, a list of all areas which will qualify 
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1 as a health professional shortage area under 

2 paragraph (1) for the year involved.’’. 

3 (2) EFFECTIVE DATE.—The amendments 

4 made by paragraph (1) shall apply to phy5 sicians’ services furnished or after Janu6 ary 1, 2004.

7 TITLE V—PROVISIONS 

8 RELATING TO PART A 

9 Subtitle A—Inpatient Hospital 

10 Services 

11 SEC. 501. REVISION OF ACUTE CARE HOSPITAL PAYMENT 

12 UPDATES. 

13 Section 1886(b)(3)(B)(i) (42 U.S.C. 

14 1395ww(b)(3)(B)(i)) is amended—

15 (1) by striking ‘‘and’’ at the end of 

16 subclause (XVIII); 

17 (2) by striking subclause (XIX); and 

18 (3) by inserting after subclause 

19 (XVIII) the following new subclauses: 

20 ‘‘(XIX) for each of fiscal years 2004 

21 through 2006, the market basket percent22 age increase minus 0.4 percentage points 

23 for hospitals in all areas; and 

24 ‘‘(XX) for fiscal year 2007 and each 

25 subsequent fiscal year, the market basket 
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1 percentage increase for hospitals in all 

2 areas.’’.

3 SEC. 502. RECOGNITION OF NEW MEDICAL TECHNOLOGIES 

4 UNDER INPATIENT HOSPITAL PPS. 

5 (a) IMPROVING TIMELINESS OF DATA COLLEC6 TION.—Section 1886(d)(5)(K) (42 U.S.C. 

7 1395ww(d)(5)(K)) is amended by adding at the 

8 end the following new clause: 

9 ‘‘(vii) Under the mechanism under this 

10 subparagraph, the Secretary shall provide for 

11 the addition of new diagnosis and procedure 

12 codes in April 1 of each year, but the addition 

13 of such codes shall not require the Secretary 

14 to adjust the payment (or diagnosis-related 

15 group classification) under this subsection 

16 until the fiscal year that begins after such 

17 date.’’. 

18 (b) ELIGIBILITY STANDARD FOR TECHNOLOGY

19 OUTLIERS.—

20 (1) MINIMUM PERIOD FOR RECOGNITION

21 OF NEW TECHNOLOGIES.—Section 

22 1886(d)(5)(K)(vi) (42 U.S.C. 

23 1395ww(d)(5)(K)(vi)) is amended—

24 (A) by inserting ‘‘(I)’’ after ‘‘(vi)’’; 

25 and 
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1 (B) by adding at the end the fol2 lowing new subclause: 

3 ‘‘(II) Under such criteria, a service or 

4 technology shall not be denied treatment as a 

5 new service or technology on the basis of the 

6 period of time in which the service or tech7 nology has been in use if such period ends be8 fore the end of the 2-to-3-year period that be9 gins on the effective date of implementation 

10 of a code under ICD–9–CM (or a successor 

11 coding methodology) that enables the identi12 fication of specific discharges in which the 

13 service or technology has been used.’’. 

14 (2) ADJUSTMENT OF THRESHOLD.—Sec15 tion 1886(d)(5)(K)(ii)(I) (42 U.S.C. 

16 1395ww(d)(5)(K)(ii)(I)) is amended by in17 serting ‘‘(applying a threshold specified 

18 by the Secretary that is 75 percent of one 

19 standard deviation for the diagnosis-re20 lated group involved)’’ after ‘‘is inad21 equate’’. 

22 (3) CRITERION FOR SUBSTANTIAL IM23 PROVEMENT.—Section 1886(d)(5)(K)(vi) (42 

24 U.S.C. 1395ww(d)(5)(K)(vi)), as amended 

25 by paragraph (1), is further amended by 
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1 adding at the end the following sub2 clause: 

3 ‘‘(III) The Secretary shall by regulation 

4 provide for further clarification of the cri5 teria applied to determine whether a new 

6 service or technology represents an advance 

7 in medical technology that substantially im8 proves the diagnosis or treatment of bene9 ficiaries. Under such criteria, in determining 

10 whether a new service or technology rep11 resents an advance in medical technology 

12 that substantially improves the diagnosis or 

13 treatment of beneficiaries, the Secretary shall 

14 deem a service or technology as meeting such 

15 requirement if the service or technology is a 

16 drug or biological that is designated under 

17 section 506 of the Federal Food, Drug, and 

18 Cosmetic Act, approved under section 314.510 

19 or 601.41 of title 21, Code of Federal Regula20 tions, or designated for priority review when 

21 the marketing application for such drug or bi22 ological was filed or is a medical device for 

23 which an exemption has been granted under 

24 section 520(m) of such Act, or for which pri25 ority review has been provided under section 
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1 515(d)(5) of such Act. Nothing in this sub2 clause shall be construed as effecting the au3 thority of the Secretary to determine whether 

4 items and services are medically necessary 

5 and appropriate under section 1862(a)(1).’’. 

6 (4) PROCESS FOR PUBLIC INPUT.—Sec7 tion 1886(d)(5)(K) (42 U.S.C. 

8 1395ww(d)(5)(K)), as amended by para9 graph (1), is amended—

10 (A) in clause (i), by adding at the 

11 end the following: ‘‘Such mechanism 

12 shall be modified to meet the require13 ments of clause (viii).’’; and 

14 (B) by adding at the end the fol15 lowing new clause: 

16 ‘‘(viii) The mechanism established pursu17 ant to clause (i) shall be adjusted to provide, 

18 before publication of a proposed rule, for pub19 lic input regarding whether a new service or 

20 technology not described in the second sen21 tence of clause (vi)(III) represents an advance 

22 in medical technology that substantially im23 proves the diagnosis or treatment of bene24 ficiaries as follows: 
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1 ‘‘(I) The Secretary shall make public 

2 and periodically update a list of all the 

3 services and technologies for which an 

4 application for additional payment under 

5 this subparagraph is pending. 

6 ‘‘(II) The Secretary shall accept com7 ments, recommendations, and data from 

8 the public regarding whether the service 

9 or technology represents a substantial 

10 improvement. 

11 ‘‘(III) The Secretary shall provide for 

12 a meeting at which organizations rep13 resenting hospitals, physicians, medicare 

14 beneficiaries, manufacturers, and any 

15 other interested party may present com16 ments, recommendations, and data to the 

17 clinical staff of the Centers for Medicare 

18 & Medicaid Services before publication of 

19 a notice of proposed rulemaking regard20 ing whether service or technology rep21 resents a substantial improvement.’’. 

22 (c) PREFERENCE FOR USE OF DRG ADJUST23 MENT.—Section 1886(d)(5)(K) (42 U.S.C. 

24 1395ww(d)(5)(K)) is further amended by add25 ing at the end the following new clause: 
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1 ‘‘(ix) Before establishing any add-on pay2 ment under this subparagraph with respect to 

3 a new technology, the Secretary shall seek to 

4 identify one or more diagnosis-related groups 

5 associated with such technology, based on 

6 similar clinical or anatomical characteristics 

7 and the cost of the technology. Within such 

8 groups the Secretary shall assign an eligible 

9 new technology into a diagnosis-related 

10 group where the average costs of care most 

11 closely approximate the costs of care of using 

12 the new technology. In such case, the new 

13 technology would no longer meet the thresh14 old of exceeding 75 percent of the standard 

15 deviation for the diagnosis-related group in16 volved under clause (ii)(I). No add-on pay17 ment under this subparagraph shall be made 

18 with respect to such new technology and this 

19 clause shall not affect the application of para20 graph (4)(C)(iii).’’. 

21 (d) IMPROVEMENT IN PAYMENT FOR NEW

22 TECHNOLOGY.—Section 1886(d)(5)(K)(ii)(III) 

23 (42 U.S.C. 1395ww(d)(5)(K)(ii)(III)) is amended 

24 by inserting after ‘‘the estimated average cost 

25 of such service or technology’’ the following: 
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1 ‘‘(based on the marginal rate applied to costs 

2 under subparagraph (A))’’. 

3 (e) ESTABLISHMENT OF NEW FUNDING FOR

4 HOSPITAL INPATIENT TECHNOLOGY.—Section 

5 1886(d)(5)(K)(ii)(III) (42 U.S.C. 

6 1395ww(d)(5)(K)(ii)(III)) is amended by strik7 ing ‘‘subject to paragraph (4)(C)(iii),’’. 

8 (f) EFFECTIVE DATE.—

9 (1) IN GENERAL.—The Secretary shall 

10 implement the amendments made by this 

11 section so that they apply to classifica12 tion for fiscal years beginning with fiscal 

13 year 2005. 

14 (2) RECONSIDERATIONS OF APPLICATIONS

15 FOR FISCAL YEAR 2003 THAT ARE DENIED.—In 

16 the case of an application for a classifica17 tion of a medical service or technology as 

18 a new medical service or technology 

19 under section 1886(d)(5)(K) of the Social 

20 Security Act (42 U.S.C. 1395ww(d)(5)(K)) 

21 that was filed for fiscal year 2004 and 

22 that is denied—

23 (A) the Secretary shall automati24 cally reconsider the application as an 

25 application for fiscal year 2005 under 
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1 the amendments made by this sec2 tion; and 

3 (B) the maximum time period oth4 erwise permitted for such classifica5 tion of the service or technology shall 

6 be extended by 12 months. 

7 SEC. 503. INCREASE IN FEDERAL RATE FOR HOSPITALS IN 

8 PUERTO RICO. 

9 Section 1886(d)(9) (42 U.S.C. 1395ww(d)(9)) 

10 is amended—

11 (1) in subparagraph (A)—

12 (A) in clause (i), by striking ‘‘for 

13 discharges beginning on or after Oc14 tober 1, 1997, 50 percent (and for dis15 charges between October 1, 1987, and 

16 September 30, 1997, 75 percent)’’ and 

17 inserting ‘‘the applicable Puerto Rico 

18 percentage (specified in subpara19 graph (E))’’; and 

20 (B) in clause (ii), by striking ‘‘for 

21 discharges beginning in a fiscal year 

22 beginning on or after October 1, 1997, 

23 50 percent (and for discharges be24 tween October 1, 1987, and September 

25 30, 1997, 25 percent)’’ and inserting 
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1 ‘‘the applicable Federal percentage 

2 (specified in subparagraph (E))’’; and 

3 (2) by adding at the end the following 

4 new subparagraph: 

5 ‘‘(E) For purposes of subparagraph (A), for 

6 discharges occurring—

7 ‘‘(i) on or after October 1, 1987, and 

8 before October 1, 1997, the applicable 

9 Puerto Rico percentage is 75 percent and 

10 the applicable Federal percentage is 25 

11 percent; 

12 ‘‘(ii) on or after October 1, 1997, and 

13 before October 1, 2003, the applicable 

14 Puerto Rico percentage is 50 percent and 

15 the applicable Federal percentage is 50 

16 percent; 

17 ‘‘(iii) during fiscal year 2004, the ap18 plicable Puerto Rico percentage is 41 per19 cent and the applicable Federal percent20 age is 59 percent; 

21 ‘‘(iv) during fiscal year 2005, the ap22 plicable Puerto Rico percentage is 33 per23 cent and the applicable Federal percent24 age is 67 percent; and 
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1 ‘‘(v) on or after October 1, 2005, the 

2 applicable Puerto Rico percentage is 25 

3 percent and the applicable Federal per4 centage is 75 percent.’’. 

5 SEC. 504. WAGE INDEX ADJUSTMENT RECLASSIFICATION 

6 REFORM . 

7 (a) IN GENERAL.—Section 1886(d) (42 U.S.C. 

8 1395ww(d)) is amended by adding at the end 

9 the following: 

10 ‘‘(11)(A) In order to recognize commuting 

11 patterns among Metropolitan Statistical 

12 Areas and between such Areas and rural 

13 areas, the Secretary shall establish a process, 

14 upon application of a subsection (d) hospital 

15 that establishes that it is a qualifying hospital 

16 described in subparagraph (B), for an in17 crease of the wage index applied under para18 graph (3)(E) for the hospital in the amount 

19 computed under subparagraph (D). 

20 ‘‘(B) A qualifying hospital described in 

21 this subparagraph is a subsection (d) hos22 pital—

23 ‘‘(i) the average wages of which ex24 ceed the average wages for the area in 

25 which the hospital is located; and 
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1 ‘‘(ii) which has at least 10 percent of 

2 its employees who reside in one or more 

3 higher wage index areas. 

4 ‘‘(C) For purposes of this paragraph, the 

5 term ‘higher wage index area’ means, with re6 spect to a hospital, an area with a wage index 

7 that exceeds that of the area in which the hos8 pital is located. 

9 ‘‘(D) The increase in the wage index under 

10 subparagraph (A) for a hospital shall be equal 

11 to the percentage of the employees of the hos12 pital that resides in any higher wage index 

13 area multiplied by the sum of the products, 

14 for each higher wage index area of—

15 ‘‘(i) the difference between (I) the 

16 wage index for such area, and (II) the 

17 wage index of the area in which the hos18 pital is located (before the application of 

19 this paragraph); and 

20 ‘‘(ii) the number of employees of the 

21 hospital that reside in such higher wage 

22 index area divided by the total number of 

23 such employees that reside in all high 

24 wage index areas. 
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1 ‘‘(E) The process under this paragraph 

2 shall be based upon the process used by the 

3 Medicare Geographic Classification Review 

4 Board under paragraph (10) with respect to 

5 data submitted by hospitals to the Board on 

6 the location of residence of hospital employ7 ees and wages under the applicable schedule 

8 established for geographic reclassification. 

9 ‘‘(F) A reclassification under this para10 graph shall be effective for a period of 3 fiscal 

11 years, except that the Secretary shall estab12 lish procedures under which a subsection (d) 

13 hospital may elect to terminate such reclassi14 fication before the end of such period. 

15 ‘‘(G) A hospital that is reclassified under 

16 this paragraph for a period is not eligible for 

17 reclassification under paragraphs (8) or (10) 

18 during that period. 

19 ‘‘(H) Any increase in a wage index under 

20 this paragraph for a hospital shall not be 

21 taken into account for purposes of—

22 ‘‘(i) computing the wage index for the 

23 area in which the hospital is located or 

24 any other area; or 
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1 ‘‘(ii) applying any budget neutrality 

2 adjustment with respect to such index 

3 under paragraph (8)(D).’’. 

4 (b) EFFECTIVE DATE.—The amendment 

5 made by subsection (a) shall first apply to the 

6 wage index for cost reporting period begin7 ning on or after October 1, 2004. 

8 SEC. 505. MEDPAC REPORT ON SPECIALTY HOSPITALS. 

9 (a) MEDPAC STUDY.—The Medicare Pay10 ment Advisory Commission shall conduct a 

11 study of specialty hospitals compared with 

12 other similar general acute care hospitals 

13 under the medicare program. Such study 

14 shall examine—

15 (1) whether there are excessive self16 referrals; 

17 (2) quality of care furnished; 

18 (3) the impact of specialty hospitals 

19 on such general acute care hospitals; and 

20 (4) differences in the scope of serv21 ices, medicaid utilization, and uncompen22 sated care furnished. 

23 (b) REPORT.—Not later than 1 year after 

24 the date of the enactment of this Act, the Sec25 retary shall submit to Congress a report on 
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1 the study conducted under subsection (a), and 

2 shall include any recommendations for legis3 lation or administrative change as the Sec4 retary determines appropriate. 

5 Subtitle B—Other Provisions 

6 SEC. 511. PAYMENT FOR COVERED SKILLED NURSING FA7 CILITY SERVICES. 

8 (a) ADJUSTMENT TO RUGS FOR AIDS RESI9 DENTS.—Paragraph (12) of section 1888(e) (42 

10 U.S.C. 1395yy(e)) is amended to read as fol11 lows: 

12 ‘‘(12) ADJUSTMENT FOR RESIDENTS WITH

13 AIDS.—

14 ‘‘(A) IN GENERAL.—Subject to sub15 paragraph (B), in the case of a resi16 dent of a skilled nursing facility who 

17 is afflicted with acquired immune de18 ficiency syndrome (AIDS), the per 

19 diem amount of payment otherwise 

20 applicable shall be increased by 128 

21 percent to reflect increased costs as22 sociated with such residents. 

23 ‘‘(B) SUNSET.—Subparagraph (A) 

24 shall not apply on and after such date 

25 as the Secretary certifies that there is 
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1 an appropriate adjustment in the 

2 case mix under paragraph (4)(G)(i) to 

3 compensate for the increased costs 

4 associated with residents described 

5 in such subparagraph.’’. 

6 (b) EFFECTIVE DATE.—The amendment 

7 made by paragraph (1) shall apply to services 

8 furnished on or after October 1, 2003. 

9 SEC. 512. COVERAGE OF HOSPICE CONSULTATION SERV10 ICES. 

11 (a) COVERAGE OF HOSPICE CONSULTATION

12 SERVICES.—Section 1812(a) (42 U.S.C. 1395d(a)) 

13 is amended—

14 (1) by striking ‘‘and’’ at the end of 

15 paragraph (3); 

16 (2) by striking the period at the end 

17 of paragraph (4) and inserting ‘‘; and’’; 

18 and 

19 (3) by inserting after paragraph (4) 

20 the following new paragraph: 

21 ‘‘(5) for individuals who are termi22 nally ill, have not made an election under 

23 subsection (d)(1), and have not previously 

24 received services under this paragraph, 

25 services that are furnished by a physi-
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1 cian who is either the medical director or 

2 an employee of a hospice program and 

3 that consist of—

4 ‘‘(A) an evaluation of the individ5 ual’s need for pain and symptom 

6 management; 

7 ‘‘(B) counseling the individual 

8 with respect to end-of-life issues and 

9 care options; and 

10 ‘‘(C) advising the individual re11 garding advanced care planning.’’. 

12 (b) PAYMENT.—Section 1814(i) (42 U.S.C. 

13 l395f(i)) is amended by adding at the end the 

14 following new paragraph: 

15 ‘‘(4) The amount paid to a hospice pro16 gram with respect to the services under sec17 tion 1812(a)(5) for which payment may be 

18 made under this part shall be equal to an 

19 amount equivalent to the amount established 

20 for an office or other outpatient visit for eval21 uation and management associated with pre22 senting problems of moderate severity under 

23 the fee schedule established under section 

24 1848(b), other than the portion of such 
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1 amount attributable to the practice expense 

2 component.’’. 

3 (c) CONFORMING AMENDMENT.—Section 

4 1861(dd)(2)(A)(i) (42 U.S.C. 1395x(dd)(2)(A)(i)) 

5 is amended by inserting before the comma at 

6 the end the following: ‘‘and services described 

7 in section 1812(a)(5)’’. 

8 (d) EFFECTIVE DATE.—The amendments 

9 made by this section shall apply to services 

10 provided by a hospice program on or after 

11 January 1, 2004.

12 TITLE VI—PROVISIONS 

13 RELATING TO PART B 

14 Subtitle A—Physicians’ Services

15 SEC. 601. REVISION OF UPDATES FOR PHYSICIANS’ SERV16 ICES. 

17 (a) UPDATE FOR 2004 AND 2005.—

18 (1) IN GENERAL.—Section 1848(d) (42 

19 U.S.C. 1395w–4(d)) is amended by adding 

20 at the end the following new paragraph: 

21 ‘‘(5) UPDATE FOR 2004 AND 2005.—The 

22 update to the single conversion factor es23 tablished in paragraph (1)(C) for each of 

24 2004 and 2005 shall be not less than 1.5 

25 percent.’’. 
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1 (2) CONFORMING AMENDMENT.—Para2 graph (4)(B) of such section is amended, 

3 in the matter before clause (i), by insert4 ing ‘‘and paragraph (5)’’ after ‘‘subpara5 graph (D)’’. 

6 (3) NOT TREATED AS CHANGE IN LAW AND

7 REGULATION IN SUSTAINABLE GROWTH RATE

8 DETERMINATION.—The amendments made 

9 by this subsection shall not be treated as 

10 a change in law for purposes of applying 

11 section 1848(f)(2)(D) of the Social Secu12 rity Act (42 U.S.C. 1395w–4(f)(2)(D)). 

13 (b) USE OF 10-YEAR ROLLING AVERAGE IN

14 COMPUTING GROSS DOMESTIC PRODUCT.—

15 (1) IN GENERAL.—Section 1848(f)(2)(C) 

16 (42 U.S.C. 1395w–4(f)(2)(C)) is amended—

17 (A) by striking ‘‘projected’’ and in18 serting ‘‘annual average’’; and 

19 (B) by striking ‘‘from the previous 

20 applicable period to the applicable 

21 period involved’’ and inserting ‘‘dur22 ing the 10-year period ending with 

23 the applicable period involved’’.

24 (2) EFFECTIVE DATE.—The amendment 

25 made by paragraph (1) shall apply to 
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1 computations of the sustainable growth 

2 rate for years beginning with 2003. 

3 SEC. 602. STUDIES ON ACCESS TO PHYSICIANS’ SERVICES. 

4 (a) GAO STUDY ON BENEFICIARY ACCESS TO

5 PHYSICIANS’ SERVICES.—

6 (1) STUDY.—The Comptroller General 

7 of the United States shall conduct a study 

8 on access of medicare beneficiaries to 

9 physicians’ services under the medicare 

10 program. The study shall include—

11 (A) an assessment of the use by 

12 beneficiaries of such services through 

13 an analysis of claims submitted by 

14 physicians for such services under 

15 part B of the medicare program; 

16 (B) an examination of changes in 

17 the use by beneficiaries of physicians’

18 services over time; 

19 (C) an examination of the extent 

20 to which physicians are not accepting 

21 new medicare beneficiaries as pa22 tients. 

23 (2) REPORT.—Not later than 18 months 

24 after the date of the enactment of this 

25 Act, the Comptroller General shall submit 
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1 to Congress a report on the study con2 ducted under paragraph (1). The report 

3 shall include a determination whether—

4 (A) data from claims submitted by 

5 physicians under part B of the medi6 care program indicate potential ac7 cess problems for medicare bene8 ficiaries in certain geographic areas; 

9 and 

10 (B) access by medicare bene11 ficiaries to physicians’ services may 

12 have improved, remained constant, or 

13 deteriorated over time.

14 (b) STUDY AND REPORT ON SUPPLY OF PHYSI15 CIANS.—

16 (1) STUDY.—The Secretary shall re17 quest the Institute of Medicine of the Na18 tional Academy of Sciences to conduct a 

19 study on the adequacy of the supply of 

20 physicians (including specialists) in the 

21 United States and the factors that affect 

22 such supply. 

23 (2) REPORT TO CONGRESS.—Not later 

24 than 2 years after the date of enactment 

25 of this section, the Secretary shall submit 
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1 to Congress a report on the results of the 

2 study described in paragraph (1), includ3 ing any recommendations for legislation. 

4 (c) GAO STUDY OF MEDICARE PAYMENT FOR

5 INHALATION THERAPY.—

6 (1) STUDY.—The Comptroller General 

7 of the United States shall conduct a study 

8 to examine the adequacy of current reim9 bursements for inhalation therapy under 

10 the medicare program. 

11 (2) REPORT.—Not later than May 1, 

12 2004, the Comptroller General shall sub13 mit to Congress a report on the study 

14 conducted under paragraph (1). 

15 SEC. 603. MEDPAC REPORT ON PAYMENT FOR PHYSICIANS’

16 SERVICES. 

17 (a) PRACTICE EXPENSE COMPONENT.—Not 

18 later than 1 year after the date of the enact19 ment of this Act, the Medicare Payment Advi20 sory Commission shall submit to Congress a 

21 report on the effect of refinements to the 

22 practice expense component of payments for 

23 physicians’ services, after the transition to a 

24 full resource-based payment system in 2002, 

25 under section 1848 of the Social Security Act 
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1 (42 U.S.C. 1395w–4). Such report shall exam2 ine the following matters by physician spe3 cialty: 

4 (1) The effect of such refinements on 

5 payment for physicians’ services. 

6 (2) The interaction of the practice ex7 pense component with other components 

8 of and adjustments to payment for physi9 cians’ services under such section. 

10 (3) The appropriateness of the 

11 amount of compensation by reason of 

12 such refinements. 

13 (4) The effect of such refinements on 

14 access to care by medicare beneficiaries 

15 to physicians’ services. 

16 (5) The effect of such refinements on 

17 physician participation under the medi18 care program. 

19 (b) VOLUME OF PHYSICIAN SERVICES.—The 

20 Medicare Payment Advisory Commission 

21 shall submit to Congress a report on the ex22 tent to which increases in the volume of phy23 sicians’ services under part B of the medicare 

24 program are a result of care that improves the 

25 health and well-being of medicare bene-
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1 ficiaries. The study shall include the fol2 lowing: 

3 (1) An analysis of recent and historic 

4 growth in the components that the Sec5 retary includes under the sustainable 

6 growth rate (under section 1848(f) of the 

7 Social Security Act). 

8 (2) An examination of the relative 

9 growth of volume in physician services 

10 between medicare beneficiaries and 

11 other populations. 

12 (3) An analysis of the degree to which 

13 new technology, including coverage de14 terminations of the Centers for Medicare 

15 & Medicaid Services, has affected the vol16 ume of physicians’ services. 

17 (4) An examination of the impact on 

18 volume of demographic changes. 

19 (5) An examination of shifts in the 

20 site of service of services that influence 

21 the number and intensity of services fur22 nished in physicians’ offices and the ex23 tent to which changes in reimbursement 

24 rates to other providers have affected 

25 these changes. 
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1 (6) An evaluation of the extent to 

2 which the Centers for Medicare & Med3 icaid Services takes into account the im4 pact of law and regulations on the sus5 tainable growth rate. 

6 Subtitle B—Preventive Services

7 SEC. 611. COVERAGE OF AN INITIAL PREVENTIVE PHYS8 ICAL EXAMINATION. 

9 (a) COVERAGE.—Section 1861(s)(2) (42 

10 U.S.C. 1395x(s)(2)) is amended—

11 (1) in subparagraph (U), by striking 

12 ‘‘and’’ at the end; 

13 (2) in subparagraph (V), by inserting 

14 ‘‘and’’ at the end; and 

15 (3) by adding at the end the following 

16 new subparagraph: 

17 ‘‘(W) an initial preventive physical ex18 amination (as defined in subsection 

19 (ww));’’. 

20 (b) SERVICES DESCRIBED.—Section 1861 (42 

21 U.S.C. 1395x) is amended by adding at the end 

22 the following new subsection: 

23 ‘‘Initial Preventive Physical Examination 

24 ‘‘(ww) The term ‘initial preventive phys25 ical examination’ means physicians’ services 
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1 consisting of a physical examination with the 

2 goal of health promotion and disease detec3 tion and includes items and services (exclud4 ing clinical laboratory tests), as determined 

5 by the Secretary, consistent with the rec6 ommendations of the United States Preven7 tive Services Task Force.’’. 

8 (c) WAIVER OF DEDUCTIBLE AND COINSUR9 ANCE.—

10 (1) DEDUCTIBLE.—The first sentence of 

11 section 1833(b) (42 U.S.C. 1395l(b)) is 

12 amended—

13 (A) by striking ‘‘and’’ before ‘‘(6)’’, 

14 and 

15 (B) by inserting before the period 

16 at the end the following: ‘‘, and (7) 

17 such deductible shall not apply with 

18 respect to an initial preventive phys19 ical examination (as defined in sec20 tion 1861(ww))’’. 

21 (2) COINSURANCE.—Section 1833(a)(1) 

22 (42 U.S.C. 1395l(a)(1)) is amended—

23 (A) in clause (N), by inserting ‘‘(or 

24 100 percent in the case of an initial 

25 preventive physical examination, as 
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1 defined in section 1861(ww))’’ after 

2 ‘‘80 percent’’; and 

3 (B) in clause (O), by inserting ‘‘(or 

4 100 percent in the case of an initial 

5 preventive physical examination, as 

6 defined in section 1861(ww))’’ after 

7 ‘‘80 percent’’. 

8 (d) PAYMENT AS PHYSICIANS’ SERVICES.—

9 Section 1848(j)(3) (42 U.S.C. 1395w–4(j)(3)) is 

10 amended by inserting ‘‘(2)(W),’’ after ‘‘(2)(S),’’. 

11 (e) OTHER CONFORMING AMENDMENTS.—

12 Section 1862(a) (42 U.S.C. 1395y(a)) is amend13 ed—

14 (1) in paragraph (1)—

15 (A) by striking ‘‘and’’ at the end of 

16 subparagraph (H); 

17 (B) by striking the semicolon at 

18 the end of subparagraph (I) and in19 serting ‘‘, and’’; and 

20 (C) by adding at the end the fol21 lowing new subparagraph: 

22 ‘‘(J) in the case of an initial preven23 tive physical examination, which is per24 formed not later than 6 months after the 
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1 date the individual’s first coverage pe2 riod begins under part B;’’; and 

3 (2) in paragraph (7), by striking ‘‘or 

4 (H)’’ and inserting ‘‘(H), or (J)’’. 

5 (f) EFFECTIVE DATE.—The amendments 

6 made by this section shall apply to services 

7 furnished on or after January 1, 2004, but 

8 only for individuals whose coverage period 

9 begins on or after such date. 

10 SEC. 612. COVERAGE OF CHOLESTEROL AND BLOOD LIPID 

11 SCREENING. 

12 (a) COVERAGE.—Section 1861(s)(2) (42 

13 U.S.C. 1395x(s)(2)), as amended by section 

14 611(a), is amended—

15 (1) in subparagraph (V), by striking 

16 ‘‘and’’ at the end; 

17 (2) in subparagraph (W), by inserting 

18 ‘‘and’’ at the end; and 

19 (3) by adding at the end the following 

20 new subparagraph: 

21 ‘‘(X) cholesterol and other blood 

22 lipid screening tests (as defined in 

23 subsection (XX));’’. 

24 (b) SERVICES DESCRIBED.—Section 1861 (42 

25 U.S.C. 1395x), as amended by section 611(b), is 
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1 amended by adding at the end the following 

2 new subsection: 

3 ‘‘Cholesterol and Other Blood Lipid 

4 Screening Test 

5 ‘‘(xx)(1) The term ‘cholesterol and other 

6 blood lipid screening test’ means diagnostic 

7 testing of cholesterol and other lipid levels of 

8 the blood for the purpose of early detection 

9 of abnormal cholesterol and other lipid levels. 

10 ‘‘(2) The Secretary shall establish stand11 ards, in consultation with appropriate organi12 zations, regarding the frequency and type of 

13 cholesterol and other blood lipid screening 

14 tests, except that such frequency may not be 

15 more often than once every 2 years.’’. 

16 (c) FREQUENCY.—Section 1862(a)(1) (42 

17 U.S.C. 1395y(a)(1)), as amended by section 

18 611(e), is amended—

19 (1) by striking ‘‘and’’ at the end of 

20 subparagraph (I); 

21 (2) by striking the semicolon at the 

22 end of subparagraph (J) and inserting ‘‘; 

23 and’’; and 

24 (3) by adding at the end the following 

25 new subparagraph: 
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1 ‘‘(K) in the case of a cholesterol and 

2 other blood lipid screening test (as de3 fined in section 1861(xx)(1)), which is per4 formed more frequently than is covered 

5 under section 1861(xx)(2).’’. 

6 (d) EFFECTIVE DATE.—The amendments 

7 made by this section shall apply to tests fur8 nished on or after January 1, 2005. 

9 SEC. 613. WAIVER OF DEDUCTIBLE FOR COLORECTAL CAN10 CER SCREENING TESTS. 

11 (a) IN GENERAL.—The first sentence of sec12 tion 1833(b) (42 U.S.C. 1395l(b)), as amended 

13 by section 611(c)(1), is amended—

14 (1) by striking ‘‘and’’ before ‘‘(7)’’; and 

15 (2) by inserting before the period at 

16 the end the following: ‘‘, and (8) such de17 ductible shall not apply with respect to 

18 colorectal cancer screening tests (as de19 scribed in section 1861(pp)(1))’’. 

20 (b) CONFORMING AMENDMENTS.—Para21 graphs (2)(C)(ii) and (3)(C)(ii) of section 

22 1834(d) (42 U.S.C. 1395m(d)) are each amend23 ed—

24 (1) by striking ‘‘DEDUCTIBLE AND’’ in 

25 the heading; and 
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1 (2) in subclause (I), by striking ‘‘de2 ductible or’’ each place it appears. 

3 (c) EFFECTIVE DATE.—The amendment 

4 made by this section shall apply to items and 

5 services furnished on or after January 1, 2004.

6 SEC. 614. IMPROVED PAYMENT FOR CERTAIN MAMMOG7 RAPHY SERVICES. 

8 (a) EXCLUSION FROM OPD FEE SCHEDULE.—

9 Section 1833(t)(1)(B)(iv) (42 U.S.C. 

10 1395l(t)(1)(B)(iv)) is amended by inserting be11 fore the period at the end the following: ‘‘and 

12 does not include screening mammography (as 

13 defined in section 1861(jj)) and unilateral and 

14 bilateral diagnostic mammography’’. 

15 (b) ADJUSTMENT TO TECHNICAL COMPO16 NENT.—For diagnostic mammography per17 formed on or after January 1, 2004, for which 

18 payment is made under the physician fee 

19 schedule under section 1848 of the Social Se20 curity Act (42 U.S.C. 1395w–4), the Secretary, 

21 based on the most recent cost data available, 

22 shall provide for an appropriate adjustment 

23 in the payment amount for the technical com24 ponent of the diagnostic mammography. 
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1 (c) EFFECTIVE DATE.—The amendment 

2 made by subsection (a) shall apply to mam3 mography performed on or after January 1, 

4 2004.

5 Subtitle C—Other Services 

6 SEC. 621. HOSPITAL OUTPATIENT DEPARTMENT (HOPD) 

7 PAYMENT REFORM. 

8 (a) PAYMENT FOR DRUGS.—

9 (1) MODIFICATION OF AMBULATORY PAY10 MENT CLASSIFICATION (APC) GROUPS.—Sec11 tion 1833(t) (42 U.S.C. 1395l(t)) is amend12 ed—

13 (A) by redesignating paragraph 

14 (13) as paragraph (14); and 

15 (B) by inserting after paragraph 

16 (12) the following new paragraph: 

17 ‘‘(13) DRUG APC PAYMENT RATES.—

18 ‘‘(A) IN GENERAL.—With respect to 

19 payment for covered OPD services 

20 that includes a specified covered out21 patient drug (defined in subpara22 graph (B)), the amount provided for 

23 payment for such drug under the pay24 ment system under this subsection 

25 for services furnished in—
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1 ‘‘(i) 2004, 2005, or 2006, shall 

2 in no case—

3 ‘‘(I) exceed 95 percent of 

4 the average wholesale price 

5 for the drug; or 

6 ‘‘(II) be less than the tran7 sition percentage (under sub8 paragraph (C)) of the average 

9 wholesale price for the drug; 

10 or 

11 ‘‘(ii) a subsequent year, shall 

12 be equal to the average price for 

13 the drug for that area and year 

14 established under the competitive 

15 acquisition program under sec16 tion 1847A as calculated and ap17 plied by the Secretary for pur18 poses of this paragraph. 

19 ‘‘(B) SPECIFIED COVERED OUT20 PATIENT DRUG DEFINED.—

21 ‘‘(i) IN GENERAL.—In this para22 graph, the term ‘specified covered 

23 outpatient drug’ means, subject to 

24 clause (ii), a covered outpatient 
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1 drug (as defined in 1927(k)(2), 

2 that is—

3 ‘‘(I) a radiopharma4 ceutical; or 

5 ‘‘(II) a drug or biological 

6 for which payment was made 

7 under paragraph (6) (relating 

8 to pass-through payments) on 

9 or before December 31, 2002. 

10 ‘‘(ii) EXCEPTION.—Such term 

11 does not include—

12 ‘‘(I) a drug for which pay13 ment is first made on or after 

14 January 1, 2003, under para15 graph (6); or 

16 ‘‘(II) a drug for a which a 

17 temporary HCPCS code has 

18 not been assigned. 

19 ‘‘(C) TRANSITION TOWARDS HISTOR20 ICAL AVERAGE ACQUISITION COST.—The 

21 transition percentage under this sub22 paragraph for drugs furnished in a 

23 year is determined in accordance 

24 with the following table:
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For the year—

The transition percentage for—

Single source 

drugs are—

Innovator multiple source 

drugs are—

Generic drugs 

are—

2004 ................... 83% 81.5% 46%

2005 ................... 77% 75% 46%

2006 ................... 71% 68% 46%

1 ‘‘(D) PAYMENT FOR NEW DRUGS

2 UNTIL TEMPORARY HCPCS CODE AS3 SIGNED.—With respect to payment for 

4 covered OPD services that includes a 

5 covered outpatient drug (as defined 

6 in 1927(k)) for a which a temporary 

7 HCPCS code has not been assigned, 

8 the amount provided for payment for 

9 such drug under the payment system 

10 under this subsection shall be equal 

11 to 95 percent of the average whole12 sale price for the drug. 

13 ‘‘(E) CLASSES OF DRUGS.—For pur14 poses of this paragraph, each of the 

15 following shall be treated as a sepa16 rate class of drugs: 

17 ‘‘(i) SOLE SOURCE DRUGS.—A 

18 sole source drug which for pur19 poses of this paragraph means a 

20 drug or biological that is not a 

21 multiple source drug (as defined 
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1 in subclauses (I) and (II) of sec2 tion 1927(k)(7)(A)(i)) and is not a 

3 drug approved under an abbre4 viated new drug application 

5 under section 355(j) of the Fed6 eral Food, Drug, and Cosmetic 

7 Act. 

8 ‘‘(ii) INNOVATOR MULTIPLE

9 SOURCE DRUGS.—Innovator mul10 tiple source drugs (as defined in 

11 section 1927(k)(7)(A)(ii)). 

12 ‘‘(iii) NONINNOVATOR MULTIPLE

13 SOURCE DRUGS.—Noninnovator 

14 multiple source drugs (as defined 

15 in section 1927(k)(7)(A)(iii)). 

16 ‘‘(F) INAPPLICABILITY OF EXPENDI17 TURES IN DETERMINING CONVERSION

18 FACTORS.—Additional expenditures re19 sulting from this paragraph and para20 graph (14)(C) in a year shall not be 

21 taken into account in establishing the 

22 conversion factor for that year.’’. 

23 (2) REDUCTION IN THRESHOLD FOR SEPA24 RATE APCS FOR DRUGS.—Section 

25 1833(t)(14), as redesignated by paragraph 
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1 (1)(A), is amended by adding at the end 

2 the following new subparagraph: 

3 ‘‘(B) THRESHOLD FOR ESTABLISH4 MENT OF SEPARATE APCS FOR DRUGS.—

5 The Secretary shall reduce the 

6 threshold for the establishment of 

7 separate ambulatory procedure clas8 sification groups (APCs) with respect 

9 to drugs to $50 per administration.’’. 

10 (3) EXCLUSION OF SEPARATE DRUG APCS

11 FROM OUTLIER PAYMENTS.—Section 

12 1833(t)(5) is amended by adding at the 

13 end the following new subparagraph: 

14 ‘‘(E) EXCLUSION OF SEPARATE DRUG

15 APCS FROM OUTLIER PAYMENTS.—No ad16 ditional payment shall be made under 

17 subparagraph (A) in the case of am18 bulatory procedure codes established 

19 separately for drugs.’’. 

20 (4) PAYMENT FOR PASS THROUGH

21 DRUGS.—Clause (i) of section 1833(t)(6)(D) 

22 (42 U.S.C. 1395l(t)(6)(D)) is amended by 

23 inserting after ‘‘under section 1842(o)’’

24 the following: ‘‘(or if the drug is covered 

25 under a competitive acquisition contract 
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1 under section 1847A for an area, an 

2 amount determined by the Secretary 

3 equal to the average price for the drug 

4 for that area and year established under 

5 such section as calculated and applied by 

6 the Secretary for purposes of this para7 graph)’’. 

8 (5) EFFECTIVE DATE.—The amendments 

9 made by this subsection shall apply to 

10 services furnished on or after January 1, 

11 2004. 

12 (b) SPECIAL PAYMENT FOR

13 BRACHYTHERAPY.—

14 (1) IN GENERAL.—Section 1833(t)(14), 

15 as so redesignated and amended by sub16 section (a)(2), is amended by adding at 

17 the end the following new subparagraph: 

18 ‘‘(C) PAYMENT FOR DEVICES OF

19 BRACHYTHERAPY AT CHARGES ADJUSTED

20 TO COST.—Notwithstanding the pre21 ceding provisions of this subsection, 

22 for a device of brachytherapy fur23 nished on or after January 1, 2004, 

24 and before January 1, 2007, the pay25 ment basis for the device under this 
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1 subsection shall be equal to the hos2 pital’s charges for each device fur3 nished, adjusted to cost.’’. 

4 (2) SPECIFICATION OF GROUPS FOR

5 BRACHYTHERAPY DEVICES.—Section 

6 1833(t)(2) (42 U.S.C. 1395l(t)(2) is amend7 ed—

8 (A) in subparagraph (F), by strik9 ing ‘‘and’’ at the end; 

10 (B) in subparagraph (G), by strik11 ing the period at the end and insert12 ing ‘‘; and’’; and 

13 (C) by adding at the end the fol14 lowing new subparagraph: 

15 ‘‘(H) with respect to devices of 

16 brachytherapy, the Secretary shall 

17 create additional groups of covered 

18 OPD services that classify such de19 vices separately from the other serv20 ices (or group of services) paid for 

21 under this subsection in a manner re22 flecting the number, isotope, and ra23 dioactive intensity of such devices 

24 furnished, including separate groups 
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1 for palladium-103 and iodine-125 de2 vices.’’. 

3 (3) GAO REPORT.—The Comptroller 

4 General of the United States shall con5 duct a study to determine appropriate 

6 payment amounts under section 

7 1833(t)(13)(B) of the Social Security Act, 

8 as added by paragraph (1), for devices of 

9 brachytherapy. Not later than January 1, 

10 2005, the Comptroller General shall sub11 mit to Congress and the Secretary a re12 port on the study conducted under this 

13 paragraph, and shall include specific rec14 ommendations for appropriate payments 

15 for such devices.

16 (c) APPLICATION OF FUNCTIONAL EQUIVA17 LENCE TEST.—

18 (1) IN GENERAL.—Section 1833(t)(6) (42 

19 U.S.C. 1395l(t)(6)) is amended by adding 

20 at the end the following new subpara21 graph: 

22 ‘‘(F) LIMITATION ON APPLICATION OF

23 FUNCTIONAL EQUIVALENCE STANDARD.—

24 The Secretary may not apply a ‘func25 tional equivalence’ payment standard 
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1 (including such standard promul2 gated on November 1, 2002) or any 

3 other similar standard in order to 

4 deem a particular drug or biological 

5 to be identical to or similar to an6 other drug or biological with respect 

7 to its mechanism of action or clinical 

8 effect to deny pass-through status to 

9 new drugs or biologics or to remove 

10 such status of an existing eligible 

11 drug or biologic under this paragraph 

12 unless—

13 ‘‘(i) the Secretary develops by 

14 regulation (after providing notice 

15 and a period for public comment) 

16 criteria for the application of 

17 such standard; and 

18 ‘‘(ii) such criteria provide for 

19 coordination with the Federal 

20 Food and Drug Administration 

21 and require scientific studies that 

22 show the clinical relationship be23 tween the drugs or biologicals 

24 treated as functionally equiva25 lent.’’. 
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1 (2) EFFECTIVE DATE.—The amendment 

2 made by paragraph (1) shall apply to the 

3 application of a functional equivalence 

4 standard to a drug or biological on or 

5 after the date of the enactment of this 

6 Act, unless such application was being 

7 made to such drug or biological prior to 

8 June 13, 2003. 

9 (d) HOSPITAL ACQUISITION COST STUDY.—

10 (1) IN GENERAL.—The Secretary shall 

11 conduct a study on the costs incurred by 

12 hospitals in acquiring covered outpatient 

13 drugs for which payment is made under 

14 section 1833(t) of the Social Security Act 

15 (42 U.S.C. 1395l(t)). 

16 (2) DRUGS COVERED.—The study in 

17 paragraph (1) shall not include those 

18 drugs for which the acquisition costs is 

19 less than $50 per administration. 

20 (3) REPRESENTATIVE SAMPLE OF HOS21 PITALS.—In conducting the study under 

22 paragraph (1), the Secretary shall collect 

23 data from a statistically valid sample of 

24 hospitals with an urban/rural stratifica25 tion. 
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1 (4) REPORT.—Not later than January 

2 1, 2006, the Secretary shall submit to 

3 Congress a report on the study conducted 

4 under paragraph (1), and shall include 

5 recommendations with respect to the fol6 lowing: 

7 (A) Whether the study should be 

8 repeated, and if so, how frequently. 

9 (B) Whether the study produced 

10 useful data on hospital acquisition 

11 cost. 

12 (C) Whether data produced in the 

13 study is appropriate for use in mak14 ing adjustments to payments for 

15 drugs and biologicals under section 

16 1847A of the Social Security Act. 

17 (D) Whether separate estimates 

18 can made of overhead costs, includ19 ing handing and administering costs 

20 for drugs.

21 SEC. 622. PAYMENT FOR AMBULANCE SERVICES. 

22 (a) PHASE-IN PROVIDING FLOOR USING

23 BLEND OF FEE SCHEDULE AND REGIONAL FEE

24 SCHEDULES.—Section 1834(l) (42 U.S.C. 
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1 1395m(l)), as amended by section 410(a), is 

2 amended—

3 (1) in paragraph (2)(E), by inserting 

4 ‘‘consistent with paragraph (11)’’ after ‘‘in 

5 an efficient and fair manner’’; and 

6 (2) by adding at the end the following 

7 new paragraph: 

8 ‘‘(11) PHASE-IN PROVIDING FLOOR USING

9 BLEND OF FEE SCHEDULE AND REGIONAL FEE

10 SCHEDULES.—In carrying out the phase-in 

11 under paragraph (2)(E) for each level of 

12 service furnished in a year, the portion of 

13 the payment amount that is based on the 

14 fee schedule shall not be less than the fol15 lowing blended rate of the fee schedule 

16 under paragraph (1) and of a regional fee 

17 schedule for the region involved: 

18 ‘‘(A) For 2004, the blended rate 

19 shall be based 20 percent on the fee 

20 schedule under paragraph (1) and 80 

21 percent on the regional fee schedule. 

22 ‘‘(B) For 2005, the blended rate 

23 shall be based 40 percent on the fee 

24 schedule under paragraph (1) and 60 

25 percent on the regional fee schedule. 
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1 ‘‘(C) For 2006, the blended rate 

2 shall be based 60 percent on the fee 

3 schedule under paragraph (1) and 40 

4 percent on the regional fee schedule. 

5 ‘‘(D) For 2007, 2008, and 2009, the 

6 blended rate shall be based 80 per7 cent on the fee schedule under para8 graph (1) and 20 percent on the re9 gional fee schedule. 

10 ‘‘(E) For 2010 and each succeeding 

11 year, the blended rate shall be based 

12 100 percent on the fee schedule under 

13 paragraph (1). 

14 For purposes of this paragraph, the Sec15 retary shall establish a regional fee 

16 schedule for each of the 9 Census divi17 sions using the methodology (used in es18 tablishing the fee schedule under para19 graph (1)) to calculate a regional conver20 sion factor and a regional mileage pay21 ment rate and using the same payment 

22 adjustments and the same relative value 

23 units as used in the fee schedule under 

24 such paragraph.’’. 
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1 (b) ADJUSTMENT IN PAYMENT FOR CERTAIN

2 LONG TRIPS.—Section 1834(l), as amended by 

3 subsection (a), is further amended by adding 

4 at the end the following new paragraph: 

5 ‘‘(12) ADJUSTMENT IN PAYMENT FOR CER6 TAIN LONG TRIPS.—In the case of ground 

7 ambulance services furnished on or after 

8 January 1, 2004, and before January 1, 

9 2009, regardless of where the transpor10 tation originates, the fee schedule estab11 lished under this subsection shall provide 

12 that, with respect to the payment rate for 

13 mileage for a trip above 50 miles the per 

14 mile rate otherwise established shall be 

increased by 1 15 ⁄4 of the payment per mile 

16 otherwise applicable to such miles.’’. 

17 (c) GAO REPORT ON COSTS AND ACCESS.—

18 Not later than December 31, 2005, the Comp19 troller General of the United States shall sub20 mit to Congress an initial report on how costs 

21 differ among the types of ambulance pro22 viders and on access, supply, and quality of 

23 ambulance services in those regions and 

24 States that have a reduction in payment 

25 under the medicare ambulance fee schedule 
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1 (under section 1834(l) of the Social Security 

2 Act, as amended by this section). Not later 

3 than December 31, 2007, the Comptroller Gen4 eral shall submit to Congress a final report on 

5 such access and supply. 

6 (d) EFFECTIVE DATE.—The amendments 

7 made by this section shall apply to ambulance 

8 services furnished on or after January 1, 2004.

9 SEC. 623. RENAL DIALYSIS SERVICES. 

10 (a) DEMONSTRATION OF ALTERNATIVE DELIV11 ERY MODELS.—

12 (1) USE OF ADVISORY BOARD.—In car13 rying out the demonstration project re14 lating to improving care for people with 

15 end-stage renal disease through alter16 native delivery models (as published in 

17 the Federal Register of June 4, 2003), the 

18 Secretary shall establish an advisory 

19 board comprised of representatives de20 scribed in paragraph (2) to provide ad21 vice and recommendations with respect 

22 to the establishment and operation of 

23 such demonstration project. 
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1 (2) REPRESENTATIVES.—Representa2 tives referred to in paragraph (1) include 

3 representatives of the following: 

4 (A) Patient organizations. 

5 (B) Clinicians. 

6 (C) The medicare payment advi7 sory commission, established under 

8 section 1805 of the Social Security Act 

9 (42 U.S.C. 1395b–6). 

10 (D) The National Kidney Founda11 tion. 

12 (E) The National Institute of Dia13 betes and Digestive and Kidney Dis14 eases of National Institutes of Health. 

15 (F) End-stage renal disease net16 works. 

17 (G) Medicare contractors to mon18 itor quality of care. 

19 (I) providers of services and renal 

20 dialysis facilities furnishing end-stage 

21 renal disease services. 

22 (J) Economists. 

23 (K) Researchers. 

24 (b) RESTORING COMPOSITE RATE EXCEP25 TIONS FOR PEDIATRIC FACILITIES.—
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1 (1) IN GENERAL.—Section 422(a)(2) of 

2 BIPA is amended—

3 (A) in subparagraph (A), by strik4 ing ‘‘and (C)’’ and inserting ‘‘, (C), and 

5 (D)’’; 

6 (B) in subparagraph (B), by strik7 ing ‘‘In the case’’ and inserting ‘‘Sub8 ject to subparagraph (D), in the case’’; 

9 and 

10 (C) by adding at the end the fol11 lowing new subparagraph: 

12 ‘‘(D) INAPPLICABILITY TO PEDIATRIC

13 FACILITIES.—Subparagraphs (A) and 

14 (B) shall not apply, as of October 1, 

15 2002, to pediatric facilities that do 

16 not have an exception rate described 

17 in subparagraph (C) in effect on such 

18 date. For purposes of this subpara19 graph, the term ‘pediatric facility’

20 means a renal facility at least 50 per21 cent of whose patients are individuals 

22 under 18 years of age.’’. 

23 (2) CONFORMING AMENDMENT.—The 

24 fourth sentence of section 1881(b)(7) (42 

25 U.S.C. 1395rr(b)(7)), as amended by sub-
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1 section (b), is further amended by strik2 ing ‘‘Until’’ and inserting ‘‘Subject to sec3 tion 422(a)(2) of the Medicare, Medicaid, 

4 and SCHIP Benefits Improvement and 

5 Protection Act of 2000, and until’’. 

6 (c) INCREASE IN RENAL DIALYSIS COMPOSITE

7 RATE FOR SERVICES FURNISHED IN 2004.—Not8 withstanding any other provision of law, with 

9 respect to payment under part B of title XVIII 

10 of the Social Security Act for renal dialysis 

11 services furnished in 2004, the composite pay12 ment rate otherwise established under sec13 tion 1881(b)(7) of such Act (42 U.S.C. 

14 1395rr(b)(7)) shall be increased by 1.6 percent. 

15 SEC. 624. ONE-YEAR MORATORIUM ON THERAPY CAPS; 

16 PROVISIONS RELATING TO REPORTS. 

17 (a) 1-YEAR MORATORIUM ON THERAPY

18 CAPS.—Section 1833(g)(4) (42 U.S.C. 

19 1395l(g)(4)) is amended by striking ‘‘and 2002’’

20 and inserting ‘‘2002, and 2004’’. 

21 (b) PROMPT SUBMISSION OF OVERDUE RE22 PORTS ON PAYMENT AND UTILIZATION OF OUT23 PATIENT THERAPY SERVICES.—Not later than 

24 December 31, 2003, the Secretary shall submit 

25 to Congress the reports required under sec-
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1 tion 4541(d)(2) of the Balanced Budget Act of 

2 1997 (relating to alternatives to a single an3 nual dollar cap on outpatient therapy) and 

4 under section 221(d) of the Medicare, Med5 icaid, and SCHIP Balanced Budget Refine6 ment Act of 1999 (relating to utilization pat7 terns for outpatient therapy).

8 (c) IDENTIFICATION OF CONDITIONS AND DIS9 EASES JUSTIFYING WAIVER OF THERAPY CAP.—

10 (1) STUDY.—The Secretary shall re11 quest the Institute of Medicine of the Na12 tional Academy of Sciences to identify 

13 conditions or diseases that should justify 

14 conducting an assessment of the need to 

15 waive the therapy caps under section 

16 1833(g)(4) of the Social Security Act (42 

17 U.S.C. 1395l(g)(4)). 

18 (2) REPORTS TO CONGRESS.—

19 (A) PRELIMINARY REPORT.—Not 

20 later than July 1, 2004, the Secretary 

21 shall submit to Congress a prelimi22 nary report on the conditions and 

23 diseases identified under paragraph 

24 (1). 
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1 (B) FINAL REPORT.—Not later than 

2 September 1, 2004, the Secretary shall 

3 submit to Congress a final report on 

4 such conditions and diseases. 

5 (C) RECOMMENDATIONS.—Not later 

6 than October 1, 2004, the Secretary 

7 shall submit to Congress a rec8 ommendation of criteria, with respect 

9 to such conditions and disease, under 

10 which a waiver of the therapy caps 

11 would apply. 

12 (d) GAO STUDY OF PATIENT ACCESS TO

13 PHYSICAL THERAPIST SERVICES.—

14 (1) STUDY.—The Comptroller General 

15 of the United States shall conduct a study 

16 on access to physical therapist services in 

17 States authorizing such services without 

18 a physician referral and in States that re19 quire such a physician referral. The 

20 study shall—

21 (A) examine the use of and refer22 ral patterns for physical therapist 

23 services for patients age 50 and older 

24 in States that authorize such services 

25 without a physician referral and in 
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1 States that require such a physician 

2 referral; 

3 (B) examine the use of and refer4 ral patterns for physical therapist 

5 services for patients who are medi6 care beneficiaries; 

7 (C) examine the potential effect of 

8 prohibiting a physician from refer9 ring patients to physical therapy 

10 services owned by the physician and 

11 provided in the physician’s office; 

12 (D) examine the delivery of phys13 ical therapists’ services within the fa14 cilities of Department of Defense; and 

15 (E) analyze the potential impact 

16 on medicare beneficiaries and on ex17 penditures under the medicare pro18 gram of eliminating the need for a 

19 physician referral and physician cer20 tification for physical therapist serv21 ices under the medicare program. 

22 (2) REPORT.—The Comptroller Gen23 eral shall submit to Congress a report on 

24 the study conducted under paragraph (1) 
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1 by not later than 1 year after the date of 

2 the enactment of this Act. 

3 SEC. 625. ADJUSTMENT TO PAYMENTS FOR SERVICES FUR4 NISHED IN AMBULATORY SURGICAL CEN5 TERS. 

6 Section 1833(i)(2)(C) (42 U.S.C. 

7 1395l(i)(2)(C)) is amended in the last sentence 

8 by inserting ‘‘and each of fiscal years 2004 

9 through 2008’’ after ‘‘In each of the fiscal 

10 years 1998 through 2002’’. 

11 SEC. 626. PAYMENT FOR CERTAIN SHOES AND INSERTS 

12 UNDER THE FEE SCHEDULE FOR ORTHOTICS 

13 AND PROSTHETICS. 

14 (a) IN GENERAL.—Section 1833(o) (42 U.S.C. 

15 1395l(o)) is amended—

16 (1) in paragraph (1), by striking ‘‘no 

17 more than the limits established under 

18 paragraph (2)’’ and inserting ‘‘no more 

19 than the amount of payment applicable 

20 under paragraph (2)’’; and 

21 (2) in paragraph (2), to read as fol22 lows: 

23 ‘‘(2)(A) Except as provided by the Sec24 retary under subparagraphs (B) and (C), the 

25 amount of payment under this paragraph for 
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1 custom molded shoes, extra depth shoes, and 

2 inserts shall be the amount determined for 

3 such items by the Secretary under section 

4 1834(h). 

5 ‘‘(B) The Secretary or a carrier may estab6 lish payment amounts for shoes and inserts 

7 that are lower than the amount established 

8 under section 1834(h) if the Secretary finds 

9 that shoes and inserts of an appropriate qual10 ity are readily available at or below the 

11 amount established under such section. 

12 ‘‘(C) In accordance with procedures estab13 lished by the Secretary, an individual entitled 

14 to benefits with respect to shoes described in 

15 section 1861(s)(12) may substitute modifica16 tion of such shoes instead of obtaining one (or 

17 more, as specified by the Secretary) pair of in18 serts (other than the original pair of inserts 

19 with respect to such shoes). In such case, the 

20 Secretary shall substitute, for the payment 

21 amount established under section 1834(h), a 

22 payment amount that the Secretary estimates 

23 will assure that there is no net increase in ex24 penditures under this subsection as a result 

25 of this subparagraph.’’. 
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1 (b) CONFORMING AMENDMENTS.—(1) Section 

2 1834(h)(4)(C) (42 U.S.C. 1395m(h)(4)(C)) is 

3 amended by inserting ‘‘(and includes shoes 

4 described in section 1861(s)(12))’’ after ‘‘in sec5 tion 1861(s)(9)’’. 

6 (2) Section 1842(s)(2) (42 U.S.C. 

7 1395u(s)(2)) is amended by striking subpara8 graph (C). 

9 (c) EFFECTIVE DATE.—The amendments 

10 made by this section shall apply to items fur11 nished on or after January 1, 2004.

12 SEC. 627. WAIVER OF PART B LATE ENROLLMENT PENALTY 

13 FOR CERTAIN MILITARY RETIREES; SPECIAL 

14 ENROLLMENT PERIOD. 

15 (a) WAIVER OF PENALTY.—

16 (1) IN GENERAL.—Section 1839(b) (42 

17 U.S.C. 1395r(b)) is amended by adding at 

18 the end the following new sentence: ‘‘No 

19 increase in the premium shall be effected 

20 for a month in the case of an individual 

21 who is 65 years of age or older, who en22 rolls under this part during 2001, 2002, 

23 2003, or 2004 and who demonstrates to 

24 the Secretary before December 31, 2004, 

25 that the individual is a covered bene-
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1 ficiary (as defined in section 1072(5) of 

2 title 10, United States Code). The Sec3 retary of Health and Human Services 

4 shall consult with the Secretary of De5 fense in identifying individuals described 

6 in the previous sentence.’’. 

7 (2) EFFECTIVE DATE.—The amendment 

8 made by paragraph (1) shall apply to pre9 miums for months beginning with Janu10 ary 2004. The Secretary of Health and 

11 Human Services shall establish a method 

12 for providing rebates of premium pen13 alties paid for months on or after Janu14 ary 2004 for which a penalty does not 

15 apply under such amendment but for 

16 which a penalty was previously collected. 

17 (b) MEDICARE PART B SPECIAL ENROLLMENT

18 PERIOD.—

19 (1) IN GENERAL.—In the case of any in20 dividual who, as of the date of the enact21 ment of this Act, is 65 years of age or 

22 older, is eligible to enroll but is not en23 rolled under part B of title XVIII of the 

24 Social Security Act, and is a covered ben25 eficiary (as defined in section 1072(5) of 
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1 title 10, United States Code), the Sec2 retary of Health and Human Services 

3 shall provide for a special enrollment pe4 riod during which the individual may en5 roll under such part. Such period shall 

6 begin as soon as possible after the date of 

7 the enactment of this Act and shall end 

8 on December 31, 2004. 

9 (2) COVERAGE PERIOD.—In the case of 

10 an individual who enrolls during the spe11 cial enrollment period provided under 

12 paragraph (1), the coverage period under 

13 part B of title XVIII of the Social Security 

14 Act shall begin on the first day of the 

15 month following the month in which the 

16 individual enrolls. 

17 SEC. 628. PART B DEDUCTIBLE. 

18 Section 1833(b) (42 U.S.C. 1395l(b)) is 

19 amended—

20 (1) by striking ‘‘1991 and’’ and insert21 ing ‘‘1991,’’; and 

22 (2) by striking ‘‘and subsequent 

23 years’’ and inserting ‘‘and each subse24 quent year through 2003, and for a subse25 quent year after 2003 the amount of such 
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1 deductible for the previous year in2 creased by the annual percentage in3 crease in the monthly actuarial rate 

4 under section 1839(a)(1) ending with such 

5 subsequent year (rounded to the nearest 

6 $1)’’.

7 SEC. 629. EXTENSION OF COVERAGE OF INTRAVENOUS IM8 MUNE GLOBULIN (IVIG) FOR THE TREAT9 MENT OF PRIMARY IMMUNE DEFICIENCY DIS10 EASES IN THE HOME. 

11 (a) IN GENERAL.—Section 1861 (42 U.S.C. 

12 1395x), as amended by sections 611(a) and 

13 612(a) is amended—

14 (1) in subsection (s)(2)—

15 (A) by striking ‘‘and’’ at the end of 

16 subparagraph (W); 

17 (B) by adding ‘‘and’’ at the end of 

18 subparagraph (X); and 

19 (C) by adding at the end the fol20 lowing new subparagraph: 

21 ‘‘(Y) intravenous immune globulin 

22 for the treatment of primary immune 

23 deficiency diseases in the home (as 

24 defined in subsection (yy));’’; and 
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1 (2) by adding at the end the following 

2 new subsection: 

3 ‘‘Intravenous Immune Globulin 

4 ‘‘(yy) The term ‘intravenous immune glob5 ulin’ means an approved pooled plasma deriv6 ative for the treatment in the patient’s home 

7 of a patient with a diagnosed primary im8 mune deficiency disease, but not including 

9 items or services related to the administra10 tion of the derivative, if a physician deter11 mines administration of the derivative in the 

12 patient’s home is medically appropriate.’’. 

13 (b) PAYMENT AS A DRUG OR BIOLOGICAL.—

14 Section 1833(a)(1)(S) (42 U.S.C. 1395l(a)(1)(S)) 

15 is amended by inserting ‘‘(including intra16 venous immune globulin (as defined in sec17 tion 1861(yy)))’’ after ‘‘with respect to drugs 

18 and biologicals’’. 

19 (c) EFFECTIVE DATE.—The amendments 

20 made by this section shall apply to items fur21 nished administered on or after January 1, 

22 2004.
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1 TITLE VII—PROVISIONS 

2 RELATING TO PARTS A AND B 

3 Subtitle A—Home Health Services 

4 SEC. 701. UPDATE IN HOME HEALTH SERVICES. 

5 (a) CHANGE TO CALENDER YEAR UPDATE.—

6 (1) IN GENERAL.—Section 1895(b) (42 

7 U.S.C. 1395fff(b)(3)) is amended—

8 (A) in paragraph (3)(B)(i)—

9 (i) by striking ‘‘each fiscal 

10 year (beginning with fiscal year 

11 2002)’’ and inserting ‘‘fiscal year 

12 2002 and for fiscal year 2003 and 

13 for each subsequent year (begin14 ning with 2004)’’; and 

15 (ii) by inserting ‘‘or year’’

16 after ‘‘the fiscal year’’; 

17 (B) in paragraph (3)(B)(ii)(II), by 

18 striking ‘‘any subsequent fiscal year’’

19 and inserting ‘‘2004 and any subse20 quent year’’; 

21 (C) in paragraph (3)(B)(iii), by in22 serting ‘‘or year’’ after ‘‘fiscal year’’

23 each place it appears; 

24 (D) in paragraph (3)(B)(iv)—
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1 (i) by inserting ‘‘or year’’ after 

2 ‘‘fiscal year’’ each place it ap3 pears; and 

4 (ii) by inserting ‘‘or years’’

5 after ‘‘fiscal years’’; and 

6 (E) in paragraph (5), by inserting 

7 ‘‘or year’’ after ‘‘fiscal year’’. 

8 (2) TRANSITION RULE.—The standard 

9 prospective payment amount (or 

10 amounts) under section 1895(b)(3) of the 

11 Social Security Act for the calendar quar12 ter beginning on October 1, 2003, shall be 

13 such amount (or amounts) for the pre14 vious calendar quarter. 

15 (b) CHANGES IN UPDATES FOR 2004, 2005, 

16 AND 2006.—Section 1895(b)(3)(B)(ii) (42 U.S.C. 

17 1395fff(b)(3)(B)(ii)), as amended by subsection 

18 (a)(1)(B), is amended—

19 (1) by striking ‘‘or’’ at the end of sub20 clause (I); 

21 (2) by redesignating subclause (II) as 

22 subclause (III); 

23 (3) in subclause (III), as so redesig24 nated, by striking ‘‘2004’’ and inserting 

25 ‘‘2007’’; and 
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1 (4) by inserting after subclause (I) the 

2 following new subclause: 

3 ‘‘(II) each of 2004, 2005, 

4 and 2006 the home health 

5 market basket percentage in6 crease minus 0.4 percentage 

7 points; or’’.

8 SEC. 702. ESTABLISHMENT OF REDUCED COPAYMENT FOR 

9 A HOME HEALTH SERVICE EPISODE OF CARE 

10 FOR CERTAIN BENEFICIARIES. 

11 (a) PART A.—

12 (1) IN GENERAL.—Section 1813(a) (42 

13 U.S.C. 1395e(a)) is amended by adding at 

14 the end the following new paragraph: 

15 ‘‘(5)(A)(i) Subject to clause (ii), the amount 

16 payable for home health services furnished to 

17 the individual under this title for each epi18 sode of care beginning in a year (beginning 

19 with 2004) shall be reduced by a copayment 

20 equal to the copayment amount specified in 

21 subparagraph (B)(ii) for such year. 

22 ‘‘(ii) The copayment under clause (i) shall 

23 not apply—

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

25 has been determined to be entitled to 
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1 medical assistance under section 

2 1902(a)(10)(A) or 1902(a)(10)(C) or to be a 

3 qualified medicare beneficiary (as de4 fined in section 1905(p)(1)), a specified 

5 low-income medicare beneficiary de6 scribed in section 1902(a)(10)(E)(iii), or a 

7 qualifying individual described in section 

8 1902(a)(10)(E)(iv)(I); and 

9 ‘‘(II) in the case of an episode of care 

10 which consists of 4 or fewer visits. 

11 ‘‘(B)(i) The Secretary shall estimate, be12 fore the beginning of each year (beginning 

13 with 2004), the national average payment 

14 under this title per episode for home health 

15 services projected for the year involved. 

16 ‘‘(ii) For each year the copayment amount 

17 under this clause is equal to 1.5 percent of the 

18 national average payment estimated for the 

19 year involved under clause (i). Any amount 

20 determined under the preceding sentence 

21 which is not a multiple of $5 shall be rounded 

22 to the nearest multiple of $5. 

23 ‘‘(iii) There shall be no administrative or 

24 judicial review under section 1869, 1878, or 
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1 otherwise of the estimation of average pay2 ment under clause (i).’’. 

3 (2) TIMELY IMPLEMENTATION.—Unless 

4 the Secretary of Health and Human Serv5 ices otherwise provides on a timely basis, 

6 the copayment amount specified under 

7 section 1813(a)(5)(B)(ii) of the Social Se8 curity Act (as added by paragraph (1)) for 

9 2004 shall be deemed to be $40. 

10 (b) CONFORMING PROVISIONS.—

11 (1) Section 1833(a)(2)(A) (42 U.S.C. 

12 1395l(a)(2)(A)) is amended by inserting 

13 ‘‘less the copayment amount applicable 

14 under section 1813(a)(5)’’ after ‘‘1895’’. 

15 (2) Section 1866(a)(2)(A)(i) (42 U.S.C. 

16 1395cc(a)(2)(A)(i)) is amended—

17 (A) by striking ‘‘or coinsurance’’

18 and inserting ‘‘, coinsurance, or co19 payment’’; and 

20 (B) by striking ‘‘or (a)(4)’’ and in21 serting ‘‘(a)(4), or (a)(5)’’. 

22 SEC. 703. MEDPAC STUDY ON MEDICARE MARGINS OF 

23 HOME HEALTH AGENCIES. 

24 (a) STUDY.—The Medicare Payment Advi25 sory Commission shall conduct a study of pay-
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1 ment margins of home health agencies under 

2 the home health prospective payment system 

3 under section 1895 of the Social Security Act 

4 (42 U.S.C. 1395fff). Such study shall examine 

5 whether systematic differences in payment 

6 margins are related to differences in case mix 

7 (as measured by home health resource groups 

8 (HHRGs)) among such agencies. The study 

9 shall use the partial or full-year cost reports 

10 filed by home health agencies. 

11 (b) REPORT.—Not later than 2 years after 

12 the date of the enactment of this Act, the Com13 mission shall submit to Congress a report on 

14 the study under subsection (a).

15 Subtitle B—Direct Graduate 

16 Medical Education 

17 SEC. 711. EXTENSION OF UPDATE LIMITATION ON HIGH 

18 COST PROGRAMS. 

19 Section 1886(h)(2)(D)(iv) (42 U.S.C. 

20 1395ww(h)(2)(D)(iv)) is amended—

21 (1) in subclause (I)—

22 (A) by inserting ‘‘AND 2004

23 THROUGH 2013’’ after ‘‘AND 2002’’; and 

24 (B) by inserting ‘‘or during the pe25 riod beginning with fiscal year 2004 
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1 and ending with fiscal year 2013’’

2 after ‘‘during fiscal year 2001 or fiscal 

3 year 2002’’; and 

4 (2) in subclause (II)—

5 (A) by striking ‘‘fiscal year 2004, 

6 or fiscal year 2005,’’ and 

7 (B) by striking ‘‘For a’’ and insert8 ing ‘‘For the’’.

9 Subtitle C—Chronic Care 

10 Improvement 

11 SEC. 721. VOLUNTARY CHRONIC CARE IMPROVEMENT 

12 UNDER TRADITIONAL FEE-FOR-SERVICE. 

13 Title XVIII, as amended by section 105(a), 

14 is amended by inserting after section 1807 the 

15 following new section: 

16 ‘‘CHRONIC CARE IMPROVEMENT

17 ‘‘SEC. 1808. (a) IN GENERAL.—

18 ‘‘(1) IN GENERAL.—The Secretary shall 

19 establish a process for providing chronic 

20 care improvement programs in each 

21 CCIA region for medicare beneficiaries 

22 who are not enrolled under part C or E 

23 and who have certain chronic conditions, 

24 such as congestive heart failure, diabetes, 

25 chronic obstructive pulmonary disease 

26 (COPD), stroke, or other disease as iden-
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1 tified by the Secretary as appropriate for 

2 chronic care improvement. Such a proc3 ess shall begin to be implemented no 

4 later than 1 year after the date of the en5 actment of this section. 

6 ‘‘(2) TERMINOLOGY.—For purposes of 

7 this section: 

8 ‘‘(A) CCIA REGION.—The term 

9 ‘CCIA region’ means a chronic care 

10 improvement administrative region 

11 delineated under subsection (b)(2). 

12 ‘‘(B) CHRONIC CARE IMPROVEMENT

13 PROGRAM.—The terms ‘chronic care 

14 improvement program’ and ‘program’

15 means such a program provided by a 

16 contractor under this section. 

17 ‘‘(C) CONTRACTOR.—The term ‘con18 tractor’ means an entity with a con19 tract to provide a chronic care im20 provement program in a CCIA region 

21 under this section. 

22 ‘‘(D) INDIVIDUAL PLAN.—The term 

23 ‘individual plan’ means a chronic 

24 care improvement plan established 
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1 under subsection (c)(5) for an indi2 vidual. 

3 ‘‘(3) CONSTRUCTION.—Nothing in this 

4 section shall be construed as expanding 

5 the amount, duration, or scope of benefits 

6 under this title. 

7 ‘‘(b) COMPETITIVE BIDDING PROCESS.—

8 ‘‘(1) IN GENERAL.—Under this section 

9 the Secretary shall award contracts to 

10 qualified entities for chronic care im11 provement programs for each CCIA re12 gion under this section through a com13 petitive bidding process. 

14 ‘‘(2) PROCESS.—Under such process—

15 ‘‘(A) the Secretary shall delineate 

16 the United States into multiple chron17 ic care improvement administrative 

18 regions; and 

19 ‘‘(B) the Secretary shall select at 

20 least 2 winning bidders in each CCIA 

21 region on the basis of the ability of 

22 each bidder to carry out a chronic 

23 care improvement program in accord24 ance with this section, in order to 
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1 achieve improved health and finan2 cial outcomes. 

3 ‘‘(3) ELIGIBLE CONTRACTOR.—A con4 tractor may be a disease improvement or5 ganization, health insurer, provider orga6 nization, a group of physicians, or any 

7 other legal entity that the Secretary de8 termines appropriate. 

9 ‘‘(c) CHRONIC CARE IMPROVEMENT PRO10 GRAMS.—

11 ‘‘(1) IN GENERAL.—Each contract 

12 under this section shall provide for the 

13 operation of a chronic care improvement 

14 program by a contractor in a CCIA region 

15 consistent with this subsection. 

16 ‘‘(2) IDENTIFICATION OF PROSPECTIVE

17 PROGRAM PARTICIPANTS.—Each contractor 

18 shall have a method for identifying medi19 care beneficiaries in the region to whom 

20 it will offer services under its program. 

21 The contractor shall identify such bene22 ficiaries through claims or other data 

23 and other means permitted consistent 

24 with applicable disclosure provisions. 
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1 ‘‘(3) INITIAL CONTACT BY SECRETARY.—

2 The Secretary shall communicate with 

3 each beneficiary identified under para4 graph (2) as a prospective participant in 

5 one or more programs concerning par6 ticipation in a program. Such commu7 nication may be made by the Secretary 

8 (or on behalf of the Secretary) and shall 

9 include information on the following: 

10 ‘‘(A) A description of the advan11 tages to the beneficiary in partici12 pating in a program. 

13 ‘‘(B) Notification that the con14 tractor offering a program may con15 tact the beneficiary directly con16 cerning such participation. 

17 ‘‘(C) Notification that participa18 tion in a program is voluntary. 

19 ‘‘(D) A description of the method 

20 for the beneficiary to select the single 

21 program in which the beneficiary 

22 wishes to participate and for declin23 ing to participate and a method for 

24 obtaining additional information con25 cerning such participation. 
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1 ‘‘(4) PARTICIPATION.—A medicare bene2 ficiary may participate in only one pro3 gram under this section and may termi4 nate participation at any time in a man5 ner specified by the Secretary. 

6 ‘‘(5) INDIVIDUAL CHRONIC CARE IM7 PROVEMENT PLANS.—

8 ‘‘(A) IN GENERAL.—For each bene9 ficiary participating in a program of 

10 a contractor under this section, the 

11 contractor shall develop with the 

12 beneficiary an individualized, goal13 oriented chronic care improvement 

14 plan. 

15 ‘‘(B) ELEMENTS OF INDIVIDUAL

16 PLAN.—Each individual plan devel17 oped under subparagraph (A) shall 

18 include a single point of contact to 

19 coordinate care and the following, as 

20 appropriate: 

21 ‘‘(i) Self-improvement edu22 cation for the beneficiary and 

23 support education for health care 

24 providers, primary caregivers, 

25 and family members. 
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1 ‘‘(ii) Coordination of health 

2 care services, such as application 

3 of a prescription drug regimen 

4 and home health services. 

5 ‘‘(iii) Collaboration with phy6 sicians and other providers to en7 hance communication of relevant 

8 clinical information. 

9 ‘‘(iv) The use of monitoring 

10 technologies that enable patient 

11 guidance through the exchange of 

12 pertinent clinical information, 

13 such as vital signs, symptomatic 

14 information, and health self-as15 sessment. 

16 ‘‘(v) The provision of informa17 tion about hospice care, pain and 

18 palliative care, and end-of-life 

19 care. 

20 ‘‘(C) CONTRACTOR RESPONSIBIL21 ITIES.—In establishing and carrying 

22 out individual plans under a pro23 gram, a contractor shall, directly or 

24 through subcontractors—
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1 ‘‘(i) guide participants in man2 aging their health, including all 

3 their co-morbidities, and in per4 forming activities as specified 

5 under the elements of the plan; 

6 ‘‘(ii) use decision support tools 

7 such as evidence-based practice 

8 guidelines or other criteria as de9 termined by the Secretary; and 

10 ‘‘(iii) develop a clinical infor11 mation database to track and 

12 monitor each participant across 

13 settings and to evaluate out14 comes. 

15 ‘‘(6) ADDITIONAL REQUIREMENTS.—The 

16 Secretary may establish additional re17 quirements for programs and contractors 

18 under this section. 

19 ‘‘(7) ACCREDITATION.—The Secretary 

20 may provide that programs that are ac21 credited by qualified organizations may 

22 be deemed to meet such requirements 

23 under this section as the Secretary may 

24 specify. 

25 ‘‘(c) CONTRACT TERMS.—
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1 ‘‘(1) IN GENERAL.—A contract under 

2 this section shall contain such terms and 

3 conditions as the Secretary may specify 

4 consistent with this section. The Sec5 retary may not enter into a contract with 

6 an entity under this section unless the 

7 entity meets such clinical, quality im8 provement, financial, and other require9 ments as the Secretary deems to be ap10 propriate for the population to be served. 

11 ‘‘(2) USE OF SUBCONTRACTORS PER12 MITTED.—A contractor may carry out a 

13 program directly or through contracts 

14 with subcontractors. 

15 ‘‘(3) BUDGET NEUTRAL PAYMENT CONDI16 TION.—In entering into a contract with an 

17 entity under this subsection, the Sec18 retary shall establish payment rates that 

19 assure that there will be no net aggregate 

20 increase in payments under this title 

21 over any period of 3 years or longer, as 

22 agreed to by the Secretary. Under this 

23 section, the Secretary shall assure that 

24 medicare program outlays plus adminis25 trative expenses (that would not have 
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1 been paid under this title without imple2 mentation of this section), including con3 tractor fees, shall not exceed the expendi4 tures that would have been incurred 

5 under this title for a comparable popu6 lation in the absence of the program 

7 under this section for the 3-year contract 

8 period. 

9 ‘‘(4) AT RISK RELATIONSHIP.—For pur10 poses of section 1128B(b)(3)(F), a contract 

11 under this section shall be treated as a 

12 risk-sharing arrangement referred to in 

13 such section. 

14 ‘‘(5) PERFORMANCE STANDARDS.—Pay15 ment to contractors under this section 

16 shall be subject to the contractor’s meet17 ing of clinical and financial performance 

18 standards set by the Secretary. 

19 ‘‘(6) CONTRACTOR OUTCOMES REPORT.—

20 Each contractor offering a program shall 

21 monitor and report to the Secretary, in a 

22 manner specified by the Secretary, the 

23 quality of care and efficacy of such pro24 gram in terms of—
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1 ‘‘(A) process measures, such as re2 ductions in errors of treatment and 

3 rehospitalization rates; 

4 ‘‘(B) beneficiary and provider sat5 isfaction; 

6 ‘‘(C) health outcomes; and 

7 ‘‘(D) financial outcomes. 

8 ‘‘(7) PHASED IN IMPLEMENTATION.—

9 Nothing in this section shall be construed 

10 as preventing the Secretary from phasing 

11 in the implementation of programs. 

12 ‘‘(d) BIANNUAL OUTCOMES REPORTS.—The 

13 Secretary shall submit to the Congress bian14 nual reports on the implementation of this 

15 section. Each such report shall include infor16 mation on—

17 ‘‘(1) the scope of implementation (in 

18 terms of both regions and chronic condi19 tions); 

20 ‘‘(2) program design; and 

21 ‘‘(3) improvements in health outcomes 

22 and financial efficiencies that result from 

23 such implementation. 

24 ‘‘(e) CLINICAL TRIALS.—The Secretary shall 

25 conduct randomized clinical trials, that com-
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1 pare program participants with medicare 

2 beneficiaries who are offered, but decline, to 

3 participate, in order to assess the potential of 

4 programs to—

5 ‘‘(1) reduce costs under this title; and 

6 ‘‘(2) improve health outcomes under 

7 this title. 

8 ‘‘(f) AUTHORIZATION OF APPROPRIATIONS.—

9 There are authorized to be appropriated to 

10 the Secretary, in appropriate part from the 

11 Hospital Insurance Trust Fund and the Sup12 plementary Medical Insurance Trust Fund, 

13 such sums as may be necessary to provide for 

14 contracts with chronic care improvement pro15 grams under this section. 

16 ‘‘(g) LIMITATION ON FUNDING.—In no case 

17 shall the funding under this section exceed 

18 $100,000,000 over a period of 3 years.’’. 

19 SEC. 722. CHRONIC CARE IMPROVEMENT UNDER MEDI20 CARE ADVANTAGE AND ENHANCED FEE-FOR21 SERVICE PROGRAMS. 

22 (a) UNDER MEDICARE ADVANTAGE PRO23 GRAM.—Section 1852 (42 U.S.C. 1395w–22) is 

24 amended—
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1 (1) by amending subsection (e) to 

2 read as follows: 

3 ‘‘(e) IMPLEMENTATION OF CHRONIC CARE IM4 PROVEMENT PROGRAMS FOR BENEFICIARIES WITH

5 MULTIPLE OR SUFFICIENTLY SEVERE CHRONIC

6 CONDITIONS.—

7 ‘‘(1) IN GENERAL.—Each Medicare Ad8 vantage organization with respect to 

9 each Medicare Advantage plan it offers 

10 shall have in effect, for enrollees with 

11 multiple or sufficiently severe chronic 

12 conditions, a chronic care improvement 

13 program that is designed to manage the 

14 needs of such enrollees and that meets 

15 the requirements of this subsection. 

16 ‘‘(2) ENROLLEE WITH MULTIPLE OR SUF17 FICIENTLY SEVERE CHRONIC CONDITIONS.—

18 For purposes of this subsection, the term 

19 ‘enrollee with multiple or sufficiently se20 vere chronic conditions’ means, with re21 spect to an enrollee in a Medicare Advan22 tage plan of a Medicare Advantage orga23 nization, an enrollee in the plan who has 

24 one or more chronic conditions, such as 

25 congestive heart failure, diabetes, COPD, 
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1 stroke, or other disease as identified by 

2 the organization as appropriate for 

3 chronic care improvement. 

4 ‘‘(3) GENERAL REQUIREMENTS.—

5 ‘‘(A) IN GENERAL.—Each chronic 

6 care improvement program under 

7 this subsection shall be conducted 

8 consistent with this subsection. 

9 ‘‘(B) IDENTIFICATION OF ENROLL10 EES.—Each such program shall have a 

11 method for monitoring and identi12 fying enrollees with multiple or suffi13 ciently severe chronic conditions that 

14 meet the organization’s criteria for 

15 participation under the program. 

16 ‘‘(C) DEVELOPMENT OF PLANS.—For 

17 an enrollee identified under subpara18 graph (B) for participation in a pro19 gram, the program shall develop, 

20 with the enrollee’s consent, an indi21 vidualized, goal-oriented chronic care 

22 improvement plan for chronic care 

23 improvement. 

24 ‘‘(D) ELEMENTS OF PLANS.—Each 

25 chronic care improvement plan devel-
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1 oped under subparagraph (C) shall 

2 include a single point of contact to 

3 coordinate care and the following, as 

4 appropriate: 

5 ‘‘(i) Self-improvement edu6 cation for the enrollee and sup7 port education for health care 

8 providers, primary caregivers, 

9 and family members. 

10 ‘‘(ii) Coordination of health 

11 care services, such as application 

12 of a prescription drug regimen 

13 and home health services. 

14 ‘‘(iii) Collaboration with phy15 sicians and other providers to en16 hance communication of relevant 

17 clinical information. 

18 ‘‘(iv) The use of monitoring 

19 technologies that enable patient 

20 guidance through the exchange of 

21 pertinent clinical information, 

22 such as vital signs, symptomatic 

23 information, and health self-as24 sessment. 
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1 ‘‘(v) The provision of informa2 tion about hospice care, pain and 

3 palliative care, and end-of-life 

4 care. 

5 ‘‘(E) ORGANIZATION RESPONSIBIL6 ITIES.—In establishing and carrying 

7 out chronic care improvement plans 

8 for participants under this para9 graph, a Medicare Advantage organi10 zation shall, directly or through sub11 contractors—

12 ‘‘(i) guide participants in man13 aging their health, including all 

14 their co-morbidities, and in per15 forming the activities as specified 

16 under the elements of the plan; 

17 ‘‘(ii) use decision support tools 

18 such as evidence-based practice 

19 guidelines or other criteria as de20 termined by the Secretary; and 

21 ‘‘(iii) develop a clinical infor22 mation database to track and 

23 monitor each participant across 

24 settings and to evaluate out25 comes. 
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1 ‘‘(3) ADDITIONAL REQUIREMENTS.—The 

2 Secretary may establish additional re3 quirements for chronic care improvement 

4 programs under this section. 

5 ‘‘(4) ACCREDITATION.—The Secretary 

6 may provide that chronic care improve7 ment programs that are accredited by 

8 qualified organizations may be deemed to 

9 meet such requirements under this sub10 section as the Secretary may specify. 

11 ‘‘(5) OUTCOMES REPORT.—Each Medi12 care Advantage organization with respect 

13 to its chronic care improvement program 

14 under this subsection shall monitor and 

15 report to the Secretary information on 

16 the quality of care and efficacy of such 

17 program as the Secretary may require.’’; 

18 and 

19 (2) by amending subparagraph (I) of 

20 subsection (c)(1) to read as follows: 

21 ‘‘(I) CHRONIC CARE IMPROVEMENT

22 PROGRAM.—A description of the orga23 nization’s chronic care improvement 

24 program under subsection (e).’’. 
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1 (b) APPLICATION UNDER ENHANCED FEE-FOR2 SERVICE PROGRAM.—Section 1860E–2(c)(3), as 

3 inserted by section 201(a), is amended by in4 serting ‘‘, including subsection (e) (relating to 

5 implementation of chronic care improvement 

6 programs)’’ after ‘‘The provisions of section 

7 1852’’. 

8 (c) EFFECTIVE DATE.—The amendments 

9 made by this section shall apply for contract 

10 years beginning on or after 1 year after the 

11 date of the enactment of this Act. 

12 SEC. 723. INSTITUTE OF MEDICINE REPORT. 

13 (a) STUDY.—

14 (1) IN GENERAL.—The Secretary of 

15 Health and Human Services shall con16 tract with the Institute of Medicine of the 

17 National Academy of Sciences to conduct 

18 a study of the barriers to effective inte19 grated care improvement for medicare 

20 beneficiaries with multiple or severe 

21 chronic conditions across settings and 

22 over time and to submit a report under 

23 subsection (b). 

24 (2) SPECIFIC ITEMS.—The study shall 

25 examine the statutory and regulatory 
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1 barriers to coordinating care across set2 tings for medicare beneficiaries in transi3 tion from one setting to another (such as 

4 between hospital, nursing facility, home 

5 health, hospice, and home). The study 

6 shall specifically identify the following: 

7 (A) Clinical, financial, or adminis8 trative requirements in the medicare 

9 program that present barriers to ef10 fective, seamless transitions across 

11 care settings. 

12 (B) Policies that impede the es13 tablishment of administrative and 

14 clinical information systems to track 

15 health status, utilization, cost, and 

16 quality data across settings. 

17 (C) State-level requirements that 

18 may present barriers to better care 

19 for medicare beneficiaries. 

20 (3) CONSULTATION.—The study under 

21 this subsection shall be conducted in con22 sultation with experts in the field of 

23 chronic care, consumers, and family care24 givers, working to integrate care delivery 
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1 and create more seamless transitions 

2 across settings and over time. 

3 (b) REPORT.—The report under this sub4 section shall be submitted to the Secretary 

5 and Congress not later than 18 months after 

6 the date of the enactment of this Act. 

7 SEC. 724. MEDPAC REPORT. 

8 (a) EVALUATION.—shall conduct an evalua9 tion that includes a description of the status 

10 of the implementation of chronic care im11 provement programs under section 1808 of 

12 the Social Security Act, the quality of health 

13 care services provided to individuals in such 

14 program, the health status of the participants 

15 of such program, and the cost savings attrib16 uted to implementation of such program. 

17 (b) REPORT.—Not later than 2 years after 

18 the date of implementation of such chronic 

19 care improvement programs, the Commission 

20 shall submit a report on such evaluation.

21 Subtitle D—Other Provisions 

22 SEC. 731. MODIFICATIONS TO MEDICARE PAYMENT ADVI23 SORY COMMISSION (MEDPAC). 

24 (a) EXAMINATION OF BUDGET CON25 SEQUENCES.—Section 1805(b) (42 U.S.C. 1395b–
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1 6(b)) is amended by adding at the end the fol2 lowing new paragraph: 

3 ‘‘(8) EXAMINATION OF BUDGET CON4 SEQUENCES.—Before making any rec5 ommendations, the Commission shall ex6 amine the budget consequences of such 

7 recommendations, directly or through 

8 consultation with appropriate expert en9 tities.’’. 

10 (b) CONSIDERATION OF EFFICIENT PROVISION

11 OF SERVICES.—Section 1805(b)(2)(B)(i) (42 

12 U.S.C. 1395b–6(b)(2)(B)(i)) is amended by in13 serting ‘‘the efficient provision of’’ after ‘‘ex14 penditures for’’. 

15 (c) APPLICATION OF DISCLOSURE REQUIRE16 MENTS.—

17 (1) IN GENERAL.—Section 1805(c)(2)(D) 

18 (42 U.S.C. 1395b–6(c)(2)(D)) is amended by 

19 adding at the end the following: ‘‘Mem20 bers of the Commission shall be treated 

21 as employees of the Congress for pur22 poses of applying title I of the Ethics in 

23 Government Act of 1978 (Public Law 95-

24 521).’’. 
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1 (2) EFFECTIVE DATE.—The amendment 

2 made by paragraph (1) shall take effect 

3 on January 1, 2004. 

4 (d) ADDITIONAL REPORTS.—

5 (1) DATA NEEDS AND SOURCES.—The 

6 Medicare Payment Advisory Commission 

7 shall conduct a study, and submit a re8 port to Congress by not later than June 1, 

9 2004, on the need for current data, and 

10 sources of current data available, to de11 termine the solvency and financial cir12 cumstances of hospitals and other medi13 care providers of services. The Commis14 sion shall examine data on uncompen15 sated care, as well as the share of uncom16 pensated care accounted for by the ex17 penses for treating illegal aliens. 

18 (2) USE OF TAX-RELATED RETURNS.—

19 Using return information provided under 

20 Form 990 of the Internal Revenue Serv21 ice, the Commission shall submit to Con22 gress, by not later than June 1, 2004, a re23 port on the following: 

24 (A) Investments, endowments, 

25 and fundraising of hospitals partici-
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1 pating under the medicare program 

2 and related foundations. 

3 (B) Access to capital financing for 

4 private and for not-for-profit hos5 pitals. 

6 SEC. 732. DEMONSTRATION PROJECT FOR MEDICAL ADULT 

7 DAY CARE SERVICES. 

8 (a) ESTABLISHMENT.—Subject to the suc9 ceeding provisions of this section, the Sec10 retary of Health and Human Services shall es11 tablish a demonstration project (in this sec12 tion referred to as the ‘‘demonstration 

13 project’’) under which the Secretary shall, as 

14 part of a plan of an episode of care for home 

15 health services established for a medicare 

16 beneficiary, permit a home health agency, di17 rectly or under arrangements with a medical 

18 adult day care facility, to provide medical 

19 adult day care services as a substitute for a 

20 portion of home health services that would 

21 otherwise be provided in the beneficiary’s 

22 home. 

23 (b) PAYMENT.—

24 (1) IN GENERAL.—The amount of pay25 ment for an episode of care for home 
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1 health services, a portion of which con2 sists of substitute medical adult day care 

3 services, under the demonstration project 

4 shall be made at a rate equal to 95 per5 cent of the amount that would otherwise 

6 apply for such home health services 

7 under section 1895 of the Social Security 

8 Act (42 u.s.c. 1395fff). In no case may a 

9 home health agency, or a medical adult 

10 day care facility under arrangements 

11 with a home health agency, separately 

12 charge a beneficiary for medical adult 

13 day care services furnished under the 

14 plan of care. 

15 (2) BUDGET NEUTRALITY FOR DEM16 ONSTRATION PROJECT.—Notwithstanding 

17 any other provision of law, the Secretary 

18 shall provide for an appropriate reduc19 tion in the aggregate amount of addi20 tional payments made under section 1895 

21 of the Social Security Act (42 U.S.C. 

22 1395fff) to reflect any increase in 

23 amounts expended from the Trust Funds 

24 as a result of the demonstration project 

25 conducted under this section. 
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1 (c) DEMONSTRATION PROJECT SITES.—The 

2 project established under this section shall be 

3 conducted in not more than 5 States selected 

4 by the Secretary that license or certify pro5 viders of services that furnish medical adult 

6 day care services. 

7 (d) DURATION.—The Secretary shall con8 duct the demonstration project for a period of 

9 3 years. 

10 (e) VOLUNTARY PARTICIPATION.—Participa11 tion of medicare beneficiaries in the dem12 onstration project shall be voluntary. The 

13 total number of such beneficiaries that may 

14 participate in the project at any given time 

15 may not exceed 15,000. 

16 (f) PREFERENCE IN SELECTING AGENCIES.—

17 In selecting home health agencies to partici18 pate under the demonstration project, the 

19 Secretary shall give preference to those agen20 cies that are currently licensed or certified 

21 through common ownership and control to 

22 furnish medical adult day care services. 

23 (g) WAIVER AUTHORITY.—The Secretary 

24 may waive such requirements of title XVIII of 

25 the Social Security Act as may be necessary 
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1 for the purposes of carrying out the dem2 onstration project, other than waiving the re3 quirement that an individual be homebound 

4 in order to be eligible for benefits for home 

5 health services. 

6 (h) EVALUATION AND REPORT.—The Sec7 retary shall conduct an evaluation of the clin8 ical and cost effectiveness of the demonstra9 tion project. Not later 30 months after the 

10 commencement of the project, the Secretary 

11 shall submit to Congress a report on the eval12 uation, and shall include in the report the fol13 lowing: 

14 (1) An analysis of the patient out15 comes and costs of furnishing care to the 

16 medicare beneficiaries participating in 

17 the project as compared to such out18 comes and costs to beneficiaries receiv19 ing only home health services for the 

20 same health conditions. 

21 (2) Such recommendations regarding 

22 the extension, expansion, or termination 

23 of the project as the Secretary deter24 mines appropriate. 

25 (i) DEFINITIONS.—In this section: 
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1 (1) HOME HEALTH AGENCY.—The term 

2 ‘‘home health agency’’ has the meaning 

3 given such term in section 1861(o) of the 

4 Social Security Act (42 U.S.C. 1395x(o)). 

5 (2) MEDICAL ADULT DAY CARE FACIL6 ITY.—The term ‘‘medical adult day care 

7 facility’’ means a facility that—

8 (A) has been licensed or certified 

9 by a State to furnish medical adult 

10 day care services in the State for a 

11 continuous 2-year period; 

12 (B) is engaged in providing 

13 skilled nursing services and other 

14 therapeutic services directly or under 

15 arrangement with a home health 

16 agency; 

17 (C) meets such standards estab18 lished by the Secretary to assure 

19 quality of care and such other re20 quirements as the Secretary finds 

21 necessary in the interest of the health 

22 and safety of individuals who are fur23 nished services in the facility; and 

24 (D) provides medical adult day 

25 care services. 
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1 (3) MEDICAL ADULT DAY CARE SERV2 ICES.—The term ‘‘medical adult day care 

3 services’’ means—

4 (A) home health service items and 

5 services described in paragraphs (1) 

6 through (7) of section 1861(m) fur7 nished in a medical adult day care fa8 cility; 

9 (B) a program of supervised ac10 tivities furnished in a group setting 

11 in the facility that—

12 (i) meet such criteria as the 

13 Secretary determines appro14 priate; and 

15 (ii) is designed to promote 

16 physical and mental health of the 

17 individuals; and 

18 (C) such other services as the Sec19 retary may specify. 

20 (4) MEDICARE BENEFICIARY.—The term 

21 ‘‘medicare beneficiary’’ means an indi22 vidual entitled to benefits under part A of 

23 this title, enrolled under part B of this 

24 title, or both. 
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1 SEC. 733. IMPROVEMENTS IN NATIONAL AND LOCAL COV2 ERAGE DETERMINATION PROCESS TO RE3 SPOND TO CHANGES IN TECHNOLOGY. 

4 (a) NATIONAL AND LOCAL COVERAGE DETER5 MINATION PROCESS.—

6 (1) IN GENERAL.—Section 1862 (42 

7 U.S.C. 1395y) is amended—

8 (A) in the third sentence of sub9 section (a) by inserting ‘‘consistent 

10 with subsection (k)’’ after ‘‘the Sec11 retary shall ensure’’; and 

12 (B) by adding at the end the fol13 lowing new subsection: 

14 ‘‘(k) NATIONAL AND LOCAL COVERAGE DE15 TERMINATION PROCESS.—

16 ‘‘(1) CRITERIA AND EVIDENCE USED IN

17 MAKING NATIONAL COVERAGE DETERMINA18 TIONS.—The Secretary shall make avail19 able to the public the criteria the Sec20 retary uses in making national coverage 

21 determinations, including how evidence 

22 to demonstrate that a procedure or de23 vice is reasonable and necessary is con24 sidered. 

25 ‘‘(2) TIMEFRAME FOR DECISIONS ON RE26 QUESTS FOR NATIONAL COVERAGE DETER-
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1 MINATIONS.—In the case of a request for a 

2 national coverage determination that—

3 ‘‘(A) does not require a technology 

4 assessment from an outside entity or 

5 deliberation from the Medicare Cov6 erage Advisory Committee, the deci7 sion on the request shall be made not 

8 later than 6 months after the date of 

9 the request; or 

10 ‘‘(B) requires such an assessment 

11 or deliberation and in which a clin12 ical trial is not requested, the deci13 sion on the request shall be made not 

14 later than 12 months after the date of 

15 the request. 

16 ‘‘(3) PROCESS FOR PUBLIC COMMENT IN

17 NATIONAL COVERAGE DETERMINATIONS.—At 

18 the end of the 6-month period that begins 

19 on the date a request for a national cov20 erage determination is made, the Sec21 retary shall—

22 ‘‘(A) make a draft of proposed de23 cision on the request available to the 

24 public through the Medicare Internet 

25 site of the Department of Health and 
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1 Human Services or other appropriate 

2 means; 

3 ‘‘(B) provide a 30-day period for 

4 public comment on such draft; 

5 ‘‘(C) make a final decision on the 

6 request within 60 days of the conclu7 sion of the 30-day period referred to 

8 under subparagraph (B); 

9 ‘‘(D) include in such final decision 

10 summaries of the public comments re11 ceived and responses thereto; 

12 ‘‘(E) make available to the public 

13 the clinical evidence and other data 

14 used in making such a decision when 

15 the decision differs from the rec16 ommendations of the Medicare Cov17 erage Advisory Committee; and 

18 ‘‘(F) in the case of a decision to 

19 grant the coverage determination, as20 sign a temporary or permanent code 

21 during the 60-day period referred to 

22 in subparagraph (C). 

23 ‘‘(4) CONSULTATION WITH OUTSIDE EX24 PERTS IN CERTAIN NATIONAL COVERAGE DE25 TERMINATIONS.—With respect to a request 
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1 for a national coverage determination for 

2 which there is not a review by the Medi3 care Coverage Advisory Committee, the 

4 Secretary shall consult with appropriate 

5 outside clinical experts. 

6 ‘‘(5) LOCAL COVERAGE DETERMINATION

7 PROCESS.—With respect to local coverage 

8 determinations made on or after January 

9 1, 2004—

10 ‘‘(A) PLAN TO PROMOTE CONSIST11 ENCY OF COVERAGE DETERMINATIONS.—

12 The Secretary shall develop a plan to 

13 evaluate new local coverage deter14 minations to determine which deter15 minations should be adopted nation16 ally and to what extent greater con17 sistency can be achieved among local 

18 coverage determinations. 

19 ‘‘(B) CONSULTATION.—The Sec20 retary shall require the fiscal inter21 mediaries or carriers providing serv22 ices within the same area to consult 

23 on all new local coverage determina24 tions within the area. 
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1 ‘‘(C) DISSEMINATION OF INFORMA2 TION.—The Secretary should serve as 

3 a center to disseminate information 

4 on local coverage determinations 

5 among fiscal intermediaries and car6 riers to reduce duplication of effort. 

7 ‘‘(6) NATIONAL AND LOCAL COVERAGE DE8 TERMINATION DEFINED.—For purposes of 

9 this subsection, the terms ‘national cov10 erage determination’ and ‘local coverage 

11 determination’ have the meaning given 

12 such terms in paragraphs (1)(B) and 

13 (2)(B), respectively, of section 1869(f).’’. 

14 (2) EFFECTIVE DATE.—The amendments 

15 made by paragraph (1) shall apply to na16 tional and local coverage determinations 

17 as of January 1, 2004. 

18 (b) MEDICARE COVERAGE OF ROUTINE COSTS

19 ASSOCIATED WITH CERTAIN CLINICAL TRIALS.—

20 (1) IN GENERAL.—With respect to the 

21 coverage of routine costs of care for 

22 beneficiaries participating in a qualifying 

23 clinical trial, as set forth on the date of 

24 the enactment of this Act in National 

25 Coverage Determination 30-1 of the Medi-
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1 care Coverage Issues Manual, the Sec2 retary shall deem clinical trials con3 ducted in accordance with an investiga4 tional device exemption approved under 

5 section 520(g) of the Federal Food, Drug, 

6 and Cosmetic Act (42 U.S.C. 360j(g)) to be 

7 automatically qualified for such cov8 erage. 

9 (2) RULE OF CONSTRUCTION.—Nothing 

10 in this subsection shall be construed as 

11 authorizing or requiring the Secretary to 

12 modify the regulations set forth on the 

13 date of the enactment of this Act at sub14 part B of part 405 of title 42, Code of Fed15 eral Regulations, or subpart A of part 411 

16 of such title, relating to coverage of, and 

17 payment for, a medical device that is the 

18 subject of an investigational device ex19 emption by the Food and Drug Adminis20 tration (except as may be necessary to 

21 implement paragraph (1)). 

22 (3) EFFECTIVE DATE.—This subsection 

23 shall apply to clinical trials begun before, 

24 on, or after the date of the enactment of 
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1 this Act and to items and services fur2 nished on or after such date. 

3 (c) ISSUANCE OF TEMPORARY NATIONAL

4 CODES.—Not later than January 1, 2004, the 

5 Secretary shall implement revised procedures 

6 for the issuance of temporary national 

7 HCPCS codes under part B of title XVIII of 

8 the Social Security Act. 

9 SEC. 734. TREATMENT OF CERTAIN PHYSICIAN PATHOLOGY 

10 SERVICES. 

11 (a) IN GENERAL.—Section 1848(i) (42 U.S.C. 

12 1395w–4(i)) is amended by adding at the end 

13 the following new paragraph: 

14 ‘‘(4) TREATMENT OF CERTAIN INPATIENT

15 PHYSICIAN PATHOLOGY SERVICES.—

16 ‘‘(A) IN GENERAL.—With respect to 

17 services furnished on or after Janu18 ary 1, 2001, and before January 1, 

19 2006, if an independent laboratory 

20 furnishes the technical component of 

21 a physician pathology service to a 

22 fee-for-service medicare beneficiary 

23 who is an inpatient or outpatient of a 

24 covered hospital, the Secretary shall 

25 treat such component as a service for 
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1 which payment shall be made to the 

2 laboratory under this section and not 

3 as an inpatient hospital service for 

4 which payment is made to the hos5 pital under section 1886(d) or as a 

6 hospital outpatient service for which 

7 payment is made to the hospital 

8 under section 1833(t). 

9 ‘‘(B) DEFINITIONS.—In this para10 graph: 

11 ‘‘(i) COVERED HOSPITAL.—

12 ‘‘(I) IN GENERAL.—The term 

13 ‘covered hospital’ means, with 

14 respect to an inpatient or out15 patient, a hospital that had an 

16 arrangement with an inde17 pendent laboratory that was 

18 in effect as of July 22, 1999, 

19 under which a laboratory fur20 nished the technical compo21 nent of physician pathology 

22 services to fee-for-service 

23 medicare beneficiaries who 

24 were hospital inpatients or 

25 outpatients, respectively, and 
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1 submitted claims for payment 

2 for such component to a car3 rier with a contract under 

4 section 1842 and not to the 

5 hospital. 

6 ‘‘(II) CHANGE IN OWNERSHIP

7 DOES NOT AFFECT DETERMINA8 TION.—A change in ownership 

9 with respect to a hospital on 

10 or after the date referred to 

11 in subclause (I) shall not af12 fect the determination of 

13 whether such hospital is a 

14 covered hospital for purposes 

15 of such subclause. 

16 ‘‘(ii) FEE-FOR-SERVICE MEDI17 CARE BENEFICIARY.—The term ‘fee18 for-service medicare beneficiary’

19 means an individual who is enti20 tled to benefits under part A, or 

21 enrolled under this part, or both, 

22 but is not enrolled in any of the 

23 following: 

24 ‘‘(I) A Medicare+Choice 

25 plan under part C. 
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1 ‘‘(II) A plan offered by an 

2 eligible organization under 

3 section 1876. 

4 ‘‘(III) A program of all-in5 clusive care for the elderly 

6 (PACE) under section 1894. 

7 ‘‘(IV) A social health main8 tenance organization (SHMO) 

9 demonstration project estab10 lished under section 4018(b) 

11 of the Omnibus Budget Rec12 onciliation Act of 1987 (Public 

13 Law 100–203).’’. 

14 (b) CONFORMING AMENDMENT.—Section 542 

15 of the Medicare, Medicaid, and SCHIP Bene16 fits Improvement and Protection Act of 2000 

17 (114 Stat. 2763A–550), as enacted into law by 

18 section 1(a)(6) of Public Law 106–554, is re19 pealed. 

20 (c) EFFECTIVE DATES.—The amendments 

21 made by this section shall take effect as if in22 cluded in the enactment of the Medicare, 

23 Medicaid, and SCHIP Benefits Improvement 

24 and Protection Act of 2000 (Appendix F, 114 
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1 Stat. 2763A–463), as enacted into law by sec2 tion 1(a)(6) of Public Law 106–554.

3 TITLE VIII—MEDICARE 

4 BENEFITS ADMINISTRATION

5 SEC. 801. ESTABLISHMENT OF MEDICARE BENEFITS AD6 MINISTRATION. 

7 (a) IN GENERAL.—Title XVIII (42 U.S.C. 

8 1395 et seq.), as amended by sections 105 and 

9 721, is amended by inserting after 1808 the fol10 lowing new section: 

11 ‘‘MEDICARE BENEFITS ADMINISTRATION

12 ‘‘SEC. 1809. (a) ESTABLISHMENT.—There is 

13 established within the Department of Health 

14 and Human Services an agency to be known 

15 as the Medicare Benefits Administration. 

16 ‘‘(b) ADMINISTRATOR; DEPUTY ADMINIS17 TRATOR; CHIEF ACTUARY.—

18 ‘‘(1) ADMINISTRATOR.—

19 ‘‘(A) IN GENERAL.—The Medicare 

20 Benefits Administration shall be 

21 headed by an administrator to be 

22 known as the ‘Medicare Benefits Ad23 ministrator’ (in this section referred 

24 to as the ‘Administrator’) who shall 

25 be appointed by the President, by and 

26 with the advice and consent of the 
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1 Senate. The Administrator shall be in 

2 direct line of authority to the Sec3 retary. 

4 ‘‘(B) COMPENSATION.—The Admin5 istrator shall be paid at the rate of 

6 basic pay payable for level III of the 

7 Executive Schedule under section 

8 5314 of title 5, United States Code. 

9 ‘‘(C) TERM OF OFFICE.—The Admin10 istrator shall be appointed for a term 

11 of 4 years. In any case in which a suc12 cessor does not take office at the end 

13 of an Administrator’s term of office, 

14 that Administrator may continue in 

15 office until the entry upon office of 

16 such a successor. An Administrator 

17 appointed to a term of office after the 

18 commencement of such term may 

19 serve under such appointment only 

20 for the remainder of such term. 

21 ‘‘(D) GENERAL AUTHORITY.—The 

22 Administrator shall be responsible for 

23 the exercise of all powers and the dis24 charge of all duties of the Administra25 tion, and shall have authority and 
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1 control over all personnel and activi2 ties thereof. 

3 ‘‘(E) RULEMAKING AUTHORITY.—The 

4 Administrator may prescribe such 

5 rules and regulations as the Adminis6 trator determines necessary or appro7 priate to carry out the functions of 

8 the Administration. The regulations 

9 prescribed by the Administrator shall 

10 be subject to the rulemaking proce11 dures established under section 553 

12 of title 5, United States Code. The Ad13 ministrator shall provide for the 

14 issuance of new regulations to carry 

15 out parts C, D, and E. 

16 ‘‘(F) AUTHORITY TO ESTABLISH OR17 GANIZATIONAL UNITS.—The Adminis18 trator may establish, alter, consoli19 date, or discontinue such organiza20 tional units or components within the 

21 Administration as the Administrator 

22 considers necessary or appropriate, 

23 except as specified in this section. 

24 ‘‘(G) AUTHORITY TO DELEGATE.—

25 The Administrator may assign duties, 
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1 and delegate, or authorize successive 

2 redelegations of, authority to act and 

3 to render decisions, to such officers 

4 and employees of the Administration 

5 as the Administrator may find nec6 essary. Within the limitations of such 

7 delegations, redelegations, or assign8 ments, all official acts and decisions 

9 of such officers and employees shall 

10 have the same force and effect as 

11 though performed or rendered by the 

12 Administrator. 

13 ‘‘(2) DEPUTY ADMINISTRATOR.—

14 ‘‘(A) IN GENERAL.—There shall be a 

15 Deputy Administrator of the Medi16 care Benefits Administration who 

17 shall be appointed by the President, 

18 by and with the advice and consent of 

19 the Senate. 

20 ‘‘(B) COMPENSATION.—The Deputy 

21 Administrator shall be paid at the 

22 rate of basic pay payable for level IV 

23 of the Executive Schedule under sec24 tion 5315 of title 5, United States 

25 Code. 
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1 ‘‘(C) TERM OF OFFICE.—The Deputy 

2 Administrator shall be appointed for 

3 a term of 4 years. In any case in 

4 which a successor does not take of5 fice at the end of a Deputy Adminis6 trator’s term of office, such Deputy 

7 Administrator may continue in office 

8 until the entry upon office of such a 

9 successor. A Deputy Administrator 

10 appointed to a term of office after the 

11 commencement of such term may 

12 serve under such appointment only 

13 for the remainder of such term. 

14 ‘‘(D) DUTIES.—The Deputy Admin15 istrator shall perform such duties and 

16 exercise such powers as the Adminis17 trator shall from time to time assign 

18 or delegate. The Deputy Adminis19 trator shall be Acting Administrator 

20 of the Administration during the ab21 sence or disability of the Adminis22 trator and, unless the President des23 ignates another officer of the Govern24 ment as Acting Administrator, in the 
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1 event of a vacancy in the office of the 

2 Administrator. 

3 ‘‘(3) CHIEF ACTUARY.—

4 ‘‘(A) IN GENERAL.—There is estab5 lished in the Administration the posi6 tion of Chief Actuary. The Chief Actu7 ary shall be appointed by, and in di8 rect line of authority to, the Adminis9 trator of such Administration. The 

10 Chief Actuary shall be appointed 

11 from among individuals who have 

12 demonstrated, by their education and 

13 experience, superior expertise in the 

14 actuarial sciences. The Chief Actuary 

15 may be removed only for cause. 

16 ‘‘(B) COMPENSATION.—The Chief 

17 Actuary shall be compensated at the 

18 highest rate of basic pay for the Sen19 ior Executive Service under section 

20 5382(b) of title 5, United States Code. 

21 ‘‘(C) DUTIES.—The Chief Actuary 

22 shall exercise such duties as are ap23 propriate for the office of the Chief 

24 Actuary and in accordance with pro-
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1 fessional standards of actuarial inde2 pendence. 

3 ‘‘(4) SECRETARIAL COORDINATION OF

4 PROGRAM ADMINISTRATION.—The Secretary 

5 shall ensure appropriate coordination be6 tween the Administrator and the Admin7 istrator of the Centers for Medicare & 

8 Medicaid Services in carrying out the 

9 programs under this title. 

10 ‘‘(c) DUTIES; ADMINISTRATIVE PROVISIONS.—

11 ‘‘(1) DUTIES.—

12 ‘‘(A) GENERAL DUTIES.—The Admin13 istrator shall carry out parts C, D, 

14 and E, including—

15 ‘‘(i) negotiating, entering into, 

16 and enforcing, contracts with 

17 plans for the offering of Medicare 

18 Advantage plans under part C 

19 and EFFS plans under part E, in20 cluding the offering of qualified 

21 prescription drug coverage under 

22 such plans; and 

23 ‘‘(ii) negotiating, entering 

24 into, and enforcing, contracts 

25 with PDP sponsors for the offer-
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1 ing of prescription drug plans 

2 under part D. 

3 ‘‘(B) OTHER DUTIES.—The Adminis4 trator shall carry out any duty pro5 vided for under part C, part D, or 

6 part E, including demonstration 

7 projects carried out in part or in 

8 whole under such parts, the programs 

9 of all-inclusive care for the elderly 

10 (PACE program) under section 1894, 

11 the social health maintenance organi12 zation (SHMO) demonstration 

13 projects (referred to in section 

14 4104(c) of the Balanced Budget Act of 

15 1997), medicare cost contractors 

16 under section 1876(h), and through a 

17 Medicare Advantage project that 

18 demonstrates the application of capi19 tation payment rates for frail elderly 

20 medicare beneficiaries through the 

21 use of a interdisciplinary team and 

22 through the provision of primary 

23 care services to such beneficiaries by 

24 means of such a team at the nursing 

25 facility involved). 
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1 ‘‘(C) PRESCRIPTION DRUG CARD.—

2 The Administrator shall carry out 

3 section 1807 (relating to the medicare 

4 prescription drug discount card en5 dorsement program). 

6 ‘‘(D) NONINTERFERENCE.—In car7 rying out its duties with respect to 

8 the provision of qualified prescrip9 tion drug coverage to beneficiaries 

10 under this title, the Administrator 

11 may not—

12 ‘‘(i) require a particular for13 mulary or institute a price struc14 ture for the reimbursement of 

15 covered outpatient drugs; 

16 ‘‘(ii) interfere in any way with 

17 negotiations between PDP spon18 sors and Medicare Advantage or19 ganizations and EFFS organiza20 tions and drug manufacturers, 

21 wholesalers, or other suppliers of 

22 covered outpatient drugs; and 

23 ‘‘(iii) otherwise interfere with 

24 the competitive nature of pro-
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1 viding such coverage through 

2 such sponsors and organizations. 

3 ‘‘(E) ANNUAL REPORTS.—Not later 

4 March 31 of each year, the Adminis5 trator shall submit to Congress and 

6 the President a report on the admin7 istration of parts C, D, and E during 

8 the previous fiscal year. 

9 ‘‘(2) STAFF.—

10 ‘‘(A) IN GENERAL.—The Adminis11 trator, with the approval of the Sec12 retary, may employ, without regard 

13 to chapter 31 of title 5, United States 

14 Code, other than sections 3102 

15 through 3108, 3110 through 3113, 

16 3136m and 3151, such officers and em17 ployees as are necessary to admin18 ister the activities to be carried out 

19 through the Medicare Benefits Ad20 ministration. The Administrator shall 

21 employ staff with appropriate and 

22 necessary expertise in negotiating 

23 contracts in the private sector. 

24 ‘‘(B) FLEXIBILITY WITH RESPECT TO

25 COMPENSATION.—
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1 ‘‘(i) IN GENERAL.—The staff of 

2 the Medicare Benefits Adminis3 tration shall, subject to clause (ii), 

4 be paid without regard to the pro5 visions of chapter 51 (other than 

6 section 5101) and chapter 53 

7 (other than section 5301) of such 

8 title (relating to classification and 

9 schedule pay rates). 

10 ‘‘(ii) MAXIMUM RATE.—In no 

11 case may the rate of compensa12 tion determined under clause (i) 

13 exceed the rate of basic pay pay14 able for level IV of the Executive 

15 Schedule under section 5315 of 

16 title 5, United States Code. 

17 ‘‘(C) LIMITATION ON FULL-TIME

18 EQUIVALENT STAFFING FOR CURRENT

19 CMS FUNCTIONS BEING TRANSFERRED.—

20 The Administrator may not employ 

21 under this paragraph a number of 

22 full-time equivalent employees, to 

23 carry out functions that were pre24 viously conducted by the Centers for 

25 Medicare & Medicaid Services and 
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1 that are conducted by the Adminis2 trator by reason of this section, that 

3 exceeds the number of such full-time 

4 equivalent employees authorized to 

5 be employed by the Centers for Medi6 care & Medicaid Services to conduct 

7 such functions as of the date of the 

8 enactment of this Act. 

9 ‘‘(3) REDELEGATION OF CERTAIN FUNC10 TIONS OF THE CENTERS FOR MEDICARE &

11 MEDICAID SERVICES.—

12 ‘‘(A) IN GENERAL.—The Secretary, 

13 the Administrator, and the Adminis14 trator of the Centers for Medicare & 

15 Medicaid Services shall establish an 

16 appropriate transition of responsi17 bility in order to redelegate the ad18 ministration of part C from the Sec19 retary and the Administrator of the 

20 Centers for Medicare & Medicaid 

21 Services to the Administrator as is 

22 appropriate to carry out the purposes 

23 of this section. 

24 ‘‘(B) TRANSFER OF DATA AND INFOR25 MATION.—The Secretary shall ensure 
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1 that the Administrator of the Centers 

2 for Medicare & Medicaid Services 

3 transfers to the Administrator of the 

4 Medicare Benefits Administration 

5 such information and data in the pos6 session of the Administrator of the 

7 Centers for Medicare & Medicaid 

8 Services as the Administrator of the 

9 Medicare Benefits Administration re10 quires to carry out the duties de11 scribed in paragraph (1). 

12 ‘‘(C) CONSTRUCTION.—Insofar as a 

13 responsibility of the Secretary or the 

14 Administrator of the Centers for 

15 Medicare & Medicaid Services is re16 delegated to the Administrator under 

17 this section, any reference to the Sec18 retary or the Administrator of the 

19 Centers for Medicare & Medicaid 

20 Services in this title or title XI with 

21 respect to such responsibility is 

22 deemed to be a reference to the Ad23 ministrator.

24 ‘‘(d) OFFICE OF BENEFICIARY ASSISTANCE.—
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1 ‘‘(1) ESTABLISHMENT.—The Secretary 

2 shall establish within the Medicare Bene3 fits Administration an Office of Bene4 ficiary Assistance to coordinate functions 

5 relating to outreach and education of 

6 medicare beneficiaries under this title, 

7 including the functions described in 

8 paragraph (2). The Office shall be sepa9 rate operating division within the Admin10 istration. 

11 ‘‘(2) DISSEMINATION OF INFORMATION ON

12 BENEFITS AND APPEALS RIGHTS.—

13 ‘‘(A) DISSEMINATION OF BENEFITS

14 INFORMATION.—The Office of Bene15 ficiary Assistance shall disseminate, 

16 directly or through contract, to medi17 care beneficiaries, by mail, by posting 

18 on the Internet site of the Medicare 

19 Benefits Administration and through 

20 a toll-free telephone number, infor21 mation with respect to the following: 

22 ‘‘(i) Benefits, and limitations 

23 on payment (including cost-shar24 ing, stop-loss provisions, and for-
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1 mulary restrictions) under parts 

2 C, D, and E. 

3 ‘‘(ii) Benefits, and limitations 

4 on payment under parts A and B, 

5 including information on medi6 care supplemental policies under 

7 section 1882. 

8 Such information shall be presented 

9 in a manner so that medicare bene10 ficiaries may compare benefits under 

11 parts A, B, D, and medicare supple12 mental policies with benefits under 

13 Medicare Advantage plans under part 

14 C and EFFS plans under part E. 

15 ‘‘(B) DISSEMINATION OF APPEALS

16 RIGHTS INFORMATION.—The Office of 

17 Beneficiary Assistance shall dissemi18 nate to medicare beneficiaries in the 

19 manner provided under subpara20 graph (A) a description of procedural 

21 rights (including grievance and ap22 peals procedures) of beneficiaries 

23 under the original medicare fee-for24 service program under parts A and B, 

25 the Medicare Advantage program 
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1 under part C, the Voluntary Prescrip2 tion Drug Benefit Program under 

3 part D, and the Enhanced Fee-for4 Service program under part E. 

5 ‘‘(e) MEDICARE POLICY ADVISORY BOARD.—

6 ‘‘(1) ESTABLISHMENT.—There is estab7 lished within the Medicare Benefits Ad8 ministration the Medicare Policy Advi9 sory Board (in this section referred to the 

10 ‘Board’). The Board shall advise, consult 

11 with, and make recommendations to the 

12 Administrator of the Medicare Benefits 

13 Administration with respect to the ad14 ministration of parts C, D, and E, includ15 ing the review of payment policies under 

16 such parts. 

17 ‘‘(2) REPORTS.—

18 ‘‘(A) IN GENERAL.—With respect to 

19 matters of the administration of parts 

20 C, D, and E the Board shall submit to 

21 Congress and to the Administrator of 

22 the Medicare Benefits Administration 

23 such reports as the Board determines 

24 appropriate. Each such report may 

25 contain such recommendations as the 
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1 Board determines appropriate for leg2 islative or administrative changes to 

3 improve the administration of such 

4 parts, including the topics described 

5 in subparagraph (B). Each such re6 port shall be published in the Federal 

7 Register. 

8 ‘‘(B) TOPICS DESCRIBED.—Reports 

9 required under subparagraph (A) 

10 may include the following topics: 

11 ‘‘(i) FOSTERING COMPETITION.—

12 Recommendations or proposals to 

13 increase competition under parts 

14 C, D, and E for services furnished 

15 to medicare beneficiaries. 

16 ‘‘(ii) EDUCATION AND ENROLL17 MENT.—Recommendations for the 

18 improvement to efforts to provide 

19 medicare beneficiaries informa20 tion and education on the pro21 gram under this title, and specifi22 cally parts C, D, and E, and the 

23 program for enrollment under the 

24 title. 
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1 ‘‘(iii) IMPLEMENTATION OF RISK2 ADJUSTMENT.—Evaluation of the 

3 implementation under section 

4 1853(a)(3)(C) of the risk adjust5 ment methodology to payment 

6 rates under that section to Medi7 care Advantage organizations of8 fering Medicare Advantage plans 

9 (and the corresponding payment 

10 provisions under part E) that ac11 counts for variations in per capita 

12 costs based on health status, ge13 ography, and other demographic 

14 factors. 

15 ‘‘(iv) RURAL ACCESS.—Rec16 ommendations to improve com17 petition and access to plans 

18 under parts C, D, and E in rural 

19 areas. 

20 ‘‘(C) MAINTAINING INDEPENDENCE

21 OF BOARD.—The Board shall directly 

22 submit to Congress reports required 

23 under subparagraph (A). No officer or 

24 agency of the United States may re25 quire the Board to submit to any offi-
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1 cer or agency of the United States for 

2 approval, comments, or review, prior 

3 to the submission to Congress of such 

4 reports. 

5 ‘‘(3) DUTY OF ADMINISTRATOR OF MEDI6 CARE BENEFITS ADMINISTRATION.—With re7 spect to any report submitted by the 

8 Board under paragraph (2)(A), not later 

9 than 90 days after the report is sub10 mitted, the Administrator of the Medicare 

11 Benefits Administration shall submit to 

12 Congress and the President an analysis 

13 of recommendations made by the Board 

14 in such report. Each such analysis shall 

15 be published in the Federal Register. 

16 ‘‘(4) MEMBERSHIP.—

17 ‘‘(A) APPOINTMENT.—Subject to the 

18 succeeding provisions of this para19 graph, the Board shall consist of 

20 seven members to be appointed as fol21 lows: 

22 ‘‘(i) Three members shall be 

23 appointed by the President. 

24 ‘‘(ii) Two members shall be ap25 pointed by the Speaker of the 
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1 House of Representatives, with 

2 the advice of the chairmen and 

3 the ranking minority members of 

4 the Committees on Ways and 

5 Means and on Energy and Com6 merce of the House of Represent7 atives. 

8 ‘‘(iii) Two members shall be 

9 appointed by the President pro 

10 tempore of the Senate with the 

11 advice of the chairman and the 

12 ranking minority member of the 

13 Senate Committee on Finance. 

14 ‘‘(B) QUALIFICATIONS.—The mem15 bers shall be chosen on the basis of 

16 their integrity, impartiality, and good 

17 judgment, and shall be individuals 

18 who are, by reason of their education 

19 and experience in health care bene20 fits management, exceptionally quali21 fied to perform the duties of members 

22 of the Board. 

23 ‘‘(C) PROHIBITION ON INCLUSION OF

24 FEDERAL EMPLOYEES.—No officer or 
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1 employee of the United States may 

2 serve as a member of the Board. 

3 ‘‘(5) COMPENSATION.—Members of the 

4 Board shall receive, for each day (includ5 ing travel time) they are engaged in the 

6 performance of the functions of the 

7 board, compensation at rates not to ex8 ceed the daily equivalent to the annual 

9 rate in effect for level IV of the Executive 

10 Schedule under section 5315 of title 5, 

11 United States Code. 

12 ‘‘(6) TERMS OF OFFICE.—

13 ‘‘(A) IN GENERAL.—The term of of14 fice of members of the Board shall be 

15 3 years. 

16 ‘‘(B) TERMS OF INITIAL AP17 POINTEES.—As designated by the 

18 President at the time of appointment, 

19 of the members first appointed—

20 ‘‘(i) one shall be appointed for 

21 a term of 1 year; 

22 ‘‘(ii) three shall be appointed 

23 for terms of 2 years; and 

24 ‘‘(iii) three shall be appointed 

25 for terms of 3 years. 
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1 ‘‘(C) REAPPOINTMENTS.—Any per2 son appointed as a member of the 

3 Board may not serve for more than 8 

4 years. 

5 ‘‘(D) VACANCY.—Any member ap6 pointed to fill a vacancy occurring be7 fore the expiration of the term for 

8 which the member’s predecessor was 

9 appointed shall be appointed only for 

10 the remainder of that term. A mem11 ber may serve after the expiration of 

12 that member’s term until a successor 

13 has taken office. A vacancy in the 

14 Board shall be filled in the manner in 

15 which the original appointment was 

16 made. 

17 ‘‘(7) CHAIR.—The Chair of the Board 

18 shall be elected by the members. The 

19 term of office of the Chair shall be 3 

20 years. 

21 ‘‘(8) MEETINGS.—The Board shall meet 

22 at the call of the Chair, but in no event 

23 less than three times during each fiscal 

24 year. 

25 ‘‘(9) DIRECTOR AND STAFF.—
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1 ‘‘(A) APPOINTMENT OF DIRECTOR.—

2 The Board shall have a Director who 

3 shall be appointed by the Chair. 

4 ‘‘(B) IN GENERAL.—With the ap5 proval of the Board, the Director may 

6 appoint, without regard to chapter 31 

7 of title 5, United States Code, such 

8 additional personnel as the Director 

9 considers appropriate. 

10 ‘‘(C) FLEXIBILITY WITH RESPECT TO

11 COMPENSATION.—

12 ‘‘(i) IN GENERAL.—The Director 

13 and staff of the Board shall, sub14 ject to clause (ii), be paid without 

15 regard to the provisions of chap16 ter 51 and chapter 53 of such title 

17 (relating to classification and 

18 schedule pay rates). 

19 ‘‘(ii) MAXIMUM RATE.—In no 

20 case may the rate of compensa21 tion determined under clause (i) 

22 exceed the rate of basic pay pay23 able for level IV of the Executive 

24 Schedule under section 5315 of 

25 title 5, United States Code. 
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1 ‘‘(D) ASSISTANCE FROM THE ADMIN2 ISTRATOR OF THE MEDICARE BENEFITS

3 ADMINISTRATION.—The Administrator 

4 of the Medicare Benefits Administra5 tion shall make available to the 

6 Board such information and other as7 sistance as it may require to carry 

8 out its functions. 

9 ‘‘(10) CONTRACT AUTHORITY.—The 

10 Board may contract with and compensate 

11 government and private agencies or per12 sons to carry out its duties under this 

13 subsection, without regard to section 

14 3709 of the Revised Statutes (41 U.S.C. 5). 

15 ‘‘(f) FUNDING.—There is authorized to be 

16 appropriated, in appropriate part from the 

17 Federal Hospital Insurance Trust Fund and 

18 from the Federal Supplementary Medical In19 surance Trust Fund (including the Medicare 

20 Prescription Drug Account), such sums as are 

21 necessary to carry out this section.’’. 

22 (b) EFFECTIVE DATE.—

23 (1) IN GENERAL.—The amendment 

24 made by subsection (a) shall take effect 

25 on the date of the enactment of this Act. 
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1 (2) DUTIES WITH RESPECT TO ELIGI2 BILITY DETERMINATIONS AND ENROLLMENT.—

3 The Administrator of the Medicare Bene4 fits Administration shall carry out enroll5 ment under title XVIII of the Social Secu6 rity Act, make eligibility determinations 

7 under such title, and carry out parts C 

8 and E of such title for years beginning or 

9 after January 1, 2006. 

10 (3) TRANSITION.—Before the date the 

11 Administrator of the Medicare Benefits 

12 Administration is appointed and assumes 

13 responsibilities under this section and 

14 section 1807 of the Social Security Act, 

15 the Secretary of Health and Human Serv16 ices shall provide for the conduct of any 

17 responsibilities of such Administrator 

18 that are otherwise provided under law. 

19 (c) MISCELLANEOUS ADMINISTRATIVE PROVI20 SIONS.—

21 (1) ADMINISTRATOR AS MEMBER OF THE

22 BOARD OF TRUSTEES OF THE MEDICARE

23 TRUST FUNDS.—Section 1817(b) and sec24 tion 1841(b) (42 U.S.C. 1395i(b), 1395t(b)) 

25 are each amended by striking ‘‘and the 
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1 Secretary of Health and Human Services, 

2 all ex officio,’’ and inserting ‘‘the Sec3 retary of Health and Human Services, 

4 and the Administrator of the Medicare 

5 Benefits Administration, all ex officio,’’. 

6 (2) INCREASE IN GRADE TO EXECUTIVE

7 LEVEL III FOR THE ADMINISTRATOR OF THE

8 CENTERS FOR MEDICARE & MEDICAID SERV9 ICES; LEVEL FOR MEDICARE BENEFITS ADMIN10 ISTRATOR.—

11 (A) IN GENERAL.—Section 5314 of 

12 title 5, United States Code, by adding 

13 at the end the following: 

14 ‘‘Administrator of the Centers for 

15 Medicare & Medicaid Services. 

16 ‘‘Administrator of the Medicare Bene17 fits Administration.’’. 

18 (B) CONFORMING AMENDMENT.—

19 Section 5315 of such title is amended 

20 by striking ‘‘Administrator of the 

21 Health Care Financing Administra22 tion.’’. 

23 (C) EFFECTIVE DATE.—The amend24 ments made by this paragraph take 

25 effect on January 1, 2004.
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1 TITLE IX—REGULATORY REDUC2 TION AND CONTRACTING RE3 FORM 

4 Subtitle A—Regulatory Reform 

5 SEC. 901. CONSTRUCTION; DEFINITION OF SUPPLIER. 

6 (a) CONSTRUCTION.—Nothing in this title 

7 shall be construed—

8 (1) to compromise or affect existing 

9 legal remedies for addressing fraud or 

10 abuse, whether it be criminal prosecu11 tion, civil enforcement, or administrative 

12 remedies, including under sections 3729 

13 through 3733 of title 31, United States 

14 Code (known as the False Claims Act); or 

15 (2) to prevent or impede the Depart16 ment of Health and Human Services in 

17 any way from its ongoing efforts to elimi18 nate waste, fraud, and abuse in the medi19 care program. 

20 Furthermore, the consolidation of medicare 

21 administrative contracting set forth in this 

22 Act does not constitute consolidation of the 

23 Federal Hospital Insurance Trust Fund and 

24 the Federal Supplementary Medical Insur-
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1 ance Trust Fund or reflect any position on 

2 that issue. 

3 (b) DEFINITION OF SUPPLIER.—Section 1861 

4 (42 U.S.C. 1395x) is amended by inserting after 

5 subsection (c) the following new subsection: 

6 ‘‘Supplier 

7 ‘‘(d) The term ‘supplier’ means, unless the 

8 context otherwise requires, a physician or 

9 other practitioner, a facility, or other entity 

10 (other than a provider of services) that fur11 nishes items or services under this title.’’. 

12 SEC. 902. ISSUANCE OF REGULATIONS. 

13 (a) REGULAR TIMELINE FOR PUBLICATION OF

14 FINAL RULES.—

15 (1) IN GENERAL.—Section 1871(a) (42 

16 U.S.C. 1395hh(a)) is amended by adding 

17 at the end the following new paragraph: 

18 ‘‘(3)(A) The Secretary, in consultation with 

19 the Director of the Office of Management and 

20 Budget, shall establish and publish a regular 

21 timeline for the publication of final regula22 tions based on the previous publication of a 

23 proposed regulation or an interim final regu24 lation. 
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1 ‘‘(B) Such timeline may vary among dif2 ferent regulations based on differences in the 

3 complexity of the regulation, the number and 

4 scope of comments received, and other rel5 evant factors, but shall not be longer than 3 

6 years except under exceptional cir7 cumstances. If the Secretary intends to vary 

8 such timeline with respect to the publication 

9 of a final regulation, the Secretary shall cause 

10 to have published in the Federal Register no11 tice of the different timeline by not later than 

12 the timeline previously established with re13 spect to such regulation. Such notice shall in14 clude a brief explanation of the justification 

15 for such variation. 

16 ‘‘(C) In the case of interim final regula17 tions, upon the expiration of the regular 

18 timeline established under this paragraph for 

19 the publication of a final regulation after op20 portunity for public comment, the interim 

21 final regulation shall not continue in effect 

22 unless the Secretary publishes (at the end of 

23 the regular timeline and, if applicable, at the 

24 end of each succeeding 1-year period) a notice 

25 of continuation of the regulation that in-
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1 cludes an explanation of why the regular 

2 timeline (and any subsequent 1-year exten3 sion) was not complied with. If such a notice 

4 is published, the regular timeline (or such 

5 timeline as previously extended under this 

6 paragraph) for publication of the final regula7 tion shall be treated as having been extended 

8 for 1 additional year. 

9 ‘‘(D) The Secretary shall annually submit 

10 to Congress a report that describes the in11 stances in which the Secretary failed to pub12 lish a final regulation within the applicable 

13 regular timeline under this paragraph and 

14 that provides an explanation for such fail15 ures.’’. 

16 (2) EFFECTIVE DATE.—The amendment 

17 made by paragraph (1) shall take effect 

18 on the date of the enactment of this Act. 

19 The Secretary shall provide for an appro20 priate transition to take into account the 

21 backlog of previously published interim 

22 final regulations. 

23 (b) LIMITATIONS ON NEW MATTER IN FINAL

24 REGULATIONS.—
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1 (1) IN GENERAL.—Section 1871(a) (42 

2 U.S.C. 1395hh(a)), as amended by sub3 section (a), is amended by adding at the 

4 end the following new paragraph: 

5 ‘‘(4) If the Secretary publishes a final reg6 ulation that includes a provision that is not 

7 a logical outgrowth of a previously published 

8 notice of proposed rulemaking or interim 

9 final rule, such provision shall be treated as 

10 a proposed regulation and shall not take ef11 fect until there is the further opportunity for 

12 public comment and a publication of the pro13 vision again as a final regulation.’’. 

14 (2) EFFECTIVE DATE.—The amendment 

15 made by paragraph (1) shall apply to 

16 final regulations published on or after 

17 the date of the enactment of this Act. 

18 SEC. 903. COMPLIANCE WITH CHANGES IN REGULATIONS 

19 AND POLICIES. 

20 (a) NO RETROACTIVE APPLICATION OF SUB21 STANTIVE CHANGES.—

22 (1) IN GENERAL.—Section 1871 (42 

23 U.S.C. 1395hh), as amended by section 

24 902(a), is amended by adding at the end 

25 the following new subsection: 
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1 ‘‘(e)(1)(A) A substantive change in regula2 tions, manual instructions, interpretative 

3 rules, statements of policy, or guidelines of 

4 general applicability under this title shall not 

5 be applied (by extrapolation or otherwise) 

6 retroactively to items and services furnished 

7 before the effective date of the change, unless 

8 the Secretary determines that—

9 ‘‘(i) such retroactive application is 

10 necessary to comply with statutory re11 quirements; or 

12 ‘‘(ii) failure to apply the change retro13 actively would be contrary to the public 

14 interest.’’. 

15 (2) EFFECTIVE DATE.—The amendment 

16 made by paragraph (1) shall apply to sub17 stantive changes issued on or after the 

18 date of the enactment of this Act. 

19 (b) TIMELINE FOR COMPLIANCE WITH SUB20 STANTIVE CHANGES AFTER NOTICE.—

21 (1) IN GENERAL.—Section 1871(e)(1), as 

22 added by subsection (a), is amended by 

23 adding at the end the following: 

24 ‘‘(B)(i) Except as provided in clause (ii), a 

25 substantive change referred to in subpara-
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1 graph (A) shall not become effective before 

2 the end of the 30-day period that begins on 

3 the date that the Secretary has issued or pub4 lished, as the case may be, the substantive 

5 change. 

6 ‘‘(ii) The Secretary may provide for such 

7 a substantive change to take effect on a date 

8 that precedes the end of the 30-day period 

9 under clause (i) if the Secretary finds that 

10 waiver of such 30-day period is necessary to 

11 comply with statutory requirements or that 

12 the application of such 30-day period is con13 trary to the public interest. If the Secretary 

14 provides for an earlier effective date pursu15 ant to this clause, the Secretary shall include 

16 in the issuance or publication of the sub17 stantive change a finding described in the 

18 first sentence, and a brief statement of the 

19 reasons for such finding. 

20 ‘‘(C) No action shall be taken against a 

21 provider of services or supplier with respect 

22 to noncompliance with such a substantive 

23 change for items and services furnished be24 fore the effective date of such a change.’’. 
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1 (2) EFFECTIVE DATE.—The amendment 

2 made by paragraph (1) shall apply to 

3 compliance actions undertaken on or 

4 after the date of the enactment of this 

5 Act. 

6 (c) RELIANCE ON GUIDANCE.—

7 (1) IN GENERAL.—Section 1871(e), as 

8 added by subsection (a), is further 

9 amended by adding at the end the fol10 lowing new paragraph: 

11 ‘‘(2)(A) If—

12 ‘‘(i) a provider of services or supplier 

13 follows the written guidance (which may 

14 be transmitted electronically) provided 

15 by the Secretary or by a medicare con16 tractor (as defined in section 1889(g)) act17 ing within the scope of the contractor’s 

18 contract authority, with respect to the 

19 furnishing of items or services and sub20 mission of a claim for benefits for such 

21 items or services with respect to such 

22 provider or supplier; 

23 ‘‘(ii) the Secretary determines that 

24 the provider of services or supplier has 

25 accurately presented the circumstances 
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1 relating to such items, services, and claim 

2 to the contractor in writing; and 

3 ‘‘(iii) the guidance was in error; 

4 the provider of services or supplier shall not 

5 be subject to any sanction (including any pen6 alty or requirement for repayment of any 

7 amount) if the provider of services or supplier 

8 reasonably relied on such guidance. 

9 ‘‘(B) Subparagraph (A) shall not be con10 strued as preventing the recoupment or re11 payment (without any additional penalty) re12 lating to an overpayment insofar as the over13 payment was solely the result of a clerical or 

14 technical operational error.’’. 

15 (2) EFFECTIVE DATE.—The amendment 

16 made by paragraph (1) shall take effect 

17 on the date of the enactment of this Act 

18 but shall not apply to any sanction for 

19 which notice was provided on or before 

20 the date of the enactment of this Act. 

21 SEC. 904. REPORTS AND STUDIES RELATING TO REGU22 LATORY REFORM. 

23 (a) GAO STUDY ON ADVISORY OPINION AU24 THORITY.—
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1 (1) STUDY.—The Comptroller General 

2 of the United States shall conduct a study 

3 to determine the feasibility and appro4 priateness of establishing in the Sec5 retary authority to provide legally bind6 ing advisory opinions on appropriate in7 terpretation and application of regula8 tions to carry out the medicare program 

9 under title XVIII of the Social Security 

10 Act. Such study shall examine the appro11 priate timeframe for issuing such advi12 sory opinions, as well as the need for ad13 ditional staff and funding to provide such 

14 opinions. 

15 (2) REPORT.—The Comptroller Gen16 eral shall submit to Congress a report on 

17 the study conducted under paragraph (1) 

18 by not later than one year after the date 

19 of the enactment of this Act. 

20 (b) REPORT ON LEGAL AND REGULATORY IN21 CONSISTENCIES.—Section 1871 (42 U.S.C. 

22 1395hh), as amended by section 2(a), is 

23 amended by adding at the end the following 

24 new subsection: 
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1 ‘‘(f)(1) Not later than 2 years after the date 

2 of the enactment of this subsection, and every 

3 2 years thereafter, the Secretary shall submit 

4 to Congress a report with respect to the ad5 ministration of this title and areas of incon6 sistency or conflict among the various provi7 sions under law and regulation. 

8 ‘‘(2) In preparing a report under para9 graph (1), the Secretary shall collect—

10 ‘‘(A) information from individuals en11 titled to benefits under part A or enrolled 

12 under part B, or both, providers of serv13 ices, and suppliers and from the Medi14 care Beneficiary Ombudsman and the 

15 Medicare Provider Ombudsman with re16 spect to such areas of inconsistency and 

17 conflict; and 

18 ‘‘(B) information from medicare con19 tractors that tracks the nature of written 

20 and telephone inquiries. 

21 ‘‘(3) A report under paragraph (1) shall in22 clude a description of efforts by the Secretary 

23 to reduce such inconsistency or conflicts, and 

24 recommendations for legislation or adminis25 trative action that the Secretary determines 
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1 appropriate to further reduce such inconsist2 ency or conflicts.’’. 

3 Subtitle B—Contracting Reform 

4 SEC. 911. INCREASED FLEXIBILITY IN MEDICARE ADMINIS5 TRATION. 

6 (a) CONSOLIDATION AND FLEXIBILITY IN

7 MEDICARE ADMINISTRATION.—

8 (1) IN GENERAL.—Title XVIII is amend9 ed by inserting after section 1874 the fol10 lowing new section: 

11 ‘‘CONTRACTS WITH MEDICARE ADMINISTRATIVE

12 CONTRACTORS

13 ‘‘SEC. 1874A. (a) AUTHORITY.—

14 ‘‘(1) AUTHORITY TO ENTER INTO CON15 TRACTS.—The Secretary may enter into 

16 contracts with any eligible entity to serve 

17 as a medicare administrative contractor 

18 with respect to the performance of any or 

19 all of the functions described in para20 graph (4) or parts of those functions (or, 

21 to the extent provided in a contract, to 

22 secure performance thereof by other enti23 ties). 

24 ‘‘(2) ELIGIBILITY OF ENTITIES.—An enti25 ty is eligible to enter into a contract with 

26 respect to the performance of a par-
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1 ticular function described in paragraph 

2 (4) only if—

3 ‘‘(A) the entity has demonstrated 

4 capability to carry out such function; 

5 ‘‘(B) the entity complies with such 

6 conflict of interest standards as are 

7 generally applicable to Federal acqui8 sition and procurement; 

9 ‘‘(C) the entity has sufficient as10 sets to financially support the per11 formance of such function; and 

12 ‘‘(D) the entity meets such other 

13 requirements as the Secretary may 

14 impose. 

15 ‘‘(3) MEDICARE ADMINISTRATIVE CON16 TRACTOR DEFINED.—For purposes of this 

17 title and title XI—

18 ‘‘(A) IN GENERAL.—The term ‘medi19 care administrative contractor’

20 means an agency, organization, or 

21 other person with a contract under 

22 this section. 

23 ‘‘(B) APPROPRIATE MEDICARE AD24 MINISTRATIVE CONTRACTOR.—With re25 spect to the performance of a par-
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1 ticular function in relation to an indi2 vidual entitled to benefits under part 

3 A or enrolled under part B, or both, a 

4 specific provider of services or sup5 plier (or class of such providers of 

6 services or suppliers), the ‘appro7 priate’ medicare administrative con8 tractor is the medicare administra9 tive contractor that has a contract 

10 under this section with respect to the 

11 performance of that function in rela12 tion to that individual, provider of 

13 services or supplier or class of pro14 vider of services or supplier. 

15 ‘‘(4) FUNCTIONS DESCRIBED.—The func16 tions referred to in paragraphs (1) and (2) 

17 are payment functions, provider services 

18 functions, and functions relating to serv19 ices furnished to individuals entitled to 

20 benefits under part A or enrolled under 

21 part B, or both, as follows: 

22 ‘‘(A) DETERMINATION OF PAYMENT

23 AMOUNTS.—Determining (subject to 

24 the provisions of section 1878 and to 

25 such review by the Secretary as may 
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1 be provided for by the contracts) the 

2 amount of the payments required 

3 pursuant to this title to be made to 

4 providers of services, suppliers and 

5 individuals. 

6 ‘‘(B) MAKING PAYMENTS.—Making 

7 payments described in subparagraph 

8 (A) (including receipt, disbursement, 

9 and accounting for funds in making 

10 such payments). 

11 ‘‘(C) BENEFICIARY EDUCATION AND

12 ASSISTANCE.—Providing education and 

13 outreach to individuals entitled to 

14 benefits under part A or enrolled 

15 under part B, or both, and providing 

16 assistance to those individuals with 

17 specific issues, concerns or problems. 

18 ‘‘(D) PROVIDER CONSULTATIVE SERV19 ICES.—Providing consultative services 

20 to institutions, agencies, and other 

21 persons to enable them to establish 

22 and maintain fiscal records necessary 

23 for purposes of this title and other24 wise to qualify as providers of serv25 ices or suppliers. 
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1 ‘‘(E) COMMUNICATION WITH PRO2 VIDERS.—Communicating to providers 

3 of services and suppliers any infor4 mation or instructions furnished to 

5 the medicare administrative con6 tractor by the Secretary, and facili7 tating communication between such 

8 providers and suppliers and the Sec9 retary. 

10 ‘‘(F) PROVIDER EDUCATION AND

11 TECHNICAL ASSISTANCE.—Performing 

12 the functions relating to provider 

13 education, training, and technical as14 sistance. 

15 ‘‘(G) ADDITIONAL FUNCTIONS.—Per16 forming such other functions as are 

17 necessary to carry out the purposes 

18 of this title. 

19 ‘‘(5) RELATIONSHIP TO MIP CON20 TRACTS.—

21 ‘‘(A) NONDUPLICATION OF DUTIES.—

22 In entering into contracts under this 

23 section, the Secretary shall assure 

24 that functions of medicare adminis25 trative contractors in carrying out ac-
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1 tivities under parts A and B do not 

2 duplicate activities carried out under 

3 the Medicare Integrity Program 

4 under section 1893. The previous sen5 tence shall not apply with respect to 

6 the activity described in section 

7 1893(b)(5) (relating to prior author8 ization of certain items of durable 

9 medical equipment under section 

10 1834(a)(15)). 

11 ‘‘(B) CONSTRUCTION.—An entity 

12 shall not be treated as a medicare ad13 ministrative contractor merely by 

14 reason of having entered into a con15 tract with the Secretary under sec16 tion 1893. 

17 ‘‘(6) APPLICATION OF FEDERAL ACQUISI18 TION REGULATION.—Except to the extent 

19 inconsistent with a specific requirement 

20 of this title, the Federal Acquisition Reg21 ulation applies to contracts under this 

22 title. 

23 ‘‘(b) CONTRACTING REQUIREMENTS.—

24 ‘‘(1) USE OF COMPETITIVE PROCE25 DURES.—
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1 ‘‘(A) IN GENERAL.—Except as pro2 vided in laws with general applica3 bility to Federal acquisition and pro4 curement or in subparagraph (B), the 

5 Secretary shall use competitive pro6 cedures when entering into contracts 

7 with medicare administrative con8 tractors under this section, taking 

9 into account performance quality as 

10 well as price and other factors. 

11 ‘‘(B) RENEWAL OF CONTRACTS.—The 

12 Secretary may renew a contract with 

13 a medicare administrative contractor 

14 under this section from term to term 

15 without regard to section 5 of title 41, 

16 United States Code, or any other pro17 vision of law requiring competition, if 

18 the medicare administrative con19 tractor has met or exceeded the per20 formance requirements applicable 

21 with respect to the contract and con22 tractor, except that the Secretary 

23 shall provide for the application of 

24 competitive procedures under such a 
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1 contract not less frequently than once 

2 every five years. 

3 ‘‘(C) TRANSFER OF FUNCTIONS.—The 

4 Secretary may transfer functions 

5 among medicare administrative con6 tractors consistent with the provi7 sions of this paragraph. The Sec8 retary shall ensure that performance 

9 quality is considered in such trans10 fers. The Secretary shall provide pub11 lic notice (whether in the Federal 

12 Register or otherwise) of any such 

13 transfer (including a description of 

14 the functions so transferred, a de15 scription of the providers of services 

16 and suppliers affected by such trans17 fer, and contact information for the 

18 contractors involved). 

19 ‘‘(D) INCENTIVES FOR QUALITY.—The 

20 Secretary shall provide incentives for 

21 medicare administrative contractors 

22 to provide quality service and to pro23 mote efficiency. 

24 ‘‘(2) COMPLIANCE WITH REQUIRE25 MENTS.—No contract under this section 
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1 shall be entered into with any medicare 

2 administrative contractor unless the Sec3 retary finds that such medicare adminis4 trative contractor will perform its obliga5 tions under the contract efficiently and 

6 effectively and will meet such require7 ments as to financial responsibility, legal 

8 authority, quality of services provided, 

9 and other matters as the Secretary finds 

10 pertinent. 

11 ‘‘(3) PERFORMANCE REQUIREMENTS.—

12 ‘‘(A) DEVELOPMENT OF SPECIFIC

13 PERFORMANCE REQUIREMENTS.—In de14 veloping contract performance re15 quirements, the Secretary shall de16 velop performance requirements ap17 plicable to functions described in 

18 subsection (a)(4). 

19 ‘‘(B) CONSULTATION.— In devel20 oping such requirements, the Sec21 retary may consult with providers of 

22 services and suppliers, organizations 

23 representing individuals entitled to 

24 benefits under part A or enrolled 

25 under part B, or both, and organiza-
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1 tions and agencies performing func2 tions necessary to carry out the pur3 poses of this section with respect to 

4 such performance requirements. 

5 ‘‘(C) INCLUSION IN CONTRACTS.—All 

6 contractor performance requirements 

7 shall be set forth in the contract be8 tween the Secretary and the appro9 priate medicare administrative con10 tractor. Such performance require11 ments—

12 ‘‘(i) shall reflect the perform13 ance requirements developed 

14 under subparagraph (A), but may 

15 include additional performance 

16 requirements; 

17 ‘‘(ii) shall be used for evalu18 ating contractor performance 

19 under the contract; and 

20 ‘‘(iii) shall be consistent with 

21 the written statement of work 

22 provided under the contract. 

23 ‘‘(4) INFORMATION REQUIREMENTS.—The 

24 Secretary shall not enter into a contract 

25 with a medicare administrative con-
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1 tractor under this section unless the con2 tractor agrees—

3 ‘‘(A) to furnish to the Secretary 

4 such timely information and reports 

5 as the Secretary may find necessary 

6 in performing his functions under 

7 this title; and 

8 ‘‘(B) to maintain such records and 

9 afford such access thereto as the Sec10 retary finds necessary to assure the 

11 correctness and verification of the in12 formation and reports under subpara13 graph (A) and otherwise to carry out 

14 the purposes of this title. 

15 ‘‘(5) SURETY BOND.—A contract with a 

16 medicare administrative contractor 

17 under this section may require the medi18 care administrative contractor, and any 

19 of its officers or employees certifying 

20 payments or disbursing funds pursuant 

21 to the contract, or otherwise partici22 pating in carrying out the contract, to 

23 give surety bond to the United States in 

24 such amount as the Secretary may deem 

25 appropriate. 
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1 ‘‘(c) TERMS AND CONDITIONS.—

2 ‘‘(1) IN GENERAL.—A contract with any 

3 medicare administrative contractor 

4 under this section may contain such 

5 terms and conditions as the Secretary 

6 finds necessary or appropriate and may 

7 provide for advances of funds to the 

8 medicare administrative contractor for 

9 the making of payments by it under sub10 section (a)(4)(B). 

11 ‘‘(2) PROHIBITION ON MANDATES FOR

12 CERTAIN DATA COLLECTION.—The Secretary 

13 may not require, as a condition of enter14 ing into, or renewing, a contract under 

15 this section, that the medicare adminis16 trative contractor match data obtained 

17 other than in its activities under this title 

18 with data used in the administration of 

19 this title for purposes of identifying situ20 ations in which the provisions of section 

21 1862(b) may apply. 

22 ‘‘(d) LIMITATION ON LIABILITY OF MEDICARE

23 ADMINISTRATIVE CONTRACTORS AND CERTAIN

24 OFFICERS.—
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1 ‘‘(1) CERTIFYING OFFICER.—No indi2 vidual designated pursuant to a contract 

3 under this section as a certifying officer 

4 shall, in the absence of the reckless dis5 regard of the individual’s obligations or 

6 the intent by that individual to defraud 

7 the United States, be liable with respect 

8 to any payments certified by the indi9 vidual under this section. 

10 ‘‘(2) DISBURSING OFFICER.—No dis11 bursing officer shall, in the absence of 

12 the reckless disregard of the officer’s ob13 ligations or the intent by that officer to 

14 defraud the United States, be liable with 

15 respect to any payment by such officer 

16 under this section if it was based upon an 

17 authorization (which meets the applica18 ble requirements for such internal con19 trols established by the Comptroller Gen20 eral) of a certifying officer designated as 

21 provided in paragraph (1) of this sub22 section. 

23 ‘‘(3) LIABILITY OF MEDICARE ADMINIS24 TRATIVE CONTRACTOR.—
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1 ‘‘(A) IN GENERAL.—No medicare ad2 ministrative contractor shall be liable to 

3 the United States for a payment by a cer4 tifying or disbursing officer unless, in 

5 connection with such payment, the medi6 care administrative contractor acted 

7 with reckless disregard of its obligations 

8 under its medicare administrative con9 tract or with intent to defraud the United 

10 States. 

11 ‘‘(B) RELATIONSHIP TO FALSE CLAIMS

12 ACT.—Nothing in this subsection shall be 

13 construed to limit liability for conduct 

14 that would constitute a violation of sec15 tions 3729 through 3731 of title 31, United 

16 States Code (commonly known as the 

17 ‘False Claims Act’). 

18 ‘‘(4) INDEMNIFICATION BY SECRETARY.—

19 ‘‘(A) IN GENERAL.—Subject to sub20 paragraphs (B) and (D), in the case of 

21 a medicare administrative contractor 

22 (or a person who is a director, officer, 

23 or employee of such a contractor or 

24 who is engaged by the contractor to 

25 participate directly in the claims ad-
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1 ministration process) who is made a 

2 party to any judicial or administra3 tive proceeding arising from or relat4 ing directly to the claims administra5 tion process under this title, the Sec6 retary may, to the extent the Sec7 retary determines to be appropriate 

8 and as specified in the contract with 

9 the contractor, indemnify the con10 tractor and such persons. 

11 ‘‘(B) CONDITIONS.—The Secretary 

12 may not provide indemnification 

13 under subparagraph (A) insofar as 

14 the liability for such costs arises di15 rectly from conduct that is deter16 mined by the judicial proceeding or 

17 by the Secretary to be criminal in na18 ture, fraudulent, or grossly negligent. 

19 If indemnification is provided by the 

20 Secretary with respect to a con21 tractor before a determination that 

22 such costs arose directly from such 

23 conduct, the contractor shall reim24 burse the Secretary for costs of in25 demnification. 
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1 ‘‘(C) SCOPE OF INDEMNIFICATION.—

2 Indemnification by the Secretary 

3 under subparagraph (A) may include 

4 payment of judgments, settlements 

5 (subject to subparagraph (D)), 

6 awards, and costs (including reason7 able legal expenses). 

8 ‘‘(D) WRITTEN APPROVAL FOR SET9 TLEMENTS.—A contractor or other per10 son described in subparagraph (A) 

11 may not propose to negotiate a settle12 ment or compromise of a proceeding 

13 described in such subparagraph with14 out the prior written approval of the 

15 Secretary to negotiate such settle16 ment or compromise. Any indem17 nification under subparagraph (A) 

18 with respect to amounts paid under a 

19 settlement or compromise of a pro20 ceeding described in such subpara21 graph are conditioned upon prior 

22 written approval by the Secretary of 

23 the final settlement or compromise. 

24 ‘‘(E) CONSTRUCTION.—Nothing in 

25 this paragraph shall be construed—
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1 ‘‘(i) to change any common 

2 law immunity that may be avail3 able to a medicare administrative 

4 contractor or person described in 

5 subparagraph (A); or 

6 ‘‘(ii) to permit the payment of 

7 costs not otherwise allowable, 

8 reasonable, or allocable under the 

9 Federal Acquisition Regulations.’’. 

10 (2) CONSIDERATION OF INCORPORATION

11 OF CURRENT LAW STANDARDS.—In devel12 oping contract performance require13 ments under section 1874A(b) of the So14 cial Security Act, as inserted by para15 graph (1), the Secretary shall consider in16 clusion of the performance standards de17 scribed in sections 1816(f)(2) of such Act 

18 (relating to timely processing of reconsid19 erations and applications for exemptions) 

20 and section 1842(b)(2)(B) of such Act (re21 lating to timely review of determinations 

22 and fair hearing requests), as such sec23 tions were in effect before the date of the 

24 enactment of this Act. 
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1 (b) CONFORMING AMENDMENTS TO SECTION

2 1816 (RELATING TO FISCAL INTERMEDIARIES).—

3 Section 1816 (42 U.S.C. 1395h) is amended as 

4 follows: 

5 (1) The heading is amended to read as 

6 follows: 

7 ‘‘PROVISIONS RELATING TO THE ADMINISTRATION

8 OF PART A’’. 

9 (2) Subsection (a) is amended to read 

10 as follows: 

11 ‘‘(a) The administration of this part shall 

12 be conducted through contracts with medi13 care administrative contractors under section 

14 1874A.’’. 

15 (3) Subsection (b) is repealed. 

16 (4) Subsection (c) is amended—

17 (A) by striking paragraph (1); and 

18 (B) in each of paragraphs (2)(A) 

19 and (3)(A), by striking ‘‘agreement 

20 under this section’’ and inserting 

21 ‘‘contract under section 1874A that 

22 provides for making payments under 

23 this part’’. 

24 (5) Subsections (d) through (i) are re25 pealed. 
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1 (6) Subsections (j) and (k) are each 

2 amended—

3 (A) by striking ‘‘An agreement 

4 with an agency or organization under 

5 this section’’ and inserting ‘‘A con6 tract with a medicare administrative 

7 contractor under section 1874A with 

8 respect to the administration of this 

9 part’’; and 

10 (B) by striking ‘‘such agency or 

11 organization’’ and inserting ‘‘such 

12 medicare administrative contractor’’

13 each place it appears. 

14 (7) Subsection (l) is repealed. 

15 (c) CONFORMING AMENDMENTS TO SECTION

16 1842 (RELATING TO CARRIERS).—Section 1842 

17 (42 U.S.C. 1395u) is amended as follows: 

18 (1) The heading is amended to read as 

19 follows: 

20 ‘‘PROVISIONS RELATING TO THE ADMINISTRATION

21 OF PART B’’. 

22 (2) Subsection (a) is amended to read 

23 as follows: 

24 ‘‘(a) The administration of this part shall 

25 be conducted through contracts with medi-
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1 care administrative contractors under section 

2 1874A.’’. 

3 (3) Subsection (b) is amended—

4 (A) by striking paragraph (1); 

5 (B) in paragraph (2)—

6 (i) by striking subparagraphs 

7 (A) and (B); 

8 (ii) in subparagraph (C), by 

9 striking ‘‘carriers’’ and inserting 

10 ‘‘medicare administrative contrac11 tors’’; and 

12 (iii) by striking subpara13 graphs (D) and (E); 

14 (C) in paragraph (3)—

15 (i) in the matter before sub16 paragraph (A), by striking ‘‘Each 

17 such contract shall provide that 

18 the carrier’’ and inserting ‘‘The 

19 Secretary’’; 

20 (ii) by striking ‘‘will’’ the first 

21 place it appears in each of sub22 paragraphs (A), (B), (F), (G), (H), 

23 and (L) and inserting ‘‘shall’’; 

24 (iii) in subparagraph (B), in 

25 the matter before clause (i), by 
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1 striking ‘‘to the policyholders and 

2 subscribers of the carrier’’ and in3 serting ‘‘to the policyholders and 

4 subscribers of the medicare ad5 ministrative contractor’’; 

6 (iv) by striking subparagraphs 

7 (C), (D), and (E); 

8 (v) in subparagraph (H)—

9 (I) by striking ‘‘if it makes 

10 determinations or payments 

11 with respect to physicians’

12 services,’’ in the matter pre13 ceding clause (i); and 

14 (II) by striking ‘‘carrier’’

15 and inserting ‘‘medicare ad16 ministrative contractor’’ in 

17 clause (i); 

18 (vi) by striking subparagraph 

19 (I); 

20 (vii) in subparagraph (L), by 

21 striking the semicolon and insert22 ing a period; 

23 (viii) in the first sentence, 

24 after subparagraph (L), by strik25 ing ‘‘and shall contain’’ and all 
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1 that follows through the period; 

2 and 

3 (ix) in the seventh sentence, 

4 by inserting ‘‘medicare adminis5 trative contractor,’’ after ‘‘car6 rier,’’; and 

7 (D) by striking paragraph (5); 

8 (E) in paragraph (6)(D)(iv), by 

9 striking ‘‘carrier’’ and inserting 

10 ‘‘medicare administrative contractor’’; 

11 and 

12 (F) in paragraph (7), by striking 

13 ‘‘the carrier’’ and inserting ‘‘the Sec14 retary’’ each place it appears. 

15 (4) Subsection (c) is amended—

16 (A) by striking paragraph (1); 

17 (B) in paragraph (2)(A), by strik18 ing ‘‘contract under this section 

19 which provides for the disbursement 

20 of funds, as described in subsection 

21 (a)(1)(B),’’ and inserting ‘‘contract 

22 under section 1874A that provides for 

23 making payments under this part’’; 
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1 (C) in paragraph (3)(A), by strik2 ing ‘‘subsection (a)(1)(B)’’ and insert3 ing ‘‘section 1874A(a)(3)(B)’’; 

4 (D) in paragraph (4), in the mat5 ter preceding subparagraph (A), by 

6 striking ‘‘carrier’’ and inserting 

7 ‘‘medicare administrative contractor’’; 

8 and 

9 (E) by striking paragraphs (5) and 

10 (6). 

11 (5) Subsections (d), (e), and (f) are re12 pealed. 

13 (6) Subsection (g) is amended by 

14 striking ‘‘carrier or carriers’’ and insert15 ing ‘‘medicare administrative contractor 

16 or contractors’’. 

17 (7) Subsection (h) is amended—

18 (A) in paragraph (2)—

19 (i) by striking ‘‘Each carrier 

20 having an agreement with the 

21 Secretary under subsection (a)’’

22 and inserting ‘‘The Secretary’’; 

23 and 
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1 (ii) by striking ‘‘Each such 

2 carrier’’ and inserting ‘‘The Sec3 retary’’; 

4 (B) in paragraph (3)(A)—

5 (i) by striking ‘‘a carrier hav6 ing an agreement with the Sec7 retary under subsection (a)’’ and 

8 inserting ‘‘medicare administra9 tive contractor having a contract 

10 under section 1874A that provides 

11 for making payments under this 

12 part’’; and 

13 (ii) by striking ‘‘such carrier’’

14 and inserting ‘‘such contractor’’; 

15 (C) in paragraph (3)(B)—

16 (i) by striking ‘‘a carrier’’ and 

17 inserting ‘‘a medicare administra18 tive contractor’’ each place it ap19 pears; and 

20 (ii) by striking ‘‘the carrier’’

21 and inserting ‘‘the contractor’’

22 each place it appears; and 

23 (D) in paragraphs (5)(A) and 

24 (5)(B)(iii), by striking ‘‘carriers’’ and 
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1 inserting ‘‘medicare administrative 

2 contractors’’ each place it appears. 

3 (8) Subsection (l) is amended—

4 (A) in paragraph (1)(A)(iii), by 

5 striking ‘‘carrier’’ and inserting 

6 ‘‘medicare administrative contractor’’; 

7 and 

8 (B) in paragraph (2), by striking 

9 ‘‘carrier’’ and inserting ‘‘medicare ad10 ministrative contractor’’. 

11 (9) Subsection (p)(3)(A) is amended by 

12 striking ‘‘carrier’’ and inserting ‘‘medi13 care administrative contractor’’. 

14 (10) Subsection (q)(1)(A) is amended 

15 by striking ‘‘carrier’’. 

16 (d) EFFECTIVE DATE; TRANSITION RULE.—

17 (1) EFFECTIVE DATE.—

18 (A) IN GENERAL.—Except as other19 wise provided in this subsection, the 

20 amendments made by this section 

21 shall take effect on October 1, 2005, 

22 and the Secretary is authorized to 

23 take such steps before such date as 

24 may be necessary to implement such 

25 amendments on a timely basis. 
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1 (B) CONSTRUCTION FOR CURRENT

2 CONTRACTS.—Such amendments shall 

3 not apply to contracts in effect before 

4 the date specified under subpara5 graph (A) that continue to retain the 

6 terms and conditions in effect on 

7 such date (except as otherwise pro8 vided under this Act, other than 

9 under this section) until such date as 

10 the contract is let out for competitive 

11 bidding under such amendments. 

12 (C) DEADLINE FOR COMPETITIVE

13 BIDDING.—The Secretary shall provide 

14 for the letting by competitive bidding 

15 of all contracts for functions of medi16 care administrative contractors for 

17 annual contract periods that begin on 

18 or after October 1, 2010. 

19 (D) WAIVER OF PROVIDER NOMINA20 TION PROVISIONS DURING TRANSITION.—

21 During the period beginning on the 

22 date of the enactment of this Act and 

23 before the date specified under sub24 paragraph (A), the Secretary may 

25 enter into new agreements under sec-
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1 tion 1816 of the Social Security Act 

2 (42 U.S.C. 1395h) without regard to 

3 any of the provider nomination provi4 sions of such section. 

5 (2) GENERAL TRANSITION RULES.—The 

6 Secretary shall take such steps, con7 sistent with paragraph (1)(B) and (1)(C), 

8 as are necessary to provide for an appro9 priate transition from contracts under 

10 section 1816 and section 1842 of the So11 cial Security Act (42 U.S.C. 1395h, 1395u) 

12 to contracts under section 1874A, as 

13 added by subsection (a)(1). 

14 (3) AUTHORIZING CONTINUATION OF MIP

15 FUNCTIONS UNDER CURRENT CONTRACTS AND

16 AGREEMENTS AND UNDER ROLLOVER CON17 TRACTS.—The provisions contained in the 

18 exception in section 1893(d)(2) of the So19 cial Security Act (42 U.S.C. 1395ddd(d)(2)) 

20 shall continue to apply notwithstanding 

21 the amendments made by this section, 

22 and any reference in such provisions to 

23 an agreement or contract shall be 

24 deemed to include a contract under sec25 tion 1874A of such Act, as inserted by 
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1 subsection (a)(1), that continues the ac2 tivities referred to in such provisions. 

3 (e) REFERENCES.—On and after the effec4 tive date provided under subsection (d)(1), 

5 any reference to a fiscal intermediary or car6 rier under title XI or XVIII of the Social Secu7 rity Act (or any regulation, manual instruc8 tion, interpretative rule, statement of policy, 

9 or guideline issued to carry out such titles) 

10 shall be deemed a reference to a medicare ad11 ministrative contractor (as provided under 

12 section 1874A of the Social Security Act). 

13 (f) REPORTS ON IMPLEMENTATION.—

14 (1) PLAN FOR IMPLEMENTATION.—By 

15 not later than October 1, 2004, the Sec16 retary shall submit a report to Congress 

17 and the Comptroller General of the 

18 United States that describes the plan for 

19 implementation of the amendments made 

20 by this section. The Comptroller General 

21 shall conduct an evaluation of such plan 

22 and shall submit to Congress, not later 

23 than 6 months after the date the report is 

24 received, a report on such evaluation and 

25 shall include in such report such rec-
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1 ommendations as the Comptroller Gen2 eral deems appropriate. 

3 (2) STATUS OF IMPLEMENTATION.—The 

4 Secretary shall submit a report to Con5 gress not later than October 1, 2008, that 

6 describes the status of implementation of 

7 such amendments and that includes a de8 scription of the following: 

9 (A) The number of contracts that 

10 have been competitively bid as of 

11 such date. 

12 (B) The distribution of functions 

13 among contracts and contractors. 

14 (C) A timeline for complete transi15 tion to full competition. 

16 (D) A detailed description of how 

17 the Secretary has modified oversight 

18 and management of medicare con19 tractors to adapt to full competition. 

20 SEC. 912. REQUIREMENTS FOR INFORMATION SECURITY 

21 FOR MEDICARE ADMINISTRATIVE CONTRAC22 TORS. 

23 (a) IN GENERAL.—Section 1874A, as added 

24 by section 911(a)(1), is amended by adding at 

25 the end the following new subsection: 
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1 ‘‘(e) REQUIREMENTS FOR INFORMATION SECU2 RITY.—

3 ‘‘(1) DEVELOPMENT OF INFORMATION SE4 CURITY PROGRAM.—A medicare administra5 tive contractor that performs the func6 tions referred to in subparagraphs (A) 

7 and (B) of subsection (a)(4) (relating to 

8 determining and making payments) shall 

9 implement a contractor-wide information 

10 security program to provide information 

11 security for the operation and assets of 

12 the contractor with respect to such func13 tions under this title. An information se14 curity program under this paragraph 

15 shall meet the requirements for informa16 tion security programs imposed on Fed17 eral agencies under paragraphs (1) 

18 through (8) of section 3544(b) of title 44, 

19 United States Code (other than the re20 quirements under paragraphs (2)(D)(i), 

21 (5)(A), and (5)(B) of such section). 

22 ‘‘(2) INDEPENDENT AUDITS.—

23 ‘‘(A) PERFORMANCE OF ANNUAL

24 EVALUATIONS.—Each year a medicare 

25 administrative contractor that per-
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1 forms the functions referred to in 

2 subparagraphs (A) and (B) of sub3 section (a)(4) (relating to determining 

4 and making payments) shall undergo 

5 an evaluation of the information se6 curity of the contractor with respect 

7 to such functions under this title. The 

8 evaluation shall—

9 ‘‘(i) be performed by an entity 

10 that meets such requirements for 

11 independence as the Inspector 

12 General of the Department of 

13 Health and Human Services may 

14 establish; and 

15 ‘‘(ii) test the effectiveness of 

16 information security control tech17 niques of an appropriate subset of 

18 the contractor’s information sys19 tems (as defined in section 3502(8) 

20 of title 44, United States Code) re21 lating to such functions under 

22 this title and an assessment of 

23 compliance with the require24 ments of this subsection and re25 lated information security poli-
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1 cies, procedures, standards and 

2 guidelines, including policies and 

3 procedures as may be prescribed 

4 by the Director of the Office of 

5 Management and Budget and ap6 plicable information security 

7 standards promulgated under sec8 tion 11331 of title 40, United 

9 States Code. 

10 ‘‘(B) DEADLINE FOR INITIAL EVALUA11 TION.—

12 ‘‘(i) NEW CONTRACTORS.—In the 

13 case of a medicare administrative 

14 contractor covered by this sub15 section that has not previously 

16 performed the functions referred 

17 to in subparagraphs (A) and (B) of 

18 subsection (a)(4) (relating to de19 termining and making payments) 

20 as a fiscal intermediary or carrier 

21 under section 1816 or 1842, the 

22 first independent evaluation con23 ducted pursuant subparagraph 

24 (A) shall be completed prior to 

25 commencing such functions. 
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1 ‘‘(ii) OTHER CONTRACTORS.—In 

2 the case of a medicare adminis3 trative contractor covered by this 

4 subsection that is not described 

5 in clause (i), the first independent 

6 evaluation conducted pursuant 

7 subparagraph (A) shall be com8 pleted within 1 year after the 

9 date the contractor commences 

10 functions referred to in clause (i) 

11 under this section. 

12 ‘‘(C) REPORTS ON EVALUATIONS.—

13 ‘‘(i) TO THE DEPARTMENT OF

14 HEALTH AND HUMAN SERVICES.—The 

15 results of independent evalua16 tions under subparagraph (A) 

17 shall be submitted promptly to 

18 the Inspector General of the De19 partment of Health and Human 

20 Services and to the Secretary. 

21 ‘‘(ii) TO CONGRESS.—The In22 spector General of Department of 

23 Health and Human Services shall 

24 submit to Congress annual re25 ports on the results of such eval-
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1 uations, including assessments of 

2 the scope and sufficiency of such 

3 evaluations. 

4 ‘‘(iii) AGENCY REPORTING.—The 

5 Secretary shall address the re6 sults of such evaluations in re7 ports required under section 

8 3544(c) of title 44, United States 

9 Code.’’. 

10 (b) APPLICATION OF REQUIREMENTS TO FIS11 CAL INTERMEDIARIES AND CARRIERS.—

12 (1) IN GENERAL.—The provisions of 

13 section 1874A(e)(2) of the Social Security 

14 Act (other than subparagraph (B)), as 

15 added by subsection (a), shall apply to 

16 each fiscal intermediary under section 

17 1816 of the Social Security Act (42 U.S.C. 

18 1395h) and each carrier under section 

19 1842 of such Act (42 U.S.C. 1395u) in the 

20 same manner as they apply to medicare 

21 administrative contractors under such 

22 provisions. 

23 (2) DEADLINE FOR INITIAL EVALUA24 TION.—In the case of such a fiscal inter25 mediary or carrier with an agreement or 
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1 contract under such respective section in 

2 effect as of the date of the enactment of 

3 this Act, the first evaluation under sec4 tion 1874A(e)(2)(A) of the Social Security 

5 Act (as added by subsection (a)), pursu6 ant to paragraph (1), shall be completed 

7 (and a report on the evaluation sub8 mitted to the Secretary) by not later than 

9 1 year after such date. 

10 Subtitle C—Education and 

11 Outreach 

12 SEC. 921. PROVIDER EDUCATION AND TECHNICAL ASSIST13 ANCE. 

14 (a) COORDINATION OF EDUCATION FUND15 ING.—

16 (1) IN GENERAL.—Title XVIII is amend17 ed by inserting after section 1888 the fol18 lowing new section: 

19 ‘‘PROVIDER EDUCATION AND TECHNICAL

20 ASSISTANCE

21 ‘‘SEC. 1889. (a) COORDINATION OF EDU22 CATION FUNDING.—The Secretary shall coordi23 nate the educational activities provided 

24 through medicare contractors (as defined in 

25 subsection (g), including under section 1893) 

26 in order to maximize the effectiveness of Fed-
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1 eral education efforts for providers of serv2 ices and suppliers.’’. 

3 (2) EFFECTIVE DATE.—The amendment 

4 made by paragraph (1) shall take effect 

5 on the date of the enactment of this Act. 

6 (3) REPORT.—Not later than October 1, 

7 2004, the Secretary shall submit to Con8 gress a report that includes a description 

9 and evaluation of the steps taken to co10 ordinate the funding of provider edu11 cation under section 1889(a) of the Social 

12 Security Act, as added by paragraph (1). 

13 (b) INCENTIVES TO IMPROVE CONTRACTOR

14 PERFORMANCE.—

15 (1) IN GENERAL.—Section 1874A, as 

16 added by section 911(a)(1) and as amend17 ed by section 912(a), is amended by add18 ing at the end the following new sub19 section: 

20 ‘‘(f) INCENTIVES TO IMPROVE CONTRACTOR

21 PERFORMANCE IN PROVIDER EDUCATION AND

22 OUTREACH.—The Secretary shall use specific 

23 claims payment error rates or similar method24 ology of medicare administrative contractors 

25 in the processing or reviewing of medicare 
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1 claims in order to give such contractors an in2 centive to implement effective education and 

3 outreach programs for providers of services 

4 and suppliers.’’. 

5 (2) APPLICATION TO FISCAL INTER6 MEDIARIES AND CARRIERS.—The provisions 

7 of section 1874A(f) of the Social Security 

8 Act, as added by paragraph (1), shall 

9 apply to each fiscal intermediary under 

10 section 1816 of the Social Security Act (42 

11 U.S.C. 1395h) and each carrier under sec12 tion 1842 of such Act (42 U.S.C. 1395u) in 

13 the same manner as they apply to medi14 care administrative contractors under 

15 such provisions. 

16 (3) GAO REPORT ON ADEQUACY OF

17 METHODOLOGY.—Not later than October 1, 

18 2004, the Comptroller General of the 

19 United States shall submit to Congress 

20 and to the Secretary a report on the ade21 quacy of the methodology under section 

22 1874A(f) of the Social Security Act, as 

23 added by paragraph (1), and shall include 

24 in the report such recommendations as 

25 the Comptroller General determines ap-
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1 propriate with respect to the method2 ology. 

3 (4) REPORT ON USE OF METHODOLOGY IN

4 ASSESSING CONTRACTOR PERFORMANCE.—

5 Not later than October 1, 2004, the Sec6 retary shall submit to Congress a report 

7 that describes how the Secretary intends 

8 to use such methodology in assessing 

9 medicare contractor performance in im10 plementing effective education and out11 reach programs, including whether to use 

12 such methodology as a basis for perform13 ance bonuses. The report shall include an 

14 analysis of the sources of identified er15 rors and potential changes in systems of 

16 contractors and rules of the Secretary 

17 that could reduce claims error rates. 

18 (c) PROVISION OF ACCESS TO AND PROMPT

19 RESPONSES FROM MEDICARE ADMINISTRATIVE

20 CONTRACTORS.—

21 (1) IN GENERAL.—Section 1874A, as 

22 added by section 911(a)(1) and as amend23 ed by section 912(a) and subsection (b), is 

24 further amended by adding at the end 

25 the following new subsection: 
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1 ‘‘(g) COMMUNICATIONS WITH BENEFICIARIES, 

2 PROVIDERS OF SERVICES AND SUPPLIERS.—

3 ‘‘(1) COMMUNICATION STRATEGY.—The 

4 Secretary shall develop a strategy for 

5 communications with individuals entitled 

6 to benefits under part A or enrolled 

7 under part B, or both, and with providers 

8 of services and suppliers under this title. 

9 ‘‘(2) RESPONSE TO WRITTEN INQUIRIES.—

10 Each medicare administrative contractor 

11 shall, for those providers of services and 

12 suppliers which submit claims to the con13 tractor for claims processing and for 

14 those individuals entitled to benefits 

15 under part A or enrolled under part B, or 

16 both, with respect to whom claims are 

17 submitted for claims processing, provide 

18 general written responses (which may be 

19 through electronic transmission) in a 

20 clear, concise, and accurate manner to in21 quiries of providers of services, suppliers 

22 and individuals entitled to benefits under 

23 part A or enrolled under part B, or both, 

24 concerning the programs under this title 
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1 within 45 business days of the date of re2 ceipt of such inquiries. 

3 ‘‘(3) RESPONSE TO TOLL-FREE LINES.—

4 The Secretary shall ensure that each 

5 medicare administrative contractor shall 

6 provide, for those providers of services 

7 and suppliers which submit claims to the 

8 contractor for claims processing and for 

9 those individuals entitled to benefits 

10 under part A or enrolled under part B, or 

11 both, with respect to whom claims are 

12 submitted for claims processing, a toll13 free telephone number at which such in14 dividuals, providers of services and sup15 pliers may obtain information regarding 

16 billing, coding, claims, coverage, and 

17 other appropriate information under this 

18 title. 

19 ‘‘(4) MONITORING OF CONTRACTOR RE20 SPONSES.—

21 ‘‘(A) IN GENERAL.—Each medicare 

22 administrative contractor shall, con23 sistent with standards developed by 

24 the Secretary under subparagraph 

25 (B)—
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1 ‘‘(i) maintain a system for 

2 identifying who provides the in3 formation referred to in para4 graphs (2) and (3); and 

5 ‘‘(ii) monitor the accuracy, 

6 consistency, and timeliness of the 

7 information so provided. 

8 ‘‘(B) DEVELOPMENT OF STAND9 ARDS.—

10 ‘‘(i) IN GENERAL.—The Sec11 retary shall establish and make 

12 public standards to monitor the 

13 accuracy, consistency, and timeli14 ness of the information provided 

15 in response to written and tele16 phone inquiries under this sub17 section. Such standards shall be 

18 consistent with the performance 

19 requirements established under 

20 subsection (b)(3). 

21 ‘‘(ii) EVALUATION.—In con22 ducting evaluations of individual 

23 medicare administrative contrac24 tors, the Secretary shall take into 

25 account the results of the moni-
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1 toring conducted under subpara2 graph (A) taking into account as 

3 performance requirements the 

4 standards established under 

5 clause (i). The Secretary shall, in 

6 consultation with organizations 

7 representing providers of serv8 ices, suppliers, and individuals 

9 entitled to benefits under part A 

10 or enrolled under part B, or both, 

11 establish standards relating to 

12 the accuracy, consistency, and 

13 timeliness of the information so 

14 provided. 

15 ‘‘(C) DIRECT MONITORING.—Nothing 

16 in this paragraph shall be construed 

17 as preventing the Secretary from di18 rectly monitoring the accuracy, con19 sistency, and timeliness of the infor20 mation so provided.’’. 

21 (2) EFFECTIVE DATE.—The amendment 

22 made by paragraph (1) shall take effect 

23 October 1, 2004. 

24 (3) APPLICATION TO FISCAL INTER25 MEDIARIES AND CARRIERS.—The provisions 
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1 of section 1874A(g) of the Social Security 

2 Act, as added by paragraph (1), shall 

3 apply to each fiscal intermediary under 

4 section 1816 of the Social Security Act (42 

5 U.S.C. 1395h) and each carrier under sec6 tion 1842 of such Act (42 U.S.C. 1395u) in 

7 the same manner as they apply to medi8 care administrative contractors under 

9 such provisions. 

10 (d) IMPROVED PROVIDER EDUCATION AND

11 TRAINING.—

12 (1) IN GENERAL.—Section 1889, as 

13 added by subsection (a), is amended by 

14 adding at the end the following new sub15 sections: 

16 ‘‘(b) ENHANCED EDUCATION AND TRAINING.—

17 ‘‘(1) ADDITIONAL RESOURCES.—There 

18 are authorized to be appropriated to the 

19 Secretary (in appropriate part from the 

20 Federal Hospital Insurance Trust Fund 

21 and the Federal Supplementary Medical 

22 Insurance Trust Fund) $25,000,000 for 

23 each of fiscal years 2005 and 2006 and 

24 such sums as may be necessary for suc25 ceeding fiscal years. 
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1 ‘‘(2) USE.—The funds made available 

2 under paragraph (1) shall be used to in3 crease the conduct by medicare contrac4 tors of education and training of pro5 viders of services and suppliers regard6 ing billing, coding, and other appropriate 

7 items and may also be used to improve 

8 the accuracy, consistency, and timeliness 

9 of contractor responses. 

10 ‘‘(c) TAILORING EDUCATION AND TRAINING

11 ACTIVITIES FOR SMALL PROVIDERS OR SUP12 PLIERS.—

13 ‘‘(1) IN GENERAL.—Insofar as a medi14 care contractor conducts education and 

15 training activities, it shall tailor such ac16 tivities to meet the special needs of small 

17 providers of services or suppliers (as de18 fined in paragraph (2)). 

19 ‘‘(2) SMALL PROVIDER OF SERVICES OR

20 SUPPLIER.—In this subsection, the term 

21 ‘small provider of services or supplier’

22 means—

23 ‘‘(A) a provider of services with 

24 fewer than 25 full-time-equivalent em25 ployees; or 
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1 ‘‘(B) a supplier with fewer than 10 

2 full-time-equivalent employees.’’. 

3 (2) EFFECTIVE DATE.—The amendment 

4 made by paragraph (1) shall take effect 

5 on October 1, 2004. 

6 (e) REQUIREMENT TO MAINTAIN INTERNET

7 SITES.—

8 (1) IN GENERAL.—Section 1889, as 

9 added by subsection (a) and as amended 

10 by subsection (d), is further amended by 

11 adding at the end the following new sub12 section: 

13 ‘‘(d) INTERNET SITES; FAQS.—The Sec14 retary, and each medicare contractor insofar 

15 as it provides services (including claims proc16 essing) for providers of services or suppliers, 

17 shall maintain an Internet site which—

18 ‘‘(1) provides answers in an easily ac19 cessible format to frequently asked ques20 tions, and 

21 ‘‘(2) includes other published mate22 rials of the contractor, 

23 that relate to providers of services and sup24 pliers under the programs under this title 
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1 (and title XI insofar as it relates to such pro2 grams).’’. 

3 (2) EFFECTIVE DATE.—The amendment 

4 made by paragraph (1) shall take effect 

5 on October 1, 2004. 

6 (f) ADDITIONAL PROVIDER EDUCATION PRO7 VISIONS.—

8 (1) IN GENERAL.—Section 1889, as 

9 added by subsection (a) and as amended 

10 by subsections (d) and (e), is further 

11 amended by adding at the end the fol12 lowing new subsections: 

13 ‘‘(e) ENCOURAGEMENT OF PARTICIPATION IN

14 EDUCATION PROGRAM ACTIVITIES.—A medicare 

15 contractor may not use a record of attendance 

16 at (or failure to attend) educational activities 

17 or other information gathered during an edu18 cational program conducted under this sec19 tion or otherwise by the Secretary to select or 

20 track providers of services or suppliers for 

21 the purpose of conducting any type of audit 

22 or prepayment review. 

23 ‘‘(f) CONSTRUCTION.—Nothing in this sec24 tion or section 1893(g) shall be construed as 

25 providing for disclosure by a medicare con-
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1 tractor of information that would compromise 

2 pending law enforcement activities or reveal 

3 findings of law enforcement-related audits. 

4 ‘‘(g) DEFINITIONS.—For purposes of this 

5 section, the term ‘medicare contractor’ in6 cludes the following: 

7 ‘‘(1) A medicare administrative con8 tractor with a contract under section 

9 1874A, including a fiscal intermediary 

10 with a contract under section 1816 and a 

11 carrier with a contract under section 

12 1842. 

13 ‘‘(2) An eligible entity with a contract 

14 under section 1893. 

15 Such term does not include, with respect to 

16 activities of a specific provider of services or 

17 supplier an entity that has no authority under 

18 this title or title IX with respect to such activi19 ties and such provider of services or sup20 plier.’’. 

21 (2) EFFECTIVE DATE.—The amendment 

22 made by paragraph (1) shall take effect 

23 on the date of the enactment of this Act. 
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1 SEC. 922. SMALL PROVIDER TECHNICAL ASSISTANCE DEM2 ONSTRATION PROGRAM. 

3 (a) ESTABLISHMENT.—

4 (1) IN GENERAL.—The Secretary shall 

5 establish a demonstration program (in 

6 this section referred to as the ‘‘dem7 onstration program’’) under which tech8 nical assistance described in paragraph 

9 (2) is made available, upon request and 

10 on a voluntary basis, to small providers 

11 of services or suppliers in order to im12 prove compliance with the applicable re13 quirements of the programs under medi14 care program under title XVIII of the So15 cial Security Act (including provisions of 

16 title XI of such Act insofar as they relate 

17 to such title and are not administered by 

18 the Office of the Inspector General of the 

19 Department of Health and Human Serv20 ices). 

21 (2) FORMS OF TECHNICAL ASSISTANCE.—

22 The technical assistance described in this 

23 paragraph is—

24 (A) evaluation and recommenda25 tions regarding billing and related 

26 systems; and 
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1 (B) information and assistance re2 garding policies and procedures 

3 under the medicare program, includ4 ing coding and reimbursement. 

5 (3) SMALL PROVIDERS OF SERVICES OR

6 SUPPLIERS.—In this section, the term 

7 ‘‘small providers of services or suppliers’’

8 means—

9 (A) a provider of services with 

10 fewer than 25 full-time-equivalent em11 ployees; or 

12 (B) a supplier with fewer than 10 

13 full-time-equivalent employees. 

14 (b) QUALIFICATION OF CONTRACTORS.—In 

15 conducting the demonstration program, the 

16 Secretary shall enter into contracts with 

17 qualified organizations (such as peer review 

18 organizations or entities described in section 

19 1889(g)(2) of the Social Security Act, as in20 serted by section 5(f)(1)) with appropriate ex21 pertise with billing systems of the full range 

22 of providers of services and suppliers to pro23 vide the technical assistance. In awarding 

24 such contracts, the Secretary shall consider 

25 any prior investigations of the entity’s work 
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1 by the Inspector General of Department of 

2 Health and Human Services or the Comp3 troller General of the United States. 

4 (c) DESCRIPTION OF TECHNICAL ASSIST5 ANCE.—The technical assistance provided 

6 under the demonstration program shall in7 clude a direct and in-person examination of 

8 billing systems and internal controls of small 

9 providers of services or suppliers to deter10 mine program compliance and to suggest 

11 more efficient or effective means of achieving 

12 such compliance. 

13 (d) AVOIDANCE OF RECOVERY ACTIONS FOR

14 PROBLEMS IDENTIFIED AS CORRECTED.—The 

15 Secretary shall provide that, absent evidence 

16 of fraud and notwithstanding any other provi17 sion of law, any errors found in a compliance 

18 review for a small provider of services or sup19 plier that participates in the demonstration 

20 program shall not be subject to recovery ac21 tion if the technical assistance personnel 

22 under the program determine that—

23 (1) the problem that is the subject of 

24 the compliance review has been cor25 rected to their satisfaction within 30 days 
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1 of the date of the visit by such personnel 

2 to the small provider of services or sup3 plier; and 

4 (2) such problem remains corrected 

5 for such period as is appropriate. 

6 The previous sentence applies only to claims 

7 filed as part of the demonstration program 

8 and lasts only for the duration of such pro9 gram and only as long as the small provider 

10 of services or supplier is a participant in such 

11 program. 

12 (e) GAO EVALUATION.—Not later than 2 

13 years after the date of the date the dem14 onstration program is first implemented, the 

15 Comptroller General, in consultation with the 

16 Inspector General of the Department of 

17 Health and Human Services, shall conduct an 

18 evaluation of the demonstration program. The 

19 evaluation shall include a determination of 

20 whether claims error rates are reduced for 

21 small providers of services or suppliers who 

22 participated in the program and the extent of 

23 improper payments made as a result of the 

24 demonstration program. The Comptroller 

25 General shall submit a report to the Secretary 
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1 and the Congress on such evaluation and 

2 shall include in such report recommendations 

3 regarding the continuation or extension of 

4 the demonstration program. 

5 (f) FINANCIAL PARTICIPATION BY PRO6 VIDERS.—The provision of technical assistance 

7 to a small provider of services or supplier 

8 under the demonstration program is condi9 tioned upon the small provider of services or 

10 supplier paying an amount estimated (and 

11 disclosed in advance of a provider’s or sup12 plier’s participation in the program) to be 

13 equal to 25 percent of the cost of the technical 

14 assistance. 

15 (g) AUTHORIZATION OF APPROPRIATIONS.—

16 There are authorized to be appropriated to 

17 the Secretary (in appropriate part from the 

18 Federal Hospital Insurance Trust Fund and 

19 the Federal Supplementary Medical Insur20 ance Trust Fund) to carry out the demonstra21 tion program—

22 (1) for fiscal year 2005, $1,000,000, and 

23 (2) for fiscal year 2006, $6,000,000. 
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1 SEC. 923. MEDICARE PROVIDER OMBUDSMAN; MEDICARE 

2 BENEFICIARY OMBUDSMAN. 

3 (a) MEDICARE PROVIDER OMBUDSMAN.—Sec4 tion 1868 (42 U.S.C. 1395ee) is amended—

5 (1) by adding at the end of the head6 ing the following: ‘‘; MEDICARE PROVIDER

7 OMBUDSMAN’’; 

8 (2) by inserting ‘‘PRACTICING PHYSI9 CIANS ADVISORY COUNCIL.—(1)’’ after ‘‘(a)’’; 

10 (3) in paragraph (1), as so redesig11 nated under paragraph (2), by striking 

12 ‘‘in this section’’ and inserting ‘‘in this 

13 subsection’’; 

14 (4) by redesignating subsections (b) 

15 and (c) as paragraphs (2) and (3), respec16 tively; and 

17 (5) by adding at the end the following 

18 new subsection: 

19 ‘‘(b) MEDICARE PROVIDER OMBUDSMAN.—

20 The Secretary shall appoint within the De21 partment of Health and Human Services a 

22 Medicare Provider Ombudsman. The Om23 budsman shall—

24 ‘‘(1) provide assistance, on a confiden25 tial basis, to providers of services and 

26 suppliers with respect to complaints, 
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1 grievances, and requests for information 

2 concerning the programs under this title 

3 (including provisions of title XI insofar as 

4 they relate to this title and are not ad5 ministered by the Office of the Inspector 

6 General of the Department of Health and 

7 Human Services) and in the resolution of 

8 unclear or conflicting guidance given by 

9 the Secretary and medicare contractors 

10 to such providers of services and sup11 pliers regarding such programs and pro12 visions and requirements under this title 

13 and such provisions; and 

14 ‘‘(2) submit recommendations to the 

15 Secretary for improvement in the admin16 istration of this title and such provisions, 

17 including—

18 ‘‘(A) recommendations to respond 

19 to recurring patterns of confusion in 

20 this title and such provisions (includ21 ing recommendations regarding sus22 pending imposition of sanctions 

23 where there is widespread confusion 

24 in program administration), and 
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1 ‘‘(B) recommendations to provide 

2 for an appropriate and consistent re3 sponse (including not providing for 

4 audits) in cases of self-identified over5 payments by providers of services 

6 and suppliers. 

7 The Ombudsman shall not serve as an advo8 cate for any increases in payments or new 

9 coverage of services, but may identify issues 

10 and problems in payment or coverage poli11 cies.’’. 

12 (b) MEDICARE BENEFICIARY OMBUDSMAN.—

13 Title XVIII, as previously amended, is amend14 ed by inserting after section 1809 the fol15 lowing new section: 

16 ‘‘MEDICARE BENEFICIARY OMBUDSMAN

17 ‘‘SEC. 1810. (a) IN GENERAL.—The Secretary 

18 shall appoint within the Department of 

19 Health and Human Services a Medicare Bene20 ficiary Ombudsman who shall have expertise 

21 and experience in the fields of health care 

22 and education of (and assistance to) individ23 uals entitled to benefits under this title. 

24 ‘‘(b) DUTIES.—The Medicare Beneficiary 

25 Ombudsman shall—
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1 ‘‘(1) receive complaints, grievances, 

2 and requests for information submitted 

3 by individuals entitled to benefits under 

4 part A or enrolled under part B, or both, 

5 with respect to any aspect of the medi6 care program; 

7 ‘‘(2) provide assistance with respect 

8 to complaints, grievances, and requests 

9 referred to in paragraph (1), including—

10 ‘‘(A) assistance in collecting rel11 evant information for such individ12 uals, to seek an appeal of a decision 

13 or determination made by a fiscal 

14 intermediary, carrier, 

15 Medicare+Choice organization, or the 

16 Secretary; 

17 ‘‘(B) assistance to such individ18 uals with any problems arising from 

19 disenrollment from a 

20 Medicare+Choice plan under part C; 

21 and 

22 ‘‘(C) assistance to such individ23 uals in presenting information under 

24 section 1860D–2(b)(4)(D)(v); and 
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1 ‘‘(3) submit annual reports to Con2 gress and the Secretary that describe the 

3 activities of the Office and that include 

4 such recommendations for improvement 

5 in the administration of this title as the 

6 Ombudsman determines appropriate. 

7 The Ombudsman shall not serve as an advo8 cate for any increases in payments or new 

9 coverage of services, but may identify issues 

10 and problems in payment or coverage poli11 cies. 

12 ‘‘(c) WORKING WITH HEALTH INSURANCE

13 COUNSELING PROGRAMS.—To the extent pos14 sible, the Ombudsman shall work with health 

15 insurance counseling programs (receiving 

16 funding under section 4360 of Omnibus Budg17 et Reconciliation Act of 1990) to facilitate the 

18 provision of information to individuals enti19 tled to benefits under part A or enrolled 

20 under part B, or both regarding 

21 Medicare+Choice plans and changes to those 

22 plans. Nothing in this subsection shall pre23 clude further collaboration between the Om24 budsman and such programs.’’. 
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1 (c) DEADLINE FOR APPOINTMENT.—The Sec2 retary shall appoint the Medicare Provider 

3 Ombudsman and the Medicare Beneficiary 

4 Ombudsman, under the amendments made by 

5 subsections (a) and (b), respectively, by not 

6 later than 1 year after the date of the enact7 ment of this Act. 

8 (d) FUNDING.—There are authorized to be 

9 appropriated to the Secretary (in appropriate 

10 part from the Federal Hospital Insurance 

11 Trust Fund and the Federal Supplementary 

12 Medical Insurance Trust Fund) to carry out 

13 the provisions of subsection (b) of section 

14 1868 of the Social Security Act (relating to the 

15 Medicare Provider Ombudsman), as added by 

16 subsection (a)(5) and section 1807 of such Act 

17 (relating to the Medicare Beneficiary Om18 budsman), as added by subsection (b), such 

19 sums as are necessary for fiscal year 2004 and 

20 each succeeding fiscal year. 

21 (e) USE OF CENTRAL, TOLL-FREE NUMBER

22 (1–800–MEDICARE).—

23 (1) PHONE TRIAGE SYSTEM; LISTING IN

24 MEDICARE HANDBOOK INSTEAD OF OTHER

25 TOLL-FREE NUMBERS.—Section 1804(b) (42 
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1 U.S.C. 1395b–2(b)) is amended by adding 

2 at the end the following: ‘‘The Secretary 

3 shall provide, through the toll-free num4 ber 1–800–MEDICARE, for a means by 

5 which individuals seeking information 

6 about, or assistance with, such programs 

7 who phone such toll-free number are 

8 transferred (without charge) to appro9 priate entities for the provision of such 

10 information or assistance. Such toll-free 

11 number shall be the toll-free number list12 ed for general information and assistance 

13 in the annual notice under subsection (a) 

14 instead of the listing of numbers of indi15 vidual contractors.’’. 

16 (2) MONITORING ACCURACY.—

17 (A) STUDY.—The Comptroller Gen18 eral of the United States shall con19 duct a study to monitor the accuracy 

20 and consistency of information pro21 vided to individuals entitled to bene22 fits under part A or enrolled under 

23 part B, or both, through the toll-free 

24 number 1–800–MEDICARE, including 

25 an assessment of whether the infor-
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1 mation provided is sufficient to an2 swer questions of such individuals. In 

3 conducting the study, the Comp4 troller General shall examine the edu5 cation and training of the individuals 

6 providing information through such 

7 number. 

8 (B) REPORT.—Not later than 1 

9 year after the date of the enactment 

10 of this Act, the Comptroller General 

11 shall submit to Congress a report on 

12 the study conducted under subpara13 graph (A). 

14 SEC. 924. BENEFICIARY OUTREACH DEMONSTRATION PRO15 GRAM. 

16 (a) IN GENERAL.—The Secretary shall es17 tablish a demonstration program (in this sec18 tion referred to as the ‘‘demonstration pro19 gram’’) under which medicare specialists em20 ployed by the Department of Health and 

21 Human Services provide advice and assist22 ance to individuals entitled to benefits under 

23 part A of title XVIII of the Social Security Act, 

24 or enrolled under part B of such title, or both, 

25 regarding the medicare program at the loca-
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1 tion of existing local offices of the Social Secu2 rity Administration. 

3 (b) LOCATIONS.—

4 (1) IN GENERAL.—The demonstration 

5 program shall be conducted in at least 6 

6 offices or areas. Subject to paragraph (2), 

7 in selecting such offices and areas, the 

8 Secretary shall provide preference for of9 fices with a high volume of visits by indi10 viduals referred to in subsection (a). 

11 (2) ASSISTANCE FOR RURAL BENE12 FICIARIES.—The Secretary shall provide 

13 for the selection of at least 2 rural areas 

14 to participate in the demonstration pro15 gram. In conducting the demonstration 

16 program in such rural areas, the Sec17 retary shall provide for medicare special18 ists to travel among local offices in a 

19 rural area on a scheduled basis. 

20 (c) DURATION.—The demonstration pro21 gram shall be conducted over a 3-year period. 

22 (d) EVALUATION AND REPORT.—

23 (1) EVALUATION.—The Secretary shall 

24 provide for an evaluation of the dem-
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1 onstration program. Such evaluation 

2 shall include an analysis of—

3 (A) utilization of, and satisfaction 

4 of those individuals referred to in 

5 subsection (a) with, the assistance 

6 provided under the program; and 

7 (B) the cost-effectiveness of pro8 viding beneficiary assistance through 

9 out-stationing medicare specialists at 

10 local offices of the Social Security Ad11 ministration. 

12 (2) REPORT.—The Secretary shall sub13 mit to Congress a report on such evalua14 tion and shall include in such report rec15 ommendations regarding the feasibility 

16 of permanently out-stationing medicare 

17 specialists at local offices of the Social 

18 Security Administration. 

19 SEC. 925. INCLUSION OF ADDITIONAL INFORMATION IN NO20 TICES TO BENEFICIARIES ABOUT SKILLED 

21 NURSING FACILITY BENEFITS. 

22 (a) IN GENERAL.—The Secretary shall pro23 vide that in medicare beneficiary notices pro24 vided (under section 1806(a) of the Social Se25 curity Act, 42 U.S.C. 1395b–7(a)) with respect 
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1 to the provision of post-hospital extended 

2 care services under part A of title XVIII of the 

3 Social Security Act, there shall be included in4 formation on the number of days of coverage 

5 of such services remaining under such part 

6 for the medicare beneficiary and spell of ill7 ness involved. 

8 (b) EFFECTIVE DATE.—Subsection (a) shall 

9 apply to notices provided during calendar 

10 quarters beginning more than 6 months after 

11 the date of the enactment of this Act. 

12 SEC. 926. INFORMATION ON MEDICARE-CERTIFIED 

13 SKILLED NURSING FACILITIES IN HOSPITAL 

14 DISCHARGE PLANS. 

15 (a) AVAILABILITY OF DATA.—The Secretary 

16 shall publicly provide information that en17 ables hospital discharge planners, medicare 

18 beneficiaries, and the public to identify 

19 skilled nursing facilities that are partici20 pating in the medicare program. 

21 (b) INCLUSION OF INFORMATION IN CERTAIN

22 HOSPITAL DISCHARGE PLANS.—

23 (1) IN GENERAL.—Section 

24 1861(ee)(2)(D) (42 U.S.C. 1395x(ee)(2)(D)) 

25 is amended—
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1 (A) by striking ‘‘hospice services’’

2 and inserting ‘‘hospice care and post3 hospital extended care services’’; and 

4 (B) by inserting before the period 

5 at the end the following: ‘‘and, in the 

6 case of individuals who are likely to 

7 need post-hospital extended care 

8 services, the availability of such serv9 ices through facilities that partici10 pate in the program under this title 

11 and that serve the area in which the 

12 patient resides’’. 

13 (2) EFFECTIVE DATE.—The amendments 

14 made by paragraph (1) shall apply to dis15 charge plans made on or after such date 

16 as the Secretary shall specify, but not 

17 later than 6 months after the date the 

18 Secretary provides for availability of in19 formation under subsection (a). 

20 Subtitle D—Appeals and Recovery 

21 SEC. 931. TRANSFER OF RESPONSIBILITY FOR MEDICARE 

22 APPEALS. 

23 (a) TRANSITION PLAN.—

24 (1) IN GENERAL.—Not later than Octo25 ber 1, 2004, the Commissioner of Social 
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1 Security and the Secretary shall develop 

2 and transmit to Congress and the Comp3 troller General of the United States a 

4 plan under which the functions of admin5 istrative law judges responsible for hear6 ing cases under title XVIII of the Social 

7 Security Act (and related provisions in 

8 title XI of such Act) are transferred from 

9 the responsibility of the Commissioner 

10 and the Social Security Administration to 

11 the Secretary and the Department of 

12 Health and Human Services. 

13 (2) GAO EVALUATION.—The Comp14 troller General of the United States shall 

15 evaluate the plan and, not later than the 

16 date that is 6 months after the date on 

17 which the plan is received by the Comp18 troller General, shall submit to Congress 

19 a report on such evaluation. 

20 (b) TRANSFER OF ADJUDICATION AUTHOR21 ITY.—

22 (1) IN GENERAL.—Not earlier than July 

23 1, 2005, and not later than October 1, 

24 2005, the Commissioner of Social Security 

25 and the Secretary shall implement the 
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1 transition plan under subsection (a) and 

2 transfer the administrative law judge 

3 functions described in such subsection 

4 from the Social Security Administration 

5 to the Secretary. 

6 (2) ASSURING INDEPENDENCE OF

7 JUDGES.—The Secretary shall assure the 

8 independence of administrative law 

9 judges performing the administrative law 

10 judge functions transferred under para11 graph (1) from the Centers for Medicare 

12 & Medicaid Services and its contractors. 

13 In order to assure such independence, 

14 the Secretary shall place such judges in 

15 an administrative office that is organiza16 tionally and functionally separate from 

17 such Centers. Such judges shall report to, 

18 and be under the general supervision of, 

19 the Secretary, but shall not report to, or 

20 be subject to supervision by, another 

21 other officer of the Department. 

22 (3) GEOGRAPHIC DISTRIBUTION.—The 

23 Secretary shall provide for an appro24 priate geographic distribution of admin25 istrative law judges performing the ad-
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1 ministrative law judge functions trans2 ferred under paragraph (1) throughout 

3 the United States to ensure timely access 

4 to such judges. 

5 (4) HIRING AUTHORITY.—Subject to the 

6 amounts provided in advance in appro7 priations Act, the Secretary shall have 

8 authority to hire administrative law 

9 judges to hear such cases, giving priority 

10 to those judges with prior experience in 

11 handling medicare appeals and in a man12 ner consistent with paragraph (3), and to 

13 hire support staff for such judges. 

14 (5) FINANCING.—Amounts payable 

15 under law to the Commissioner for ad16 ministrative law judges performing the 

17 administrative law judge functions trans18 ferred under paragraph (1) from the Fed19 eral Hospital Insurance Trust Fund and 

20 the Federal Supplementary Medical In21 surance Trust Fund shall become payable 

22 to the Secretary for the functions so 

23 transferred. 

24 (6) SHARED RESOURCES.—The Sec25 retary shall enter into such arrangements 
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1 with the Commissioner as may be appro2 priate with respect to transferred func3 tions of administrative law judges to 

4 share office space, support staff, and 

5 other resources, with appropriate reim6 bursement from the Trust Funds de7 scribed in paragraph (5). 

8 (c) INCREASED FINANCIAL SUPPORT.—In ad9 dition to any amounts otherwise appro10 priated, to ensure timely action on appeals be11 fore administrative law judges and the De12 partmental Appeals Board consistent with 

13 section 1869 of the Social Security Act (as 

14 amended by section 521 of BIPA, 114 Stat. 

15 2763A–534), there are authorized to be appro16 priated (in appropriate part from the Federal 

17 Hospital Insurance Trust Fund and the Fed18 eral Supplementary Medical Insurance Trust 

19 Fund) to the Secretary such sums as are nec20 essary for fiscal year 2005 and each subse21 quent fiscal year to—

22 (1) increase the number of adminis23 trative law judges (and their staffs) 

24 under subsection (b)(4); 
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1 (2) improve education and training 

2 opportunities for administrative law 

3 judges (and their staffs); and 

4 (3) increase the staff of the Depart5 mental Appeals Board. 

6 (d) CONFORMING AMENDMENT.—Section 

7 1869(f)(2)(A)(i) (42 U.S.C. 1395ff(f)(2)(A)(i)), as 

8 added by section 522(a) of BIPA (114 Stat. 

9 2763A–543), is amended by striking ‘‘of the So10 cial Security Administration’’. 

11 SEC. 932. PROCESS FOR EXPEDITED ACCESS TO REVIEW. 

12 (a) EXPEDITED ACCESS TO JUDICIAL RE13 VIEW.—Section 1869(b) (42 U.S.C. 1395ff(b)) as 

14 amended by BIPA, is amended—

15 (1) in paragraph (1)(A), by inserting ‘‘, 

16 subject to paragraph (2),’’ before ‘‘to judi17 cial review of the Secretary’s final deci18 sion’’; 

19 (2) in paragraph (1)(F)—

20 (A) by striking clause (ii); 

21 (B) by striking ‘‘PROCEEDING’’ and 

22 all that follows through ‘‘DETERMINA23 TION’’ and inserting ‘‘DETERMINATIONS

24 AND RECONSIDERATIONS’’; and 
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1 (C) by redesignating subclauses 

2 (I) and (II) as clauses (i) and (ii) and 

3 by moving the indentation of such 

4 subclauses (and the matter that fol5 lows) 2 ems to the left; and 

6 (3) by adding at the end the following 

7 new paragraph: 

8 ‘‘(2) EXPEDITED ACCESS TO JUDICIAL RE9 VIEW.—

10 ‘‘(A) IN GENERAL.—The Secretary 

11 shall establish a process under which 

12 a provider of services or supplier that 

13 furnishes an item or service or an in14 dividual entitled to benefits under 

15 part A or enrolled under part B, or 

16 both, who has filed an appeal under 

17 paragraph (1) may obtain access to 

18 judicial review when a review panel 

19 (described in subparagraph (D)), on 

20 its own motion or at the request of 

21 the appellant, determines that no en22 tity in the administrative appeals 

23 process has the authority to decide 

24 the question of law or regulation rel25 evant to the matters in controversy 
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1 and that there is no material issue of 

2 fact in dispute. The appellant may 

3 make such request only once with re4 spect to a question of law or regula5 tion in a case of an appeal. 

6 ‘‘(B) PROMPT DETERMINATIONS.—If, 

7 after or coincident with appro8 priately filing a request for an admin9 istrative hearing, the appellant re10 quests a determination by the appro11 priate review panel that no review 

12 panel has the authority to decide the 

13 question of law or regulations rel14 evant to the matters in controversy 

15 and that there is no material issue of 

16 fact in dispute and if such request is 

17 accompanied by the documents and 

18 materials as the appropriate review 

19 panel shall require for purposes of 

20 making such determination, such re21 view panel shall make a determina22 tion on the request in writing within 

23 60 days after the date such review 

24 panel receives the request and such 

25 accompanying documents and mate-
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1 rials. Such a determination by such 

2 review panel shall be considered a 

3 final decision and not subject to re4 view by the Secretary. 

5 ‘‘(C) ACCESS TO JUDICIAL REVIEW.—

6 ‘‘(i) IN GENERAL.—If the appro7 priate review panel—

8 ‘‘(I) determines that there 

9 are no material issues of fact 

10 in dispute and that the only 

11 issue is one of law or regula12 tion that no review panel has 

13 the authority to decide; or 

14 ‘‘(II) fails to make such de15 termination within the period 

16 provided under subparagraph 

17 (B); 

18 then the appellant may bring a 

19 civil action as described in this 

20 subparagraph. 

21 ‘‘(ii) DEADLINE FOR FILING.—

22 Such action shall be filed, in the 

23 case described in—

24 ‘‘(I) clause (i)(I), within 60 

25 days of date of the determina-
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1 tion described in such sub2 paragraph; or 

3 ‘‘(II) clause (i)(II), within 

4 60 days of the end of the pe5 riod provided under subpara6 graph (B) for the determina7 tion. 

8 ‘‘(iii) VENUE.—Such action 

9 shall be brought in the district 

10 court of the United States for the 

11 judicial district in which the ap12 pellant is located (or, in the case 

13 of an action brought jointly by 

14 more than one applicant, the judi15 cial district in which the greatest 

16 number of applicants are located) 

17 or in the district court for the 

18 District of Columbia. 

19 ‘‘(iv) INTEREST ON AMOUNTS IN

20 CONTROVERSY.—Where a provider 

21 of services or supplier seeks judi22 cial review pursuant to this para23 graph, the amount in controversy 

24 shall be subject to annual interest 

25 beginning on the first day of the 
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1 first month beginning after the 

2 60-day period as determined pur3 suant to clause (ii) and equal to 

4 the rate of interest on obligations 

5 issued for purchase by the Fed6 eral Hospital Insurance Trust 

7 Fund and by the Federal Supple8 mentary Medical Insurance Trust 

9 Fund for the month in which the 

10 civil action authorized under this 

11 paragraph is commenced, to be 

12 awarded by the reviewing court 

13 in favor of the prevailing party. 

14 No interest awarded pursuant to 

15 the preceding sentence shall be 

16 deemed income or cost for the 

17 purposes of determining reim18 bursement due providers of serv19 ices or suppliers under this Act. 

20 ‘‘(D) REVIEW PANELS.—For pur21 poses of this subsection, a ‘review 

22 panel’ is a panel consisting of 3 mem23 bers (who shall be administrative law 

24 judges, members of the Departmental 

25 Appeals Board, or qualified individ-
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1 uals associated with a qualified inde2 pendent contractor (as defined in 

3 subsection (c)(2)) or with another 

4 independent entity) designated by the 

5 Secretary for purposes of making de6 terminations under this paragraph.’’. 

7 (b) APPLICATION TO PROVIDER AGREEMENT

8 DETERMINATIONS.—Section 1866(h)(1) (42 

9 U.S.C. 1395cc(h)(1)) is amended—

10 (1) by inserting ‘‘(A)’’ after ‘‘(h)(1)’’; 

11 and 

12 (2) by adding at the end the following 

13 new subparagraph: 

14 ‘‘(B) An institution or agency described in 

15 subparagraph (A) that has filed for a hearing 

16 under subparagraph (A) shall have expedited 

17 access to judicial review under this subpara18 graph in the same manner as providers of 

19 services, suppliers, and individuals entitled to 

20 benefits under part A or enrolled under part 

21 B, or both, may obtain expedited access to ju22 dicial review under the process established 

23 under section 1869(b)(2). Nothing in this sub24 paragraph shall be construed to affect the ap25 plication of any remedy imposed under sec-
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1 tion 1819 during the pendency of an appeal 

2 under this subparagraph.’’. 

3 (c) EFFECTIVE DATE.—The amendments 

4 made by this section shall apply to appeals 

5 filed on or after October 1, 2004. 

6 (d) EXPEDITED REVIEW OF CERTAIN PRO7 VIDER AGREEMENT DETERMINATIONS.—

8 (1) TERMINATION AND CERTAIN OTHER

9 IMMEDIATE REMEDIES.—The Secretary shall 

10 develop and implement a process to expe11 dite proceedings under sections 1866(h) 

12 of the Social Security Act (42 U.S.C. 

13 1395cc(h)) in which the remedy of termi14 nation of participation, or a remedy de15 scribed in clause (i) or (iii) of section 

16 1819(h)(2)(B) of such Act (42 U.S.C. 1395i–

17 3(h)(2)(B)) which is applied on an imme18 diate basis, has been imposed. Under 

19 such process priority shall be provided in 

20 cases of termination. 

21 (2) INCREASED FINANCIAL SUPPORT.—In 

22 addition to any amounts otherwise ap23 propriated, to reduce by 50 percent the 

24 average time for administrative deter25 minations on appeals under section 
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1 1866(h) of the Social Security Act (42 

2 U.S.C. 1395cc(h)), there are authorized to 

3 be appropriated (in appropriate part 

4 from the Federal Hospital Insurance 

5 Trust Fund and the Federal Supple6 mentary Medical Insurance Trust Fund) 

7 to the Secretary such additional sums for 

8 fiscal year 2005 and each subsequent fis9 cal year as may be necessary. The pur10 poses for which such amounts are avail11 able include increasing the number of ad12 ministrative law judges (and their staffs) 

13 and the appellate level staff at the De14 partmental Appeals Board of the Depart15 ment of Health and Human Services and 

16 educating such judges and staffs on long17 term care issues. 

18 SEC. 933. REVISIONS TO MEDICARE APPEALS PROCESS. 

19 (a) REQUIRING FULL AND EARLY PRESEN20 TATION OF EVIDENCE.—

21 (1) IN GENERAL.—Section 1869(b) (42 

22 U.S.C. 1395ff(b)), as amended by BIPA 

23 and as amended by section 932(a), is fur24 ther amended by adding at the end the 

25 following new paragraph: 
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1 ‘‘(3) REQUIRING FULL AND EARLY PRES2 ENTATION OF EVIDENCE BY PROVIDERS.—A 

3 provider of services or supplier may not 

4 introduce evidence in any appeal under 

5 this section that was not presented at the 

6 reconsideration conducted by the quali7 fied independent contractor under sub8 section (c), unless there is good cause 

9 which precluded the introduction of such 

10 evidence at or before that reconsider11 ation.’’. 

12 (2) EFFECTIVE DATE.—The amendment 

13 made by paragraph (1) shall take effect 

14 on October 1, 2004. 

15 (b) USE OF PATIENTS’ MEDICAL RECORDS.—

16 Section 1869(c)(3)(B)(i) (42 U.S.C. 

17 1395ff(c)(3)(B)(i)), as amended by BIPA, is 

18 amended by inserting ‘‘(including the medical 

19 records of the individual involved)’’ after 

20 ‘‘clinical experience’’. 

21 (c) NOTICE REQUIREMENTS FOR MEDICARE

22 APPEALS.—

23 (1) INITIAL DETERMINATIONS AND REDE24 TERMINATIONS.—Section 1869(a) (42 U.S.C. 

25 1395ff(a)), as amended by BIPA, is amend-
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1 ed by adding at the end the following 

2 new paragraphs: 

3 ‘‘(4) REQUIREMENTS OF NOTICE OF DE4 TERMINATIONS.—With respect to an initial 

5 determination insofar as it results in a 

6 denial of a claim for benefits—

7 ‘‘(A) the written notice on the de8 termination shall include—

9 ‘‘(i) the reasons for the deter10 mination, including whether a 

11 local medical review policy or a 

12 local coverage determination was 

13 used; 

14 ‘‘(ii) the procedures for ob15 taining additional information 

16 concerning the determination, in17 cluding the information described 

18 in subparagraph (B); and 

19 ‘‘(iii) notification of the right 

20 to seek a redetermination or oth21 erwise appeal the determination 

22 and instructions on how to ini23 tiate such a redetermination 

24 under this section; and 
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1 ‘‘(B) the person provided such no2 tice may obtain, upon request, the 

3 specific provision of the policy, man4 ual, or regulation used in making the 

5 determination. 

6 ‘‘(5) REQUIREMENTS OF NOTICE OF REDE7 TERMINATIONS.—With respect to a redeter8 mination insofar as it results in a denial 

9 of a claim for benefits—

10 ‘‘(A) the written notice on the re11 determination shall include—

12 ‘‘(i) the specific reasons for 

13 the redetermination; 

14 ‘‘(ii) as appropriate, a sum15 mary of the clinical or scientific 

16 evidence used in making the rede17 termination; 

18 ‘‘(iii) a description of the pro19 cedures for obtaining additional 

20 information concerning the rede21 termination; and 

22 ‘‘(iv) notification of the right 

23 to appeal the redetermination 

24 and instructions on how to ini-
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1 tiate such an appeal under this 

2 section; 

3 ‘‘(B) such written notice shall be 

4 provided in printed form and written 

5 in a manner calculated to be under6 stood by the individual entitled to 

7 benefits under part A or enrolled 

8 under part B, or both; and 

9 ‘‘(C) the person provided such no10 tice may obtain, upon request, infor11 mation on the specific provision of 

12 the policy, manual, or regulation used 

13 in making the redetermination.’’. 

14 (2) RECONSIDERATIONS.—Section 

15 1869(c)(3)(E) (42 U.S.C. 1395ff(c)(3)(E)), as 

16 amended by BIPA, is amended—

17 (A) by inserting ‘‘be written in a 

18 manner calculated to be understood 

19 by the individual entitled to benefits 

20 under part A or enrolled under part 

21 B, or both, and shall include (to the 

22 extent appropriate)’’ after ‘‘in writing, 

23 ’’; and 

24 (B) by inserting ‘‘and a notifica25 tion of the right to appeal such deter-
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1 mination and instructions on how to 

2 initiate such appeal under this sec3 tion’’ after ‘‘such decision,’’. 

4 (3) APPEALS.—Section 1869(d) (42 

5 U.S.C. 1395ff(d)), as amended by BIPA, is 

6 amended—

7 (A) in the heading, by inserting ‘‘; 

8 NOTICE’’ after ‘‘SECRETARY’’; and 

9 (B) by adding at the end the fol10 lowing new paragraph: 

11 ‘‘(4) NOTICE.—Notice of the decision of 

12 an administrative law judge shall be in 

13 writing in a manner calculated to be un14 derstood by the individual entitled to 

15 benefits under part A or enrolled under 

16 part B, or both, and shall include—

17 ‘‘(A) the specific reasons for the 

18 determination (including, to the ex19 tent appropriate, a summary of the 

20 clinical or scientific evidence used in 

21 making the determination); 

22 ‘‘(B) the procedures for obtaining 

23 additional information concerning 

24 the decision; and 
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1 ‘‘(C) notification of the right to 

2 appeal the decision and instructions 

3 on how to initiate such an appeal 

4 under this section.’’. 

5 (4) SUBMISSION OF RECORD FOR AP6 PEAL.—Section 1869(c)(3)(J)(i) (42 U.S.C. 

7 1395ff(c)(3)(J)(i)) by striking ‘‘prepare’’

8 and inserting ‘‘submit’’ and by striking 

9 ‘‘with respect to’’ and all that follows 

10 through ‘‘and relevant policies’’. 

11 (d) QUALIFIED INDEPENDENT CONTRAC12 TORS.—

13 (1) ELIGIBILITY REQUIREMENTS OF

14 QUALIFIED INDEPENDENT CONTRACTORS.—

15 Section 1869(c)(3) (42 U.S.C. 1395ff(c)(3)), 

16 as amended by BIPA, is amended—

17 (A) in subparagraph (A), by strik18 ing ‘‘sufficient training and expertise 

19 in medical science and legal matters’’

20 and inserting ‘‘sufficient medical, 

21 legal, and other expertise (including 

22 knowledge of the program under this 

23 title) and sufficient staffing’’; and 

24 (B) by adding at the end the fol25 lowing new subparagraph: 
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1 ‘‘(K) INDEPENDENCE REQUIRE2 MENTS.—

3 ‘‘(i) IN GENERAL.—Subject to 

4 clause (ii), a qualified inde5 pendent contractor shall not con6 duct any activities in a case un7 less the entity—

8 ‘‘(I) is not a related party 

9 (as defined in subsection 

10 (g)(5)); 

11 ‘‘(II) does not have a mate12 rial familial, financial, or pro13 fessional relationship with 

14 such a party in relation to 

15 such case; and 

16 ‘‘(III) does not otherwise 

17 have a conflict of interest 

18 with such a party. 

19 ‘‘(ii) EXCEPTION FOR REASON20 ABLE COMPENSATION.—Nothing in 

21 clause (i) shall be construed to 

22 prohibit receipt by a qualified 

23 independent contractor of com24 pensation from the Secretary for 

25 the conduct of activities under 
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1 this section if the compensation is 

2 provided consistent with clause 

3 (iii). 

4 ‘‘(iii) LIMITATIONS ON ENTITY

5 COMPENSATION.—Compensation 

6 provided by the Secretary to a 

7 qualified independent contractor 

8 in connection with reviews under 

9 this section shall not be contin10 gent on any decision rendered by 

11 the contractor or by any review12 ing professional.’’. 

13 (2) ELIGIBILITY REQUIREMENTS FOR RE14 VIEWERS.—Section 1869 (42 U.S.C. 1395ff), 

15 as amended by BIPA, is amended—

16 (A) by amending subsection 

17 (c)(3)(D) to read as follows: 

18 ‘‘(D) QUALIFICATIONS FOR REVIEW19 ERS.—The requirements of subsection 

20 (g) shall be met (relating to qualifica21 tions of reviewing professionals).’’; 

22 and 

23 (B) by adding at the end the fol24 lowing new subsection: 

25 ‘‘(g) QUALIFICATIONS OF REVIEWERS.—
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1 ‘‘(1) IN GENERAL.—In reviewing deter2 minations under this section, a qualified 

3 independent contractor shall assure 

4 that—

5 ‘‘(A) each individual conducting a 

6 review shall meet the qualifications 

7 of paragraph (2); 

8 ‘‘(B) compensation provided by 

9 the contractor to each such reviewer 

10 is consistent with paragraph (3); and 

11 ‘‘(C) in the case of a review by a 

12 panel described in subsection 

13 (c)(3)(B) composed of physicians or 

14 other health care professionals (each 

15 in this subsection referred to as a ‘re16 viewing professional’), a reviewing 

17 professional meets the qualifications 

18 described in paragraph (4) and, 

19 where a claim is regarding the fur20 nishing of treatment by a physician 

21 (allopathic or osteopathic) or the pro22 vision of items or services by a physi23 cian (allopathic or osteopathic), a re24 viewing professional shall be a physi25 cian (allopathic or osteopathic). 
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1 ‘‘(2) INDEPENDENCE.—

2 ‘‘(A) IN GENERAL.—Subject to sub3 paragraph (B), each individual con4 ducting a review in a case shall—

5 ‘‘(i) not be a related party (as 

6 defined in paragraph (5)); 

7 ‘‘(ii) not have a material famil8 ial, financial, or professional rela9 tionship with such a party in the 

10 case under review; and 

11 ‘‘(iii) not otherwise have a 

12 conflict of interest with such a 

13 party. 

14 ‘‘(B) EXCEPTION.—Nothing in sub15 paragraph (A) shall be construed to—

16 ‘‘(i) prohibit an individual, 

17 solely on the basis of a participa18 tion agreement with a fiscal inter19 mediary, carrier, or other con20 tractor, from serving as a review21 ing professional if—

22 ‘‘(I) the individual is not 

23 involved in the provision of 

24 items or services in the case 

25 under review; 
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1 ‘‘(II) the fact of such an 

2 agreement is disclosed to the 

3 Secretary and the individual 

4 entitled to benefits under part 

5 A or enrolled under part B, or 

6 both, (or authorized rep7 resentative) and neither party 

8 objects; and 

9 ‘‘(III) the individual is not 

10 an employee of the inter11 mediary, carrier, or con12 tractor and does not provide 

13 services exclusively or pri14 marily to or on behalf of such 

15 intermediary, carrier, or con16 tractor; 

17 ‘‘(ii) prohibit an individual 

18 who has staff privileges at the in19 stitution where the treatment in20 volved takes place from serving 

21 as a reviewer merely on the basis 

22 of having such staff privileges if 

23 the existence of such privileges is 

24 disclosed to the Secretary and 

25 such individual (or authorized 
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1 representative), and neither party 

2 objects; or 

3 ‘‘(iii) prohibit receipt of com4 pensation by a reviewing profes5 sional from a contractor if the 

6 compensation is provided con7 sistent with paragraph (3). 

8 For purposes of this paragraph, the 

9 term ‘participation agreement’ means 

10 an agreement relating to the provi11 sion of health care services by the in12 dividual and does not include the 

13 provision of services as a reviewer 

14 under this subsection. 

15 ‘‘(3) LIMITATIONS ON REVIEWER COM16 PENSATION.—Compensation provided by a 

17 qualified independent contractor to a re18 viewer in connection with a review under 

19 this section shall not be contingent on 

20 the decision rendered by the reviewer. 

21 ‘‘(4) LICENSURE AND EXPERTISE.—Each 

22 reviewing professional shall be—

23 ‘‘(A) a physician (allopathic or os24 teopathic) who is appropriately 

25 credentialed or licensed in one or 
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1 more States to deliver health care 

2 services and has medical expertise in 

3 the field of practice that is appro4 priate for the items or services at 

5 issue; or 

6 ‘‘(B) a health care professional 

7 who is legally authorized in one or 

8 more States (in accordance with State 

9 law or the State regulatory mecha10 nism provided by State law) to fur11 nish the health care items or services 

12 at issue and has medical expertise in 

13 the field of practice that is appro14 priate for such items or services. 

15 ‘‘(5) RELATED PARTY DEFINED.—For 

16 purposes of this section, the term ‘related 

17 party’ means, with respect to a case 

18 under this title involving a specific indi19 vidual entitled to benefits under part A 

20 or enrolled under part B, or both, any of 

21 the following: 

22 ‘‘(A) The Secretary, the medicare 

23 administrative contractor involved, 

24 or any fiduciary, officer, director, or 

25 employee of the Department of 
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1 Health and Human Services, or of 

2 such contractor. 

3 ‘‘(B) The individual (or authorized 

4 representative). 

5 ‘‘(C) The health care professional 

6 that provides the items or services in7 volved in the case. 

8 ‘‘(D) The institution at which the 

9 items or services (or treatment) in10 volved in the case are provided. 

11 ‘‘(E) The manufacturer of any 

12 drug or other item that is included in 

13 the items or services involved in the 

14 case. 

15 ‘‘(F) Any other party determined 

16 under any regulations to have a sub17 stantial interest in the case in18 volved.’’. 

19 (3) REDUCING MINIMUM NUMBER OF

20 QUALIFIED INDEPENDENT CONTRACTORS.—

21 Section 1869(c)(4) (42 U.S.C. 1395ff(c)(4)) 

22 is amended by striking ‘‘not fewer than 

23 12 qualified independent contractors 

24 under this subsection’’ and inserting 

25 ‘‘with a sufficient number of qualified 
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1 independent contractors (but not fewer 

2 than 4 such contractors) to conduct re3 considerations consistent with the time4 frames applicable under this subsection’’. 

5 (4) EFFECTIVE DATE.—The amendments 

6 made by paragraphs (1) and (2) shall be 

7 effective as if included in the enactment 

8 of the respective provisions of subtitle C 

9 of title V of BIPA, (114 Stat. 2763A–534). 

10 (5) TRANSITION.—In applying section 

11 1869(g) of the Social Security Act (as 

12 added by paragraph (2)), any reference to 

13 a medicare administrative contractor 

14 shall be deemed to include a reference to 

15 a fiscal intermediary under section 1816 

16 of the Social Security Act (42 U.S.C. 

17 1395h) and a carrier under section 1842 

18 of such Act (42 U.S.C. 1395u). 

19 SEC. 934. PREPAYMENT REVIEW. 

20 (a) IN GENERAL.—Section 1874A, as added 

21 by section 911(a)(1) and as amended by sec22 tions 912(b), 921(b)(1), and 921(c)(1), is further 

23 amended by adding at the end the following 

24 new subsection: 

25 ‘‘(h) CONDUCT OF PREPAYMENT REVIEW.—
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1 ‘‘(1) CONDUCT OF RANDOM PREPAYMENT

2 REVIEW.—

3 ‘‘(A) IN GENERAL.—A medicare ad4 ministrative contractor may conduct 

5 random prepayment review only to 

6 develop a contractor-wide or pro7 gram-wide claims payment error 

8 rates or under such additional cir9 cumstances as may be provided 

10 under regulations, developed in con11 sultation with providers of services 

12 and suppliers. 

13 ‘‘(B) USE OF STANDARD PROTOCOLS

14 WHEN CONDUCTING PREPAYMENT RE15 VIEWS.—When a medicare administra16 tive contractor conducts a random 

17 prepayment review, the contractor 

18 may conduct such review only in ac19 cordance with a standard protocol for 

20 random prepayment audits developed 

21 by the Secretary. 

22 ‘‘(C) CONSTRUCTION.—Nothing in 

23 this paragraph shall be construed as 

24 preventing the denial of payments for 
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1 claims actually reviewed under a ran2 dom prepayment review. 

3 ‘‘(D) RANDOM PREPAYMENT RE4 VIEW.—For purposes of this sub5 section, the term ‘random prepay6 ment review’ means a demand for the 

7 production of records or documenta8 tion absent cause with respect to a 

9 claim. 

10 ‘‘(2) LIMITATIONS ON NON-RANDOM PRE11 PAYMENT REVIEW.—

12 ‘‘(A) LIMITATIONS ON INITIATION OF

13 NON-RANDOM PREPAYMENT REVIEW.—A 

14 medicare administrative contractor 

15 may not initiate non-random prepay16 ment review of a provider of services 

17 or supplier based on the initial iden18 tification by that provider of services 

19 or supplier of an improper billing 

20 practice unless there is a likelihood 

21 of sustained or high level of payment 

22 error (as defined in subsection 

23 (i)(3)(A)). 

24 ‘‘(B) TERMINATION OF NON-RANDOM

25 PREPAYMENT REVIEW.—The Secretary 
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1 shall issue regulations relating to the 

2 termination, including termination 

3 dates, of non-random prepayment re4 view. Such regulations may vary such 

5 a termination date based upon the 

6 differences in the circumstances trig7 gering prepayment review.’’. 

8 (b) EFFECTIVE DATE.—

9 (1) IN GENERAL.—Except as provided 

10 in this subsection, the amendment made 

11 by subsection (a) shall take effect 1 year 

12 after the date of the enactment of this 

13 Act. 

14 (2) DEADLINE FOR PROMULGATION OF

15 CERTAIN REGULATIONS.—The Secretary 

16 shall first issue regulations under section 

17 1874A(h) of the Social Security Act, as 

18 added by subsection (a), by not later than 

19 1 year after the date of the enactment of 

20 this Act. 

21 (3) APPLICATION OF STANDARD PROTO22 COLS FOR RANDOM PREPAYMENT REVIEW.—

23 Section 1874A(h)(1)(B) of the Social Secu24 rity Act, as added by subsection (a), shall 

25 apply to random prepayment reviews 
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1 conducted on or after such date (not later 

2 than 1 year after the date of the enact3 ment of this Act) as the Secretary shall 

4 specify. 

5 (c) APPLICATION TO FISCAL INTERMEDIARIES

6 AND CARRIERS.—The provisions of section 

7 1874A(h) of the Social Security Act, as added 

8 by subsection (a), shall apply to each fiscal 

9 intermediary under section 1816 of the Social 

10 Security Act (42 U.S.C. 1395h) and each car11 rier under section 1842 of such Act (42 U.S.C. 

12 1395u) in the same manner as they apply to 

13 medicare administrative contractors under 

14 such provisions. 

15 SEC. 935. RECOVERY OF OVERPAYMENTS. 

16 (a) IN GENERAL.—Section 1893 (42 U.S.C. 

17 1395ddd) is amended by adding at the end the 

18 following new subsection: 

19 ‘‘(f) RECOVERY OF OVERPAYMENTS.—

20 ‘‘(1) USE OF REPAYMENT PLANS.—

21 ‘‘(A) IN GENERAL.—If the repay22 ment, within 30 days by a provider of 

23 services or supplier, of an overpay24 ment under this title would con25 stitute a hardship (as defined in sub-
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1 paragraph (B)), subject to subpara2 graph (C), upon request of the pro3 vider of services or supplier the Sec4 retary shall enter into a plan with the 

5 provider of services or supplier for 

6 the repayment (through offset or oth7 erwise) of such overpayment over a 

8 period of at least 6 months but not 

9 longer than 3 years (or not longer 

10 than 5 years in the case of extreme 

11 hardship, as determined by the Sec12 retary). Interest shall accrue on the 

13 balance through the period of repay14 ment. Such plan shall meet terms and 

15 conditions determined to be appro16 priate by the Secretary. 

17 ‘‘(B) HARDSHIP.—

18 ‘‘(i) IN GENERAL.—For purposes 

19 of subparagraph (A), the repay20 ment of an overpayment (or over21 payments) within 30 days is 

22 deemed to constitute a hardship 

23 if—

24 ‘‘(I) in the case of a pro25 vider of services that files 
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1 cost reports, the aggregate 

2 amount of the overpayments 

3 exceeds 10 percent of the 

4 amount paid under this title 

5 to the provider of services for 

6 the cost reporting period cov7 ered by the most recently sub8 mitted cost report; or 

9 ‘‘(II) in the case of another 

10 provider of services or sup11 plier, the aggregate amount of 

12 the overpayments exceeds 10 

13 percent of the amount paid 

14 under this title to the pro15 vider of services or supplier 

16 for the previous calendar 

17 year. 

18 ‘‘(ii) RULE OF APPLICATION.—

19 The Secretary shall establish 

20 rules for the application of this 

21 subparagraph in the case of a 

22 provider of services or supplier 

23 that was not paid under this title 

24 during the previous year or was 
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1 paid under this title only during a 

2 portion of that year. 

3 ‘‘(iii) TREATMENT OF PREVIOUS

4 OVERPAYMENTS.—If a provider of 

5 services or supplier has entered 

6 into a repayment plan under sub7 paragraph (A) with respect to a 

8 specific overpayment amount, 

9 such payment amount under the 

10 repayment plan shall not be taken 

11 into account under clause (i) with 

12 respect to subsequent overpay13 ment amounts. 

14 ‘‘(C) EXCEPTIONS.—Subparagraph 

15 (A) shall not apply if—

16 ‘‘(i) the Secretary has reason 

17 to suspect that the provider of 

18 services or supplier may file for 

19 bankruptcy or otherwise cease to 

20 do business or discontinue par21 ticipation in the program under 

22 this title; or 

23 ‘‘(ii) there is an indication of 

24 fraud or abuse committed against 

25 the program. 
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1 ‘‘(D) IMMEDIATE COLLECTION IF VIO2 LATION OF REPAYMENT PLAN.—If a pro3 vider of services or supplier fails to 

4 make a payment in accordance with a 

5 repayment plan under this para6 graph, the Secretary may imme7 diately seek to offset or otherwise re8 cover the total balance outstanding 

9 (including applicable interest) under 

10 the repayment plan. 

11 ‘‘(E) RELATION TO NO FAULT PROVI12 SION.—Nothing in this paragraph 

13 shall be construed as affecting the ap14 plication of section 1870(c) (relating 

15 to no adjustment in the cases of cer16 tain overpayments). 

17 ‘‘(2) LIMITATION ON RECOUPMENT.—

18 ‘‘(A) IN GENERAL.—In the case of a 

19 provider of services or supplier that 

20 is determined to have received an 

21 overpayment under this title and that 

22 seeks a reconsideration by a qualified 

23 independent contractor on such de24 termination under section 1869(b)(1), 

25 the Secretary may not take any ac-
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1 tion (or authorize any other person, 

2 including any medicare contractor, as 

3 defined in subparagraph (C)) to re4 coup the overpayment until the date 

5 the decision on the reconsideration 

6 has been rendered. If the provisions 

7 of section 1869(b)(1) (providing for 

8 such a reconsideration by a qualified 

9 independent contractor) are not in ef10 fect, in applying the previous sen11 tence any reference to such a recon12 sideration shall be treated as a ref13 erence to a redetermination by the 

14 fiscal intermediary or carrier in15 volved. 

16 ‘‘(B) COLLECTION WITH INTEREST.—

17 Insofar as the determination on such 

18 appeal is against the provider of serv19 ices or supplier, interest on the over20 payment shall accrue on and after the 

21 date of the original notice of overpay22 ment. Insofar as such determination 

23 against the provider of services or 

24 supplier is later reversed, the Sec25 retary shall provide for repayment of 
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1 the amount recouped plus interest at 

2 the same rate as would apply under 

3 the previous sentence for the period 

4 in which the amount was recouped. 

5 ‘‘(C) MEDICARE CONTRACTOR DE6 FINED.—For purposes of this sub7 section, the term ‘medicare con8 tractor’ has the meaning given such 

9 term in section 1889(g). 

10 ‘‘(3) LIMITATION ON USE OF EXTRAPO11 LATION.—A medicare contractor may not 

12 use extrapolation to determine overpay13 ment amounts to be recovered by 

14 recoupment, offset, or otherwise unless—

15 ‘‘(A) there is a sustained or high 

16 level of payment error (as defined by 

17 the Secretary by regulation); or 

18 ‘‘(B) documented educational 

19 intervention has failed to correct the 

20 payment error (as determined by the 

21 Secretary). 

22 ‘‘(4) PROVISION OF SUPPORTING DOCU23 MENTATION.—In the case of a provider of 

24 services or supplier with respect to 

25 which amounts were previously overpaid, 
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1 a medicare contractor may request the 

2 periodic production of records or sup3 porting documentation for a limited sam4 ple of submitted claims to ensure that the 

5 previous practice is not continuing. 

6 ‘‘(5) CONSENT SETTLEMENT REFORMS.—

7 ‘‘(A) IN GENERAL.—The Secretary 

8 may use a consent settlement (as de9 fined in subparagraph (D)) to settle a 

10 projected overpayment. 

11 ‘‘(B) OPPORTUNITY TO SUBMIT ADDI12 TIONAL INFORMATION BEFORE CONSENT

13 SETTLEMENT OFFER.—Before offering a 

14 provider of services or supplier a con15 sent settlement, the Secretary shall—

16 ‘‘(i) communicate to the pro17 vider of services or supplier—

18 ‘‘(I) that, based on a re19 view of the medical records 

20 requested by the Secretary, a 

21 preliminary evaluation of 

22 those records indicates that 

23 there would be an overpay24 ment; 
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1 ‘‘(II) the nature of the 

2 problems identified in such 

3 evaluation; and 

4 ‘‘(III) the steps that the 

5 provider of services or sup6 plier should take to address 

7 the problems; and 

8 ‘‘(ii) provide for a 45-day pe9 riod during which the provider of 

10 services or supplier may furnish 

11 additional information con12 cerning the medical records for 

13 the claims that had been re14 viewed. 

15 ‘‘(C) CONSENT SETTLEMENT OFFER.—

16 The Secretary shall review any addi17 tional information furnished by the 

18 provider of services or supplier under 

19 subparagraph (B)(ii). Taking into con20 sideration such information, the Sec21 retary shall determine if there still 

22 appears to be an overpayment. If so, 

23 the Secretary—

24 ‘‘(i) shall provide notice of 

25 such determination to the pro-
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1 vider of services or supplier, in2 cluding an explanation of the rea3 son for such determination; and 

4 ‘‘(ii) in order to resolve the 

5 overpayment, may offer the pro6 vider of services or supplier—

7 ‘‘(I) the opportunity for a 

8 statistically valid random 

9 sample; or 

10 ‘‘(II) a consent settlement. 

11 The opportunity provided under 

12 clause (ii)(I) does not waive any ap13 peal rights with respect to the alleged 

14 overpayment involved. 

15 ‘‘(D) CONSENT SETTLEMENT DE16 FINED.—For purposes of this para17 graph, the term ‘consent settlement’

18 means an agreement between the Sec19 retary and a provider of services or 

20 supplier whereby both parties agree 

21 to settle a projected overpayment 

22 based on less than a statistically valid 

23 sample of claims and the provider of 

24 services or supplier agrees not to ap25 peal the claims involved. 
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1 ‘‘(6) NOTICE OF OVER-UTILIZATION OF

2 CODES.—The Secretary shall establish, in 

3 consultation with organizations rep4 resenting the classes of providers of serv5 ices and suppliers, a process under which 

6 the Secretary provides for notice to class7 es of providers of services and suppliers 

8 served by the contractor in cases in 

9 which the contractor has identified that 

10 particular billing codes may be overuti11 lized by that class of providers of services 

12 or suppliers under the programs under 

13 this title (or provisions of title XI insofar 

14 as they relate to such programs). 

15 ‘‘(7) PAYMENT AUDITS.—

16 ‘‘(A) WRITTEN NOTICE FOR POST-PAY17 MENT AUDITS.—Subject to subpara18 graph (C), if a medicare contractor 

19 decides to conduct a post-payment 

20 audit of a provider of services or sup21 plier under this title, the contractor 

22 shall provide the provider of services 

23 or supplier with written notice 

24 (which may be in electronic form) of 

25 the intent to conduct such an audit. 
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1 ‘‘(B) EXPLANATION OF FINDINGS FOR

2 ALL AUDITS.—Subject to subparagraph 

3 (C), if a medicare contractor audits a 

4 provider of services or supplier under 

5 this title, the contractor shall—

6 ‘‘(i) give the provider of serv7 ices or supplier a full review and 

8 explanation of the findings of the 

9 audit in a manner that is under10 standable to the provider of serv11 ices or supplier and permits the 

12 development of an appropriate 

13 corrective action plan; 

14 ‘‘(ii) inform the provider of 

15 services or supplier of the appeal 

16 rights under this title as well as 

17 consent settlement options (which 

18 are at the discretion of the Sec19 retary); 

20 ‘‘(iii) give the provider of serv21 ices or supplier an opportunity to 

22 provide additional information to 

23 the contractor; and 

24 ‘‘(iv) take into account infor25 mation provided, on a timely 
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1 basis, by the provider of services 

2 or supplier under clause (iii). 

3 ‘‘(C) EXCEPTION.—Subparagraphs 

4 (A) and (B) shall not apply if the pro5 vision of notice or findings would 

6 compromise pending law enforcement 

7 activities, whether civil or criminal, 

8 or reveal findings of law enforce9 ment-related audits. 

10 ‘‘(8) STANDARD METHODOLOGY FOR

11 PROBE SAMPLING.—The Secretary shall es12 tablish a standard methodology for medi13 care contractors to use in selecting a 

14 sample of claims for review in the case of 

15 an abnormal billing pattern.’’. 

16 (b) EFFECTIVE DATES AND DEADLINES.—

17 (1) USE OF REPAYMENT PLANS.—Section 

18 1893(f)(1) of the Social Security Act, as 

19 added by subsection (a), shall apply to re20 quests for repayment plans made after 

21 the date of the enactment of this Act. 

22 (2) LIMITATION ON RECOUPMENT.—Sec23 tion 1893(f)(2) of the Social Security Act, 

24 as added by subsection (a), shall apply to 
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1 actions taken after the date of the enact2 ment of this Act. 

3 (3) USE OF EXTRAPOLATION.—Section 

4 1893(f)(3) of the Social Security Act, as 

5 added by subsection (a), shall apply to 

6 statistically valid random samples initi7 ated after the date that is 1 year after the 

8 date of the enactment of this Act. 

9 (4) PROVISION OF SUPPORTING DOCU10 MENTATION.—Section 1893(f)(4) of the So11 cial Security Act, as added by subsection 

12 (a), shall take effect on the date of the en13 actment of this Act. 

14 (5) CONSENT SETTLEMENT.—Section 

15 1893(f)(5) of the Social Security Act, as 

16 added by subsection (a), shall apply to 

17 consent settlements entered into after the 

18 date of the enactment of this Act. 

19 (6) NOTICE OF OVERUTILIZATION.—Not 

20 later than 1 year after the date of the en21 actment of this Act, the Secretary shall 

22 first establish the process for notice of 

23 overutilization of billing codes under sec24 tion 1893A(f)(6) of the Social Security Act, 

25 as added by subsection (a). 
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1 (7) PAYMENT AUDITS.—Section 

2 1893A(f)(7) of the Social Security Act, as 

3 added by subsection (a), shall apply to 

4 audits initiated after the date of the en5 actment of this Act. 

6 (8) STANDARD FOR ABNORMAL BILLING

7 PATTERNS.—Not later than 1 year after the 

8 date of the enactment of this Act, the Sec9 retary shall first establish a standard 

10 methodology for selection of sample 

11 claims for abnormal billing patterns 

12 under section 1893(f)(8) of the Social Se13 curity Act, as added by subsection (a). 

14 SEC. 936. PROVIDER ENROLLMENT PROCESS; RIGHT OF AP15 PEAL. 

16 (a) IN GENERAL.—Section 1866 (42 U.S.C. 

17 1395cc) is amended—

18 (1) by adding at the end of the head19 ing the following: ‘‘; ENROLLMENT PROC20 ESSES’’; and 

21 (2) by adding at the end the following 

22 new subsection: 

23 ‘‘(j) ENROLLMENT PROCESS FOR PROVIDERS

24 OF SERVICES AND SUPPLIERS.—

25 ‘‘(1) ENROLLMENT PROCESS.—
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1 ‘‘(A) IN GENERAL.—The Secretary 

2 shall establish by regulation a proc3 ess for the enrollment of providers of 

4 services and suppliers under this 

5 title. 

6 ‘‘(B) DEADLINES.—The Secretary 

7 shall establish by regulation proce8 dures under which there are dead9 lines for actions on applications for 

10 enrollment (and, if applicable, re11 newal of enrollment). The Secretary 

12 shall monitor the performance of 

13 medicare administrative contractors 

14 in meeting the deadlines established 

15 under this subparagraph. 

16 ‘‘(C) CONSULTATION BEFORE CHANG17 ING PROVIDER ENROLLMENT FORMS.—

18 The Secretary shall consult with pro19 viders of services and suppliers be20 fore making changes in the provider 

21 enrollment forms required of such 

22 providers and suppliers to be eligible 

23 to submit claims for which payment 

24 may be made under this title. 
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1 ‘‘(2) HEARING RIGHTS IN CASES OF DE2 NIAL OR NON-RENEWAL.—A provider of 

3 services or supplier whose application to 

4 enroll (or, if applicable, to renew enroll5 ment) under this title is denied may have 

6 a hearing and judicial review of such de7 nial under the procedures that apply 

8 under subsection (h)(1)(A) to a provider 

9 of services that is dissatisfied with a de10 termination by the Secretary.’’. 

11 (b) EFFECTIVE DATES.—

12 (1) ENROLLMENT PROCESS.—The Sec13 retary shall provide for the establishment 

14 of the enrollment process under section 

15 1866(j)(1) of the Social Security Act, as 

16 added by subsection (a)(2), within 6 

17 months after the date of the enactment of 

18 this Act. 

19 (2) CONSULTATION.—Section 

20 1866(j)(1)(C) of the Social Security Act, as 

21 added by subsection (a)(2), shall apply 

22 with respect to changes in provider en23 rollment forms made on or after January 

24 1, 2004. 
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1 (3) HEARING RIGHTS.—Section 

2 1866(j)(2) of the Social Security Act, as 

3 added by subsection (a)(2), shall apply to 

4 denials occurring on or after such date 

5 (not later than 1 year after the date of 

6 the enactment of this Act) as the Sec7 retary specifies. 

8 SEC. 937. PROCESS FOR CORRECTION OF MINOR ERRORS 

9 AND OMISSIONS WITHOUT PURSUING AP10 PEALS PROCESS. 

11 (a) CLAIMS.—The Secretary shall develop, 

12 in consultation with appropriate medicare 

13 contractors (as defined in section 1889(g) of 

14 the Social Security Act, as inserted by section 

15 301(a)(1)) and representatives of providers of 

16 services and suppliers, a process whereby, in 

17 the case of minor errors or omissions (as de18 fined by the Secretary) that are detected in 

19 the submission of claims under the programs 

20 under title XVIII of such Act, a provider of 

21 services or supplier is given an opportunity to 

22 correct such an error or omission without the 

23 need to initiate an appeal. Such process shall 

24 include the ability to resubmit corrected 

25 claims. 
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1 (b) PERMITTING USE OF CORRECTED AND

2 SUPPLEMENTARY DATA.—

3 (1) IN GENERAL.—Section 

4 1886(d)(10)(D)(vi) (42 U.S.C. 

5 1395ww(d)(10)(D)(vi)) is amended by add6 ing after subclause (II) at the end the fol7 lowing: 

8 ‘‘Notwithstanding subclause (I), a hospital 

9 may submit, and the Secretary may accept 

10 upon verification, data that corrects or sup11 plements the data described in such sub12 clause without regard to whether the cor13 rected or supplementary data relate to a cost 

14 report that has been settled.’’. 

15 (2) EFFECTIVE DATE.—The amendment 

16 made by paragraph (1) shall apply to fis17 cal years beginning with fiscal year 2004. 

18 (3) SUBMITTAL AND RESUBMITTAL OF AP19 PLICATIONS PERMITTED FOR FISCAL YEAR

20 2004.—

21 (A) IN GENERAL.—Notwithstanding 

22 any other provision of law, a hospital 

23 may submit (or resubmit) an applica24 tion for a change described in section 

25 1886(d)(10)(C)(i)(II) of the Social Se-
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1 curity Act for fiscal year 2004 if the 

2 hospital demonstrates on a timely 

3 basis to the satisfaction of the Sec4 retary that the use of corrected or 

5 supplementary data under the 

6 amendment made by paragraph (1) 

7 would materially affect the approval 

8 of such an application. 

9 (B) APPLICATION OF BUDGET NEU10 TRALITY.—If one or more hospital’s ap11 plications are approved as a result of 

12 paragraph (1) and subparagraph (A) 

13 for fiscal year 2004, the Secretary 

14 shall make a proportional adjustment 

15 in the standardized amounts deter16 mined under section 1886(d)(3) of the 

17 Social Security Act (42 U.S.C. 

18 1395ww(d)(3)) for fiscal year 2004 to 

19 assure that approval of such applica20 tions does not result in aggregate 

21 payments under section 1886(d) of 

22 such Act that are greater or less than 

23 those that would otherwise be made 

24 if paragraph (1) and subparagraph 

25 (A) did not apply. 
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1 SEC. 938. PRIOR DETERMINATION PROCESS FOR CERTAIN 

2 ITEMS AND SERVICES; ADVANCE BENE3 FICIARY NOTICES. 

4 (a) IN GENERAL.—Section 1869 (42 U.S.C. 

5 1395ff(b)), as amended by sections 521 and 522 

6 of BIPA and section 933(d)(2)(B), is further 

7 amended by adding at the end the following 

8 new subsection: 

9 ‘‘(h) PRIOR DETERMINATION PROCESS FOR

10 CERTAIN ITEMS AND SERVICES.—

11 ‘‘(1) ESTABLISHMENT OF PROCESS.—

12 ‘‘(A) IN GENERAL.—With respect to 

13 a medicare administrative contractor 

14 that has a contract under section 

15 1874A that provides for making pay16 ments under this title with respect to 

17 eligible items and services described 

18 in subparagraph (C), the Secretary 

19 shall establish a prior determination 

20 process that meets the requirements 

21 of this subsection and that shall be 

22 applied by such contractor in the 

23 case of eligible requesters. 

24 ‘‘(B) ELIGIBLE REQUESTER.—For 

25 purposes of this subsection, each of 
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1 the following shall be an eligible re2 quester: 

3 ‘‘(i) A physician, but only with 

4 respect to eligible items and serv5 ices for which the physician may 

6 be paid directly. 

7 ‘‘(ii) An individual entitled to 

8 benefits under this title, but only 

9 with respect to an item or service 

10 for which the individual receives, 

11 from the physician who may be 

12 paid directly for the item or serv13 ice, an advance beneficiary notice 

14 under section 1879(a) that pay15 ment may not be made (or may no 

16 longer be made) for the item or 

17 service under this title. 

18 ‘‘(C) ELIGIBLE ITEMS AND SERV19 ICES.—For purposes of this subsection 

20 and subject to paragraph (2), eligible 

21 items and services are items and 

22 services which are physicians’ serv23 ices (as defined in paragraph (4)(A) of 

24 section 1848(f) for purposes of calcu-
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1 lating the sustainable growth rate 

2 under such section). 

3 ‘‘(2) SECRETARIAL FLEXIBILITY.—The 

4 Secretary shall establish by regulation 

5 reasonable limits on the categories of eli6 gible items and services for which a prior 

7 determination of coverage may be re8 quested under this subsection. In estab9 lishing such limits, the Secretary may 

10 consider the dollar amount involved with 

11 respect to the item or service, adminis12 trative costs and burdens, and other rel13 evant factors. 

14 ‘‘(3) REQUEST FOR PRIOR DETERMINA15 TION.—

16 ‘‘(A) IN GENERAL.—Subject to para17 graph (2), under the process estab18 lished under this subsection an eligi19 ble requester may submit to the con20 tractor a request for a determination, 

21 before the furnishing of an eligible 

22 item or service involved as to wheth23 er the item or service is covered 

24 under this title consistent with the 

25 applicable requirements of section 
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1 1862(a)(1)(A) (relating to medical ne2 cessity). 

3 ‘‘(B) ACCOMPANYING DOCUMENTA4 TION.—The Secretary may require 

5 that the request be accompanied by a 

6 description of the item or service, 

7 supporting documentation relating to 

8 the medical necessity for the item or 

9 service, and any other appropriate 

10 documentation. In the case of a re11 quest submitted by an eligible re12 quester who is described in para13 graph (1)(B)(ii), the Secretary may re14 quire that the request also be accom15 panied by a copy of the advance ben16 eficiary notice involved. 

17 ‘‘(4) RESPONSE TO REQUEST.—

18 ‘‘(A) IN GENERAL.—Under such 

19 process, the contractor shall provide 

20 the eligible requester with written 

21 notice of a determination as to 

22 whether—

23 ‘‘(i) the item or service is so 

24 covered; 
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1 ‘‘(ii) the item or service is not 

2 so covered; or 

3 ‘‘(iii) the contractor lacks suf4 ficient information to make a cov5 erage determination. 

6 If the contractor makes the deter7 mination described in clause (iii), the 

8 contractor shall include in the notice 

9 a description of the additional infor10 mation required to make the cov11 erage determination. 

12 ‘‘(B) DEADLINE TO RESPOND.—Such 

13 notice shall be provided within the 

14 same time period as the time period 

15 applicable to the contractor pro16 viding notice of initial determina17 tions on a claim for benefits under 

18 subsection (a)(2)(A). 

19 ‘‘(C) INFORMING BENEFICIARY IN

20 CASE OF PHYSICIAN REQUEST.—In the 

21 case of a request in which an eligible 

22 requester is not the individual de23 scribed in paragraph (1)(B)(ii), the 

24 process shall provide that the indi25 vidual to whom the item or service is 
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1 proposed to be furnished shall be in2 formed of any determination de3 scribed in clause (ii) (relating to a de4 termination of non-coverage) and the 

5 right (referred to in paragraph (6)(B)) 

6 to obtain the item or service and have 

7 a claim submitted for the item or 

8 service. 

9 ‘‘(5) EFFECT OF DETERMINATIONS.—

10 ‘‘(A) BINDING NATURE OF POSITIVE

11 DETERMINATION.—If the contractor 

12 makes the determination described in 

13 paragraph (4)(A)(i), such determina14 tion shall be binding on the con15 tractor in the absence of fraud or evi16 dence of misrepresentation of facts 

17 presented to the contractor. 

18 ‘‘(B) NOTICE AND RIGHT TO REDE19 TERMINATION IN CASE OF A DENIAL.—

20 ‘‘(i) IN GENERAL.—If the con21 tractor makes the determination 

22 described in paragraph 

23 (4)(A)(ii)—

24 ‘‘(I) the eligible requester 

25 has the right to a redeter-
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1 mination by the contractor on 

2 the determination that the 

3 item or service is not so cov4 ered; and 

5 ‘‘(II) the contractor shall 

6 include in notice under para7 graph (4)(A) a brief expla8 nation of the basis for the de9 termination, including on 

10 what national or local cov11 erage or noncoverage deter12 mination (if any) the deter13 mination is based, and the 

14 right to such a redetermina15 tion. 

16 ‘‘(ii) DEADLINE FOR REDETER17 MINATIONS.—The contractor shall 

18 complete and provide notice of 

19 such redetermination within the 

20 same time period as the time pe21 riod applicable to the contractor 

22 providing notice of redetermina23 tions relating to a claim for bene24 fits under subsection (a)(3)(C)(ii). 

25 ‘‘(6) LIMITATION ON FURTHER REVIEW.—
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1 ‘‘(A) IN GENERAL.—Contractor de2 terminations described in paragraph 

3 (4)(A)(ii) or (4)(A)(iii) (and redeter4 minations made under paragraph 

5 (5)(B)), relating to pre-service claims 

6 are not subject to further administra7 tive appeal or judicial review under 

8 this section or otherwise. 

9 ‘‘(B) DECISION NOT TO SEEK PRIOR

10 DETERMINATION OR NEGATIVE DETER11 MINATION DOES NOT IMPACT RIGHT TO

12 OBTAIN SERVICES, SEEK REIMBURSE13 MENT, OR APPEAL RIGHTS.—Nothing in 

14 this subsection shall be construed as 

15 affecting the right of an individual 

16 who—

17 ‘‘(i) decides not to seek a prior 

18 determination under this sub19 section with respect to items or 

20 services; or 

21 ‘‘(ii) seeks such a determina22 tion and has received a deter23 mination described in paragraph 

24 (4)(A)(ii), 
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1 from receiving (and submitting a 

2 claim for) such items services and 

3 from obtaining administrative or ju4 dicial review respecting such claim 

5 under the other applicable provisions 

6 of this section. Failure to seek a prior 

7 determination under this subsection 

8 with respect to items and services 

9 shall not be taken into account in 

10 such administrative or judicial re11 view. 

12 ‘‘(C) NO PRIOR DETERMINATION

13 AFTER RECEIPT OF SERVICES.—Once an 

14 individual is provided items and serv15 ices, there shall be no prior deter16 mination under this subsection with 

17 respect to such items or services.’’. 

18 (b) EFFECTIVE DATE; TRANSITION.—

19 (1) EFFECTIVE DATE.—The Secretary 

20 shall establish the prior determination 

21 process under the amendment made by 

22 subsection (a) in such a manner as to pro23 vide for the acceptance of requests for 

24 determinations under such process filed 
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1 not later than 18 months after the date of 

2 the enactment of this Act. 

3 (2) TRANSITION.—During the period in 

4 which the amendment made by sub5 section (a) has become effective but con6 tracts are not provided under section 

7 1874A of the Social Security Act with 

8 medicare administrative contractors, any 

9 reference in section 1869(g) of such Act 

10 (as added by such amendment) to such a 

11 contractor is deemed a reference to a fis12 cal intermediary or carrier with an 

13 agreement under section 1816, or con14 tract under section 1842, respectively, of 

15 such Act. 

16 (3) LIMITATION ON APPLICATION TO

17 SGR.—For purposes of applying section 

18 1848(f)(2)(D) of the Social Security Act (42 

19 U.S.C. 1395w–4(f)(2)(D)), the amendment 

20 made by subsection (a) shall not be con21 sidered to be a change in law or regula22 tion. 

23 (c) PROVISIONS RELATING TO ADVANCE BEN24 EFICIARY NOTICES; REPORT ON PRIOR DETER25 MINATION PROCESS.—
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1 (1) DATA COLLECTION.—The Secretary 

2 shall establish a process for the collection 

3 of information on the instances in which 

4 an advance beneficiary notice (as defined 

5 in paragraph (5)) has been provided and 

6 on instances in which a beneficiary indi7 cates on such a notice that the bene8 ficiary does not intend to seek to have 

9 the item or service that is the subject of 

10 the notice furnished. 

11 (2) OUTREACH AND EDUCATION.—The 

12 Secretary shall establish a program of 

13 outreach and education for beneficiaries 

14 and providers of services and other per15 sons on the appropriate use of advance 

16 beneficiary notices and coverage policies 

17 under the medicare program. 

18 (3) GAO REPORT REPORT ON USE OF AD19 VANCE BENEFICIARY NOTICES.—Not later 

20 than 18 months after the date on which 

21 section 1869(g) of the Social Security Act 

22 (as added by subsection (a)) takes effect, 

23 the Comptroller General of the United 

24 States shall submit to Congress a report 

25 on the use of advance beneficiary notices 
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1 under title XVIII of such Act. Such report 

2 shall include information concerning the 

3 providers of services and other persons 

4 that have provided such notices and the 

5 response of beneficiaries to such notices. 

6 (4) GAO REPORT ON USE OF PRIOR DE7 TERMINATION PROCESS.—Not later than 18 

8 months after the date on which section 

9 1869(g) of the Social Security Act (as 

10 added by subsection (a)) takes effect, the 

11 Comptroller General of the United States 

12 shall submit to Congress a report on the 

13 use of the prior determination process 

14 under such section. Such report shall in15 clude—

16 (A) information concerning the 

17 types of procedures for which a prior 

18 determination has been sought, deter19 minations made under the process, 

20 and changes in receipt of services re21 sulting from the application of such 

22 process; and 

23 (B) an evaluation of whether the 

24 process was useful for physicians 

25 (and other suppliers) and bene-
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1 ficiaries, whether it was timely, and 

2 whether the amount of information 

3 required was burdensome to physi4 cians and beneficiaries. 

5 (5) ADVANCE BENEFICIARY NOTICE DE6 FINED.—In this subsection, the term ‘‘ad7 vance beneficiary notice’’ means a writ8 ten notice provided under section 1879(a) 

9 of the Social Security Act (42 U.S.C. 

10 1395pp(a)) to an individual entitled to 

11 benefits under part A or B of title XVIII 

12 of such Act before items or services are 

13 furnished under such part in cases where 

14 a provider of services or other person 

15 that would furnish the item or service be16 lieves that payment will not be made for 

17 some or all of such items or services 

18 under such title. 

19 Subtitle V—Miscellaneous 

20 Provisions 

21 SEC. 941. POLICY DEVELOPMENT REGARDING EVALUATION 

22 AND MANAGEMENT (E & M) DOCUMENTATION 

23 GUIDELINES. 

24 (a) IN GENERAL.—The Secretary may not 

25 implement any new documentation guidelines 
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1 for, or clinical examples of, evaluation and 

2 management physician services under the 

3 title XVIII of the Social Security Act on or 

4 after the date of the enactment of this Act un5 less the Secretary—

6 (1) has developed the guidelines in 

7 collaboration with practicing physicians 

8 (including both generalists and special9 ists) and provided for an assessment of 

10 the proposed guidelines by the physician 

11 community; 

12 (2) has established a plan that con13 tains specific goals, including a schedule, 

14 for improving the use of such guidelines; 

15 (3) has conducted appropriate and 

16 representative pilot projects under sub17 section (b) to test modifications to the 

18 evaluation and management documenta19 tion guidelines; 

20 (4) finds that the objectives described 

21 in subsection (c) will be met in the imple22 mentation of such guidelines; and 

23 (5) has established, and is imple24 menting, a program to educate physi-
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1 cians on the use of such guidelines and 

2 that includes appropriate outreach. 

3 The Secretary shall make changes to the man4 ner in which existing evaluation and manage5 ment documentation guidelines are imple6 mented to reduce paperwork burdens on phy7 sicians. 

8 (b) PILOT PROJECTS TO TEST EVALUATION

9 AND MANAGEMENT DOCUMENTATION GUIDE10 LINES.—

11 (1) IN GENERAL.—The Secretary shall 

12 conduct under this subsection appro13 priate and representative pilot projects 

14 to test new evaluation and management 

15 documentation guidelines referred to in 

16 subsection (a). 

17 (2) LENGTH AND CONSULTATION.—Each 

18 pilot project under this subsection shall—

19 (A) be voluntary; 

20 (B) be of sufficient length as de21 termined by the Secretary to allow 

22 for preparatory physician and medi23 care contractor education, analysis, 

24 and use and assessment of potential 
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1 evaluation and management guide2 lines; and 

3 (C) be conducted, in development 

4 and throughout the planning and 

5 operational stages of the project, in 

6 consultation with practicing physi7 cians (including both generalists and 

8 specialists). 

9 (3) RANGE OF PILOT PROJECTS.—Of the 

10 pilot projects conducted under this sub11 section—

12 (A) at least one shall focus on a 

13 peer review method by physicians 

14 (not employed by a medicare con15 tractor) which evaluates medical 

16 record information for claims sub17 mitted by physicians identified as sta18 tistical outliers relative to definitions 

19 published in the Current Procedures 

20 Terminology (CPT) code book of the 

21 American Medical Association; 

22 (B) at least one shall focus on an 

23 alternative method to detailed guide24 lines based on physician documenta-
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1 tion of face to face encounter time 

2 with a patient; 

3 (C) at least one shall be con4 ducted for services furnished in a 

5 rural area and at least one for serv6 ices furnished outside such an area; 

7 and 

8 (D) at least one shall be con9 ducted in a setting where physicians 

10 bill under physicians’ services in 

11 teaching settings and at least one 

12 shall be conducted in a setting other 

13 than a teaching setting. 

14 (4) BANNING OF TARGETING OF PILOT

15 PROJECT PARTICIPANTS.—Data collected 

16 under this subsection shall not be used as 

17 the basis for overpayment demands or 

18 post-payment audits. Such limitation ap19 plies only to claims filed as part of the 

20 pilot project and lasts only for the dura21 tion of the pilot project and only as long 

22 as the provider is a participant in the 

23 pilot project. 

24 (5) STUDY OF IMPACT.—Each pilot 

25 project shall examine the effect of the 
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1 new evaluation and management docu2 mentation guidelines on—

3 (A) different types of physician 

4 practices, including those with fewer 

5 than 10 full-time-equivalent employ6 ees (including physicians); and 

7 (B) the costs of physician compli8 ance, including education, implemen9 tation, auditing, and monitoring. 

10 (6) PERIODIC REPORTS.—The Secretary 

11 shall submit to Congress periodic reports 

12 on the pilot projects under this sub13 section. 

14 (c) OBJECTIVES FOR EVALUATION AND MAN15 AGEMENT GUIDELINES.—The objectives for 

16 modified evaluation and management docu17 mentation guidelines developed by the Sec18 retary shall be to—

19 (1) identify clinically relevant docu20 mentation needed to code accurately and 

21 assess coding levels accurately; 

22 (2) decrease the level of non-clinically 

23 pertinent and burdensome documenta24 tion time and content in the physician’s 

25 medical record; 
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1 (3) increase accuracy by reviewers; 

2 and 

3 (4) educate both physicians and re4 viewers. 

5 (d) STUDY OF SIMPLER, ALTERNATIVE SYS6 TEMS OF DOCUMENTATION FOR PHYSICIAN

7 CLAIMS.—

8 (1) STUDY.—The Secretary shall carry 

9 out a study of the matters described in 

10 paragraph (2). 

11 (2) MATTERS DESCRIBED.—The matters 

12 referred to in paragraph (1) are—

13 (A) the development of a simpler, 

14 alternative system of requirements 

15 for documentation accompanying 

16 claims for evaluation and manage17 ment physician services for which 

18 payment is made under title XVIII of 

19 the Social Security Act; and 

20 (B) consideration of systems other 

21 than current coding and documenta22 tion requirements for payment for 

23 such physician services. 

24 (3) CONSULTATION WITH PRACTICING

25 PHYSICIANS.—In designing and carrying 
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1 out the study under paragraph (1), the 

2 Secretary shall consult with practicing 

3 physicians, including physicians who are 

4 part of group practices and including 

5 both generalists and specialists. 

6 (4) APPLICATION OF HIPAA UNIFORM

7 CODING REQUIREMENTS.—In developing an 

8 alternative system under paragraph (2), 

9 the Secretary shall consider require10 ments of administrative simplification 

11 under part C of title XI of the Social Se12 curity Act. 

13 (5) REPORT TO CONGRESS.—(A) Not 

14 later than October 1, 2005, the Secretary 

15 shall submit to Congress a report on the 

16 results of the study conducted under 

17 paragraph (1). 

18 (B) The Medicare Payment Advisory 

19 Commission shall conduct an analysis of 

20 the results of the study included in the 

21 report under subparagraph (A) and shall 

22 submit a report on such analysis to Con23 gress. 

24 (e) STUDY ON APPROPRIATE CODING OF CER25 TAIN EXTENDED OFFICE VISITS.—The Secretary 
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1 shall conduct a study of the appropriateness 

2 of coding in cases of extended office visits in 

3 which there is no diagnosis made. Not later 

4 than October 1, 2005, the Secretary shall sub5 mit a report to Congress on such study and 

6 shall include recommendations on how to 

7 code appropriately for such visits in a manner 

8 that takes into account the amount of time 

9 the physician spent with the patient. 

10 (f) DEFINITIONS.—In this section—

11 (1) the term ‘‘rural area’’ has the 

12 meaning given that term in section 

13 1886(d)(2)(D) of the Social Security Act, 

14 42 U.S.C. 1395ww(d)(2)(D); and 

15 (2) the term ‘‘teaching settings’’ are 

16 those settings described in section 

17 415.150 of title 42, Code of Federal Regu18 lations. 

19 SEC. 942. IMPROVEMENT IN OVERSIGHT OF TECHNOLOGY 

20 AND COVERAGE. 

21 (a) COUNCIL FOR TECHNOLOGY AND INNOVA22 TION.—Section 1868 (42 U.S.C. 1395ee), as 

23 amended by section 921(a), is amended by 

24 adding at the end the following new sub25 section: 
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1 ‘‘(c) COUNCIL FOR TECHNOLOGY AND INNOVA2 TION.—

3 ‘‘(1) ESTABLISHMENT.—The Secretary 

4 shall establish a Council for Technology 

5 and Innovation within the Centers for 

6 Medicare & Medicaid Services (in this 

7 section referred to as ‘CMS’). 

8 ‘‘(2) COMPOSITION.—The Council shall 

9 be composed of senior CMS staff and cli10 nicians and shall be chaired by the Exec11 utive Coordinator for Technology and In12 novation (appointed or designated under 

13 paragraph (4)). 

14 ‘‘(3) DUTIES.—The Council shall co15 ordinate the activities of coverage, cod16 ing, and payment processes under this 

17 title with respect to new technologies 

18 and procedures, including new drug 

19 therapies, and shall coordinate the ex20 change of information on new tech21 nologies between CMS and other entities 

22 that make similar decisions. 

23 ‘‘(4) EXECUTIVE COORDINATOR FOR

24 TECHNOLOGY AND INNOVATION.—The Sec25 retary shall appoint (or designate) a non-
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1 career appointee (as defined in section 

2 3132(a)(7) of title 5, United States Code) 

3 who shall serve as the Executive Coordi4 nator for Technology and Innovation. 

5 Such executive coordinator shall report 

6 to the Administrator of CMS, shall chair 

7 the Council, shall oversee the execution 

8 of its duties, and shall serve as a single 

9 point of contact for outside groups and 

10 entities regarding the coverage, coding, 

11 and payment processes under this title.’’. 

12 (b) METHODS FOR DETERMINING PAYMENT

13 BASIS FOR NEW LAB TESTS.—Section 1833(h) 

14 (42 U.S.C. 1395l(h)) is amended by adding at 

15 the end the following: 

16 ‘‘(8)(A) The Secretary shall establish by 

17 regulation procedures for determining the 

18 basis for, and amount of, payment under this 

19 subsection for any clinical diagnostic labora20 tory test with respect to which a new or sub21 stantially revised HCPCS code is assigned on 

22 or after January 1, 2005 (in this paragraph re23 ferred to as ‘new tests’). 

24 ‘‘(B) Determinations under subparagraph 

25 (A) shall be made only after the Secretary—
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1 ‘‘(i) makes available to the public 

2 (through an Internet site and other ap3 propriate mechanisms) a list that in4 cludes any such test for which establish5 ment of a payment amount under this 

6 subsection is being considered for a year; 

7 ‘‘(ii) on the same day such list is made 

8 available, causes to have published in the 

9 Federal Register notice of a meeting to 

10 receive comments and recommendations 

11 (and data on which recommendations are 

12 based) from the public on the appro13 priate basis under this subsection for es14 tablishing payment amounts for the tests 

15 on such list; 

16 ‘‘(iii) not less than 30 days after publi17 cation of such notice convenes a meeting, 

18 that includes representatives of officials 

19 of the Centers for Medicare & Medicaid 

20 Services involved in determining pay21 ment amounts, to receive such comments 

22 and recommendations (and data on 

23 which the recommendations are based); 

24 ‘‘(iv) taking into account the com25 ments and recommendations (and accom-
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1 panying data) received at such meeting, 

2 develops and makes available to the pub3 lic (through an Internet site and other 

4 appropriate mechanisms) a list of pro5 posed determinations with respect to the 

6 appropriate basis for establishing a pay7 ment amount under this subsection for 

8 each such code, together with an expla9 nation of the reasons for each such deter10 mination, the data on which the deter11 minations are based, and a request for 

12 public written comments on the proposed 

13 determination; and 

14 ‘‘(v) taking into account the com15 ments received during the public com16 ment period, develops and makes avail17 able to the public (through an Internet 

18 site and other appropriate mechanisms) a 

19 list of final determinations of the pay20 ment amounts for such tests under this 

21 subsection, together with the rationale 

22 for each such determination, the data on 

23 which the determinations are based, and 

24 responses to comments and suggestions 

25 received from the public. 
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1 ‘‘(C) Under the procedures established 

2 pursuant to subparagraph (A), the Secretary 

3 shall—

4 ‘‘(i) set forth the criteria for making 

5 determinations under subparagraph (A); 

6 and 

7 ‘‘(ii) make available to the public the 

8 data (other than proprietary data) con9 sidered in making such determinations. 

10 ‘‘(D) The Secretary may convene such fur11 ther public meetings to receive public com12 ments on payment amounts for new tests 

13 under this subsection as the Secretary deems 

14 appropriate. 

15 ‘‘(E) For purposes of this paragraph: 

16 ‘‘(i) The term ‘HCPCS’ refers to the 

17 Health Care Procedure Coding System. 

18 ‘‘(ii) A code shall be considered to be 

19 ‘substantially revised’ if there is a sub20 stantive change to the definition of the 

21 test or procedure to which the code ap22 plies (such as a new analyte or a new 

23 methodology for measuring an existing 

24 analyte-specific test).’’. 
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1 (c) GAO STUDY ON IMPROVEMENTS IN EXTER2 NAL DATA COLLECTION FOR USE IN THE MEDI3 CARE INPATIENT PAYMENT SYSTEM.—

4 (1) STUDY.—The Comptroller General 

5 of the United States shall conduct a study 

6 that analyzes which external data can be 

7 collected in a shorter time frame by the 

8 Centers for Medicare & Medicaid Serv9 ices for use in computing payments for 

10 inpatient hospital services. The study 

11 may include an evaluation of the feasi12 bility and appropriateness of using of 

13 quarterly samples or special surveys or 

14 any other methods. The study shall in15 clude an analysis of whether other execu16 tive agencies, such as the Bureau of 

17 Labor Statistics in the Department of 

18 Commerce, are best suited to collect this 

19 information. 

20 (2) REPORT.—By not later than Octo21 ber 1, 2004, the Comptroller General shall 

22 submit a report to Congress on the study 

23 under paragraph (1). 

24 (d) PROCESS FOR ADOPTION OF ICD CODES

25 AS DATA STANDARD.—Section 1172(f) (42 U.S.C. 
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1 1320d–1(f)) is amended by inserting after the 

2 first sentence the following: ‘‘Notwithstanding 

3 the preceding sentence, if the National Com4 mittee on Vital and Health Statistics has not 

5 made a recommendation to the Secretary be6 fore the date of the enactment of this sen7 tence, with respect to the adoption of the 

8 International Classification of Diseases, 10th 

9 Revision, Procedure Coding System (‘ICD–10–

10 PCS’) and the International Classification of 

11 Diseases, 10th Revision, Clinical Modification 

12 (‘ICD–10–CM’) as a standard under this part 

13 for the reporting of diagnoses, the Secretary 

14 may adopt ICD–10–PCS and ICD–10–CM as 

15 such a standard on or after 1 year after such 

16 date without receiving such a recommenda17 tion.’’. 

18 SEC. 943. TREATMENT OF HOSPITALS FOR CERTAIN SERV19 ICES UNDER MEDICARE SECONDARY PAYOR 

20 (MSP) PROVISIONS. 

21 (a) IN GENERAL.—The Secretary shall not 

22 require a hospital (including a critical access 

23 hospital) to ask questions (or obtain informa24 tion) relating to the application of section 

25 1862(b) of the Social Security Act (relating to 
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1 medicare secondary payor provisions) in the 

2 case of reference laboratory services de3 scribed in subsection (b), if the Secretary does 

4 not impose such requirement in the case of 

5 such services furnished by an independent 

6 laboratory. 

7 (b) REFERENCE LABORATORY SERVICES DE8 SCRIBED.—Reference laboratory services de9 scribed in this subsection are clinical labora10 tory diagnostic tests (or the interpretation of 

11 such tests, or both) furnished without a face12 to-face encounter between the individual en13 titled to benefits under part A or enrolled 

14 under part B, or both, and the hospital in15 volved and in which the hospital submits a 

16 claim only for such test or interpretation. 

17 SEC. 944. EMTALA IMPROVEMENTS. 

18 (a) PAYMENT FOR EMTALA-MANDATED

19 SCREENING AND STABILIZATION SERVICES.—

20 (1) IN GENERAL.—Section 1862 (42 

21 U.S.C. 1395y) is amended by inserting 

22 after subsection (c) the following new 

23 subsection: 

24 ‘‘(d) For purposes of subsection (a)(1)(A), 

25 in the case of any item or service that is re-
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1 quired to be provided pursuant to section 

2 1867 to an individual who is entitled to bene3 fits under this title, determinations as to 

4 whether the item or service is reasonable and 

5 necessary shall be made on the basis of the in6 formation available to the treating physician 

7 or practitioner (including the patient’s pre8 senting symptoms or complaint) at the time 

9 the item or service was ordered or furnished 

10 by the physician or practitioner (and not on 

11 the patient’s principal diagnosis). When mak12 ing such determinations with respect to such 

13 an item or service, the Secretary shall not 

14 consider the frequency with which the item 

15 or service was provided to the patient before 

16 or after the time of the admission or visit.’’. 

17 (2) EFFECTIVE DATE.—The amendment 

18 made by paragraph (1) shall apply to 

19 items and services furnished on or after 

20 January 1, 2004. 

21 (b) NOTIFICATION OF PROVIDERS WHEN

22 EMTALA INVESTIGATION CLOSED.—Section 

23 1867(d) (42 U.S.C. 42 U.S.C. 1395dd(d)) is 

24 amended by adding at the end the following 

25 new paragraph: 
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1 ‘‘(4) NOTICE UPON CLOSING AN INVES2 TIGATION.—The Secretary shall establish a 

3 procedure to notify hospitals and physi4 cians when an investigation under this 

5 section is closed.’’. 

6 (c) PRIOR REVIEW BY PEER REVIEW ORGANI7 ZATIONS IN EMTALA CASES INVOLVING TERMI8 NATION OF PARTICIPATION.—

9 (1) IN GENERAL.—Section 1867(d)(3) (42 

10 U.S.C. 1395dd(d)(3)) is amended—

11 (A) in the first sentence, by insert12 ing ‘‘or in terminating a hospital’s 

13 participation under this title’’ after 

14 ‘‘in imposing sanctions under para15 graph (1)’’; and 

16 (B) by adding at the end the fol17 lowing new sentences: ‘‘Except in the 

18 case in which a delay would jeop19 ardize the health or safety of individ20 uals, the Secretary shall also request 

21 such a review before making a com22 pliance determination as part of the 

23 process of terminating a hospital’s 

24 participation under this title for vio25 lations related to the appropriateness 
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1 of a medical screening examination, 

2 stabilizing treatment, or an appro3 priate transfer as required by this 

4 section, and shall provide a period of 

5 5 days for such review. The Secretary 

6 shall provide a copy of the organiza7 tion’s report to the hospital or physi8 cian consistent with confidentiality 

9 requirements imposed on the organi10 zation under such part B.’’. 

11 (2) EFFECTIVE DATE.—The amendments 

12 made by paragraph (1) shall apply to ter13 minations of participation initiated on or 

14 after the date of the enactment of this 

15 Act.

16 (d) MODIFICATION OF REQUIRMENT FOR

17 MEDICAL SCREENING EXAMINATIONS FOR PA18 TIENTS NOT REQUESTING EMERGENCY DEPART19 MENT SERVICES.—

20 (1) IN GENERAL.—Section 1867(a) (42 

21 U.S.C. 1395dd(a)) is amended—

22 (A) by designating all that follows 

23 ‘‘(a) MEDICAL SCREENING REQUIRE24 MENT.—’’ as paragraph (1) with the 

25 heading ‘‘IN GENERAL.—’’; 
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1 (B) by aligning such paragraph 

2 with the paragraph added by para3 graph (3); and 

4 (C) by adding at the end the fol5 lowing new paragraph: 

6 ‘‘(2) EXCEPTION FOR CERTAIN CASES.—

7 The requirement for an appropriate med8 ical screening examination under para9 graph (1) shall not apply in the case of an 

10 individual who comes to the emergency 

11 department and does not request exam12 ination or treatment for an emergency 

13 medical condition (such as a request sole14 ly for prescription refills, blood pressure 

15 screening, and non-emergency laboratory 

16 and diagnostic tests).’’. 

17 (2) EFFECTIVE DATE.—The amendments 

18 made by paragraph (1) shall apply to ter19 minations of participation initiated on or 

20 after the date of the enactment of this 

21 Act. 
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1 SEC. 945. EMERGENCY MEDICAL TREATMENT AND ACTIVE 

2 LABOR ACT (EMTALA) TECHNICAL ADVISORY 

3 GROUP. 

4 (a) ESTABLISHMENT.—The Secretary shall 

5 establish a Technical Advisory Group (in this 

6 section referred to as the ‘‘Advisory Group’’) 

7 to review issues related to the Emergency 

8 Medical Treatment and Labor Act (EMTALA) 

9 and its implementation. In this section, the 

10 term ‘‘EMTALA’’ refers to the provisions of 

11 section 1867 of the Social Security Act (42 

12 U.S.C. 1395dd). 

13 (b) MEMBERSHIP.—The Advisory Group 

14 shall be composed of 19 members, including 

15 the Administrator of the Centers for Medicare 

16 & Medicaid Services and the Inspector Gen17 eral of the Department of Health and Human 

18 Services and of which—

19 (1) 4 shall be representatives of hos20 pitals, including at least one public hos21 pital, that have experience with the ap22 plication of EMTALA and at least 2 of 

23 which have not been cited for EMTALA 

24 violations; 

25 (2) 7 shall be practicing physicians 

26 drawn from the fields of emergency medi-
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1 cine, cardiology or cardiothoracic sur2 gery, orthopedic surgery, neurosurgery, 

3 pediatrics or a pediatric subspecialty, ob4 stetrics-gynecology, and psychiatry, with 

5 not more than one physician from any 

6 particular field; 

7 (3) 2 shall represent patients; 

8 (4) 2 shall be staff involved in 

9 EMTALA investigations from different re10 gional offices of the Centers for Medicare 

11 & Medicaid Services; and 

12 (5) 1 shall be from a State survey of13 fice involved in EMTALA investigations 

14 and 1 shall be from a peer review organi15 zation, both of whom shall be from areas 

16 other than the regions represented under 

17 paragraph (4). 

18 In selecting members described in para19 graphs (1) through (3), the Secretary shall 

20 consider qualified individuals nominated by 

21 organizations representing providers and pa22 tients. 

23 (c) GENERAL RESPONSIBILITIES.—The Advi24 sory Group—

25 (1) shall review EMTALA regulations; 
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1 (2) may provide advice and rec2 ommendations to the Secretary with re3 spect to those regulations and their ap4 plication to hospitals and physicians; 

5 (3) shall solicit comments and rec6 ommendations from hospitals, physicians, 

7 and the public regarding the implementa8 tion of such regulations; and 

9 (4) may disseminate information on 

10 the application of such regulations to 

11 hospitals, physicians, and the public. 

12 (d) ADMINISTRATIVE MATTERS.—

13 (1) CHAIRPERSON.—The members of 

14 the Advisory Group shall elect a member 

15 to serve as chairperson of the Advisory 

16 Group for the life of the Advisory Group. 

17 (2) MEETINGS.—The Advisory Group 

18 shall first meet at the direction of the 

19 Secretary. The Advisory Group shall then 

20 meet twice per year and at such other 

21 times as the Advisory Group may pro22 vide. 

23 (e) TERMINATION.—The Advisory Group 

24 shall terminate 30 months after the date of its 

25 first meeting. 
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1 (f) WAIVER OF ADMINISTRATIVE LIMITA2 TION.—The Secretary shall establish the Advi3 sory Group notwithstanding any limitation 

4 that may apply to the number of advisory 

5 committees that may be established (within 

6 the Department of Health and Human Serv7 ices or otherwise). 

8 SEC. 946. AUTHORIZING USE OF ARRANGEMENTS TO PRO9 VIDE CORE HOSPICE SERVICES IN CERTAIN 

10 CIRCUMSTANCES. 

11 (a) IN GENERAL.—Section 1861(dd)(5) (42 

12 U.S.C. 1395x(dd)(5)) is amended by adding at 

13 the end the following: 

14 ‘‘(D) In extraordinary, exigent, or other 

15 non-routine circumstances, such as unantici16 pated periods of high patient loads, staffing 

17 shortages due to illness or other events, or 

18 temporary travel of a patient outside a hos19 pice program’s service area, a hospice pro20 gram may enter into arrangements with an21 other hospice program for the provision by 

22 that other program of services described in 

23 paragraph (2)(A)(ii)(I). The provisions of para24 graph (2)(A)(ii)(II) shall apply with respect to 
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1 the services provided under such arrange2 ments. 

3 ‘‘(E) A hospice program may provide serv4 ices described in paragraph (1)(A) other than 

5 directly by the program if the services are 

6 highly specialized services of a registered 

7 professional nurse and are provided non-rou8 tinely and so infrequently so that the provi9 sion of such services directly would be im10 practicable and prohibitively expensive.’’. 

11 (b) CONFORMING PAYMENT PROVISION.—Sec12 tion 1814(i) (42 U.S.C. 1395f(i)) is amended by 

13 adding at the end the following new para14 graph: 

15 ‘‘(4) In the case of hospice care provided 

16 by a hospice program under arrangements 

17 under section 1861(dd)(5)(D) made by another 

18 hospice program, the hospice program that 

19 made the arrangements shall bill and be paid 

20 for the hospice care.’’. 

21 (c) EFFECTIVE DATE.—The amendments 

22 made by this section shall apply to hospice 

23 care provided on or after the date of the en24 actment of this Act. 
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1 SEC. 947. APPLICATION OF OSHA BLOODBORNE PATHO2 GENS STANDARD TO CERTAIN HOSPITALS. 

3 (a) IN GENERAL.—Section 1866 (42 U.S.C. 

4 1395cc) is amended—

5 (1) in subsection (a)(1)—

6 (A) in subparagraph (R), by strik7 ing ‘‘and’’ at the end; 

8 (B) in subparagraph (S), by strik9 ing the period at the end and insert10 ing ‘‘, and’’; and 

11 (C) by inserting after subpara12 graph (S) the following new subpara13 graph: 

14 ‘‘(T) in the case of hospitals that are 

15 not otherwise subject to the Occupational 

16 Safety and Health Act of 1970, to comply 

17 with the Bloodborne Pathogens standard 

18 under section 1910.1030 of title 29 of the 

19 Code of Federal Regulations (or as subse20 quently redesignated).’’; and 

21 (2) by adding at the end of subsection 

22 (b) the following new paragraph: 

23 ‘‘(4)(A) A hospital that fails to comply with 

24 the requirement of subsection (a)(1)(T) (relat25 ing to the Bloodborne Pathogens standard) is 

26 subject to a civil money penalty in an amount 
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1 described in subparagraph (B), but is not sub2 ject to termination of an agreement under 

3 this section. 

4 ‘‘(B) The amount referred to in subpara5 graph (A) is an amount that is similar to the 

6 amount of civil penalties that may be imposed 

7 under section 17 of the Occupational Safety 

8 and Health Act of 1970 for a violation of the 

9 Bloodborne Pathogens standard referred to in 

10 subsection (a)(1)(T) by a hospital that is sub11 ject to the provisions of such Act. 

12 ‘‘(C) A civil money penalty under this 

13 paragraph shall be imposed and collected in 

14 the same manner as civil money penalties 

15 under subsection (a) of section 1128A are im16 posed and collected under that section.’’. 

17 (b) EFFECTIVE DATE.—The amendments 

18 made by this subsection (a) shall apply to hos19 pitals as of July 1, 2004. 

20 SEC. 948. BIPA-RELATED TECHNICAL AMENDMENTS AND 

21 CORRECTIONS. 

22 (a) TECHNICAL AMENDMENTS RELATING TO

23 ADVISORY COMMITTEE UNDER BIPA SECTION

24 522.—(1) Subsection (i) of section 1114 (42 

25 U.S.C. 1314)—
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1 (A) is transferred to section 1862 and 

2 added at the end of such section; and 

3 (B) is redesignated as subsection (j). 

4 (2) Section 1862 (42 U.S.C. 1395y) is 

5 amended—

6 (A) in the last sentence of subsection 

7 (a), by striking ‘‘established under section 

8 1114(f)’’; and 

9 (B) in subsection (j), as so transferred 

10 and redesignated—

11 (i) by striking ‘‘under subsection 

12 (f)’’; and 

13 (ii) by striking ‘‘section 1862(a)(1)’’

14 and inserting ‘‘subsection (a)(1)’’. 

15 (b) TERMINOLOGY CORRECTIONS.—(1) Sec16 tion 1869(c)(3)(I)(ii) (42 U.S.C. 

17 1395ff(c)(3)(I)(ii)), as amended by section 521 

18 of BIPA, is amended—

19 (A) in subclause (III), by striking ‘‘pol20 icy’’ and inserting ‘‘determination’’; and 

21 (B) in subclause (IV), by striking 

22 ‘‘medical review policies’’ and inserting 

23 ‘‘coverage determinations’’. 

24 (2) Section 1852(a)(2)(C) (42 U.S.C. 1395w–

25 22(a)(2)(C)) is amended by striking ‘‘policy’’
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1 and ‘‘POLICY’’ and inserting ‘‘determination’’

2 each place it appears and ‘‘DETERMINATION’’, 

3 respectively. 

4 (c) REFERENCE CORRECTIONS.—Section 

5 1869(f)(4) (42 U.S.C. 1395ff(f)(4)), as added by 

6 section 522 of BIPA, is amended—

7 (1) in subparagraph (A)(iv), by strik8 ing ‘‘subclause (I), (II), or (III)’’ and in9 serting ‘‘clause (i), (ii), or (iii)’’; 

10 (2) in subparagraph (B), by striking 

11 ‘‘clause (i)(IV)’’ and ‘‘clause (i)(III)’’ and 

12 inserting ‘‘subparagraph (A)(iv)’’ and 

13 ‘‘subparagraph (A)(iii)’’, respectively; and 

14 (3) in subparagraph (C), by striking 

15 ‘‘clause (i)’’, ‘‘subclause (IV)’’ and ‘‘sub16 paragraph (A)’’ and inserting ‘‘subpara17 graph (A)’’

, ‘‘clause (iv)’’ and ‘‘paragraph 

18 (1)(A)’’, respectively each place it ap19 pears. 

20 (d) OTHER CORRECTIONS.—Effective as if 

21 included in the enactment of section 521(c) of 

22 BIPA, section 1154(e) (42 U.S.C. 1320c–3(e)) is 

23 amended by striking paragraph (5). 

24 (e) EFFECTIVE DATE.—Except as otherwise 

25 provided, the amendments made by this sec-
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1 tion shall be effective as if included in the en2 actment of BIPA. 

3 SEC. 949. CONFORMING AUTHORITY TO WAIVE A PROGRAM 

4 EXCLUSION. 

5 The first sentence of section 1128(c)(3)(B) 

6 (42 U.S.C. 1320a–7(c)(3)(B)) is amended to read 

7 as follows: ‘‘Subject to subparagraph (G), in 

8 the case of an exclusion under subsection (a), 

9 the minimum period of exclusion shall be not 

10 less than five years, except that, upon the re11 quest of the administrator of a Federal health 

12 care program (as defined in section 1128B(f)) 

13 who determines that the exclusion would im14 pose a hardship on individuals entitled to 

15 benefits under part A of title XVIII or enrolled 

16 under part B of such title, or both, the Sec17 retary may waive the exclusion under sub18 section (a)(1), (a)(3), or (a)(4) with respect to 

19 that program in the case of an individual or 

20 entity that is the sole community physician or 

21 sole source of essential specialized services in 

22 a community.’’. 
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1 SEC. 950. TREATMENT OF CERTAIN DENTAL CLAIMS. 

2 (a) IN GENERAL.—Section 1862 (42 U.S.C. 

3 1395y) is amended by adding after subsection 

4 (g) the following new subsection: 

5 ‘‘(h)(1) Subject to paragraph (2), a group 

6 health plan (as defined in subsection 

7 (a)(1)(A)(v)) providing supplemental or sec8 ondary coverage to individuals also entitled 

9 to services under this title shall not require 

10 a medicare claims determination under this 

11 title for dental benefits specifically excluded 

12 under subsection (a)(12) as a condition of 

13 making a claims determination for such bene14 fits under the group health plan. 

15 ‘‘(2) A group health plan may require a 

16 claims determination under this title in cases 

17 involving or appearing to involve inpatient 

18 dental hospital services or dental services ex19 pressly covered under this title pursuant to 

20 actions taken by the Secretary.’’. 

21 (b) EFFECTIVE DATE.—The amendment 

22 made by subsection (a) shall take effect on the 

23 date that is 60 days after the date of the enact24 ment of this Act. 
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1 SEC. 951. FURNISHING HOSPITALS WITH INFORMATION TO 

2 COMPUTE DSH FORMULA. 

3 Beginning not later than 1 year after the 

4 date of the enactment of this Act, the Sec5 retary shall furnish to subsection (d) hospitals 

6 (as defined in section 1886(d)(1)(B) of the So7 cial Security Act, 42 U.S.C. 1395ww(d)(1)(B)) 

8 the data necessary for such hospitals to com9 pute the number of patient days described in 

10 subclause (II) of section 1886(d)(5)(F)(vi) of 

11 the Social Security Act (42 U.S.C. 

12 1395ww(d)(5)(F)(vi)) used in computing the 

13 disproportionate patient percentage under 

14 such section for that hospital. Such data shall 

15 also be furnished to other hospitals which 

16 would qualify for additional payments under 

17 part A of title XVIII of the Social Security Act 

18 on the basis of such data. 

19 SEC. 952. REVISIONS TO REASSIGNMENT PROVISIONS. 

20 (a) IN GENERAL.—Section 1842(b)(6)(A) (42 

21 U.S.C. 1395u(b)(6)(A)) is amended by striking 

22 ‘‘or (ii) (where the service was provided in a 

23 hospital, critical access hospital, clinic, or 

24 other facility) to the facility in which the serv25 ice was provided if there is a contractual ar26 rangement between such physician or other 
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1 person and such facility under which such fa2 cility submits the bill for such service,’’ and 

3 inserting ‘‘or (ii) where the service was pro4 vided under a contractual arrangement be5 tween such physician or other person and an 

6 entity (as defined by the Secretary), to the en7 tity if, under the contractual arrangement, 

8 the entity submits the bill for the service and 

9 the contractual arrangement meets such 

10 other program integrity and other safeguards 

11 as the Secretary may determine to be appro12 priate,’’. 

13 (b) CONFORMING AMENDMENT.—The second 

14 sentence of section 1842(b)(6) (42 U.S.C. 

15 1395u(b)(6)) is amended by striking ‘‘except to 

16 an employer or facility’’ and inserting ‘‘except 

17 to an employer, entity, or other person’’. 

18 (c) EFFECTIVE DATE.—The amendments 

19 made by section shall apply to payments 

20 made on or after the date that is one year 

21 after the date of the enactment of this Act. 

22 SEC. 953. OTHER PROVISIONS. 

23 (a) GAO REPORTS ON THE PHYSICIAN COM24 PENSATION.—
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1 (1) SUSTAINABLE GROWTH RATE AND UP2 DATES.—Not later than 6 months after the 

3 date of the enactment of this Act, the 

4 Comptroller General of the United States 

5 shall submit to Congress a report on the 

6 appropriateness of the updates in the 

7 conversion factor under subsection (d)(3) 

8 of section 1848 of the Social Security Act 

9 (42 U.S.C. 1395w–4), including the appro10 priateness of the sustainable growth rate 

11 formula under subsection (f) of such sec12 tion for 2002 and succeeding years. Such 

13 report shall examine the stability and 

14 predictability of such updates and rate 

15 and alternatives for the use of such rate 

16 in the updates. 

17 (2) PHYSICIAN COMPENSATION GEN18 ERALLY.—Not later than 12 months after 

19 the date of the enactment of this Act, the 

20 Comptroller General shall submit to Con21 gress a report on all aspects of physician 

22 compensation for services furnished 

23 under title XVIII of the Social Security 

24 Act, and how those aspects interact and 

25 the effect on appropriate compensation 
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1 for physician services. Such report shall 

2 review alternatives for the physician fee 

3 schedule under section 1848 of such title 

4 (42 U.S.C. 1395w–4). 

5 (b) ANNUAL PUBLICATION OF LIST OF NA6 TIONAL COVERAGE DETERMINATIONS.—The Sec7 retary shall provide, in an appropriate annual 

8 publication available to the public, a list of 

9 national coverage determinations made 

10 under title XVIII of the Social Security Act in 

11 the previous year and information on how to 

12 get more information with respect to such de13 terminations. 

14 (c) GAO REPORT ON FLEXIBILITY IN APPLY15 ING HOME HEALTH CONDITIONS OF PARTICIPA16 TION TO PATIENTS WHO ARE NOT MEDICARE

17 BENEFICIARIES.—Not later than 6 months after 

18 the date of the enactment of this Act, the 

19 Comptroller General of the United States 

20 shall submit to Congress a report on the im21 plications if there were flexibility in the appli22 cation of the medicare conditions of partici23 pation for home health agencies with respect 

24 to groups or types of patients who are not 

25 medicare beneficiaries. The report shall in-
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1 clude an analysis of the potential impact of 

2 such flexible application on clinical oper3 ations and the recipients of such services and 

4 an analysis of methods for monitoring the 

5 quality of care provided to such recipients. 

6 (d) OIG REPORT ON NOTICES RELATING TO

7 USE OF HOSPITAL LIFETIME RESERVE DAYS.—

8 Not later than 1 year after the date of the en9 actment of this Act, the Inspector General of 

10 the Department of Health and Human Serv11 ices shall submit a report to Congress on—

12 (1) the extent to which hospitals pro13 vide notice to medicare beneficiaries in 

14 accordance with applicable requirements 

15 before they use the 60 lifetime reserve 

16 days described in section 1812(a)(1) of the 

17 Social Security Act (42 U.S.C. 1395d(a)(1)); 

18 and 

19 (2) the appropriateness and feasi20 bility of hospitals providing a notice to 

21 such beneficiaries before they completely 

22 exhaust such lifetime reserve days. 
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1 SEC. 954. TEMPORARY SUSPENSION OF OASIS REQUIRE2 MENT FOR COLLECTION OF DATA ON NON3 MEDICARE AND NON-MEDICAID PATIENTS. 

4 (a) IN GENERAL.—During the period de5 scribed in subsection (b), the Secretary may 

6 not require, under section 4602(e) of the Bal7 anced Budget Act of 1997 or otherwise under 

8 OASIS, a home health agency to gather or 

9 submit information that relates to an indi10 vidual who is not eligible for benefits under 

11 either title XVIII or title XIX of the Social Se12 curity Act (such information in this section 

13 referred to as ‘‘non-medicare/medicaid OASIS 

14 information’’). 

15 (b) PERIOD OF SUSPENSION.—The period de16 scribed in this subsection—

17 (1) begins on the date of the enact18 ment of this Act; and 

19 (2) ends on the last day of the 2nd 

20 month beginning after the date as of 

21 which the Secretary has published final 

22 regulations regarding the collection and 

23 use by the Centers for Medicare & Med24 icaid Services of non-medicare/medicaid 

25 OASIS information following the submis-
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1 sion of the report required under sub2 section (c). 

3 (c) REPORT.—

4 (1) STUDY.—The Secretary shall con5 duct a study on how non-medicare/med6 icaid OASIS information is and can be 

7 used by large home health agencies. Such 

8 study shall examine—

9 (A) whether there are unique ben10 efits from the analysis of such infor11 mation that cannot be derived from 

12 other information available to, or col13 lected by, such agencies; and 

14 (B) the value of collecting such in15 formation by small home health agen16 cies compared to the administrative 

17 burden related to such collection. 

18 In conducting the study the Secretary 

19 shall obtain recommendations from qual20 ity assessment experts in the use of such 

21 information and the necessity of small, as 

22 well as large, home health agencies col23 lecting such information. 

24 (2) REPORT.—The Secretary shall sub25 mit to Congress a report on the study 
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1 conducted under paragraph (1) by not 

2 later than 18 months after the date of the 

3 enactment of this Act. 

4 (d) CONSTRUCTION.—Nothing in this sec5 tion shall be construed as preventing home 

6 health agencies from collecting non-medicare/

7 medicaid OASIS information for their own 

8 use. 

Union Calendar No. 115

108TH CONGRESS 

1ST SESSION H. R. 2473

[Report No. 108–718, Parts I and II] 

A BILL

To amend title XVIII of the Social Security Act to 

provide for a voluntary program for prescription drug coverage under the Medicare Program, to modernize the Medicare Program, and for other purposes. 

JULY 15, 2003

Reported from the Committee on Ways and Means with 

an amendment, committed to the Committee of the Whole House on the State of the Union, and ordered to be printed