I 

108TH CONGRESS 

1ST SESSION H. R. 2578

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

Medicare outpatient prescription drug discount and security program. 

IN THE HOUSE OF REPRESENTATIVES 

JUNE 24, 2003

Mr. BURR (for himself, Mr. BARTON of Texas, Mr. BUYER, Mr. NORWOOD, 

Mr. SHADEGG, Mr. AKIN, Mr. BARTLETT of Maryland, Mr. BURGESS, 

Mrs. CUBIN, Mr. HOEKSTRA, Mr. KING of Iowa, Mr. KLINE, Mr. OTTER, 

Mr. PITTS, Mr. TOOMEY, Mr. WELDON of Florida, Mr. GARRETT of New 

Jersey, and Mr. JONES of North Carolina) introduced the following bill; 

which was referred to the Committee on Energy and Commerce, and in 

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

provisions as fall within the jurisdiction of the committee concerned 

A BILL

To amend title XVIII of the Social Security Act to establish 

a voluntary Medicare outpatient prescription drug discount and security program.

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

3 SECTION 1. SHORT TITLE; TABLE OF CONTENTS. 

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

5 ‘‘Medicare for the 21st Century Act’’. 
2

•HR 2578 IH 

1 (b) TABLE OF CONTENTS.—The table of contents of 

2 this Act is as follows:

Sec. 1. Short title; table of contents. 

Sec. 2. Voluntary medicare outpatient prescription drug discount and security 

program. 

‘‘PART D—VOLUNTARY MEDICARE OUTPATIENT PRESCRIPTION DRUG

DISCOUNT AND SECURITY PROGRAM

‘‘Sec. 1860D–1. Establishment of program. 

‘‘Sec. 1860D–2. Enrollment. 

‘‘Sec. 1860D–3. Enrollee protections. 

‘‘Sec. 1860D–4. Benefits under the program. 

‘‘Sec. 1860D–5. Prescription drug accounts. 

‘‘Sec. 1860D–6. Definitions. 

Sec. 3. Exclusion of part D costs from determination of part B monthly premium. 

Sec. 4. Medicaid amendments.

3 SEC. 2. VOLUNTARY MEDICARE OUTPATIENT PRESCRIP4 TION DRUG DISCOUNT AND SECURITY PRO5 GRAM. 

6 (a) ESTABLISHMENT OF PROGRAM.—Title XVIII of 

7 the Social Security Act (42 U.S.C. 1395 et seq.) is amend8 ed by redesignating part D as part E and by inserting 

9 after part C the following new part: 

10 ‘‘PART D—VOLUNTARY MEDICARE OUTPATIENT PRE11 SCRIPTION DRUG DISCOUNT AND SECURITY PRO12 GRAM

13 ‘‘ESTABLISHMENT OF PROGRAM

14 ‘‘SEC. 1860D–1. (a) PROVISION OF BENEFIT.—The 

15 Secretary shall establish a Medicare Outpatient Prescrip16 tion Drug Discount and Security Program under this part 

17 under which an eligible beneficiary who voluntarily enrolls 

18 under this part is provided—
3

•HR 2578 IH 

1 ‘‘(1) access to negotiated prices through an eli2 gible entity with a contract under this part that has 

3 been selected by the beneficiary; 

4 ‘‘(2) catastrophic coverage under this part; and 

5 ‘‘(3) a prescription drug account and a public 

6 contribution into such an account. 

7 ‘‘(b) ELIGIBLE BENEFICIARY; ELIGIBLE ENTITY; 

8 PRESCRIPTION DRUG ACCOUNT.—For purposes of this 

9 part: 

10 ‘‘(1) ELIGIBLE BENEFICIARY.—The term ‘eligi11 ble beneficiary’ means an individual who is eligible 

12 for benefits under part A or enrolled under part B, 

13 regardless of whether or not the individual is en14 rolled with a plan under part C. 

15 ‘‘(2) ELIGIBLE ENTITY.—The term ‘eligible en16 tity’ means any entity that the Secretary determines 

17 to be appropriate to provide the benefits under this 

18 part, including—

19 ‘‘(A) pharmaceutical benefit management 

20 companies and pharmacists; 

21 ‘‘(B) wholesale and retail pharmacy deliv22 ery systems; 

23 ‘‘(C) insurers; 

24 ‘‘(D) Medicare+Choice organizations; 

25 ‘‘(E) other entities; or 
4

•HR 2578 IH 

1 ‘‘(F) any combination of the entities de2 scribed in subparagraphs (A) through (E). 

3 ‘‘(3) PRESCRIPTION DRUG ACCOUNT.—The 

4 term ‘prescription drug account’ means, with respect 

5 to an eligible beneficiary, an account established for 

6 the benefit of that beneficiary under section 1860D–

7 5.

8 ‘‘(c) IMPLEMENTATION OF PROGRAM.—The Sec9 retary shall establish the program under this part in a 

10 manner so that—

11 ‘‘(1) eligible beneficiaries may first enroll with 

12 eligible entities and obtain prescription drug dis13 counts not later than 90 days after the date of the 

14 enactment of this part; and 

15 ‘‘(2) benefits with respect to contributions to a 

16 prescription drug account and catastrophic coverage 

17 shall begin with the month of September 2004, but 

18 there shall be no catastrophic coverage provided for 

19 any period before January 1, 2005.

20 ‘‘(d) VOLUNTARY NATURE OF PROGRAM.—Nothing 

21 in this part shall be construed as requiring an eligible ben22 eficiary to enroll in the program under this part. 

23 ‘‘(e) FINANCING.—The costs of providing benefits 

24 under this part shall be payable from the Federal Supple-
5

•HR 2578 IH 

1 mentary Medical Insurance Trust Fund established under 

2 section 1841. 

3 ‘‘ENROLLMENT; SELECTION OF ELIGIBLE ENTITY

4 ‘‘SEC. 1860D–2. (a) ENROLLMENT UNDER PART

5 D.—

6 ‘‘(1) ESTABLISHMENT OF PROCESS.—

7 ‘‘(A) IN GENERAL.—The Secretary shall 

8 establish a process through which an eligible 

9 beneficiary may make an election to enroll 

10 under this part. 

11 ‘‘(B) REQUIREMENT OF ENROLLMENT.—

12 An eligible beneficiary must enroll under this 

13 part for a year in order to be eligible to receive 

14 the benefits under this part for that year. 

15 ‘‘(C) LIMITATION ON ENROLLMENT.—

16 ‘‘(i) IN GENERAL.—Except as pro17 vided under this subparagraph and under 

18 such exceptional circumstances as the Sec19 retary may provide, an eligible individual 

20 shall only have 1 opportunity to enroll 

21 under this part. The Secretary shall speci22 fy the form, manner, and timing of such 

23 election but shall permit the exercise of

24 such election at the time the individual is 

25 eligible to so enroll. 
6

•HR 2578 IH 

1 ‘‘(ii) LATE ENROLLMENT.—The Sec2 retary shall permit individuals to elect to 

3 enroll under this part at times other than 

4 as permitted under the previous provisions 

5 of this paragraph, except that in the case 

6 of such a late enrollment the amount of 

7 the premiums for catastrophic coverage 

8 otherwise established under section 

9 1860D–4(b)(3) shall be increased by such 

10 percentage as the Secretary shall specify in 

11 order to deter adverse selection. 

12 ‘‘(C) TERMINATION OF ENROLLMENT.—An 

13 enrollee under this part shall be disenrolled—

14 ‘‘(i) upon failure to pay the applicable 

15 enrollment fee under subsection (e) or the 

16 premium for catastrophic coverage under 

17 section 1860D–4(b); 

18 ‘‘(ii) upon termination of coverage 

19 under part A or part B; or 

20 ‘‘(iii) upon notice submitted to the 

21 Secretary in such form, manner, and time 

22 as the Secretary shall provide. 

23 Terminations of enrollment under this subpara24 graph shall be effective as specified by the Sec25 retary in regulations. 
7

•HR 2578 IH 

1 ‘‘(2) ENROLLMENT PERIODS.—

2 ‘‘(A) IN GENERAL.—Except as provided 

3 under this paragraph, an eligible beneficiary 

4 may not enroll in the program under this part 

5 during any period after the beneficiary’s initial 

6 enrollment period under part B (as determined 

7 under section 1837). 

8 ‘‘(B) OPEN ENROLLMENT PERIOD FOR

9 CURRENT BENEFICIARIES.—The Secretary shall 

10 establish a period, which shall begin on the date 

11 on which the Secretary first begins to accept 

12 elections for enrollment under this part and 

13 shall end on November 30, 2003, during which 

14 any eligible beneficiary may enroll under this 

15 part. 

16 ‘‘(C) SPECIAL ENROLLMENT PERIOD IN

17 CASE OF TERMINATION OF COVERAGE UNDER A

18 GROUP HEALTH PLAN.—The Secretary shall 

19 provide for a special enrollment period under 

20 this part in the same manner as is provided 

21 under section 1837(i) with respect to part B, 

22 except that for purposes of this subparagraph 

23 any reference to ‘by reason of the individual’s 

24 (or the individual’s spouse’s) current employ25 ment status’ shall be treated as being deleted. 
8

•HR 2578 IH 

1 ‘‘(3) PERIOD OF COVERAGE.—

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

3 subparagraph (B) and subject to subparagraph 

4 (C), an eligible beneficiary’s coverage under the 

5 program under this part shall be effective for 

6 the period provided under section 1838, as if 

7 that section applied to the program under this 

8 part. 

9 ‘‘(B) ENROLLMENT DURING OPEN AND

10 SPECIAL ENROLLMENT.—Subject to subpara11 graph (C), an eligible beneficiary who enrolls 

12 under the program under this part under sub13 paragraph (B) or (C) of paragraph (2) shall be 

14 entitled to the benefits under this part begin15 ning on the first day of the month following the 

16 month in which such enrollment occurs. 

17 ‘‘(b) SELECTION OF AN ELIGIBLE ENTITY FOR AC18 CESS TO NEGOTIATED PRICES.—

19 ‘‘(1) PROCESS.—

20 ‘‘(A) IN GENERAL.—The Secretary shall 

21 establish a process through which an eligible 

22 beneficiary who is enrolled under this part shall 

23 select any eligible entity, that has been awarded 

24 a contract under this part and serves the State 

25 in which the beneficiary resides, to provide ac-
9

•HR 2578 IH 

1 cess to negotiated prices under section 1860D–

2 4(a). 

3 ‘‘(B) RULES.—In establishing the process 

4 under subparagraph (A), the Secretary shall 

5 use rules similar to the rules for enrollment and 

6 disenrollment with a Medicare+Choice plan 

7 under section 1851 (including the special elec8 tion periods under subsection (e)(4) of such sec9 tion), including that—

10 ‘‘(i) an individual may not select more 

11 than one eligible entity at any time; and 

12 ‘‘(ii) an individual shall only be per13 mitted (except for unusual circumstances) 

14 to change the selection of the entity once 

15 a year. 

16 In carrying out clause (ii), the Secretary may 

17 consider a change in residential setting (such as 

18 placement in a nursing facility) to be an un19 usual circumstance. 

20 ‘‘(C) DEFAULT SELECTION.—In estab21 lishing such process, the Secretary shall provide 

22 an equitable method for the selection of an eli23 gible entity for individuals who enroll under this 

24 part and fail to make such a selection. 
10

•HR 2578 IH 

1 ‘‘(2) COMPETITION.—Eligible entities with a 

2 contract under this part shall compete for bene3 ficiaries on the basis of discounts, formularies, phar4 macy networks, and other services provided for 

5 under the contract. 

6 ‘‘(c) ENROLLMENT PERIOD FOR BENEFITS.—The 

7 processes developed under subsections (a) and (b) shall en8 sure that eligible beneficiaries are permitted to enroll 

9 under this part and to select an eligible entity prior to 

10 90 days after the date of the enactment of this part, in 

11 order to ensure that prescription drug discount benefits 

12 are available under this part as of such date. 

13 ‘‘(d) PROVIDING ENROLLMENT, SELECTION, AND

14 COVERAGE INFORMATION TO BENEFICIARIES.—

15 ‘‘(1) ACTIVITIES.—The Secretary shall provide 

16 for activities under this part to broadly disseminate 

17 information to eligible beneficiaries (and prospective 

18 eligible beneficiaries) regarding enrollment under 

19 this part, the selection of eligible entities, and the 

20 prescription drug coverage made available by eligible 

21 entities with a contract under this part. 

22 ‘‘(2) SPECIAL RULE FOR FIRST ENROLLMENT

23 UNDER THE PROGRAM.—To the extent practicable,

24 the activities described in paragraph (1) shall ensure 

25 that eligible beneficiaries are provided with such in-
11

•HR 2578 IH 

1 formation at least 60 days prior to the first enroll2 ment period described in section 1860D–2(c). 

3 ‘‘(e) ENROLLMENT FEE.—

4 ‘‘(1) AMOUNT.—

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

6 paragraph (3), enrollment under the program 

7 under this part is conditioned upon payment of 

8 an annual enrollment fee of $30 for 2004 (in9 cluding any portion of 2003 in which the pro10 gram is implemented under this section), plus 

11 the premium for catastrophic coverage provided 

12 under section 1860D–4(b)(3). 

13 ‘‘(B) ANNUAL PERCENTAGE INCREASE IN

14 ENROLLMENT FEE.—

15 ‘‘(i) IN GENERAL.—In the case of any 

16 calendar year beginning after 2004, the 

17 dollar amount of the enrollment fee in sub18 paragraph (A) shall be increased by an 

19 amount equal to—

20 ‘‘(I) such dollar amount; multi21 plied by 

22 ‘‘(II) the annual percentage in23 crease in the consumer price index for 

24 all urban consumers (all items; U.S. 
12

•HR 2578 IH 

1 city average) for the year ending in 

2 September of the previous year. 

3 ‘‘(ii) ROUNDING.—If any increase de4 termined under clause (i)(II) is not a mul5 tiple of $1, such increase shall be rounded 

6 to the nearest multiple of $1. 

7 ‘‘(2) COLLECTION OF ENROLLMENT FEE.—The 

8 annual enrollment fee shall be collected and credited 

9 to the Federal Supplementary Medical Insurance 

10 Trust Fund in the same manner as the monthly pre11 mium determined under section 1839 is collected 

12 and credited to such Trust Fund under section 

13 1840, except that it shall be collected only 1 time 

14 per year. 

15 ‘‘(3) PAYMENT OF ENROLLMENT FEE BY STATE

16 FOR CERTAIN BENEFICIARIES.—

17 ‘‘(A) IN GENERAL.—The Secretary shall 

18 establish an arrangement under which a State 

19 may provide for payment of some or all of the 

20 enrollment fee for some or all qualifying low in21 come enrollees in the State, as specified by the 

22 State under the arrangement. Insofar as such a 

23 payment arrangement is made with respect to 

24 an enrollee, the amount of the enrollment fee 

25 shall be paid directly by the State and shall not 
13

•HR 2578 IH 

1 be collected under paragraph (2). In carrying 

2 out this paragraph, the Secretary may apply 

3 procedures similar to that applied under state 

4 agreements under section 1843. 

5 ‘‘(B) NO FEDERAL MATCHING AVAILABLE

6 UNDER MEDICAID OR SCHIP.—Expenditures 

7 made by a State described in subparagraph (A) 

8 shall not be treated as State expenditures for 

9 purposes of Federal matching payments under 

10 titles XIX and XXI insofar as such expendi11 tures are for an enrollment fee under this sub12 section. 

13 ‘‘(4) DISTRIBUTION OF PORTION OF ENROLL14 MENT FEE.—Of the enrollment fee collected by the 

15 Secretary under this paragraph with respect to a 

beneficiary, 2 16 ⁄3 of that fee shall be made available to 

17 the eligible entity selected by the eligible beneficiary. 

18 ‘‘(f) ISSUANCE OF CARD AND COORDINATION.—Each 

19 eligible entity shall—

20 ‘‘(1) issue, in a uniform standard format speci21 fied by the Secretary, to each enrolled beneficiary a 

22 card and an enrollment number that establishes 

23 proof of enrollment and that can be used in a coordi24 nated manner—
14

•HR 2578 IH 

1 ‘‘(A) to identify the eligible entity selected 

2 to provide access to negotiated prices under sec3 tion 1860D–4(a); 

4 ‘‘(B) to identify the beneficiary for pur5 poses of the catastrophic coverage under section 

6 1860D–4(b) and, including tracking expendi7 tures that count against the catastrophic cov8 erage threshold; and 

9 ‘‘(C) to make deposits to and withdrawals 

10 from a prescription drug account under section 

11 1860D–5; and 

12 ‘‘(2) provide for electronic methods to coordi13 nate with such prescription drug accounts. 

14 ‘‘ENROLLEE PROTECTIONS

15 ‘‘SEC. 1860D–3. (a) GUARANTEED ISSUE AND NON16 DISCRIMINATION.—

17 ‘‘(1) GUARANTEED ISSUE.—

18 ‘‘(A) IN GENERAL.—An eligible beneficiary 

19 who is eligible to select an eligible entity under 

20 section 1860D–2(b) for prescription drug cov21 erage under this part at a time during which 

22 selections are accepted under this part with re23 spect to the coverage shall not be denied selec24 tion based on any health status-related factor 

25 (described in section 2702(a)(1) of the Public 

26 Health Service Act) or any other factor and 
15

•HR 2578 IH 

1 may not be charged any selection or other fee 

2 as a condition of such acceptance. 

3 ‘‘(B) MEDICARE+CHOICE LIMITATIONS

4 PERMITTED.—The provisions of paragraphs (2) 

5 and (3) (other than subparagraph (C)(i), relat6 ing to default enrollment) of section 1851(g) 

7 (relating to priority and limitation on termi8 nation of election) shall apply to selection of eli9 gible entities under this subsection. 

10 ‘‘(2) NONDISCRIMINATION.—An eligible entity 

11 offering prescription drug coverage under this part 

12 shall not establish a service area in a manner that 

13 would discriminate based on health or economic sta14 tus of potential enrollees. 

15 ‘‘(3) COVERAGE OF ALL PORTIONS OF A

16 STATE.—If an eligible entity with a contract under 

17 this part serves any part of a State it shall serve the 

18 entire State. 

19 ‘‘(b) DISSEMINATION OF INFORMATION.—

20 ‘‘(1) GENERAL INFORMATION.—An eligible enti21 ty with a contract under this part shall disclose, in 

22 a clear, accurate, and standardized form to each eli23 gible beneficiary who has selected the entity to pro24 vide access to negotiated prices under this part at 

25 the time of selection and at least annually there-
16

•HR 2578 IH 

1 after, the information described in section 

2 1852(c)(1) relating to such prescription drug cov3 erage. Such information includes the following (in a 

4 manner designed to permit and promote competition 

5 among eligible entities and to be understood by eligi6 ble beneficiaries with mental impairments): 

7 ‘‘(A) Summary information regarding ne8 gotiated prices (including discounts) for covered 

9 outpatient drugs. 

10 ‘‘(B) Access to such prices through phar11 macy networks. 

12 ‘‘(C) How any formulary used by the eligi13 ble entity functions. 

14 ‘‘(D) Any use of tiered copayments. 

15 The eligible entity also shall notify enrolled bene16 ficiaries when there is a change in the formulary 

17 during the year. 

18 ‘‘(2) DISCLOSURE UPON REQUEST OF GENERAL

19 COVERAGE, UTILIZATION, AND GRIEVANCE INFORMA20 TION.—Upon request of an eligible beneficiary, the 

21 eligible entity shall provide the information described 

22 in section 1852(c)(2) (other than subparagraph (D)) 

23 to such beneficiary. 

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

25 Each eligible entity offering prescription drug cov-
17

•HR 2578 IH 

1 erage under this part shall have a mechanism (in2 cluding a toll-free telephone number) for providing 

3 upon request specific information (such as nego4 tiated prices, including discounts) to individuals who 

5 have selected the entity. The entity shall make avail6 able, through an Internet website and in writing 

7 upon request, information on specific changes in its 

8 formulary. 

9 ‘‘(4) COORDINATION WITH CATASTROPHIC COV10 ERAGE AND PRESCRIPTION DRUG ACCOUNT BENE11 FITS.—Each such eligible entity shall provide for co12 ordination of such information as the Secretary may 

13 specify to carry out sections 1860D–4(b) and 

14 1860D–5. 

15 ‘‘(5) DISCLOSURE.—Each such eligible entity 

16 shall disclose to the Secretary (in a manner specified 

17 by the Secretary) the extent to which discounts or 

18 rebates or other remuneration or price concessions 

19 made available to the entity by a manufacturer are 

20 passed through to enrollees through pharmacies and 

21 other dispensers or otherwise. The provisions of sec22 tion 1927(b)(3)(D) shall apply to information dis23 closed to the Secretary under this paragraph in the 

24 same manner as such provisions apply to informa25 tion disclosed under such section.
18

•HR 2578 IH 

1 ‘‘(c) ACCESS TO COVERED BENEFITS.—

2 ‘‘(1) ENSURING PHARMACY ACCESS.—

3 ‘‘(A) PARTICIPATION OF ANY WILLING

4 PHARMACY.—The eligible entity shall permit 

5 the participation of any pharmacy that meets 

6 terms and conditions that the entity has estab7 lished. 

8 ‘‘(B) DISCOUNTS ALLOWED FOR NETWORK

9 PHARMACIES.—An eligible entity may, notwith10 standing subparagraph (A), reduce coinsurance 

11 or copayments for its enrolled beneficiaries 

12 below the level otherwise provided for covered 

13 outpatient drugs dispensed through in-network 

14 pharmacies, but in no case shall such a reduc15 tion result in an increase in payments made by 

16 the Secretary under this part. 

17 ‘‘(C) CONVENIENT ACCESS FOR NETWORK

18 PHARMACIES.—The eligible entity shall secure 

19 the participation in its network of a sufficient 

20 number of pharmacies that dispense (other than 

21 by mail order) drugs directly to patients to en22 sure convenient access, consistent with rules of 

23 the Secretary. The Secretary shall establish 

24 convenient access rules under this subpara25 graph that are no less favorable to enrollees 
19

•HR 2578 IH 

1 than the rules for convenient access to phar2 macies of the Secretary of Defense established 

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

4 TRICARE Retail Pharmacy (TRRx) program. 

5 Such rules shall include adequate emergency ac6 cess for enrolled beneficiaries. 

7 ‘‘(D) LEVEL PLAYING FIELD.—An eligible 

8 entity shall permit enrollees to receive benefits 

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

10 biologicals) through a community pharmacy, 

11 rather than through mail order, with any dif12 ferential in cost paid by such enrollees. 

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

15 subparagraph (A) may not require participating 

16 pharmacies to accept insurance risk as a condi17 tion of participation. 

18 ‘‘(2) ACCESS TO NEGOTIATED PRICES FOR PRE19 SCRIPTION DRUGS.—For requirements relating to 

20 the access of an eligible beneficiary to negotiated 

21 prices (including applicable discounts), see section 

22 1860D–4(a). 

23 ‘‘(3) REQUIREMENTS ON DEVELOPMENT AND

24 APPLICATION OF FORMULARIES.—Insofar as an eli-
20

•HR 2578 IH 

1 gible entity with a contract under this part uses a 

2 formulary, the following requirements must be met: 

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

4 COMMITTEE.—The entity must establish a 

5 pharmacy and therapeutic committee that de6 velops and reviews the formulary. Such com7 mittee shall include at least one practicing phy8 sician and at least one practicing pharmacist 

9 both with expertise in the care of elderly or dis10 abled persons and a majority of its members 

11 shall consist of individuals who are practicing 

12 physicians or practicing pharmacists (or both). 

13 ‘‘(B) FORMULARY DEVELOPMENT.—In de14 veloping and reviewing the formulary, the com15 mittee shall—

16 ‘‘(i) base clinical decisions on the 

17 strength of scientific evidence and stand18 ards of practice, including assessing peer19 reviewed medical literature, such as ran20 domized clinical trials, pharmacoeconomic 

21 studies, outcomes research data, and such 

22 other information as the committee deter23 mines to be appropriate; and 

24 ‘‘(ii) shall take into account whether 

25 including in the formulary particular cov-
21

•HR 2578 IH 

1 ered outpatient drugs has therapeutic ad2 vantages in terms of safety and efficacy. 

3 ‘‘(C) INCLUSION OF DRUGS IN ALL THERA4 PEUTIC CATEGORIES.—The formulary must in5 clude drugs within each therapeutic category 

6 and class of covered outpatient drugs (although 

7 not necessarily for all drugs within such cat8 egories and classes). In establishing such class9 es, the committee shall take into account the 

10 standards published in the United States Phar11 macopeia-Drug Information. The committee 

12 shall make available to the enrollees under the 

13 plan through the Internet or otherwise the clin14 ical bases for the coverage of any drug on the 

15 formulary. 

16 ‘‘(D) PROVIDER AND PATIENT EDU17 CATION.—The committee shall establish policies 

18 and procedures to educate and inform health 

19 care providers and enrollees concerning the for20 mulary. 

21 ‘‘(E) NOTICE BEFORE REMOVING DRUG

22 FROM FORMULARY OR CHANGING PREFERRED

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

24 covered outpatient drug from a formulary and 

25 any change in the preferred or tier cost-sharing 
22

•HR 2578 IH 

1 status of such a drug shall take effect only 

2 after appropriate notice is made available to 

3 beneficiaries and physicians. 

4 ‘‘(F) PERIODIC EVALUATION OF PROTO5 COLS.—In connection with the formulary, an el6 igible entity shall provide for the periodic eval7 uation and analysis of treatment protocols and 

8 procedures. 

9 ‘‘(G) GRIEVANCES AND APPEALS RELAT10 ING TO APPLICATION OF FORMULARIES.—For 

11 provisions relating to grievances and appeals of 

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

13 ‘‘(d) COST AND UTILIZATION MANAGEMENT; QUAL14 ITY ASSURANCE; MEDICATION THERAPY MANAGEMENT

15 PROGRAM.—

16 ‘‘(1) IN GENERAL.—For purposes of providing 

17 access to negotiated benefits under section 1860D–

18 4(a) and the catastrophic benefit described in sec19 tion 1860D–4(b), the eligible entity shall have in 

20 place—

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

22 management program, including appropriate in23 centives to use generic drugs, when appropriate; 

24 ‘‘(B) quality assurance measures and sys25 tems to reduce medical errors and adverse drug
23

•HR 2578 IH 

1 interactions, including a medication therapy 

2 management program described in paragraph 

3 (2); and 

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

5 and waste. 

6 ‘‘(2) MEDICATION THERAPY MANAGEMENT PRO7 GRAM.—

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

9 management program described in this para10 graph is a program of drug therapy manage11 ment and medication administration that may 

12 be furnished by a pharmacy provider and that 

13 is designed to assure, with respect to bene14 ficiaries at risk for potential medication prob15 lems, such as beneficiaries with complex or 

16 chronic diseases (such as diabetes, asthma, hy17 pertension, and congestive heart failure) or 

18 multiple prescriptions, that covered outpatient 

19 drugs under the plans under this part are ap20 propriately used to optimize therapeutic out21 comes through improved medication use and re22 duce the risk of adverse events, including ad23 verse drug interactions. Such programs may 

24 distinguish between services in ambulatory and 

25 institutional settings. 
24

•HR 2578 IH 

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.—

20 The program shall be developed in cooperation 

21 with licensed and practicing pharmacists and 

22 physicians. 

23 ‘‘(D) CONSIDERATIONS IN PHARMACY

24 FEES.—Each eligible entity shall take into ac25 count, in establishing fees for pharmacists and 
25

•HR 2578 IH 

1 others providing services under the medication 

2 therapy management program, the resources 

3 and time used in implementing the program. 

4 Each such entity shall disclose to the Secretary 

5 upon request the amount of any such manage6 ment or dispensing fees. 

7 ‘‘(3) TREATMENT OF ACCREDITATION.—Section 

8 1852(e)(4) (relating to treatment of accreditation) 

9 shall apply to prescription drug coverage provided 

10 under this part with respect to the following require11 ments, in the same manner as they apply to 

12 Medicare+Choice plans under part C with respect to 

13 the requirements described in a clause of section 

14 1852(e)(4)(B): 

15 ‘‘(A) Subsection (c)(1) (relating to access 

16 to covered benefits). 

17 ‘‘(B) Subsection (g) (relating to confiden18 tiality and accuracy of enrollee records). 

19 ‘‘(4) PUBLIC DISCLOSURE OF PHARMACEUTICAL

20 PRICES FOR EQUIVALENT DRUGS.—Each eligible en21 tity shall provide that each pharmacy or other dis22 penser that arranges for the dispensing of a covered 

23 outpatient drug shall inform the beneficiary at the 

24 time of purchase of the drug of any differential be25 tween the price of the prescribed drug to the enrollee 
26

•HR 2578 IH 

1 and the price of the lowest cost available generic 

2 drug covered under the plan that is therapeutically 

3 equivalent and bioequivalent.

4 ‘‘(e) GRIEVANCE MECHANISM, COVERAGE DETER5 MINATIONS, AND RECONSIDERATIONS.—

6 ‘‘(1) IN GENERAL.—Each eligible entity shall 

7 provide meaningful procedures for hearing and re8 solving grievances between the entity (including any 

9 entity or individual through which the entity pro10 vides covered benefits) and enrollees in accordance 

11 with section 1852(f). 

12 ‘‘(2) APPLICATION OF COVERAGE DETERMINA13 TION AND RECONSIDERATION PROVISIONS.—An eli14 gible entity shall meet the requirements of para15 graphs (1) through (3) of section 1852(g) with re16 spect to covered benefits under the plan it offers 

17 under this part in the same manner as such require18 ments apply to an organization with respect to bene19 fits it offers under a plan under part C. 

20 ‘‘(3) REQUEST FOR REVIEW OF TIERED FOR21 MULARY DETERMINATIONS.—In the case of a plan 

22 offered by an eligible entity that provides for tiered 

23 cost-sharing for drugs included within a formulary 

24 and provides lower cost-sharing for preferred drugs 

25 included within the formulary, an individual who is 
27

•HR 2578 IH 

1 enrolled in the plan may request coverage of a non2 preferred drug under the terms applicable for pre3 ferred drugs if the prescribing physician determines 

4 that the preferred drug for treatment of the same 

5 condition either would not be as effective for the in6 dividual or would have adverse effects for the indi7 vidual or both.

8 ‘‘(f) APPEALS.—

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

10 an eligible entity shall meet the requirements of 

11 paragraphs (4) and (5) of section 1852(g) with re12 spect to drugs (including a determination related to 

13 the application of tiered cost-sharing described in 

14 subsection (e)(3)) in the same manner as such re15 quirements apply to an organization with respect to 

16 benefits it offers under a plan under part C. 

17 ‘‘(2) FORMULARY DETERMINATIONS.—An indi18 vidual who is enrolled in a plan offered by an eligible 

19 entity may appeal to obtain coverage for a covered 

20 outpatient drug that is not on a formulary of the en21 tity offering the plan if the prescribing physician de22 termines that the formulary drug for treatment of 

23 the same condition either would not be as effective 

24 for the individual or would have adverse effects for 

25 the individual or both.
28

•HR 2578 IH 

1 ‘‘(g) CONFIDENTIALITY AND ACCURACY OF EN2 ROLLEE RECORDS.—An eligible entity shall meet the re3 quirements of section 1852(h) with respect to enrollees 

4 under this section in the same manner as such require5 ments apply to a Medicare Advantage organization with 

6 respect to enrollees under part C. The eligible entity shall 

7 implement policies and procedures to safeguard the use 

8 and disclosure of enrollees’ individually identifiable health 

9 information in a manner consistent with the Federal regu10 lations (concerning the privacy of individually identifiable 

11 health information) promulgated under section 264(c) of 

12 the Health Insurance Portability and Accountability Act 

13 of 1996. The eligible entity shall be treated as a covered 

14 entity for purposes of the provisions of subpart E of part 

15 164 of title 45, Code of Federal Regulations, adopted pur16 suant 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 ‘‘(h) OVERSIGHT.—The Secretary shall provide ap20 propriate oversight to ensure compliance of eligible entities 

21 with the requirements of this section, including 

22 verification of the discounts and services provided. 

23 ‘‘BENEFITS UNDER THE PROGRAM

24 ‘‘SEC. 1860D–4. (a) SAVINGS TO ENROLLEES

25 THROUGH NEGOTIATED PRICES.—
29

•HR 2578 IH 

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

2 each eligible entity with a contract under this part 

3 shall provide each eligible beneficiary enrolled with 

4 the entity with access to negotiated prices (including 

5 applicable discounts). For purposes of this para6 graph, the term ‘prescription drugs’ is not limited to 

7 covered outpatient drugs, but does not include any 

8 over-the-counter drug that is not a covered out9 patient drug. The prices negotiated by an eligible en10 tity under this paragraph shall (notwithstanding any 

11 other provision of law) not be taken into account for 

12 the purposes of establishing the best price under sec13 tion 1927(c)(1)(C). 

14 ‘‘(2) FORMULARY RESTRICTIONS.—Insofar as 

15 an eligible entity with a contract under this part 

16 uses a formulary, the negotiated prices (including 

17 applicable discounts) for prescription drugs shall 

18 only be available for drugs included in such for19 mulary. 

20 ‘‘(3) PROHIBITION ON APPLICATION ONLY TO

21 MAIL ORDER.—The negotiated prices under this sub22 section shall apply to prescription drugs that are 

23 available other than solely through mail order. 

24 ‘‘(4) PROHIBITION ON CHARGES FOR REQUIRED

25 SERVICES.—An eligible entity (and any pharmacy 
30

•HR 2578 IH 

1 contracting with such entity for the provision of a 

2 discount under this part) may not charge a bene3 ficiary any amount for any services required to be 

4 provided by the entity under this part. 

5 ‘‘(b) CATASTROPHIC COVERAGE.—

6 ‘‘(1) THROUGH COMPETITION AMONG PRIVATE

7 PLANS.—

8 ‘‘(A) IN GENERAL.—Each enrollee under 

9 this part shall be entitled to catastrophic cov10 erage through a contract with a qualified pri11 vate entity under this subsection. 

12 ‘‘(B) CONTRACT REQUIREMENTS TO PRO13 MOTE COMPETITION.—The Secretary shall 

14 enter into contracts with qualified private enti15 ties to offer the catastrophic coverage under 

16 this subsection. To the maximum extent prac17 ticable, the Secretary shall enter into such con18 tracts in a manner so that enrollees in all areas 

19 have a choice among at least 3 such entities to 

20 obtain the catastrophic coverage. Such an entity 

21 may be an eligible entity with a contract under 

22 subsection (a). Each such entity shall meet 

23 such financial solvency and other requirements 

24 as the Secretary determines to be necessary to 

25 carry out the program under this subsection. 
31

•HR 2578 IH 

1 Such a contract shall provide for the prospec2 tive assumption of the maximum amount of risk 

3 under the contract as the Secretary may nego4 tiate. In providing catastrophic coverage under 

5 this subsection, the qualified private entities 

6 (and not the Secretary) shall establish the pay7 ment rates for drugs so covered. 

8 ‘‘(C) CONTINGENCY.—If the Secretary is 

9 otherwise unable to enter into a contract with 

10 any qualified private entity under this para11 graph for the offering of catastrophic coverage 

12 for enrollees in an area, the Secretary shall oth13 erwise provide directly for the offering of the 

14 catastrophic coverage under this subsection to 

15 such enrollees. In such contingency, the pay16 ment rates for drugs so covered shall be the 

17 rates established by entities offering price dis18 counts under this part. 

19 ‘‘(2) SCOPE OF COVERAGE.—

20 ‘‘(A) SCOPE.—

21 ‘‘(i) IN GENERAL.—Subject to para22 graph (4), the catastrophic coverage under 

23 this section shall consist of payment under 

24 this part for incurred expenses for covered 

25 outpatient drugs for an enrollee, less the 
32

•HR 2578 IH 

1 applicable copayment amount under para2 graph (4), after the enrollee has incurred 

3 in a year expenses that equal the cata4 strophic coverage threshold specified in 

5 subparagraph (C) or (D) for the enrollee 

6 and year involved. 

7 ‘‘(ii) PAYMENT RATE.—The rate of 

8 payment negotiated (or agreed to) by the 

9 eligible entity with the manufacturer for a 

10 covered outpatient drug shall be the 

11 amount paid under this part on behalf of 

12 the individual for the drug except as may 

13 otherwise be provided under the contract 

14 under paragraph (1). 

15 ‘‘(B) COUNTING ALL INCURRED EX16 PENSES.—

17 ‘‘(i) IN GENERAL.—In applying sub18 paragraph (A), expenses shall be treated as 

19 incurred if they are paid directly from the 

20 prescription drug account of the individual 

21 or, subject to clause (ii), if they are paid 

22 by the individual or by any other person, 

23 including a family member, on behalf of 

24 the individual or otherwise, whether or not 

25 such expenses may otherwise be reim-
33

•HR 2578 IH 

1 bursed through insurance or otherwise, a 

2 group health plan, or other third-party 

3 payment arrangement, but shall not in4 clude expenses insofar as payment is made 

5 for such expenses under part A or part B 

6 of this title. 

7 ‘‘(ii) REQUIREMENT FOR ACCOUNT

8 NUMBER ON ALL COUNTABLE TRANS9 ACTIONS.—Expenses that are not paid di10 rectly from a prescription drug account 

11 shall be counted under clause (i) only if, 

12 under such process as the Secretary shall 

13 recognize, the account number of the indi14 vidual’s prescription drug account is part 

15 of the transaction involved. 

16 ‘‘(C) CATASTROPHIC COVERAGE THRESH17 OLDS.—

18 ‘‘(i) INITIAL CATASTROPHIC COV19 ERAGE THRESHOLD.—Subject to clause 

20 (ii), the catastrophic coverage threshold is 

21 $10,000. 

22 ‘‘(ii) INFLATION ADJUSTMENT.—The 

23 provisions of subsection (c)(2)(B) shall 

24 apply with respect to the catastrophic cov25 erage threshold under clause (i) for a year
34

•HR 2578 IH 

1 after 2004 in the same manner as it ap2 plied to the annual Federal contribution 

3 amount for that year, except that, for pur4 poses of this subparagraph, any reference 

5 in subsection (c)(2)(B)(ii) to ‘$1’ is 

6 deemed a reference to ‘$100’. 

7 ‘‘(3) PREMIUMS.—

8 ‘‘(A) IN GENERAL.—The premium for cat9 astrophic coverage under this subsection 

10 through a qualified private entity shall be the 

11 rate negotiated by the Secretary with the entity 

12 reduced by the premium subsidy under this 

13 paragraph. Such rate shall be consistent with 

14 rules similar to the rules applied under section 

15 1860D–3(a) for eligible entities offering pre16 scription drug coverage (including guaranteed 

17 issue, community-rated premiums, and non18 discrimination). In the case described in para19 graph (1)(C), such premium shall be based on 

20 an actuarial basis specified by the Secretary. 

21 ‘‘(B) SUBSIDIZED PREMIUMS.—

22 ‘‘(i) FULL PREMIUM SUBSIDY FOR

23 QUALIFYING LOW INCOME ENROLLEES.—

24 In the case of an enrollee who is a quali25 fying low income enrollee (as defined in 
35

•HR 2578 IH 

1 section 1860D–6(5)) for a month, there 

2 shall be a premium subsidy equal to the 

3 average of the premiums under subpara4 graph (A) for catastrophic coverage under 

5 this subsection in the area in which the en6 rollee resides. 

7 ‘‘(ii) SLIDING SCALE PREMIUM SUB8 SIDIES FOR OTHER ENROLLEES.—In the 

9 case of an enrollee who is not a qualifying 

10 low income enrollee (as so defined) but 

11 would be a qualifying low income enrollee 

12 (as defined in section 1860D–6(5)) for a 

13 month if 250 percent were substituted for 

14 175 percent in such section, there shall be 

15 a premium subsidy equal to a percentage 

16 of the average referred to in clause (i), 

17 with such percentage determined on a slid18 ing scale from—

19 ‘‘(I) 75 percent for enrollees with 

20 income equal to 175 percent of the 

21 poverty line; to 

22 ‘‘(II) 0 percent for enrollees with 

23 income equal to 250 percent of such 

24 poverty line. 
36

•HR 2578 IH 

1 ‘‘(C) COLLECTION.—Premiums under this 

2 paragraph shall be collected in the manner 

3 specified in section 1860D–2(e)(2) but shall be 

4 paid over, in a manner specified by the Sec5 retary, to the entity that offers the catastrophic 

6 coverage. Premium subsidies under subpara7 graph (B) shall also be paid over in such a 

8 manner to such an entity. 

9 ‘‘(4) APPLICABLE COPAYMENT AMOUNTS.—

10 ‘‘(A) IN GENERAL.—For purposes of this 

11 subsection, subject to subparagraphs (D) and 

12 (E), the term ‘applicable copayment amount’, 

13 with respect to an enrollee that has selected an 

14 eligible entity under this part and for a covered 

15 outpatient drug that is—

16 ‘‘(i) a multiple source or generic drug 

17 (as described in section 1927(k)(7)(A)(i)), 

18 means $3; 

19 ‘‘(ii) a single source or brand-name 

20 drug (as described in section 

21 1927(k)(7)(A)(iv))) that is included in for22 mulary of that eligible entity, means $5; or 

23 ‘‘(iii) any other drug, means $10. 

24 In the case of a private contract entered into 

25 under paragraph (1), the Secretary may provide 
37

•HR 2578 IH 

1 for the substitution of the qualifying private en2 tity offering such contract for the eligible entity 

3 under this subparagraph. 

4 ‘‘(B) COLLECTION.—Nothing in this para5 graph shall be construed as preventing a phar6 macy from requiring, as a condition of sup7 plying covered outpatient drugs to any enrollee, 

8 that payment is made of the applicable copay9 ment amount under subparagraph (A). 

10 ‘‘(C) NO FEDERAL MATCHING AVAILABLE

11 UNDER MEDICAID OR SCHIP TO COVER COPAY12 MENT AMOUNTS.—No expenditure of a State 

13 that reimburses for, or otherwise covers, any co14 payment amounts established under this para15 graph may be treated as State expenditures for 

16 purposes of Federal matching payments under 

17 titles XIX and XXI. 

18 ‘‘(D) ALTERNATIVE TIERS PERMITTED FOR

19 CATASTROPHIC COVERAGE.—With respect to cata20 strophic coverage, an eligible entity may provide for 

21 tiered copayments that are different from the copay22 ments specified in subparagraph (A) so long as co23 payment amounts resulting from such application 

24 approximate the copayment amounts that would re-
38

•HR 2578 IH 

1 sult from the application of the copayments under 

2 such subparagraph. 

3 ‘‘(E) APPLICATION OF FORMULARY AT CATA4 STROPHIC COVERAGE LIMIT.—Once an eligible bene5 ficiary reaches the catastrophic coverage limit on 

6 prescription drug expenses, such beneficiary is sub7 ject to the formulary of the eligible entity and rules 

8 regarding catastrophic coverage. 

9 ‘‘(5) ADMINISTRATION.—Insofar as the Sec10 retary does not provide for the catastrophic coverage 

11 under this subsection through a contract with a 

12 qualifying private entity, the Secretary is authorized 

13 to enter into such agreements with entities as may 

14 be required to provide for the benefits under this 

15 subsection. Such entities may be eligible entities, 

16 carriers under part B, fiscal intermediaries under 

17 part A, or other qualified entities. 

18 ‘‘(6) SECONDARY PAYER PROVISIONS.—The 

19 provisions of section 1862(b) shall apply to the bene20 fits provided under this subsection. 

21 ‘‘(c) CONTRIBUTION INTO PRESCRIPTION DRUG AC22 COUNT.—

23 ‘‘(1) IN GENERAL.—In the case of an individual 

24 enrolled under this part—
39

•HR 2578 IH 

1 ‘‘(A) the Secretary shall establish a pre2 scription drug account for the individual under 

3 section 1860D–5; and 

4 ‘‘(B) shall deposit into such account on a 

5 monthly or other periodic basis an amount that, 

6 on an annual basis, is equivalent to the annual 

7 Federal contribution amount specified in para8 graph (2) for the enrollee involved. 

9 Amounts so deposited shall not be treated as income 

10 to the accountholder for purposes of the Internal 

11 Revenue Code of 1986. 

12 ‘‘(2) ANNUAL FEDERAL CONTRIBUTION

13 AMOUNT.—

14 ‘‘(A) INITIAL AMOUNT.—Subject to sub15 paragraph (B) and subsection (d), in the case 

16 of an accountholder whose modified adjusted 

17 gross income is—

18 ‘‘(i) not more than 100 percent of the 

19 poverty line, the annual Federal contribu20 tion amount is $2,500; 

21 ‘‘(ii) more than 100 percent, but less 

22 than 125 percent, of the poverty line, the 

23 annual Federal contribution amount is 

24 $1,500; 
40

•HR 2578 IH 

1 ‘‘(iii) more than 125 percent, but less 

2 than 175 percent, of the poverty line, the 

3 annual Federal contribution amount is 

4 $1,100; 

5 ‘‘(iv) at least 175 percent, but less 

6 than 250 percent, of the poverty line, the 

7 annual Federal contribution amount is 

8 $600; 

9 ‘‘(v) at least 250 percent, but less 

10 than 350 percent, of the poverty line the 

11 annual Federal contribution amount is 

12 $300. 

13 ‘‘(vi) at least 350 percent of the pov14 erty line (or who has not authorized in15 come verification under subsection (d)) the 

16 annual Federal contribution amount is 

17 $100. 

18 ‘‘(B) INFLATION ADJUSTMENT.—

19 ‘‘(i) IN GENERAL.—For a year after 

20 2004, the annual Federal contribution 

21 amount shall be the amount specified in 

22 subparagraph (A) increased by the per23 centage (if any) by which—

24 ‘‘(I) the average per capita ag25 gregate expenditures for covered out-
41

•HR 2578 IH 

1 patient drugs in the United States for 

2 medicare beneficiaries, as determined 

3 by the Secretary for the 12-month pe4 riod ending in July of the previous 

5 year; exceeds 

6 ‘‘(II) such aggregate expendi7 tures for the 12-month period ending 

8 with July 2004. 

9 ‘‘(ii) ROUNDING.—If an annual Fed10 eral contribution amount determined under 

11 clause (i) is not a multiple of $1, such in12 crease shall be rounded to the nearest mul13 tiple of $1. 

14 ‘‘(C) AVAILABILITY OF ADDITIONAL

15 AMOUNTS FOR VERY LOW INCOME INDIVID16 UALS.—

17 ‘‘(i) IN GENERAL.—The Secretary 

18 shall make available an additional amount 

19 for accounts of individuals in subparagraph 

20 (A)(i) up to $7,500 in any year insofar as 

21 the accountholder incurs expenses in the 

22 year for which the balance in the account 

23 may be applied. 

24 ‘‘(ii) CONDITION.—In the case of an 

25 individual described in clause (i) who is re-
42

•HR 2578 IH 

1 siding in a State, upon the request of the 

2 State, the Secretary may condition the 

3 availability of an additional amount under 

4 such clause upon the individual’s enroll5 ment under this part with an eligible entity 

6 that is recognized or approved by that 

7 State. 

8 ‘‘(iii) TREATMENT AS MEDICAL AS9 SISTANCE.—For provisions providing for 

10 State participation with respect to addi11 tional amounts made available under 

12 clause (i), see section 1935(c)(1)(A)(ii). 

13 ‘‘(d) REQUIREMENT FOR INCOME VERIFICATION TO

14 OBTAIN INCREASED CONTRIBUTION AMOUNT OR FOR RE15 DUCED PREMIUM.—

16 ‘‘(1) IN GENERAL.—The provisions of sub17 sections (b)(2)(C)(iii), (b)(3)(B), and clauses (i) 

18 through (iii) of subsection (c)(2)(A) shall apply to 

19 an individual only if the individual—

20 ‘‘(A) provides such information as the Sec21 retary may require in order to determine the 

22 appropriate category of benefits or subsidies 

23 under the respective provisions; and 

24 ‘‘(B) authorizes in a form and manner 

25 specified by the Secretary the verification of the 
43

•HR 2578 IH 

1 individual’s modified adjusted gross income by 

2 the Secretary through arrangements with 

3 States. 

4 An arrangement with a State under subparagraph 

5 (B) shall provide for the payment by the Secretary 

6 under this part of the State’s reasonable costs of 

7 conducting income verifications under such arrange8 ment. 

9 ‘‘(2) PENALTIES FOR UNDERSTATEMENT OF IN10 COME.—The provision of false information under 

11 paragraph (1)(A) is subject to criminal penalties 

12 under section 1128B. 

13 ‘‘(3) PROCEDURES FOR DETERMINING MODI14 FIED ADJUSTED GROSS INCOME.—

15 ‘‘(A) IN GENERAL.—The Secretary shall 

16 establish procedures for determining the modi17 fied adjusted gross income of enrollees. The 

18 Secretary shall consult with the Secretary of 

19 the Treasury in making such determinations. 

20 Income determinations under this subsection 

21 shall be valid for a period (of not less than 1 

22 year) specified by the Secretary. 

23 ‘‘(B) DISCLOSURE OF INFORMATION.—

24 Notwithstanding section 6103(a) of the Internal 

25 Revenue Code of 1986, the Secretary of the
44

•HR 2578 IH 

1 Treasury may, upon written request from the 

2 Secretary, disclose to the Secretary such return 

3 information as is necessary to make the deter4 minations described in subparagraph (A). Re5 turn information disclosed under the preceding 

6 sentence may be used by the Secretary only for 

7 the purposes of, and to the extent necessary in, 

8 making such determinations. 

9 ‘‘(e) APPROPRIATION TO COVER NET PROGRAM EX10 PENDITURES.—There are authorized to be appropriated 

11 from time to time, out of any moneys in the Treasury not 

12 otherwise appropriated, to the Federal Supplementary 

13 Medical Insurance Trust Fund established under section 

14 1841, an amount equal to the amount by which the bene15 fits and administrative costs of providing the benefits 

16 under this part exceed the sum of the portion of the enroll17 ment fees retained by the Secretary and premiums col18 lected under subsection (b)(3). 

19 ‘‘PRESCRIPTION DRUG ACCOUNTS

20 ‘‘SEC. 1860D–5. ‘‘(a) ESTABLISHMENT OF AC21 COUNTS.—

22 ‘‘(1) IN GENERAL.—The Secretary shall estab23 lish and maintain for each eligible beneficiary who is 

24 enrolled under this part at the time of enrollment a 

25 prescription drug account (in this section referred to 

26 as an ‘account’). 
45

•HR 2578 IH 

1 ‘‘(2) RESERVE ACCOUNTS.—In cases described 

2 in subsections (b)(3)(A), (b)(3)(B)(i), and 

3 (b)(3)(B)(ii)(I), the Secretary shall establish and 

4 maintain for each surviving spouse who is not en5 rolled under this part a reserve prescription drug ac6 count (in this section referred to as a ‘reserve ac7 count’). 

8 ‘‘(3) ACCOUNTHOLDER DEFINED.—In this sec9 tion, the term ‘accountholder’ means an individual 

10 for whom an account or reserve account has been es11 tablished under this section. 

12 ‘‘(4) EXPENDITURES FROM ACCOUNT.—Noth13 ing in this section shall be construed as requiring 

14 the Federal Government to obligate funds for 

15 amounts in any account until such time as a with16 drawal from such account is authorized under this 

17 section. 

18 ‘‘(b) USE OF ACCOUNTS.—

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

20 subsection, amounts credited to an account shall 

21 only be used for the purchase of covered outpatient 

22 drugs for the accountholder. Any amounts remaining 

23 at the end of a year remain available for expendi24 tures in succeeding years. 
46

•HR 2578 IH 

1 ‘‘(2) ACCOUNT RULES FOR PUBLIC AND PRI2 VATE CONTRIBUTIONS.—The Secretary shall estab3 lish an ongoing process for the determination of the 

4 amount in each account that is attributable to public 

5 and private contributions (including spousal rollover 

6 contributions) based on the following rules: 

7 ‘‘(A) TREATMENT OF EXPENDITURES.—

8 Expenditures from the account shall—

9 ‘‘(i) first be counted against any pub10 lic contribution; and 

11 ‘‘(ii) next be counted against private 

12 contributions. 

13 ‘‘(B) TREATMENT OF SPOUSAL ROLLOVER

14 CONTRIBUTIONS.—With respect to any spousal 

15 rollover contribution, the portions of such con16 tribution that were attributable to public and 

17 private contributions at the time of its distribu18 tion under subsection (b)(3) shall be treated 

19 under this paragraph as if it were a direct pub20 lic or private contribution, respectively, into the 

21 account of the spouse. 

22 ‘‘(3) DEATH OF ACCOUNTHOLDER.—In the case 

23 of the death of an accountholder, the balance in any 

24 account (taking into account liabilities accrued be-
47

•HR 2578 IH 

1 fore the time of death) shall be distributed as fol2 lows: 

3 ‘‘(A) TREATMENT OF PUBLIC CONTRIBU4 TIONS.—If the accountholder is married at the 

5 time of death, the amount in the account that 

6 is attributable to public contributions shall be 

7 credited to the account (if any) of the surviving 

8 spouse of the accountholder (or, if the surviving 

9 spouse is not an eligible beneficiary, into a re10 serve account to be held for when that spouse 

11 becomes an eligible beneficiary). 

12 ‘‘(B) TREATMENT OF PRIVATE CONTRIBU13 TIONS.—The amount in the account that is at14 tributable to private contributions shall be dis15 tributed as follows: 

16 ‘‘(i) DESIGNATION OF DIS17 TRIBUTEE.—If the accountholder has 

18 made a designation, in a form and manner 

19 specified by the Secretary, for the distribu20 tion of some or all of such amount, such 

21 amount shall be distributed in accordance 

22 with the designation. Such designation 

23 may provide for the distribution into an 

24 account (including a reserve account) of a 

25 surviving spouse. 
48

•HR 2578 IH 

1 ‘‘(ii) ABSENCE OF DESIGNATION.—In2 sofar as the accountholder has not made 

3 such a designation—

4 ‘‘(I) SURVIVING SPOUSE.—If the 

5 accountholder was married at the time 

6 of death, the remainder shall be cred7 ited to an account (including a reserve 

8 account) of the accountholder’s sur9 viving spouse. 

10 ‘‘(II) NO SURVIVING SPOUSE.—If 

11 the accountholder was not so married, 

12 the remainder shall be distributed to 

13 the estate of the accountholder and 

14 distributed as provided by law. 

15 ‘‘(4) USE OF ACCOUNT FOR PREMIUMS.—

16 ‘‘(A) FOR ENROLLMENT IN A MEDICARE

17 PLAN.—During any period in which an 

18 accountholder is enrolled in a plan under part 

19 C, the balance in the account may be used and 

20 applied only to reimburse the amount of the 

21 premium (if any) established for enrollment 

22 under the plan. 

23 ‘‘(B) FOR CATASTROPHIC COVERAGE.—

24 Amounts in an account of an accountholder 

25 may be used and applied to reimburse the 
49

•HR 2578 IH 

1 amount of the premium imposed for cata2 strophic coverage under section 1860D–4(b)(3). 

3 ‘‘(5) APPLICATION TO MEDICAID EXPENSES IN

4 CERTAIN CASES.—

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

6 this paragraph, an account shall be treated as 

7 an asset for purposes of establishing eligibility 

8 for medical assistance under title XIX. 

9 ‘‘(B) APPLICATION TOWARDS

10 SPENDDOWN.—In the case of an accountholder 

11 who is applying for such medical assistance and 

12 who would, but for the application of subpara13 graph (A), be eligible for such assistance—

14 ‘‘(i) subparagraph (A) shall not apply; 

15 and 

16 ‘‘(ii) the account shall be available (in 

17 accordance with a procedure established by 

18 the Secretary) to the State to reimburse 

19 the State for any expenditures made under 

20 the plan for such medical assistance. 

21 ‘‘(6) TREATMENT OF WITHDRAWALS.—

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

23 subparagraph (B), the withdrawal of any 

24 amounts from an account in accordance with
50

•HR 2578 IH 

1 this section shall not be subject to income or 

2 other tax. 

3 ‘‘(B) DISTRIBUTION OF PRIVATE CON4 TRIBUTIONS AT TIME OF DEATH.—Amounts in 

5 the account of an accountholder at the time of 

6 death of the accountholder that are not trans7 ferred to an account (including a reserve ac8 count) of a surviving spouse shall be includable 

9 in the estate of the accountholder and may be 

10 subject to taxation as part of such estate. 

11 ‘‘(c) AMOUNTS CREDITED IN ACCOUNT.—The Sec12 retary shall credit to a prescription drug account of an 

13 eligible beneficiary the following amounts: 

14 ‘‘(1) PUBLIC CONTRIBUTIONS.—The following 

15 contributions (each referred to in this section as a 

16 ‘public contribution’): 

17 ‘‘(A) FEDERAL CONTRIBUTIONS.—Federal 

18 contributions provided under subsection (d). 

19 ‘‘(B) STATE CONTRIBUTIONS.—Contribu20 tions made by a State under subsection (f). 

21 ‘‘(2) SPOUSAL ROLLOVER CONTRIBUTION.—A 

22 distribution from a deceased spouse under sub23 section (b)(3) (referred to in this section as a ‘spous24 al rollover contribution’). 
51

•HR 2578 IH 

1 ‘‘(3) PRIVATE CONTRIBUTIONS.—The following 

2 contributions (each referred to in this section as a 

3 ‘private contribution’): 

4 ‘‘(A) TAX-FAVORED EMPLOYER AND INDI5 VIDUAL CONTRIBUTIONS.—Contributions made 

6 under subsection (e). 

7 ‘‘(B) OTHER INDIVIDUAL CONTRIBU8 TIONS.—Contributions made by accountholder 

9 other than under subsection (e). 

10 ‘‘(C) CONTRIBUTIONS BY NONPROFIT OR11 GANIZATIONS.—Contributions made by a chari12 table, not-for-profit organization (that may be a 

13 religious organization). 

14 Except as provided in this subsection, no amounts may 

15 be contributed to, or credited to, a prescription drug ac16 count. 

17 ‘‘(d) FEDERAL CONTRIBUTION.—For Federal con18 tributions in the case of accountholders, see section 

19 1860D–4(c). Such contributions shall not be treated as 

20 income for purposes of chapter 1 of the Internal Revenue 

21 Code of 1986. 

22 ‘‘(e) EMPLOYER AND INDIVIDUAL CONTRIBU23 TIONS.—

24 ‘‘(1) EMPLOYMENT-RELATED CONTRIBUTION.—
52

•HR 2578 IH 

1 ‘‘(A) IN GENERAL.—In the case of any 

2 accountholder who is a beneficiary or partici3 pant in a group health plan (including a multi4 employer plan), whether as an employee, former 

5 employee or otherwise, including as a dependent 

6 of an employee or former employee, the plan 

7 may make a contribution into the 

8 accountholder’s account (but not into a reserve 

9 account of the accountholder). Amounts so con10 tributed shall be treated under the Internal 

11 Revenue Code of 1986 as employer-provided 

12 coverage under an accident or health plan (de13 scribed in section 106 of such Code). 

14 ‘‘(B) LIMITATION.—The total amount that 

15 may be contributed under subparagraph (A) 

16 under a plan to an account during any year 

17 may not exceed $5,000. 

18 ‘‘(C) CONDITION.—A group health plan 

19 may condition a contribution with respect to an 

20 accountholder under this paragraph on the 

21 accountholder’s enrollment under this part with 

22 an eligible entity that is recognized or approved 

23 by that plan. 

24 ‘‘(2) OTHER INDIVIDUALS.—
53

•HR 2578 IH 

1 ‘‘(A) IN GENERAL.—Any individual may 

2 also contribute to the account of that individual 

3 or the account of any other individual under 

4 this subsection. Notwithstanding any other pro5 vision of law, subject to subparagraph (B), the 

6 amount of income of an individual in a taxable 

7 year for purposes of subchapter A of chapter 1 

8 of the Internal Revenue Code of 1986 shall be 

9 treated as being reduced by the amount contrib10 uted in the taxable year under the previous sen11 tence by that individual. 

12 ‘‘(B) LIMITATION.—The total amount that 

13 may be contributed to an account under sub14 paragraph (A) and treated as a reduction in in15 come under the second sentence of such sub16 paragraph during any year may not exceed 

17 $5,000, regardless of who makes such contribu18 tion. Nothing in the previous sentence shall be 

19 treated as limiting the amount of non-tax-fa20 vored contributions that may be made to such 

21 an account. 

22 ‘‘(3) NO CONTRIBUTION PERMITTED TO RE23 SERVE ACCOUNT.—No contribution may be made 

24 under this subsection to a reserve account. 
54

•HR 2578 IH 

1 ‘‘(4) FORM AND MANNER OF CONTRIBUTION.—

2 The Secretary shall specify the form and manner of 

3 contributions under this subsection. 

4 ‘‘(5) INDEXING OF DOLLAR AMOUNTS.—The 

5 provisions of section 1860D–4(c)(2)(B) shall apply 

6 with respect to the limitation amounts specified in 

7 paragraphs (1)(B) and (2)(B) for a year after 2004 

8 in the same manner as it applied to the annual Fed9 eral contribution amount for that year, except that, 

10 for purposes of this paragraph, any reference in 

11 clause (ii) of such section to ‘$1’ is deemed a ref12 erence to ‘$100’. 

13 ‘‘(f) STATE CONTRIBUTIONS.—

14 ‘‘(1) IN GENERAL.—A State may enter into ar15 rangements with the Secretary for the crediting of 

16 amounts for accountholders. 

17 ‘‘(2) FORM AND MANNER OF CONTRIBUTION.—

18 The Secretary shall specify the form and manner of 

19 contributions under this subsection. 

20 ‘‘(3) TAX AND MEDICAID TREATMENT.—

21 Amounts credited under this subsection—

22 ‘‘(A) shall not be treated as income to the 

23 accountholder for purposes of the Internal Rev24 enue Code of 1986; and
55

•HR 2578 IH 

1 ‘‘(B) shall not be treated as medical assist2 ance for purposes of title XIX or child health 

3 assistance for purposes of title XXI for individ4 uals who are not qualifying low income enroll5 ees. 

6 ‘‘DEFINITIONS

7 ‘‘SEC. 1860D–6. In this part: 

8 ‘‘(1) COVERED OUTPATIENT DRUG.—

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

10 subparagraph (B), the term ‘covered outpatient 

11 drug’ means—

12 ‘‘(i) a drug that may be dispensed 

13 only upon a prescription and that is de14 scribed in clause (i) or (ii) of subparagraph 

15 (A) of section 1927(k)(2); or 

16 ‘‘(ii) a biological product or insulin de17 scribed in subparagraph (B) or (C) of such 

18 section. 

19 ‘‘(B) EXCLUSIONS.—

20 ‘‘(i) IN GENERAL.—The term ‘covered 

21 outpatient drug’ does not include drugs or 

22 classes of drugs, or their medical uses, 

23 which may be excluded from coverage or 

24 otherwise restricted under section 

25 1927(d)(2), other than those restricted 
56

•HR 2578 IH 

1 under subparagraph (E) of such section 

2 (relating to smoking cessation agents). 

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 part shall not 

7 be considered to be such a drug if payment 

8 for the drug is available under part A or 

9 B (but such drug shall be so considered if 

10 such payment is not available because the 

11 eligible beneficiary has exhausted benefits 

12 under part A or B), without regard to 

13 whether the individual is entitled to bene14 fits under part A or enrolled under part B. 

15 ‘‘(2) INCOME.—

16 ‘‘(A) IN GENERAL.—The term ‘income’ 

17 means, with respect to benefits under this part 

18 in a year, the modified adjusted gross income of 

19 the individual for the taxable year ending in the 

20 previous year. 

21 ‘‘(B) TREATMENT OF JOINT RETURNS.—In 

22 the case of a individual who files a joint return 

23 (as defined for purposes of the Internal Rev24 enue Code of 1986), the income of the modified 
57

•HR 2578 IH 

1 adjusted gross income of both individuals shall 

2 be treated as the income of each individual. 

3 ‘‘(C) TREATMENT OF SEPARATE RE4 TURNS.—In the case of an individual who is 

5 married and who does not file a joint return 

6 and who is not living separate and apart from 

7 the individual’s spouse during at least 6 months 

8 of the taxable year shall be treated for purposes 

9 of this title as having income that exceeds 350 

10 percent of the poverty line. 

11 ‘‘(3) DEFINITION OF MODIFIED ADJUSTED

12 GROSS INCOME.—The term ‘modified adjusted gross 

13 income’ means adjusted gross income (as defined in 

14 section 62 of the Internal Revenue Code of 1986)—

15 ‘‘(A) determined without regard to sections 

16 911, 931, and 933 of such Code; and 

17 ‘‘(B) increased by—

18 ‘‘(i) the amount of interest received or 

19 accrued by the taxpayer during the taxable 

20 year which is exempt from tax under such 

21 Code, and 

22 ‘‘(ii) the amount of social security 

23 benefits not includible in gross income 

24 under section 86 of such Code. 
58

•HR 2578 IH 

1 ‘‘(4) POVERTY LINE.—The term ‘poverty line’ 

2 means the income official poverty line (as defined by 

3 the Office of Management and Budget, and revised 

4 annually in accordance with section 673(2) of the 

5 Omnibus Budget Reconciliation Act of 1981) appli6 cable to a family of the size involved. 

7 ‘‘(5) QUALIFYING LOW INCOME; VERY LOW IN8 COME.—

9 ‘‘(A) The term ‘qualifying low income’ 

10 means, with respect to an enrollee or 

11 accountholder, that the income of the enrollee 

12 or accountholder is under 175 percent of the 

13 poverty line, but only if the enrollee or 

14 accountholder has authorized income 

15 verification under section 1860D–4(d). 

16 ‘‘(B) The term ‘very low income’ means, 

17 with respect to an enrollee or accountholder, 

18 that the income of the enrollee or accountholder 

19 is under 100 percent of the poverty line, but 

20 only if the enrollee or accountholder has author21 ized income verification under section 1860D–

22 4(d).’’. 

23 (b) CONFORMING REFERENCES TO PREVIOUS PART

24 D.—
59

•HR 2578 IH 

1 (1) IN GENERAL.—Any reference in law (in ef2 fect before the date of enactment of this Act) to part 

3 D of title XVIII of the Social Security Act is deemed 

4 a reference to part F of such title (as in effect after 

5 such date). 

6 (2) SECRETARIAL SUBMISSION OF LEGISLATIVE

7 PROPOSAL.—Not later than 6 months after the date 

8 of enactment of this section, the Secretary of Health 

9 and Human Services shall submit to the appropriate 

10 committees of Congress a legislative proposal pro11 viding for such technical and conforming amend12 ments in the law as are required by the provisions 

13 of this section. 

14 SEC. 3. EXCLUSION OF PART D COSTS FROM DETERMINA15 TION OF PART B MONTHLY PREMIUM. 

16 Section 1839(g) of the Social Security Act (42 U.S.C. 

17 1395r(g)) is amended—

18 (1) by striking ‘‘attributable to the application 

19 of section’’ and inserting ‘‘attributable to—

20 ‘‘(1) the application of section’’;

21 (2) by striking the period and inserting ‘‘; 

22 and’’; and 

23 (3) by adding at the end the following new 

24 paragraph:
60

•HR 2578 IH 

1 ‘‘(2) the Voluntary Medicare Outpatient Pre2 scription Drug Discount and Security Program 

3 under part D.’’.

4 SEC. 4. MEDICAID AMENDMENTS. 

5 (a) VERIFICATION OF ELIGIBILITY FOR IMPROVED

6 PART D BENEFITS.—

7 (1) REQUIREMENT.—Section 1902(a) (42 

8 U.S.C. 1396a(a)) is amended—

9 (A) by striking ‘‘and’’ at the end of para10 graph (64); 

11 (B) by striking the period at the end of 

12 paragraph (65) and inserting ‘‘; and’’; and 

13 (C) by inserting after paragraph (65) the 

14 following new paragraph: 

15 ‘‘(66) provide for verification of income under 

16 section 1860D–4(d)(1)(B).’’. 

17 (2) NEW SECTION.—Title XIX is further 

18 amended—

19 (A) by redesignating section 1935 as sec20 tion 1936; and 

21 (B) by inserting after section 1934 the fol22 lowing new section: 

23 ‘‘SPECIAL PROVISIONS RELATING TO MEDICARE PART D

24 BENEFITS

25 ‘‘SEC. 1935. (a) REQUIREMENT FOR VERIFICATION

26 OF ELIGIBILITY DETERMINATIONS FOR IMPROVED PART
61

•HR 2578 IH 

1 D BENEFITS.—As a condition of its State plan under this 

2 title under section 1902(a)(66) and receipt of any Federal 

3 financial assistance under section 1903(a), a State shall 

4 provide for verification of income statements in accordance 

5 with arrangements under section 1860D–4(d)(1). 

6 ‘‘(b) PAYMENTS FOR ADDITIONAL ADMINISTRATIVE

7 COSTS.—

8 ‘‘(1) IN GENERAL.—The amounts expended by 

9 a State in carrying out subsection (a) are, subject to 

10 paragraph (2), expenditures reimbursable under the 

11 appropriate paragraph of section 1903(a); except 

12 that, notwithstanding any other provision of such 

13 section, the applicable Federal matching rates with 

14 respect to such expenditures under such section shall 

15 be increased as follows (but in no case shall the rate 

16 as so increased exceed 100 percent): 

17 ‘‘(A) For expenditures attributable to costs 

18 incurred during 2004, the otherwise applicable 

19 Federal matching rate shall be increased by 10 

20 percent of the percentage otherwise payable 

21 (but for this subsection) by the State. 

22 ‘‘(B)(i) For expenditures attributable to 

23 costs incurred during 2005 and each subse24 quent year through 2011, the otherwise applica25 ble Federal matching rate shall be increased by 
62

•HR 2578 IH 

1 the applicable percent (as defined in clause (ii)) 

2 of the percentage otherwise payable (but for 

3 this subsection) by the State. 

4 ‘‘(ii) For purposes of clause (i), the ‘appli5 cable percent’ for—

6 ‘‘(I) 2005 is 20 percent; or 

7 ‘‘(II) a subsequent year is the applica8 ble percent under this clause for the pre9 vious year increased by 10 percentage 

10 points. 

11 ‘‘(C) For expenditures attributable to costs 

12 incurred after 2011, the otherwise applicable 

13 Federal matching rate shall be increased to 100 

14 percent. 

15 ‘‘(2) COORDINATION.—The State shall provide 

16 the Secretary with such information as may be nec17 essary to properly allocate administrative expendi18 tures described in paragraph (1) that may otherwise 

19 be made for eligibility determinations.’’. 

20 (b) PHASED-IN FEDERAL ASSUMPTION OF MEDICAID

21 RESPONSIBILITY FOR PRESCRIPTION DRUG BENEFITS

22 FOR DUALLY ELIGIBLE INDIVIDUALS.—

23 (1) IN GENERAL.—Section 1903(a)(1) (42 

24 U.S.C. 1396b(a)(1)) is amended by inserting before 

25 the semicolon the following: ‘‘, reduced by the 
63

•HR 2578 IH 

1 amount computed under section 1935(c)(1) for the 

2 State and the quarter’’. 

3 (2) AMOUNT DESCRIBED.—Section 1935, as in4 serted by subsection (a)(2), is amended by adding at 

5 the end the following new subsection: 

6 ‘‘(c) FEDERAL ASSUMPTION OF MEDICAID PRE7 SCRIPTION DRUG COSTS FOR DUALLY-ELIGIBLE BENE8 FICIARIES.—

9 ‘‘(1) IN GENERAL.—For purposes of section 

10 1903(a)(1), for a State that is one of the 50 States 

11 or the District of Columbia for a calendar quarter 

12 in a year (beginning with 2004) the amount com13 puted under this subsection is equal to the product 

14 of the following: 

15 ‘‘(A) IMPROVED MEDICARE BENEFITS.—

16 The sum of—

17 ‘‘(i) the total amount of reductions in 

18 catastrophic coverage premiums in the 

19 quarter under part D of title XVIII that 

20 are the result of applying a zero premium 

21 under section 1860D–4(b)(3)(D) for indi22 viduals who are residents of the State and 

23 are entitled to benefits with respect to pre24 scribed drugs under the State plan under 

25 this title (including such a plan operating 
64

•HR 2578 IH 

1 under a waiver under section 1115), multi2 plied by the phase-out proportion (as de3 fined in paragraph (2)) for the quarter; 

4 and 

5 ‘‘(ii) the total amount of additional 

6 payments made to prescription drug ac7 counts in the quarter under such part D 

8 that are attributable to the application of 

9 section 1860D–4(c)(2)(C) to individuals 

10 residing in the State. 

11 ‘‘(B) STATE MATCHING RATE.—A propor12 tion computed by subtracting from 100 percent 

13 the Federal medical assistance percentage (as 

14 defined in section 1905(b)) applicable to the 

15 State and the quarter. 

16 ‘‘(2) PHASE-OUT PROPORTION.—For purposes 

17 of paragraph (1)(A)(i), the ‘phase-out proportion’ 

18 for a calendar quarter in—

19 ‘‘(A) 2004 is 90 percent; 

20 ‘‘(B) a subsequent year before 2012, is the 

21 phase-out proportion for calendar quarters in 

22 the previous year decreased by 10 percentage 

23 points; or 

24 ‘‘(C) a year after 2011 is 0 percent.’’.
65

•HR 2578 IH 

1 (c) MEDICAID PROVIDING WRAP-AROUND BENE2 FITS.—Section 1935, as so inserted and amended, is fur3 ther amended by adding at the end the following new sub4 section: 

5 ‘‘(d) ADDITIONAL PROVISIONS.—

6 ‘‘(1) MEDICAID AS SECONDARY PAYOR.—In the 

7 case of an individual who is eligible to be enrolled 

8 under part D of title XVIII and is eligible for med9 ical assistance for prescribed drugs under this 

10 title—

11 ‘‘(A) Federal financial participation is not 

12 available—

13 ‘‘(i) for such medical assistance for 

14 very low income individuals (as defined in 

15 section 1860D–6(5)); or 

16 ‘‘(ii) for other individuals to the ex17 tent payment may be made under such 

18 part for such assistance; and 

19 ‘‘(B) subject to paragraph (2), Federal fi20 nancial participation shall continue to be avail21 able for prescribed drugs for such other individ22 uals described in subparagraph (A)(ii) to the 

23 extent payment may not be made under such 

24 part (including under a prescription drug ac25 count under such part). 
66

•HR 2578 IH 

1 ‘‘(2) LIMITATION.—Federal financial participa2 tion shall not be available under paragraph (1)(B) 

3 for the following medical assistance: 

4 ‘‘(A) For any applicable copayment 

5 amount under section 1860D–4(b)(4). 

6 ‘‘(B) For the amount of any enrollment fee 

7 under section 1860D–2(e). 

8 ‘‘(C) For any assistance for any individual 

9 who is not a qualifying low income individual 

10 (as defined in section 1860D–6(5)).’’. 

11 (d) TREATMENT OF TERRITORIES.—

12 (1) IN GENERAL.—Section 1935, as so inserted 

13 and amended, is further amended—

14 (A) in subsection (a) in the matter pre15 ceding paragraph (1), by inserting ‘‘subject to 

16 subsection (e)’’ after ‘‘section 1903(a)’’; 

17 (B) in subsection (c)(1), by inserting ‘‘sub18 ject to subsection (e)’’ after ‘‘1903(a)(1)’’; and 

19 (C) by adding at the end the following new 

20 subsection: 

21 ‘‘(e) TREATMENT OF TERRITORIES.—

22 ‘‘(1) IN GENERAL.—In the case of a State, 

23 other than the 50 States and the District of Colum24 bia—
67

•HR 2578 IH 

1 ‘‘(A) the previous provisions of this section 

2 shall not apply to residents of such State; and 

3 ‘‘(B) if the State establishes a plan de4 scribed in paragraph (2) (for providing medical 

5 assistance with respect to the provision of pre6 scription drugs to medicare beneficiaries), the 

7 amount otherwise determined under section 

8 1108(f) (as increased under section 1108(g)) 

9 for the State shall be increased by the amount 

10 specified in paragraph (3). 

11 ‘‘(2) PLAN.—The plan described in this para12 graph is a plan that—

13 ‘‘(A) provides medical assistance with re14 spect to the provision of covered outpatient 

15 drugs to low-income medicare beneficiaries; and 

16 ‘‘(B) assures that additional amounts re17 ceived by the State that are attributable to the 

18 operation of this subsection are used only for 

19 such assistance. 

20 ‘‘(3) INCREASED AMOUNT.—

21 ‘‘(A) IN GENERAL.—The amount specified 

22 in this paragraph for a State for a year is equal 

23 to the product of—

24 ‘‘(i) the aggregate amount specified in 

25 subparagraph (B); and 
68

•HR 2578 IH 

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 sec4 tion for all such States. 

5 ‘‘(B) AGGREGATE AMOUNT.—The aggre6 gate amount specified in this subparagraph 

7 for—

8 ‘‘(i) 2004, is equal to $20,000,000; or 

9 ‘‘(ii) a subsequent year, is equal to the 

10 amount specified in clause (i) increased by 

11 applicable percentage increase specified in 

12 section 1860D–2(e)(1)(B) for the year in13 volved. 

14 ‘‘(4) REPORT.—The Secretary shall submit to 

15 Congress a report on the application of this sub16 section and may include in the report such rec17 ommendations as the Secretary deems appropriate.’’. 

18 (2) CONFORMING AMENDMENT.—Section 

19 1108(g)(2) (42 U.S.C. 1308(g)(2)) is amended by 

20 inserting ‘‘but subject to section 1935(e)(1)(B)’’ 

21 after ‘‘Notwithstanding subsection (f)’’. 

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—
69

•HR 2578 IH 

1 (1) by striking ‘‘and’’ at the end of subclause 

2 (III); 

3 (2) by striking the period at the end of sub4 clause (IV) and inserting ‘‘; and’’; and 

5 (3) by adding at the end the following new sub6 clause: 

7 ‘‘(V) any prices charged which 

8 are negotiated under an eligible entity 

9 under part D of title XVIII on behalf 

10 of individuals enrolled under such 

11 part.’’.

Æ