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[House Report 108-181]
[From the U.S. Government Publishing Office]

108th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 1st Session                                                    108-181

======================================================================

 
 PROVIDING FOR CONSIDERATION OF H.R. 1, THE MEDICARE PRESCRIPTION DRUG 
   AND MODERNIZATION ACT OF 2003, AND H.R. 2596, HEALTH SAVINGS AND 
                       AFFORDABILITY ACT OF 2003

                                _______
                                

  June 26 (legislative day of June 25), 2003.--Referred to the House 
                   Calendar and ordered to be printed

                                _______
                                

    Ms. Pryce, from the Committee on Rules, submitted the following

                              R E P O R T

                       [To accompany H. Res. 299]

    The Committee on Rules, having had under consideration 
House Resolution 299, by a record vote of 7 to 3, report the 
same to the House with the recommendation that the resolution 
be adopted.

                SUMMARY OF PROVISIONS OF THE RESOLUTION

    The resolution provides for consideration of House 
Resolution 1, the Medicare Prescription Drug and Modernization 
Act of 2003, under a modified closed rule. This provides three 
hours of debate in the House equally divided among and 
controlled by the chairmen and ranking minority members of the 
Committee on Energy and Commerce and the Committee on Ways and 
Means.
    The rule waives all points of order against consideration 
of House Resolution 1. The rule provides for consideration of 
the amendment to House Resolution 1 printed in this report, if 
offered by Representative Rangel of New or his designee, which 
shall be considered as read and shall be separately debatable 
for one hour equally divided and controlled by the proponent 
and an opponent. The rule waives all points of order against 
the amendment printed the report. The rule provides one motion 
to recommit House Resolution 1 with or without instructions.
    The resolution further provides for consideration of House 
Resolution 2596, the Health Savings and Affordability Act of 
2003, on the legislative day of June 26 or June 27, 2003, under 
a closed rule. The rule provides one hour of debate in the 
House on House Resolution 2596 equally divided and controlled 
by the chairman and ranking minority member of the Committee on 
Ways and Means. The rule waives all points or order against 
consideration of House Resolution 2596. The rule provides one 
motion to recommit House Resolution 2596 with our without 
instructions.
    The rule provides that in the engrossment of House 
Resolution 1, the clerk shall add the text of House Resolution 
2596, as passed by the House as a new matter at the end of 
House Resolution 1, and they lay House Resolution 2596 on the 
table.
    The rule provides that during consideration of House 
Resolution 1 and House Resolution 2596, notwithstanding the 
operation of the previous question, the Chair may postpone 
further consideration of either bill to a time designated by 
the Speaker.
    The rule further provides that it shall be in order, any 
rule of the House to the contrary notwithstanding, to consider 
concurrent resolutions providing for adjournment of the House 
and Senate during the month of July.
    Finally, the rule provides that the Committee on 
Appropriations may have until midnight on Thursday, July 3, 
2003, to file a report to accompany a bill making 
appropriations for the Department of Defense for the fiscal 
year ending September 30, 2004, and for other purposes.

                            COMMITTEE VOTES

    Pursuant to clause 3(b) of House rule XIII the results of 
each record vote on an amendment or motion to report, together 
with the names of those voting for and against, are printed 
below:

Rules Committee Record Vote No. 131

    Date: June 25, 2003.
    Measure: H.R. 1--Medicare Modernization and Prescription 
Drug Act of 2003.
    Motion by: Mr. Frost.
    Summary of motion: To grant an open rule.
    Results: Defeated 3 to 7.
    Vote by Members: Linder--Nay; Pryce--Nay; Diaz-Balart--Nay; 
Hastings (WA)--Nay; Sessions--Nay; Reynolds--Nay; Frost--Yea; 
McGovern--Yea; Hastings (FL)--Yea; Dreier--Nay.

Rules Committee Record Vote No. 132

    Date: June 25, 2003.
    Measure: H.R. 1--Medicare Modernization and Prescription 
Drug Act of 2003.
    Motion by: Mr. Frost.
    Summary of motion: To make in order the amendment in the 
nature of a substitute offered by Representative Dooley which 
provides a zero-premium Medicare Part B drug benefit to all 
seniors. Provides a universal high cost protection benefit for 
seniors with $4,000 in total drug costs. Under the high-cost 
protection benefit seniors would pay flat, three-tiered co-
payments (generic/preferred/non-preferred) actuarially 
equivalent to 20 percent of the drug cost. Provides a first-
dollar benefit to low-income seniors. Beneficiaries below 150% 
federal poverty level (FPL) would pay flat, three-tiered co-
payments actuarially equivalent to 10 percent of the drug cost. 
The amendment creates a state option to extend coverage to 
seniors between 150 and 200 percent of poverty. Dual eligible 
seniors would continue to receive their drug benefit through 
Medicaid. Medicare would reimburse states for 80 percent of 
drug spending for dual eligible beneficiaries with annual total 
drug costs in excess of $4,000. Waives the assets test to 
determine eligibility for the low-income subsidy.
    Results: Defeated 3 to 7.
    Vote by Members: Linder--Nay; Pryce--Nay; Diaz-Balart--Nay; 
Hastings (WA)--Nay; Sessions--Nay; Reynolds--Nay; Frost--Yea; 
McGovern--Yea; Hastings (FL)--Yea; Dreier--Nay.

Rules Committee Record Vote No. 133

    Date: June 25, 2003.
    Measure: H.R. 1--Medicare Modernization and Prescription 
Drug Act of 2003.
    Motion by: Mr. Frost.
    Summary of motion: To make in order the amendment in the 
nature of a substitute offered by Representative Thompson which 
incorporates the provisions of S. 1. Establishes a prescription 
drug benefit in Medicare delivered through private plans which 
will bear a portion of the financial risk for costs with the 
government sharing risk for costs outside specified risk 
corridors; guarantees government fallback option would be 
available in areas where there are not at least two plans 
available, contracted for a two year period. Improve access to 
generic pharmaceuticals and permits importation of prescription 
drugs from Canada subject to certification that implementing 
this policy change will pose no additional risk to the public. 
Establishes a new Medicare Advantage plan relying on preferred 
provider organization and other plans to offer integrated 
benefits to Medicare beneficiaries, but does not contain the 
premium support provisions. Improves payments to rural health 
care providers under Medicare, modified by accelerating the 
implementation of these providers to 2004 and reducing the 
labor share of wage index to 62%. Modifies S. 1 giving the 
Secretary authority to negotiate best prices for drugs and 
requiring plans to disclose how savings are passed on to 
beneficiaries and phases in a percentage of employer 
contributions that can be applied towards the out of pocket 
limit for catastrophic coverage. Makes Medicare the primary 
payer for low income seniors eligible for both Medicaid and 
Medicare.
    Results: Defeated 3 to 7.
    Vote by Members: Linder--Nay; Pryce--Nay; Diaz-Balart--Nay; 
Hastings (WA)--Nay; Sessions--Nay; Reynolds--Nay; Frost--Yea; 
McGovern--Yea; Hastings (FL)--Yea; Dreier--Nay.

Rules Committee Record Vote No. 134

    Date: June 25, 2003.
    Measure: H.R. 1--Medicare Modernization and Prescription 
Drug Act of 2003.
    Motion by: Mr. Frost.
    Summary of motion: To make in order the amendment offered 
by Representative Sanders which replaces Title I with a 
Medicare prescription drug benefit, cost-containment measures, 
and a sunset provision setting a cap on spending.
    Results: Defeated 3 to 7.
    Vote by Members: Linder--Nay; Pryce--Nay; Diaz-Balart--Nay; 
Hastings (WA)--Nay; Sessions--Nay; Reynolds--Nay; Frost--Yea; 
McGovern--Yea; Hastings (FL)--Yea; Dreier--Nay.

Rules Committee Record Vote No. 135

    Date: June 25, 2003.
    Measure: H.R. 1--Medicare Modernization and Prescription 
Drug Act of 2003.
    Motion by: Mr. Frost.
    Summary of motion: To make in order the amendment offered 
by Representatives Buyer, Norwood, Burr and Shadegg which 
strikes Title I of the base bill and substitutes an alternative 
prescription drug benefit. The drug benefit contains three 
parts: (1) a choice between multiple discount drug cards, (2) 
individual drug accounts that can receive contributions from 
multiple sources, and (3) private catastrophic coverage. The 
drug benefit is a defined contribution product that provides 
beneficiaries, family members, and communities an incentive to 
plan and save for prescription drug expenditures.
    Results: Defeated 3 to 7.
    Vote by Members: Linder--Nay; Pryce--Nay; Diaz-Balart--Nay; 
Hastings (WA)--Nay; Sessions--Nay; Reynolds--Nay; Frost--Yea; 
McGovern--Yea; Hastings (FL)--Yea; Dreier--Nay.

Rules Committee Record Vote No. 136

    Date: June 25, 2003.
    Measure: H.R. 1--Medicare Modernization and Prescription 
Drug Act of 2003.
    Motion by: Mr. Frost.
    Summary of motion: To make in order the amendment offered 
by Representatives Capps and Norwood which corrects an 
interpretation made by CBO that assumes the practice expense 
language in HR 1622 should apply to specialists beyond 
oncology. Clarifies that the practice expense language only 
applies to oncology.
    Results: Defeated 3 to 7.
    Vote by Members: Linder--Nay; Pryce--Nay; Diaz-Balart--Nay; 
Hastings (WA)--Nay; Sessions--Nay; Reynolds--Nay; Frost--Yea; 
McGovern--Yea; Hastings (FL)--Yea; Dreier--Nay.

Rules Committee Record Vote No. 137

    Date: June 25, 2003.
    Measure: H.R. 1--Medicare Modernization and Prescription 
Drug Act of 2003.
    Motion by: Mr. McGovern.
    Summary of motion: To make in order and grant the 
appropriate waivers the amendment offered by Representative 
Strickland which ensures that all seniors are charged a $35 per 
month premium for the Medicare drug benefit, regardless of what 
drug plan they enroll in or where they live.
    Results: Defeated 3 to 7.
    Vote by Members: Linder--Nay; Pryce--Nay; Diaz-Balart--Nay; 
Hastings (WA)--Nay; Sessions--Nay; Reynolds--Nay; Frost--Yea; 
McGovern--Yea; Hastings (FL)--Yea; Dreier--Nay.

Rules Committee Record Vote No. 138

    Date: June 25, 2003.
    Measure: H.R. 1--Medicare Modernization and Prescription 
Drug Act of 2003.
    Motion by: Mr. McGovern.
    Summary of motion: To make in order and grant the 
appropriate waivers the amendment offered by Representative 
McGovern which strikes section 702 which relates to the co-
payment for home health service episode of care for certain 
beneficiaries.
    Results: Defeated 3 to 7.
    Vote by Members: Linder--Nay; Pryce--Nay; Diaz-Balart--Nay; 
Hastings (WA)--Nay; Sessions--Nay; Reynolds--Nay; Frost--Yea; 
McGovern--Yea; Hastings (FL)--Yea; Dreier--Nay.

Rules Committee Record Vote No. 139

    Date: June 25, 2003.
    Measure: H.R. 1--Medicare Modernization and Prescription 
Drug Act of 2003.
    Motion by: Mr. McGovern.
    Summary of motion: To make in order the amendment offered 
by Representative Gutknecht, Emerson, and Emanuel which 
provides greater access to generic pharmaceuticals; allows 
Americans access to foreign countries' pharmaceutical markets; 
and establishes a system to provide the federal government a 
return on investment for investment to pharmaceutical research.
    Results: Defeated 3 to 7.
    Vote by Members: Linder--Nay; Pryce--Nay; Diaz-Balart--Nay; 
Hastings (WA)--Nay; Sessions--Nay; Reynolds--Nay; Frost--Yea; 
McGovern--Yea; Hastings (FL)--Yea; Dreier--Nay.

Rules Committee Record Vote No. 140

    Date: June 25, 2003.
    Measure: H.R. 1--Medicare Modernization and Prescription 
Drug Act of 2003.
    Motion by: Mr. McGovern.
    Summary of motion: To make in order and grant the 
appropriate waivers for the amendment offered by Representative 
Cardin which establishes a nationwide, guaranteed prescription 
drug benefit within the Medicare program. The plan would be a 
voluntary option for every Medicare beneficiary, in addition to 
the private insurance prescription drug options established by 
the bill.
    Results: Defeated 3 to 7.
    Vote by Members: Linder--Nay; Pryce--Nay; Diaz-Balart--Nay; 
Hastings (WA)--Nay; Sessions--Nay; Reynolds--Nay; Frost--Yea; 
McGovern, Yea; Hastings (FL)--Yea; Dreier--Nay.

Rules Committee Record Vote No. 141

    Date June 25, 2003.
    Measure: H.R. 1--Medicare Modernization and Prescription 
Drug Act of 2003.
    Motion by: Mr. McGovern.
    Summary of motion: To make in order and grant the 
appropriate waivers for the amendment offered by Representative 
Sandlin which strikes paragraphs (2) and (3) of section 1860D-
2(b) of the Social Security Act as proposed to be amended by 
Section 101 of the bill and inserts a limitation of 20% on 
cost-sharing for costs above the annual deductible and annual 
out-of-pocket threshold.
    Results: Defeated 3 to 7.
    Vote by Members: Linder--Nay; Pryce--Nay; Diaz-Balart--Nay; 
Hastings (WA)--Nay; Sessions--Nay; Reynolds--Nay; Frost--Yea; 
McGovern, Yea; Hastings (FL)--Yea; Dreier--Nay.

Rules Committee Record Vote No. 142

    Date: June 25, 2003.
    Measure: H.R. 1--Medicare Modernization and Prescription 
Drug Act of 2003.
    Motion by: Mr. McGovern.
    Summary of motion: To make in order and grant the 
appropriate waivers for the amendment offered by Representative 
Kaptur which strikes language from H.R. 1 that prohibits the 
Secretary from negotiating prices of prescription drugs and 
requires the Secretary to participate in price negotiations 
such as the Secretary of Veterans Affairs does under the 
Federal Supply Schedule.
    Results: Defeated 3 to 7.
    Vote by Members: Linder--Nay; Pryce--Nay; Diaz-Balart--Nay; 
Hastings (WA)--Nay; Sessions--Nay; Reynolds--Nay; Frost--Yea; 
McGovern, Yea; Hastings (FL)--Yea; Dreier--Nay.

Rules Committee Record Vote No. 143

    Date: June 25, 2003.
    Measure: H.R. 1--Medicare Modernization and Prescription 
Drug Act of 2003.
    Motion by: Mr. McGovern.
    Summary of motion: To make in order and grant the 
appropriate waivers for the amendment offered by Representative 
Sanders which adds a Canada-only drug reimportation provision 
to allow America consumers to benefit from international price 
competition for prescription medicine. Allows US-licensed 
pharmacists and drug wholesalers to import FDA-approved 
medications while keeping in place the safety requirements of 
the reimportation law passed in 2000 but does not require 
certification by the Secretary prior to allowing importation. 
Allows the Secretary the ability to immediately suspend the 
importation of drugs that violate the requirements of any law.
    Results: Defeated 3 to 7.
    Vote by Members: Linder--Nay; Pryce--Nay; Diaz-Balart--Nay; 
Hastings (WA)--Nay; Sessions--Nay; Reynolds--Nay; Frost--Yea; 
McGovern--Yea; Hastings (FL)--Yea; Dreier--Nay.

Rules Committee Record Vote No. 144

    Date: June 25, 2003.
    Measure: H.R. 1--Medicare Modernization and Prescription 
Drug Act of 2003.
    Motion by: Mr. McGovern.
    Summary of motion: To make in order and grant the 
appropriate waivers for the amendment offered by Representative 
Brown of Ohio which revises the certification provision in the 
reimportation section of H.R. 1 to require the Secretary to 
provide reasons for blocking importation and to ensure the 
Secretary takes into account the effects of price 
discrimination on American consumers.
    Results: Defeated 3 to 7.
    Vote by Members: Linder--Nay; Pryce--Nay; Diaz-Balart--Nay; 
Hastings (WA)--Nay; Sessions--Nay; Reynolds--Nay; Frost--Yea; 
McGovern--Yea; Hastings (FL)--Yea; Dreier--Nay.

Rules Committee Record Vote No. 145

    Date: June 25, 2003.
    Measure: H.R. 1--Medicare Modernization and Prescription 
Drug Act of 2003.
    Motion by: Mr. McGovern.
    Summary of motion: To make in order en bloc the amendments, 
#13, #8, #34, #33, #32, #29, #22, #27 and Brown.
    Results: Defeated 3 to 7.
    Vote by Members: Linder--Nay; Pryce--Nay; Diaz-Balart--Nay; 
Hastings (WA)--Nay; Sessions--Nay; Reynolds--Nay; Frost--Yea; 
McGovern--Yea; Hastings (FL)--Yea; Dreier--Nay.

Rules Committee Record Vote No. 146

    Date: June 25, 2003.
    Measure: H.R. 1--Medicare Modernization and Prescription 
Drug Act of 2003.
    Motion by: Mr. McGovern.
    Summary of motion: To make in order en bloc amendments #3, 
#4, #25, and #26.
    Results: Defeated 3 to 7.
    Vote by Members: Linder--Nay; Pryce--Nay; Diaz-Balart--Nay; 
Hastings (WA)--Nay; Sessions--Nay; Reynolds--Nay; Frost--Yea; 
McGovern--Yea; Hastings (FL)--Yea; Dreier--Nay.

Rules Committee Record Vote No. 147

    Date: June 25, 2003.
    Measure: H.R. 1--Medicare Modernization and Prescription 
Drug Act of 2003.
    Motion by: Mr. Hastings of Florida.
    Summary of motion: To make in order and grant the 
appropriate waivers for the amendment offered by Representative 
Pallone which requires the Administrator to use the collective 
purchasing power of 40 million Medicare beneficiaries to 
negotiate lower drug prices. Also requires the Administrator to 
take into account the goal of promoting the development of 
breakthrough drugs.
    Results: Defeated 3 to 7.
    Vote by Members: Linder--Nay; Pryce--Nay; Diaz-Balart--Nay; 
Hastings (WA)--Nay; Sessions--Nay; Reynolds--Nay; Frost--Yea; 
McGovern--Yea; Hastings (FL)--Yea; Dreier--Nay.

Rules Committee Record Vote No. 148

    Date: June 25, 2003.
    Measure: H.R. 1--Medicare Modernization and Prescription 
Drug Act of 2003.
    Motion by: Mr. Hastings of Florida.
    Summary of motion: To make in order the amendment and grant 
the appropriate waivers for the amendment in the nature of a 
substitute offered by Representative Wexler which freezes the 
tax cut in the Economic Growth and Tax Relief Reconciliation 
Act of 2001 at the 2003 level, repeals Title I and II of the 
Jobs and Growth Tax Reconciliation Act of 2003 and uses the 
savings to fund a Medicare prescription drug benefit. Drug 
portion of the amendment is identical to H.R. 1199. The plan 
has a $25 premium, $100 deductible and Medicare Part B type 
benefit, with Medicare paying 80% of the costs and the 
beneficiary paying 20%. Provides 100% coverage of any out of 
pocket expenses over $2000.
    Results: Defeated 3 to 7.
    Vote by Members: Linder--Nay; Pryce--Nay; Diaz-Balart--Nay; 
Hastings (WA)--Nay; Sessions--Nay; Reynolds--Nay; Frost--Yea; 
McGovern--Yea; Hastings (FL)--Yea; Dreier--Nay.

Rules Committee Record Vote No. 149

    Date: June 25, 2003.
    Measure: H.R. 1--Medicare Modernization and Prescription 
Drug Act of 2003.
    Motion by: Mr. Hastings of Florida.
    Summary of motion: To make in order en bloc the amendments 
#58, #43, #44, #11, #12, #39, #40, #23, #24, #51, #21, #42.
    Results: Defeated 3 to 7.
    Vote by Members: Linder--Nay; Pryce--Nay; Diaz-Balart--Nay; 
Hastings (WA)--Nay; Sessions--Nay; Reynolds--Nay; Frost--Yea; 
McGovern--Yea; Hastings (FL)--Yea; Dreier--Nay.

Rules Committee Record Vote No. 150

    Date: June 25, 2003.
    Measure: H.R. 1--Medicare Modernization and Prescription 
Drug Act of 2003.
    Motion by: Mr. Linder.
    Summary of motion: To report the rule.
    Results: Agreed to 7 to 3.
    Vote by Members: Linder--Yea; Pryce--Yea; Diaz-Balart--Yea; 
Hastings (WA)--Yea; Sessions--Yea; Reynolds--Yea; Frost--Nay; 
McGovern--Nay; Hastings (FL)--Nay; Dreier--Yea.

                   SUMMARY OF AMENDMENT MADE IN ORDER

    Rangel/Dingell: Amendment in the Nature of a Substitute. 
Title 1--Medicare Prescription Medicine Benefit. Adds new Part 
D in Medicare that provides voluntary prescription drug 
coverage for all Medicare beneficiaries beginning in 2006. 
Provides a $25 a month premium, a $100 a year deductible, a co-
insurance of 20/40 (Beneficiaries/Medicare), and a $2,000 out-
of-pocket limit per beneficiary per year. Beneficiaries with 
incomes up to 150 percent of poverty pay no premium or cost 
sharing. Beneficiaries with income between 150 percent and 175 
percent of poverty pay no cost-sharing and receive assistance 
with the Part D premium on a sliding scale. Medicare 
contractors will obtain guaranteed reductions in prices, and 
the Secretary of Health and Human Services will have the 
authority to use the collective purchasing power of Medicare's 
40 million beneficiaries to negotiate lower drug prices, taking 
into account prices paid in other countries and by other payers 
in the U.S. The Secretary could also implement measures that 
will further reduce costs and improve quality for 
beneficiaries, such as: encouraging use of generic drugs, 
lowering co-insurance for preferred drugs, disease management, 
and beneficiary and provider education. Medicare would also 
require contractors to put in place safeguards to check for 
adverse drug interactions and proper use of medications. Title 
II--Medicare+Choice. Includes a two-year payment enhancement 
for Medicare+Choice plans (2004 and 2005) as well as provisions 
pertaining to specialized plans for special needs beneficiaries 
and the extension of Medicare cost-contracts. Title III--
combating Waste, Fraud, and Abuse. Improves payments for 
oncology providers to administer cancer drugs and also directs 
the Centers for Medicare and Medicaid Services to pay for drug 
administration services, chemotherapy support services, therapy 
management services and related services. Reimburses for the 
cost of oncology drugs by not involving a new bureaucracy and 
middle-man and paying 105 percent of the average sales price of 
medicines. Protects beneficiaries from undue consequences of 
competitive bidding for durable medical equipment (DME) by 
delaying the start of DME competitive bidding for durable 
medical equipment (DME) by delaying the start of DME 
competitive bidding until 2009 and phasing it in over three 
years. Title IV--Rural Health Care Improvements. Includes all 
of the provisions for the Ways & Means reported bill pertaining 
to rural providers. In addition, it: eliminates the 10 percent 
cap on disproportionate share hospital payments to rural 
hospitals; adds a provision providing up to 25 percent increase 
in low-volume adjustment for small hospitals; increases rural 
home health payments by 10 percent (rather than 5 percent) 
allow slab payments on reasonable costs for sole community 
hospitals; increases the floors for physician work in rural 
areas to 1.0; eliminates the 35-mile rule for critical access 
hospital ambulance services; increase the ground ambulance 
payment rate; and increases the increases the critical access 
hospital bed limit to 25. Title V--Provisions Relating to 
Medicare Part A. Includes all the provisions from Ways & Means 
reported bill pertaining to Part A (hospitals) except it 
eliminates the 3-year cut in hospital inpatient reimbursement 
and adds a boost for indirect medical education (IME) to 6.5 
percent for two years. It also replaces the MedPac study on 
specialty hospitals with the Senate provision that limits 
physician self-referral to these facilities. Title VI--
Provisions Relating to Medicare Part B. Includes all of the 
provisions from the Ways & Means and Energy & Commerce reported 
bills except it does not increase the deductible that seniors 
must pay in order to receive Part B (primarily physicians) 
services. Title VII--Provisions relating to Medicare Parts A 
and B. Includes all of the provisions from the Ways & Means and 
Energy & Commerce reported bills except it does not include a 
co-payment for home health care and does not continue the cap 
on payments for direct graduate medical education for 
facilities above 140 percent. Title VIII--Medicaid. Includes 
Whitfield-DeGette Medicaid DSH legislation that includes full 
restoration of funding for DSH and improvements of low-DSH 
states. Title IX--Regulatory Reduction and Contracting Reform. 
Includes the Energy & Commerce reported provision on Medicare 
contractor and regulatory reform. Title X--Importation of 
Prescription Drugs. Incorporates reimportation amendments 
adopted on the Senate Floor on June 19, 2003, which will allow 
access to low-cost Canadian drugs if the Secretary of the 
department of Health and Human Services certifies that they are 
safe. Title XI--Access to affordable Pharmaceuticals. 
Incorporates text of S. 1225 as adopted by the Senate, which 
will make lower cost generic drugs available more quickly.

                    TEXT OF AMENDMENT MADE IN ORDER

  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE; AMENDMENTS TO SOCIAL SECURITY ACT; REFERENCES 
                    TO BIPA AND SECRETARY; TABLE OF CONTENTS.

  (a) Short Title.--This Act may be cited as the ``Medicare 
Prescription Drug and Modernization Act of 2003''.
  (b) Amendments to Social Security Act.--Except as otherwise 
specifically provided, whenever in this Act an amendment is 
expressed in terms of an amendment to or repeal of a section or 
other provision, the reference shall be considered to be made 
to that section or other provision of the Social Security Act.
  (c) BIPA; Secretary.--In this Act:
          (1) BIPA.--The term ``BIPA'' means the Medicare, 
        Medicaid, and SCHIP Benefits Improvement and Protection 
        Act of 2000, as enacted into law by section 1(a)(6) of 
        Public Law 106-554.
          (2) Secretary.--The term ``Secretary'' means the 
        Secretary of Health and Human Services.
  (d) Table of Contents.--The table of contents 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 MEDICINE BENEFIT

Sec. 101. Voluntary medicare outpatient prescription medicine program.

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

``Sec. 1859. Medicare outpatient prescription medicine benefit.
``Sec. 1859A. Negotiating fair prices with pharmaceutical manufacturers.
``Sec. 1859B. Contract authority.
``Sec. 1859C. Eligibility; voluntary enrollment; coverage.
``Sec. 1859D. Provision of, and entitlement to, benefits.
``Sec. 1859E. Administration; quality assurance.
``Sec. 1859F. Federal Medicare Prescription Medicine Trust Fund.
``Sec. 1859G. Compensation for employers covering retiree medicine 
          costs.
``Sec. 1859H. Medicare Prescription Medicine Advisory Committee.
Sec. 102. Provision of medicare outpatient prescription medicine 
          coverage under the Medicare+Choice program.
Sec. 103. Medigap revisions.
Sec. 104. Transitional assistance for low income beneficiaries.
Sec. 105. Expansion of membership and duties of Medicare Payment 
          Advisory Commission (MedPAC).
Sec. 106. State Pharmaceutical Assistance Transition Commission.

                        TITLE II--MEDICARE+CHOICE

Sec. 201. Medicare+choice improvements.
Sec. 202. Making permanent change in Medicare+Choice reporting deadlines 
          and annual, coordinated election period.
Sec. 203. Specialized Medicare+Choice plans for special needs 
          beneficiaries.
Sec. 204. Medicare MSAs.
Sec. 205. Extension of reasonable cost contracts.
Sec. 206. Extension of municipal health service demonstration projects.

              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. Reform of payment for drugs and biologicals under the medicare 
          program.
Sec. 304. Demonstration project for use of recovery audit contractors.

                TITLE IV--RURAL HEALTH CARE IMPROVEMENTS

Sec. 401. Fairness in the medicare disproportionate share hospital (DSH) 
          adjustment for rural hospitals.
Sec. 402. Immediate establishment of uniform standardized amount in 
          rural and small urban areas.
Sec. 403. Establishment of essential rural hospital classification.
Sec. 404. More frequent update in weights used in hospital market 
          basket.
Sec. 405. Improvements to critical access hospital program.
Sec. 406. Redistribution of unused resident positions.
Sec. 407. Two-year extension of hold harmless provisions for small rural 
          hospitals and sole community hospitals under prospective 
          payment system for hospital outpatient department services.
Sec. 408. Exclusion of certain rural health clinic and federally 
          qualified health center services from the prospective payment 
          system for skilled nursing facilities.
Sec. 409. Recognition of attending nurse practitioners as attending 
          physicians to serve hospice patients.
Sec. 410. Improvement in payments to retain emergency capacity for 
          ambulance services in rural areas.
Sec. 411. Two-year increase for home health services furnished in a 
          rural area.
Sec. 412. Providing safe harbor for certain collaborative efforts that 
          benefit medically underserved populations.
Sec. 413. GAO study of geographic differences in payments for 
          physicians' services.
Sec. 414. Treatment of missing cost reporting periods for sole community 
          hospitals.
Sec. 415. Extension of telemedicine demonstration project.
Sec. 416. Adjustment to the medicare inpatient hospital PPS wage index 
          to revise the labor-related share of such index.
Sec. 417. Medicare incentive payment program improvements for physician 
          scarcity.
Sec. 418. Medicare inpatient hospital payment adjustment for low-volume 
          hospitals.
Sec. 419. Treatment of certain clinical diagnostic laboratory tests 
          furnished by a sole community hospital.
Sec. 420. Establishment of floor on geographic adjustments of payments 
          for physicians' services.
Sec. 421. Ambulance payment rates.

                 TITLE V--PROVISIONS RELATING TO PART A

                 Subtitle A--Inpatient Hospital Services

Sec. 501. Adjustment for indirect costs of medical education (IME).
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. Clarifications to certain exceptions to medicare limits on 
          physician referrals.

                      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.
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. Extension of coverage of intravenous immune globulin (IVIG) 
          for the treatment of primary immune deficiency diseases in the 
          home.
Sec. 629. Medicare coverage of diabetes laboratory diagnostic tests.

             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.
Sec. 703. Demonstration project to clarify the definition of homebound.

                  Subtitle B--Chronic Care Improvement

Sec. 721. Voluntary chronic care improvement under traditional fee-for-
          service.
Sec. 722. Chronic care improvement under Medicare+Choice plans.
Sec. 723. Institute of Medicine report.
Sec. 724. MedPAC report.

                      Subtitle C--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.

                          TITLE VIII--MEDICAID

Sec. 801. Continuation of medicaid DSH allotment adjustments under BIPA 
          2000.
Sec. 802. Increase in floor for treatment as an extremely low DSH State 
          to 3 percent in fiscal year 2003.
Sec. 803. Clarification of inclusion of inpatient drug prices charged to 
          certain public hospitals in the best price exemptions for the 
          medicaid drug rebate program.

          TITLE IX--REGULATORY REDUCTION AND CONTRACTING REFORM

                      Subtitle A--Regulatory Reform

Sec. 901. Construction; definition of supplier.
Sec. 902. Issuance of regulations.
Sec. 903. Compliance with changes in regulations and policies.
Sec. 904. Reports and studies relating to regulatory reform.

                     Subtitle B--Contracting Reform

Sec. 911. Increased flexibility in medicare administration.
Sec. 912. Requirements for information security for medicare 
          administrative contractors.

                   Subtitle C--Education and Outreach

Sec. 921. Provider education and technical assistance.
Sec. 922. Small provider technical assistance demonstration program.
Sec. 923. Medicare provider ombudsman; medicare beneficiary ombudsman.
Sec. 924. Beneficiary outreach demonstration program.
Sec. 925. Inclusion of additional information in notices to 
          beneficiaries about skilled nursing facility benefits.
Sec. 926. Information on medicare-certified skilled nursing facilities 
          in hospital discharge plans.

                    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--IMPORTATION OF PRESCRIPTION DRUGS

Sec. 1001. Importation of prescription drugs.

             TITLE XI--ACCESS TO AFFORDABLE PHARMACEUTICALS

Sec. 1101. Short title.
Sec. 1102. 30-month stay-of-effectiveness period.
Sec. 1103. Forfeiture of 180-day exclusivity period.
Sec. 1104. Bioavailability and bioequivalence.
Sec. 1105. Remedies for infringement.
Sec. 1106. Conforming amendments.

            TITLE I--MEDICARE PRESCRIPTION MEDICINE BENEFIT

SEC. 101. VOLUNTARY MEDICARE OUTPATIENT PRESCRIPTION MEDICINE PROGRAM.

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

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

          ``MEDICARE OUTPATIENT PRESCRIPTION MEDICINE BENEFIT

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

      ``NEGOTIATING FAIR PRICES WITH PHARMACEUTICAL MANUFACTURERS

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

                          ``CONTRACT AUTHORITY

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

             ``ELIGIBILITY; VOLUNTARY ENROLLMENT; COVERAGE

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

              ``PROVISION OF, AND ENTITLEMENT TO, BENEFITS

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

                  ``ADMINISTRATION; QUALITY ASSURANCE

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

          ``FEDERAL MEDICARE PRESCRIPTION MEDICINE TRUST FUND

  ``Sec. 1859F. (a) Establishment.--There is hereby created on 
the books of the Treasury of the United States a trust fund to 
be known as the `Federal Medicare Prescription Medicine Trust 
Fund' (in this section referred to as the `Trust Fund'). The 
Trust Fund shall consist of such gifts and bequests as may be 
made as provided in section 201(i)(1), and such amounts as may 
be deposited in, or appropriated to, such fund as provided in 
this part.
  ``(b) Application of SMI Trust Fund Provisions.--The 
provisions of subsections (b) through (i) of section 1841 shall 
apply to this part and the Trust Fund in the same manner as 
they apply to part B and the Federal Supplementary Medical 
Insurance Trust Fund, respectively.

      ``COMPENSATION FOR EMPLOYERS COVERING RETIREE MEDICINE COSTS

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

          ``MEDICARE PRESCRIPTION MEDICINE ADVISORY COMMITTEE

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

SEC. 102. PROVISION OF MEDICARE OUTPATIENT PRESCRIPTION MEDICINE 
                    COVERAGE UNDER THE MEDICARE+CHOICE PROGRAM.

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

SEC. 103. MEDIGAP REVISIONS.

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

SEC. 104. TRANSITIONAL ASSISTANCE FOR LOW INCOME BENEFICIARIES.

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

SEC. 105. EXPANSION OF MEMBERSHIP AND DUTIES OF MEDICARE PAYMENT 
                    ADVISORY COMMISSION (MEDPAC).

  (a) Expansion of Membership.--
          (1) In general.--Section 1805(c) (42 U.S.C. 1395b-
        6(c)) is amended--
                  (A) in paragraph (1), by striking ``17'' and 
                inserting ``19''; and
                  (B) in paragraph (2)(B), by inserting 
                ``experts in the area of pharmacology and 
                prescription medicine benefit programs,'' after 
                ``other health professionals,''.
          (2) Initial terms of additional members.--
                  (A) In general.--For purposes of staggering 
                the initial terms of members of the Medicare 
                Payment Advisory Commission under section 
                1805(c)(3) of the Social Security Act (42 
                U.S.C. 1395b-6(c)(3)), the initial terms of the 
                2 additional members of the Commission provided 
                for by the amendment under paragraph (1)(A) are 
                as follows:
                          (i) One member shall be appointed for 
                        1 year.
                          (ii) One member shall be appointed 
                        for 2 years.
                  (B) Commencement of terms.--Such terms shall 
                begin on January 1, 2004.
  (b) Expansion of Duties.--Section 1805(b)(2) (42 U.S.C. 
1395b-6(b)(2)) is amended by adding at the end the following 
new subparagraph:
                  ``(D) Prescription medicine benefit 
                program.--Specifically, the Commission shall 
                review, with respect to the prescription 
                medicine benefit program under part D, the 
                following:
                          ``(i) The methodologies used for the 
                        management of costs and utilization of 
                        prescription medicines.
                          ``(ii) The prices negotiated and 
                        paid, including trends in such prices 
                        and applicable discounts and 
                        comparisons with prices under section 
                        1859E(a)(2)(E).
                          ``(iii) The relationship of pharmacy 
                        acquisition costs to the prices so 
                        negotiated and paid.
                          ``(iv) The methodologies used to 
                        ensure access to covered outpatient 
                        prescription medicines and to ensure 
                        quality in the appropriate dispensing 
                        and utilization of such medicines.
                          ``(v) The impact of the program on 
                        promoting the development of 
                        breakthrough medicines.''.

SEC. 106. STATE PHARMACEUTICAL ASSISTANCE TRANSITION COMMISSION.

  (a) Establishment.--
          (1) In general.--There is established, as of the 
        first day of the third month beginning after the date 
        of the enactment of this Act, a State Pharmaceutical 
        Assistance Transition Commission (in this section 
        referred to as the ``Commission'') to develop a 
        proposal for addressing the unique transitional issues 
        facing State pharmaceutical assistance programs, and 
        program participants, due to the implementation of the 
        medicare prescription drug program under part D of 
        title XVIII of the Social Security Act.
          (2) Definitions.--For purposes of this section:
                  (A) State pharmaceutical assistance program 
                defined.--The term ``State pharmaceutical 
                assistance program'' means a program (other 
                than the medicaid program) operated by a State 
                (or under contract with a State) that provides 
                as of the date of the enactment of this Act 
                assistance to low-income medicare beneficiaries 
                for the purchase of prescription drugs.
                  (B) Program participant.--The term ``program 
                participant'' means a low-income medicare 
                beneficiary who is a participant in a State 
                pharmaceutical assistance program.
  (b) Composition.--The Commission shall include the following:
          (1) A representative of each governor of each State 
        that the Secretary identifies as operating on a 
        statewide basis a State pharmaceutical assistance 
        program that provides for eligibility and benefits that 
        are comparable or more generous than the low-income 
        assistance eligibility and benefits offered under part 
        D of title XVIII of the Social Security Act.
          (2) Representatives from other States that the 
        Secretary identifies have in operation other State 
        pharmaceutical assistance programs, as appointed by the 
        Secretary.
          (3) Representatives of organizations that have an 
        inherent interest in program participants or the 
        program itself, as appointed by the Secretary but not 
        to exceed the number of representatives under 
        paragraphs (1) and (2).
          (4) Representatives of Medicare+Choice organizations 
        and other private health insurance plans, as appointed 
        by the Secretary.
          (5) The Secretary (or the Secretary's designee) and 
        such other members as the Secretary may specify
The Secretary shall designate a member to serve as chair of the 
Commission and the Commission shall meet at the call of the 
chair.
  (c) Development of Proposal.--The Commission shall develop 
the proposal described in subsection (a) in a manner consistent 
with the following principles:
          (1) Protection of the interests of program 
        participants in a manner that is the least disruptive 
        to such participants and that includes a single point 
        of contact for enrollment and processing of benefits.
          (2) Protection of the financial and flexibility 
        interests of States so that States are not financially 
        worse off as a result of the enactment of this title.
          (3) Principles of medicare modernization provided 
        under title II of this Act.
  (d) Report.--By not later than January 1, 2005, the 
Commission shall submit to the President and the Congress a 
report that contains a detailed proposal (including specific 
legislative or administrative recommendations, if any) and such 
other recommendations as the Commission deems appropriate.
  (e) Support.--The Secretary shall provide the Commission with 
the administrative support services necessary for the 
Commission to carry out its responsibilities under this 
section.
  (f) Termination.--The Commission shall terminate 30 days 
after the date of submission of the report under subsection 
(d).

                       TITLE II--MEDICARE+CHOICE

SEC. 201. MEDICARE+CHOICE IMPROVEMENTS.

  (a) Equalizing Payments With Fee-For-Service.--
          (1) In general.--Section 1853(c)(1) (42 U.S.C. 1395w-
        23(c)(1)) is amended by adding at the end the 
        following:
                  ``(D) Based on 100 percent of fee-for-service 
                costs.--
                          ``(i) In general.--For 2004, the 
                        adjusted average per capita cost for 
                        the year involved, determined under 
                        section 1876(a)(4) for the 
                        Medicare+Choice payment area for 
                        services covered under parts A and B 
                        for individuals entitled to benefits 
                        under part A and enrolled under part B 
                        who are not enrolled in a 
                        Medicare+Choice under this part for the 
                        year, but adjusted to exclude costs 
                        attributable to payments under section 
                        1886(h).
                          ``(ii) Inclusion of costs of va and 
                        dod military facility services to 
                        medicare-eligible beneficiaries.--In 
                        determining the adjusted average per 
                        capita cost under clause (i) for a 
                        year, such cost shall be adjusted to 
                        include the Secretary's estimate, on a 
                        per capita basis, of the amount of 
                        additional payments that would have 
                        been made in the area involved under 
                        this title if individuals entitled to 
                        benefits under this title had not 
                        received services from facilities of 
                        the Department of Veterans Affairs or 
                        the Department of Defense.''.
          (2) Conforming amendment.--Such section is further 
        amended, in the matter before subparagraph (A), by 
        striking ``or (C)'' and inserting ``(C), or (D)''.
  (b) Revision of Blend.--
          (1) Revision of national average used in calculation 
        of blend.--Section 1853(c)(4)(B)(i)(II) (42 U.S.C. 
        1395w-23(c)(4)(B)(i)(II)) is amended by inserting ``who 
        (with respect to determinations for 2004) are enrolled 
        in a Medicare+Choice plan'' after ``the average number 
        of medicare beneficiaries''.
          (2) Change in budget neutrality.--Section 1853(c) (42 
        U.S.C. 1395w-23(c)) is amended--
                  (A) in paragraph (1)(A), by inserting ``(for 
                a year before 2004)'' after ``multiplied''; and
                  (B) in paragraph (5), by inserting ``(before 
                2004)'' after ``for each year''.
  (c) Increasing Minimum Percentage Increase to National Growth 
Rate.--
          (1) In general.--Section 1853(c)(1) (42 U.S.C. 1395w-
        23(c)(1)) is amended--
                  (A) in subparagraph (B)(iv), by striking 
                ``and each succeeding year'' and inserting ``, 
                2003, and 2004'';
                  (B) in subparagraph (C)(iv), by striking 
                ``and each succeeding year'' and inserting 
                ``and 2003''; and
                  (C) by adding at the end of subparagraph (C) 
                the following new clause:
                          ``(v) For 2004 and each succeeding 
                        year, the greater of--
                                  ``(I) 102 percent of the 
                                annual Medicare+Choice 
                                capitation rate under this 
                                paragraph for the area for the 
                                previous year; or
                                  ``(II) the annual 
                                Medicare+Choice capitation rate 
                                under this paragraph for the 
                                area for the previous year 
                                increased by the national per 
                                capita Medicare+Choice growth 
                                percentage, described in 
                                paragraph (6) for that 
                                succeeding year, but not taking 
                                into account any adjustment 
                                under paragraph (6)(C) for a 
                                year before 2004.''.
          (2) Conforming amendment.--Section 1853(c)(6)(C) (42 
        U.S.C. 1395w-23(c)(6)(C)) is amended by inserting 
        before the period at the end the following: ``, except 
        that for purposes of paragraph (1)(C)(v)(II), no such 
        adjustment shall be made for a year before 2004''.
  (d) Inclusion of Costs of DOD and VA Military Facility 
Services to Medicare-Eligible Beneficiaries in Calculation of 
Medicare+Choice Payment Rates.--Section 1853(c)(3) (42 U.S.C. 
1395w-23(c)(3)) is amended--
          (1) in subparagraph (A), by striking ``subparagraph 
        (B)'' and inserting ``subparagraphs (B) and (E)'', and
          (2) by adding at the end the following new 
        subparagraph:
                  ``(E) Inclusion of costs of dod and va 
                military facility services to medicare-eligible 
                beneficiaries.--In determining the area-
                specific Medicare+Choice capitation rate under 
                subparagraph (A) for a year (beginning with 
                2004), the annual per capita rate of payment 
                for 1997 determined under section 1876(a)(1)(C) 
                shall be adjusted to include in the rate the 
                Secretary's estimate, on a per capita basis, of 
                the amount of additional payments that would 
                have been made in the area involved under this 
                title if individuals entitled to benefits under 
                this title had not received services from 
                facilities of the Department of Defense or the 
                Department of Veterans Affairs.''.
  (e) Extending Special Rule for Certain Inpatient Hospital 
Stays to Rehabilitation Hospitals.--
          (1) In general.--Section 1853(g) (42 U.S.C. 1395w-
        23(g)) is amended--
                  (A) by inserting ``or from a rehabilitation 
                facility (as defined in section 
                1886(j)(1)(A))'' after ``1886(d)(1)(B))''; and
                  (B) in paragraph (2)(B), by inserting ``or 
                section 1886(j), as the case may be,'' after 
                ``1886(d)''.
          (2) Effective date.--The amendments made by paragraph 
        (1) shall apply to contract years beginning on or after 
        January 1, 2004.
  (f) MedPAC Study of AAPCC.--
          (1) Study.--The Medicare Payment Advisory Commission 
        shall conduct a study that assesses the method used for 
        determining the adjusted average per capita cost 
        (AAPCC) under section 1876(a)(4) of the Social Security 
        Act (42 U.S.C. 1395mm(a)(4)) as applied under section 
        1853(c)(1)(A) of such Act (as amended by subsection 
        (a)). Such study shall include an examination of--
                  (A) the bases for variation in such costs 
                between different areas, including differences 
                in input prices, utilization, and practice 
                patterns;
                  (B) the appropriate geographic area for 
                payment under the Medicare+Choice program under 
                part C of title XVIII of such Act; and
                  (C) the accuracy of risk adjustment methods 
                in reflecting differences in costs of providing 
                care to different groups of beneficiaries 
                served under such program.
          (2) Report.--Not later than 18 months after the date 
        of the enactment of this Act, the Commission shall 
        submit to Congress a report on the study conducted 
        under paragraph (1).
  (g) Report on Impact of Increased Financial Assistance to 
Medicare+Choice Plans.--Not later than July 1, 2006, the 
Medicare Benefits Administrator shall submit to Congress a 
report that describes the impact of additional financing 
provided under this Act and other Acts (including the Medicare, 
Medicaid, and SCHIP Balanced Budget Refinement Act of 1999 and 
BIPA) on the availability of Medicare+Choice plans in different 
areas and its impact on lowering premiums and increasing 
benefits under such plans.
  (h) Limitation on Application to 2004 and 2005.--
Notwithstanding any other provision of law, the amendments made 
by this section shall only apply to payment rates for 2004 and 
2005 and for subsequent years the payment shall be made on the 
basis of law as in effect before the date of the enactment of 
this Act.

SEC. 202. MAKING PERMANENT CHANGE IN MEDICARE+CHOICE REPORTING 
                    DEADLINES AND ANNUAL, COORDINATED ELECTION PERIOD.

  (a) Change in Reporting Deadline.--Section 1854(a)(1) (42 
U.S.C. 1395w-24(a)(1)), as amended by section 532(b)(1) of the 
Public Health Security and Bioterrorism Preparedness and 
Response Act of 2002, is amended by striking ``2002, 2003, and 
2004 (or July 1 of each other year)'' and inserting ``2002 and 
each subsequent year''.
  (b) Delay in Annual, Coordinated Election Period.--Section 
1851(e)(3)(B) (42 U.S.C. 1395w-21(e)(3)(B)), as amended by 
section 532(c)(1)(A) of the Public Health Security and 
Bioterrorism Preparedness and Response Act of 2002, is 
amended--
          (1) by striking ``and after 2005''; and
          (2) by striking ``, 2004, and 2005'' and inserting 
        ``and any subsequent year''.
  (c) Annual Announcement of Payment Rates.--Section 1853(b)(1) 
(42 U.S.C. 1395w-23(b)(1)), as amended by section 532(d)(1) of 
the Public Health Security and Bioterrorism Preparedness and 
Response Act of 2002, is amended--
          (1) by striking ``and after 2005''; and
          (2) by striking ``and 2005'' and inserting ``and each 
        subsequent year''.

SEC. 203. SPECIALIZED MEDICARE+CHOICE PLANS FOR SPECIAL NEEDS 
                    BENEFICIARIES.

  (a) Treatment as Coordinated Care Plan.--Section 
1851(a)(2)(A) (42 U.S.C. 1395w-21(a)(2)(A)) is amended by 
adding at the end the following new sentence: ``Specialized 
Medicare+Choice plans for special needs beneficiaries (as 
defined in section 1859(b)(4)) may be any type of coordinated 
care plan.''.
  (b) Specialized Medicare+Choice Plan for Special Needs 
Beneficiaries Defined.--Section 1859(b) (42 U.S.C. 1395w-29(b)) 
is amended by adding at the end the following new paragraph:
          ``(4) Specialized medicare+choice plans for special 
        needs beneficiaries.--
                  ``(A) In general.--The term `specialized 
                Medicare+Choice plan for special needs 
                beneficiaries' means a Medicare+Choice plan 
                that exclusively serves special needs 
                beneficiaries (as defined in subparagraph (B)).
                  ``(B) Special needs beneficiary.--The term 
                `special needs beneficiary' means a 
                Medicare+Choice eligible individual who--
                          ``(i) is institutionalized (as 
                        defined by the Secretary);
                          ``(ii) is entitled to medical 
                        assistance under a State plan under 
                        title XIX; or
                          ``(iii) meets such requirements as 
                        the Secretary may determine would 
                        benefit from enrollment in such a 
                        specialized Medicare+Choice plan 
                        described in subparagraph (A) for 
                        individuals with severe or disabling 
                        chronic conditions.''.
  (c) Restriction on Enrollment Permitted.--Section 1859 (42 
U.S.C. 1395w-29) is amended by adding at the end the following 
new subsection:
  ``(f) Restriction on Enrollment for Specialized 
Medicare+Choice Plans for Special Needs Beneficiaries.--In the 
case of a specialized Medicare+Choice plan (as defined in 
subsection (b)(4)), notwithstanding any other provision of this 
part and in accordance with regulations of the Secretary and 
for periods before January 1, 2007, the plan may restrict the 
enrollment of individuals under the plan to individuals who are 
within one or more classes of special needs beneficiaries.''.
  (d) Report to Congress.--Not later than December 31, 2005, 
the Medicare Benefits Administrator shall submit to Congress a 
report that assesses the impact of specialized Medicare+Choice 
plans for special needs beneficiaries on the cost and quality 
of services provided to enrollees. Such report shall include an 
assessment of the costs and savings to the medicare program as 
a result of amendments made by subsections (a), (b), and (c).
  (e) Effective Dates.--
          (1) In general.--The amendments made by subsections 
        (a), (b), and (c) shall take effect upon the date of 
        the enactment of this Act.
          (2) Deadline for issuance of requirements for special 
        needs beneficiaries; transition.--No later than 6 
        months after the date of the enactment of this Act, the 
        Secretary of Health and Human Services shall issue 
        final regulations to establish requirements for special 
        needs beneficiaries under section 1859(b)(4)(B)(iii) of 
        the Social Security Act, as added by subsection (b).

SEC. 204. MEDICARE MSAS.

  Section 1852(k)(1) (42 U.S.C. 1395w-22(k)(1)) is amended by 
inserting ``or with an organization offering a MSA plan'' after 
``section 1851(a)(2)(A)''.

SEC. 205. EXTENSION OF REASONABLE COST CONTRACTS.

  Subparagraph (C) of section 1876(h)(5) (42 U.S.C. 
1395mm(h)(5)) is amended to read as follows:
  ``(C)(i) Subject to clause (ii), may be extended or renewed 
under this subsection indefinitely.
  ``(ii) For any period beginning on or after January 1, 2008, 
a reasonable cost reimbursement contract under this subsection 
may not be extended or renewed for a service area insofar as 
such area, during the entire previous year, was within the 
service area of 2 or more plans which were coordinated care 
Medicare+Choice plans under part C or 2 or more enhanced fee-
for-service plans under part E and each of which plan for that 
previous year for the area involved meets the following minimum 
enrollment requirements:
          ``(I) With respect to any portion of the area 
        involved that is within a Metropolitan Statistical Area 
        with a population of more than 250,000 and counties 
        contiguous to such Metropolitan Statistical Area, 5,000 
        individuals.
          ``(II) With respect to any other portion of such 
        area, 1,500 individuals.''.

SEC. 206. EXTENSION OF MUNICIPAL HEALTH SERVICE DEMONSTRATION PROJECTS.

  The last sentence of section 9215(a) of the Consolidated 
Omnibus Budget Reconciliation Act of 1985 (42 U.S.C. 1395b-1 
note), as previously amended, is amended by striking ``December 
31, 2004, but only with respect to'' and all that follows and 
inserting ``December 31, 2009, but only with respect to 
individuals who reside in the city in which the project is 
operated and so long as the total number of individuals 
participating in the project does not exceed the number of such 
individuals participating as of January 1, 1996.''.

             TITLE III--COMBATTING WASTE, FRAUD, AND ABUSE

SEC. 301. MEDICARE SECONDARY PAYOR (MSP) PROVISIONS.

  (a) Technical Amendment Concerning Secretary's Authority to 
Make Conditional Payment When Certain Primary Plans Do Not Pay 
Promptly.--
          (1) In general.--Section 1862(b)(2) (42 U.S.C. 
        1395y(b)(2)) is amended--
                  (A) in subparagraph (A)(ii), by striking 
                ``promptly (as determined in accordance with 
                regulations)'';
                  (B) in subparagraph (B)--
                          (i) by redesignating clauses (i) 
                        through (iii) as clauses (ii) through 
                        (iv), respectively; and
                          (ii) by inserting before clause (ii), 
                        as so redesignated, the following new 
                        clause:
                          ``(i) Authority to make conditional 
                        payment.--The Secretary may make 
                        payment under this title with respect 
                        to an item or service if a primary plan 
                        described in subparagraph (A)(ii) has 
                        not made or cannot reasonably be 
                        expected to make payment with respect 
                        to such item or service promptly (as 
                        determined in accordance with 
                        regulations). Any such payment by the 
                        Secretary shall be conditioned on 
                        reimbursement to the appropriate Trust 
                        Fund in accordance with the succeeding 
                        provisions of this subsection.''.
          (2) Effective date.--The amendments made by paragraph 
        (1) shall be effective as if included in the enactment 
        of title III of the Medicare and Medicaid Budget 
        Reconciliation Amendments of 1984 (Public Law 98-369).
  (b) Clarifying Amendments to Conditional Payment 
Provisions.--Section 1862(b)(2) (42 U.S.C. 1395y(b)(2)) is 
further amended--
          (1) in subparagraph (A), in the matter following 
        clause (ii), by inserting the following sentence at the 
        end: ``An entity that engages in a business, trade, or 
        profession shall be deemed to have a self-insured plan 
        if it carries its own risk (whether by a failure to 
        obtain insurance, or otherwise) in whole or in part.'';
          (2) in subparagraph (B)(ii), as redesignated by 
        subsection (a)(2)(B)--
                  (A) by striking the first sentence and 
                inserting the following: ``A primary plan, and 
                an entity that receives payment from a primary 
                plan, shall reimburse the appropriate Trust 
                Fund for any payment made by the Secretary 
                under this title with respect to an item or 
                service if it is demonstrated that such primary 
                plan has or had a responsibility to make 
                payment with respect to such item or service. A 
                primary plan's responsibility for such payment 
                may be demonstrated by a judgment, a payment 
                conditioned upon the recipient's compromise, 
                waiver, or release (whether or not there is a 
                determination or admission of liability) of 
                payment for items or services included in a 
                claim against the primary plan or the primary 
                plan's insured, or by other means.''; and
                  (B) in the final sentence, by striking ``on 
                the date such notice or other information is 
                received'' and inserting ``on the date notice 
                of, or information related to, a primary plan's 
                responsibility for such payment or other 
                information is received''; and
          (3) in subparagraph (B)(iii), , as redesignated by 
        subsection (a)(2)(B), by striking the first sentence 
        and inserting the following: ``In order to recover 
        payment made under this title for an item or service, 
        the United States may bring an action against any or 
        all entities that are or were required or responsible 
        (directly, as an insurer or self-insurer, as a third-
        party administrator, as an employer that sponsors or 
        contributes to a group health plan, or large group 
        health plan, or otherwise) to make payment with respect 
        to the same item or service (or any portion thereof) 
        under a primary plan. The United States may, in 
        accordance with paragraph (3)(A) collect double damages 
        against any such entity. In addition, the United States 
        may recover under this clause from any entity that has 
        received payment from a primary plan or from the 
        proceeds of a primary plan's payment to any entity.''.
  (c) Clerical Amendments.--Section 1862(b) (42 U.S.C. 
1395y(b)) is amended--
          (1) in paragraph (1)(A), by moving the indentation of 
        clauses (ii) through (v) 2 ems to the left; and
          (2) in paragraph (3)(A), by striking ``such'' before 
        ``paragraphs''.

SEC. 302. COMPETITIVE ACQUISITION OF CERTAIN ITEMS AND SERVICES.

  (a) In General.--Section 1847 (42 U.S.C. 1395w-3) is amended 
to read as follows:

        ``COMPETITIVE ACQUISITION OF CERTAIN ITEMS AND SERVICES

  ``Sec. 1847. (a) Establishment of Competitive Acquisition 
Programs.--
          ``(1) Implementation of programs.--
                  ``(A) In general.--The Secretary shall 
                establish and implement programs under which 
                competitive acquisition areas are established 
                throughout the United States for contract award 
                purposes for the furnishing under this part of 
                competitively priced items and services 
                (described in paragraph (2)) for which payment 
                is made under this part. Such areas may differ 
                for different items and services.
                  ``(B) Phased-in implementation.--The programs 
                shall be phased-in--
                          ``(i) among competitive acquisition 
                        areas over a period of not longer than 
                        3 years in a manner so that the 
                        competition under the programs occurs 
                        in--
                                  ``(I) at least \1/3\ of such 
                                areas in 2009; and
                                  ``(II) at least \2/3\ of such 
                                areas in 2010; and
                          ``(ii) among items and services in a 
                        manner such that the programs apply to 
                        the highest cost and highest volume 
                        items and services first.
                  ``(C) Waiver of certain provisions.--In 
                carrying out the programs, the Secretary may 
                waive such provisions of the Federal 
                Acquisition Regulation as are necessary for the 
                efficient implementation of this section, other 
                than provisions relating to confidentiality of 
                information and such other provisions as the 
                Secretary determines appropriate.
          ``(2) Items and services described.--The items and 
        services referred to in paragraph (1) are the 
        following:
                  ``(A) Durable medical equipment and medical 
                supplies.--Covered items (as defined in section 
                1834(a)(13)) for which payment is otherwise 
                made under section 1834(a), including items 
                used in infusion and drugs and supplies used in 
                conjunction with durable medical equipment, but 
                excluding class III devices under the Federal 
                Food, Drug, and Cosmetic Act.
                  ``(B) Other equipment and supplies.--Items, 
                equipment, and supplies (as described in 
                section 1842(s)(2)(D) other than enteral 
                nutrients).
                  ``(C) Off-the-shelf orthotics.--Orthotics 
                (described in section 1861(s)(9)) for which 
                payment is otherwise made under section 1834(h) 
                which require minimal self-adjustment for 
                appropriate use and does not require expertise 
                in trimming, bending, molding, assembling, or 
                customizing to fit to the patient.
          ``(3) Exception authority.--In carrying out the 
        programs under this section, the Secretary may exempt--
                  ``(A) rural areas and areas with low 
                population density within urban areas that are 
                not competitive, unless there is a significant 
                national market through mail order for a 
                particular item or service; and
                  ``(B) items and services for which the 
                application of competitive acquisition is not 
                likely to result in significant savings.
          ``(4) Special rule for certain rented items of 
        durable medical equipment.--In the case of a covered 
        item for which payment is made on a rental basis under 
        section 1834(a), the Secretary shall establish a 
        process by which rental agreements for the covered 
        items entered into before the application of the 
        competitive acquisition program under this section for 
        the item may be continued notwithstanding this section. 
        In the case of any such continuation, the supplier 
        involved shall provide for appropriate servicing and 
        replacement, as required under section 1834(a).
          ``(5) Physician authorization.--The Secretary may 
        establish a process under which a physician may 
        prescribe a particular brand or mode of delivery of an 
        item or service if the item or service involved is 
        clinically more appropriate than other similar items or 
        services.
          ``(6) Application.--For each competitive acquisition 
        area in which the program is implemented under this 
        subsection with respect to items and services, the 
        payment basis determined under the competition 
        conducted under subsection (b) shall be substituted for 
        the payment basis otherwise applied under section 
        1834(a).
  ``(b) Program Requirements.--
          ``(1) In general.--The Secretary shall conduct a 
        competition among entities supplying items and services 
        described in subsection (a)(2) for each competitive 
        acquisition area in which the program is implemented 
        under subsection (a) with respect to such items and 
        services.
          ``(2) Conditions for awarding contract.--
                  ``(A) In general.--The Secretary may not 
                award a contract to any entity under the 
                competition conducted in an competitive 
                acquisition area pursuant to paragraph (1) to 
                furnish such items or services unless the 
                Secretary finds all of the following:
                          ``(i) The entity meets quality and 
                        financial standards specified by the 
                        Secretary or developed by the Program 
                        Advisory and Oversight Committee 
                        established under subsection (c).
                          ``(ii) The total amounts to be paid 
                        under the contract (including costs 
                        associated with the administration of 
                        the contract) are expected to be less 
                        than the total amounts that would 
                        otherwise be paid.
                          ``(iii) Beneficiary access to a 
                        choice of multiple suppliers in the 
                        area is maintained.
                          ``(iv) Beneficiary liability is 
                        limited to 20 percent of the applicable 
                        contract award price, except in such 
                        cases where a supplier has furnished an 
                        upgraded item and has executed an 
                        advanced beneficiary notice.
                  ``(B) Development of quality standards for 
                dme products.--
                          ``(i) In general.--The quality 
                        standards specified under subparagraph 
                        (A)(i) shall not be less than the 
                        quality standards that would otherwise 
                        apply if this section did not apply and 
                        shall include consumer services 
                        standards. Not later than July 1, 2007, 
                        the Secretary shall establish new 
                        quality standards for products subject 
                        to competitive acquisition under this 
                        section. Such standards shall be 
                        applied prospectively and shall be 
                        published on the website of the 
                        Department of Health and Human 
                        Services.
                          ``(ii) Consultation with program 
                        advisory and oversight committee.--The 
                        Secretary shall consult with the 
                        Program Advisory and Oversight 
                        Committee (established under subsection 
                        (c)) to review (and advise the 
                        Secretary concerning) the quality 
                        standards referred to in clause (i).
          ``(3) Contents of contract.--
                  ``(A) In general.--A contract entered into 
                with an entity under the competition conducted 
                pursuant to paragraph (1) is subject to terms 
                and conditions that the Secretary may specify.
                  ``(B) Term of contracts.--The Secretary shall 
                recompete contracts under this section not less 
                often than once every 3 years.
          ``(4) Limit on number of contractors.--
                  ``(A) In general.--The Secretary may limit 
                the number of contractors in a competitive 
                acquisition area to the number needed to meet 
                projected demand for items and services covered 
                under the contracts. In awarding contracts, the 
                Secretary shall take into account the ability 
                of bidding entities to furnish items or 
                services in sufficient quantities to meet the 
                anticipated needs of beneficiaries for such 
                items or services in the geographic area 
                covered under the contract on a timely basis.
                  ``(B) Multiple winners.--The Secretary shall 
                award contracts to multiple entities submitting 
                bids in each area for an item or service.
          ``(5) Payment.--Payment under this part for 
        competitively priced items and services described in 
        subsection (a)(2) shall be based on the bids submitted 
        and accepted under this section for such items and 
        services.
          ``(6) Participating contractors.--Payment shall not 
        be made for items and services described in subsection 
        (a)(2) furnished by a contractor and for which 
        competition is conducted under this section unless--
                  ``(A) the contractor has submitted a bid for 
                such items and services under this section; and
                  ``(B) the Secretary has awarded a contract to 
                the contractor for such items and services 
                under this section.
        In this section, the term `bid' means a request for a 
        proposal for an item or service that includes the cost 
        of the item or service, and where appropriate, any 
        services that are attendant to the provision of the 
        item or service.
          ``(7) Consideration in determining categories for 
        bids.--The Secretary shall consider the similarity of 
        the clinical efficiency and value of specific codes and 
        products, including products that may provide a 
        therapeutic advantage to beneficiaries, before 
        delineating the categories and products that will be 
        subject to bidding.
          ``(8) Authority to contract for education, 
        monitoring, outreach and complaint services.--The 
        Secretary may enter into a contract with an appropriate 
        entity to address complaints from beneficiaries who 
        receive items and services from an entity with a 
        contract under this section and to conduct appropriate 
        education of and outreach to such beneficiaries and 
        monitoring quality of services with respect to the 
        program.
  ``(c) Program Advisory and Oversight Committee.--
          ``(1) Establishment.--There is established a Program 
        Advisory and Oversight Committee (hereinafter in this 
        section referred to as the `Committee').
          ``(2) Membership; terms.--The Committee shall consist 
        of such members as the Secretary may appoint who shall 
        serve for such term as the Secretary may specify.
          ``(3) Duties.--
                  ``(A) Technical assistance.--The Committee 
                shall provide advice and technical assistance 
                to the Secretary with respect to the following 
                functions:
                          ``(i) The implementation of the 
                        program under this section.
                          ``(ii) The establishment of 
                        requirements for collection of data.
                          ``(iii) The development of proposals 
                        for efficient interaction among 
                        manufacturers and distributors of the 
                        items and services and providers and 
                        beneficiaries.
                  ``(B) Additional duties.--The Committee shall 
                perform such additional functions to assist the 
                Secretary in carrying out this section as the 
                Secretary may specify.
          ``(4) Inapplicability of faca.--The provisions of the 
        Federal Advisory Committee Act (5 U.S.C. App.) shall 
        not apply.
  ``(d) Annual Reports.--The Secretary shall submit to Congress 
an annual management report on the programs under this section. 
Each such report shall include information on savings, 
reductions in beneficiary cost-sharing, access to and quality 
of items and services, and beneficiary satisfaction.
  ``(e) Demonstration Project for Clinical Laboratory 
Services.--
          ``(1) In general.--The Secretary shall conduct a 
        demonstration project on the application of competitive 
        acquisition under this section to clinical diagnostic 
        laboratory tests--
                  ``(A) for which payment is otherwise made 
                under section 1833(h) or 1834(d)(1) (relating 
                to colorectal cancer screening tests); and
                  ``(B) which are furnished by entities that 
                did not have a face-to-face encounter with the 
                individual.
          ``(2) Terms and conditions.--Such project shall be 
        under the same conditions as are applicable to items 
        and services described in subsection (a)(2).
          ``(3) Report.--The Secretary shall submit to 
        Congress--
                  ``(A) an initial report on the project not 
                later than December 31, 2008; and
                  ``(B) such progress and final reports on the 
                project after such date as the Secretary 
                determines appropriate.''.
  (b) Conforming Amendments.--
          (1) Durable medical equipment; elimination of 
        inherent reasonableness authority.--Section 1834(a) (42 
        U.S.C. 1395m(a)) is amended--
                  (A) in paragraph (1)(B), by striking ``The 
                payment basis'' and inserting ``Subject to 
                subparagraph (E)(i), the payment basis'';
                  (B) in paragraph (1)(C), by striking ``This 
                subsection'' and inserting ``Subject to 
                subparagraph (E)(ii), this subsection'';
                  (C) by adding at the end of paragraph (1) the 
                following new subparagraph:
                  ``(E) Application of competitive acquisition; 
                elimination of inherent reasonableness 
                authority.--In the case of covered items and 
                services that are included in a competitive 
                acquisition program in a competitive 
                acquisition area under section 1847(a)--
                          ``(i) the payment basis under this 
                        subsection for such items and services 
                        furnished in such area shall be the 
                        payment basis determined under such 
                        competitive acquisition program; and
                          ``(ii) the Secretary may use 
                        information on the payment determined 
                        under such competitive acquisition 
                        programs to adjust the payment amount 
                        otherwise recognized under subparagraph 
                        (B)(ii) for an area that is not a 
                        competitive acquisition area under 
                        section 1847 and in the case of such 
                        adjustment, paragraph (10)(B) shall not 
                        be applied.''; and
                  (D) in paragraph (10)(B), by inserting ``in 
                an area and with respect to covered items and 
                services for which the Secretary does not make 
                a payment amount adjustment under paragraph 
                (1)(E)'' after ``under this subsection''.
          (2) Off-the-shelf orthotics; elimination of inherent 
        reasonableness authority.--Section 1834(h) (42 U.S.C. 
        1395m(h)) is amended--
                  (A) in paragraph (1)(B), by striking ``and 
                (E)'' and inserting ``, (E) , and (H)(i)'';
                  (B) in paragraph (1)(D), by striking ``This 
                subsection'' and inserting ``Subject to 
                subparagraph (H)(ii), this subsection'';
                  (C) by adding at the end of paragraph (1) the 
                following new subparagraph:
                  ``(H) Application of competitive acquisition 
                to orthotics; elimination of inherent 
                reasonableness authority.--In the case of 
                orthotics described in paragraph (2)(B) of 
                section 1847(a) that are included in a 
                competitive acquisition program in a 
                competitive acquisition area under such 
                section--
                          ``(i) the payment basis under this 
                        subsection for such orthotics furnished 
                        in such area shall be the payment basis 
                        determined under such competitive 
                        acquisition program; and
                          ``(ii) the Secretary may use 
                        information on the payment determined 
                        under such competitive acquisition 
                        programs to adjust the payment amount 
                        otherwise recognized under subparagraph 
                        (B)(ii) for an area that is not a 
                        competitive acquisition area under 
                        section 1847, and in the case of such 
                        adjustment, paragraphs (8) and (9) of 
                        section 1842(b) shall not be 
                        applied.''.
  (c) Report on Activities of Suppliers.--The Secretary shall 
conduct a study to determine the extent to which (if any) 
suppliers of covered items of durable medical equipment that 
are subject to the competitive acquisition program under 
section 1847 of the Social Security Act, as amended by 
subsection (a), are soliciting physicians to prescribe certain 
brands or modes of delivery of covered items based on 
profitability.

SEC. 303. REFORM OF PAYMENT FOR DRUGS AND BIOLOGICALS UNDER THE 
                    MEDICARE PROGRAM.

  (a) Payment Reform.--
          (1) In general.--Section 1842(o) (42 U.S.C. 1395u(o)) 
        is amended to read as follows:
  ``(o) Payment for Drugs and Biologicals.--
          ``(1) General rule.--If a physician's, supplier's, or 
        any other person's bill or request for payment for 
        services includes a charge for a drug or biological for 
        which payment may be made under this part and the drug 
        or biological is not paid on a cost or prospective 
        payment basis as otherwise provided in this part, the 
        amount payable for the drug or biological shall be 
        based on the following:
                  ``(A) Multi-source (generic) drugs.--In the 
                case of a drug or biological that meets the 
                requirements for a multi-source drug under 
                subclauses (I) and (II) of section 
                1927(k)(7)(A)(i), 105 percent of the volume-
                weighted median average acquisition price for 
                any drug or biological covered under the same 
                medicare HCPCS code.
                  ``(B) Single source (brand) drugs and 
                biologicals.--In the case of a drug or 
                biological that meets the requirements for a 
                single source drug under section 
                1927(k)(7)(A)(iv), 105 percent of the average 
                acquisition price for the drug or biological.
                  ``(C) Access exception.--The Secretary may 
                modify the rate otherwise applicable in order 
                to assure access to necessary drugs and 
                biologicals in the case of sole community 
                providers in rural and other areas where the 
                providers are not reasonably able to obtain the 
                drugs and biologicals at the payment rates 
                otherwise applicable. Such modification shall 
                not result in a change of more than 15 percent 
                of the rate otherwise applicable.
                  ``(D) Data-related exception.--If the 
                Secretary determines that there is insufficient 
                data available with respect to compute an 
                average acquisition price for a drug or 
                biological for a quarter or that, because of a 
                significant change in price from quarter-to-
                quarter, the available data on the average 
                acquisition price does not accurately reflect 
                the actual, current acquisition cost for the 
                drug or biological, the Secretary may 
                substitute for the quarters involved an 
                appropriate payment for the drug or biological 
                for such average acquisition price.
                  ``(E) Application of ndc codes.--If the 
                Secretary determines that it is appropriate to 
                provide for payment under this subsection using 
                national drug code (NDC) instead of HCPCS 
                codes, in applying subparagraph (A) the 
                reference to the same HCPCS code shall be 
                deemed a reference to the appropriate national 
                drug codes for those drugs or biologicals that 
                are therapeutically and pharmaceutically 
                equivalent and bioequivalent (as defined for 
                purposes of section 1927(k)(7)(A)).
          ``(2) Definition of average acquisition price.--
                  ``(A) In general.--For purposes of this 
                subsection, the term `average acquisition 
                price' means, with respect to a drug or 
                biological and with respect to each dosage form 
                and strength of the drug or biological product 
                (without regard to any special packaging, 
                labeling, or identifiers on the dosage form or 
                product or package), the average of all final 
                sales prices charged by the manufacturer of the 
                drug or biological product in the United 
                States, excluding sales exempt from inclusion 
                in the calculation of best price under section 
                1927(c)(1)(C) (other than under clause 
                (ii)(III) of such section) and excluding sales 
                subject to a rebate under section 1927, as 
                reported under paragraph (3).
                  ``(B) Net price.--Such average acquisition 
                price shall be calculated net of all of the 
                following (as estimated by the Secretary):
                          ``(i) Volume discounts.
                          ``(ii) Prompt pay discounts and cash 
                        discounts.
                          ``(iii) Charge-backs.
                          ``(iv) Short-dated product discounts 
                        (for spoilage and other factors).
                          ``(v) Free goods and services.
                          ``(vi) Rebates.
                          ``(vii) All other price concessions 
                        provided by the drug manufacturer.
                The Secretary may make subsequent adjustments 
                in such average acquisition price to take into 
                account updated information and differences 
                between the price previously estimated and the 
                actual average acquisition price.
                  ``(C) Weighting.--The average of all final 
                sales prices described in subparagraph (A) 
                shall be determined by dividing--
                          ``(i) the sum of all final prices 
                        charged by the manufacturer (net of the 
                        adjustments made under subparagraph 
                        (B)) for sales in the period involved 
                        that are included in subparagraph (A) 
                        for the drug or biological, by
                          ``(ii) the total number of units of 
                        such sales in the period.
                  ``(D) Distribution of reports.--The Secretary 
                shall promptly distribute applicable payment 
                rates under this subsection to carriers and 
                fiscal intermediaries and other contractors 
                that make payment for drugs and biologicals 
                under this section in order to apply a uniform 
                reimbursement rate under this section.
          ``(3) Price reporting requirement.--
                  ``(A) In general.--As a condition for payment 
                for any drug or biological of a manufacturer 
                under this subsection, the manufacturer of the 
                drug or biological shall--
                          ``(i) report, on a quarterly basis, 
                        to the Secretary (or the Secretary's 
                        designee) the manufacturer's average 
                        acquisition price and the information 
                        required under subparagraph (C) for all 
                        drugs and biologicals of the 
                        manufacturer by national drug code 
                        (NDC);
                          ``(ii) maintain such records (in 
                        written or electronic form) regarding 
                        such sales and prices for all such 
                        drugs and biologicals as may be 
                        necessary to audit the information so 
                        reported or required to be reported; 
                        and
                          ``(iii) provide the Secretary with 
                        access to such records in order to 
                        permit the Secretary to audit 
                        information so reported or required to 
                        be reported.
                  ``(B) Penalties.--The provisions of section 
                1927(b)(3)(C) shall apply with respect to the 
                reporting of information under subparagraph (A) 
                in the same manner as it applies to the 
                reporting of information under section 
                1927(b)(3)(A), except that the reference in 
                clause (i) of such section to $10,000 is deemed 
                a reference to $100,000 and any reference to a 
                suspension of an agreement is deemed a 
                reference to a suspension of payment for the 
                drug or biological involved under this part. 
                The Secretary shall promptly refer to the 
                Inspector General of the Department of Health 
                and Human Services and, if appropriate, to 
                appropriate officials in the Department of 
                Justice cases in which the Secretary becomes 
                aware of a false price representation made in 
                the information submitted under this paragraph.
                  ``(C) Form of reporting.--Information 
                required to be reported under subparagraph 
                (A)(i) shall be reported in a form and manner 
                specified by the Secretary. The information 
                required to be reported shall include the 
                identification of the generic name of the drug 
                or biological and its brand name (if any), the 
                national drug code (NDC) and the HCPCS code 
                assigned to the drug or biological, the dosage 
                form, strength, volume, and package size 
                involved. The information for a quarter shall 
                be submitted not later than 30 days after the 
                end of the quarter. The information shall be 
                accompanied by a written and signed 
                certification by an officer of the manufacturer 
                attesting to the accuracy of the information 
                reported. Such information shall include 
                updated information on the net price realized 
                (taking into account rebates and other amounts 
                affecting net price), regardless of the period 
                for which such a rebate or other adjustment in 
                net price might have been earned.
                  ``(D) Auditing.--The Secretary shall audit on 
                a periodic basis information reported or 
                required to be reported under this paragraph. 
                The Secretary may conduct such independent 
                price gathering activities, such as surveys and 
                review of published catalog information or 
                other transactional information, as may be 
                appropriate to verify the accuracy of the 
                information reported.
          ``(4) Dispensing fee.--If payment for a drug or 
        biological is made to a licensed pharmacy approved to 
        dispense drugs or biologicals under this part, the 
        Secretary shall pay a dispensing fee (less the 
        applicable deductible and coinsurance amounts) to the 
        pharmacy. Such a dispensing fee shall be subject to 
        adjustment from year to year based upon changes in the 
        consumer price index over time and may be adjusted as 
        the Secretary determines to be appropriate to reflect 
        differences in the costs of dispensing different drugs 
        and biologicals.
          ``(5) Payment required on an assignment-related 
        basis.--
                  ``(A) In general.--Payment for a charge for 
                any drug or biological for which payment may be 
                made under this part may be made only on an 
                assignment-related basis.
                  ``(B) Application of enforcement 
                provisions.--The provisions of subsection 
                (b)(18)(B) shall apply to charges for such 
                drugs or biologicals in the same manner as they 
                apply to services furnished by a practitioner 
                described in subsection (b)(18)(C).''.
          (2) Effective date.--Subject to subsection (i)(2), 
        the amendment made by paragraph (1) shall apply to 
        drugs and biologicals furnished on or after January 1, 
        2004.
  (b) Medicare Payment for Drug Administration Services.--
          (1) In general.--The Secretary shall revise the 
        practice expense relative value units for drug 
        administration services for years beginning with the 
        year 2005 in accordance with this subsection. For 
        purposes of this subsection, the term ``drug 
        administration services'' includes chemotherapy 
        administration services, therapeutic and diagnostic 
        infusions and injections, and such other services as 
        the Secretary specifies.
          (2) Direct costs equal to 100 percent of cpep 
        estimates.--Using the information, including estimates 
        of clinical staff time, developed in the clinical 
        practice expert panel process, including refinements by 
        American Medical Association committees, the Secretary 
        shall estimate the costs of the nursing and other 
        clinical staff, supplies, and procedure-specific 
        equipment (exceeding a cost specified by the Secretary) 
        used in furnishing each type of drug administration 
        service. The Secretary shall utilize without revision 
        the minutes of clinical staff time determined in such 
        process. The Secretary shall convert the information 
        from such process to estimated costs by applying the 
        most current available data on staff salary, supply, 
        and equipment costs, and such costs shall be updated to 
        2005 based on estimated changes in prices since the 
        date of such data.
          (3) Total practice expenses.--The Secretary shall 
        estimate the total practice expenses of each drug 
        administration service by assuming that the direct 
        costs for the service determined under paragraph (3) 
        are 33.2 percent of such total practice expenses.
          (4) Conversion to relative value units.--The 
        Secretary shall convert the total practice expenses 
        determined under paragraph (3) to practice expense 
        relative value units for each drug administration 
        service by dividing such expenses by the conversion 
        factor that will be in effect for the physician fee 
        schedule for 2005. The relative value units as so 
        determined shall be used in determining the fee 
        schedule amounts paid for drug administration services 
        under section 1848 of the Social Security Act (42 
        U.S.C. 1395w-4).
          (5) Updates.--For years after 2005, the relative 
        values determined under paragraph (4) shall continue in 
        effect except that the Secretary shall revise them as 
        necessary to maintain their accuracy, provided that 
        such revisions are consistent with the methodology set 
        forth in this subsection.
          (6) Multiple pushes.--In establishing the payment 
        amounts under this subsection, the Secretary shall 
        establish the payment amount for intravenous 
        chemotherapy administration by push technique based on 
        the administration of a single drug. The Secretary 
        shall make the same payment for each additional drug 
        administered by push technique during the same 
        encounter, except to the extent that the Secretary 
        finds that the cost of administering additional drugs 
        is less than the cost of administering the first drug.
  (c) Payments for Chemotherapy Support Services.--
          (1) General.--Beginning in 2005, the Secretary shall 
        recognize and make payments under section 1848 of the 
        Social Security Act (42 U.S.C. 1395w-4) for 
        chemotherapy support services furnished incident to 
        physicians' services. For the purposes of this section, 
        the term ``chemotherapy support services'' are services 
        furnished by the staff of physicians to patients 
        undergoing treatment for cancer that were not included 
        in the computation of clinical staff costs under 
        subsection b(2). Such services include social worker 
        services, nutrition counseling, psychosocial services, 
        and similar services.
          (2) Direct costs.--The Secretary shall estimate the 
        cost of the salary and benefits of staff furnishing 
        chemotherapy support services as they are provided in 
        oncology practices that furnish these services to 
        cancer patients in a manner that is considered to be 
        high quality care. The estimate shall be based on the 
        weekly cost of such services per patient receiving 
        chemotherapy.
          (3) Total costs.--The Secretary shall estimate the 
        total practice expenses of chemotherapy support 
        services by assuming that the direct costs for the 
        service determined under paragraph (2) are 33.2 percent 
        of such total practice expenses.
          (4) Conversion to relative value units.--The 
        Secretary shall convert the total practice expenses 
        determined under paragraph (3) to practice expense 
        relative value units for chemotherapy support services 
        by dividing such expenses by the conversion factor that 
        will be in effect for the physician fee schedule for 
        2005. The relative value units as so determined shall 
        be used in determining the fee schedule amounts paid 
        for chemotherapy support services under such section 
        1848.
          (5) Updates.--For years after 2005, the relative 
        values determined under paragraph (4) shall continue in 
        effect except that the Secretary shall revise them as 
        necessary to maintain their accuracy, provided that 
        such revisions are consistent with the methodology set 
        forth in this subsection.
  (d) Cancer Therapy Management Services.--Beginning in 2005, 
the Secretary shall recognize and establish a payment amount 
for the service of cancer therapy management to account for the 
greater pre-service and post-service work associated with 
visits and consultations conducted by physicians treating 
cancer patients compared to typical visits and consultations. 
The payment amount may vary by the level and type of the 
related visit or consultation.
  (e) Other Services Without Physician Work Relative Value 
Units.--Beginning in 2005, the Secretary shall develop a 
revised methodology for determining the payment amounts for 
services that are paid under the fee schedule established by 
section 1848 of the Social Security Act (42 U.S.C. 1395w-4) and 
that do not have physician work relative value units, including 
radiation oncology services. Such methodology shall result in 
payment amounts that fully cover the costs of furnishing such 
services. Until such time as the methodology for such services 
is revised and implemented, all such services shall be 
protected from further payment cuts due to factors such as 
shifts in utilization or removal of any one specialty's 
services that are paid under the fee schedule established by 
such section 1848 and that do not have physician work relative 
value units.
  (f) Report to Congress.--Not later than April 1, 2004, the 
Secretary shall submit to Congress a report on the payment 
amounts that are projected to be adopted under subsections (b), 
(c), (d), and (e) of this section.
  (g) Institute of Medicine Study.--
          (1) General.--The Secretary shall request the 
        Institute of Medicine to conduct the study described in 
        this subsection.
          (2) Baseline study.--The first phase of the study 
        shall include the following objectives:
                  (A) An assessment of the extent to which the 
                current medicare payment system, prior to 
                implementation of the amendments made by this 
                section, facilitates appropriate access to care 
                by cancer patients in the various treatment 
                settings.
                  (B) The identification of the comprehensive 
                range of services furnished to cancer patients 
                in the outpatient setting, including support 
                services such as psychosocial services and 
                counseling, and recommendations regarding the 
                types of services that ought to be furnished to 
                medicare patients with cancer.
                  (C) A discussion of the practice standards 
                necessary to assure the safe provision of 
                services to cancer patients.
                  (D) An analysis of the extent to which the 
                current medicare payment system supports the 
                role of nurses in the provision of oncology 
                services and recommendations for any necessary 
                improvements in the payment system in that 
                respect.
                  (E) The development of a framework for 
                assessing how the amendments made by this act 
                affect the provision of care to medicare 
                patients with cancer in the various treatment 
                settings.
          (3) Second phase of study.--After the implementation 
        of the amendments made by this section, the study shall 
        determine whether and how those amendments affected the 
        provision of care to medicare patients with cancer.
          (4) Consultation.--The Institute of Medicine shall 
        consult with the National Cancer Policy Board and 
        organizations representing cancer patients and 
        survivors, oncologists, oncology nurses, social 
        workers, cancer centers, and other healthcare 
        professionals who treat cancer patients in planning and 
        carrying out this study.
          (5) Due dates.--
                  (A) The study required by paragraph (2) shall 
                be submitted to the Congress and the Secretary 
                of Health and Human Services no later than June 
                30, 2004.
                  (B) The study required by paragraph (3) shall 
                be submitted to the Congress and the Secretary 
                of Health and Human Services no later than 
                December 31, 2006.
  (i) Study of Payments for Blood Clotting Factors and Other 
Biologicals.--
          (1) In general.--The Secretary of Health and Human 
        Services shall provide for a study of the 
        appropriateness of the medicare payment methodology for 
        blood clotting factors and other biologicals under part 
        B of title XVIII of the Social Security Act. Not later 
        than 9 months after the date of the enactment of this 
        Act, the Secretary shall submit to Congress a report on 
        such study and shall include in such report 
        recommendations regarding whether to apply the payment 
        methodology provided under the amendment made by 
        subsection (a)(1) and alternative recommendations for 
        appropriate dispensing fees.
          (2) Delay in effective date.--The amendment made by 
        subsection (a)(1) shall not apply to blood clotting 
        factors furnished before the first day of the first 
        calendar year that begins at least 6 months after the 
        date the report under paragraph (1) has been submitted 
        to the Congress.

SEC. 304. DEMONSTRATION PROJECT FOR USE OF RECOVERY AUDIT CONTRACTORS.

  (a) In General.--The Secretary of Health and Human Services 
shall conduct a demonstration project under this section (in 
this section referred to as the ``project'') to demonstrate the 
use of recovery audit contractors under the Medicare Integrity 
Program in identifying underpayments and overpayments and 
recouping overpayments under the medicare program for services 
for which payment is made under part A or part B of title XVIII 
of the Social Security Act. Under the project--
          (1) payment may be made to such a contractor on a 
        contingent basis;
          (2) a percentage of the amount recovered may be 
        retained by the Secretary and shall be available to the 
        program management account of the Centers for Medicare 
        & Medicaid Services; and
          (3) the Secretary shall examine the efficacy of such 
        use with respect to duplicative payments, accuracy of 
        coding, and other payment policies in which inaccurate 
        payments arise.
  (b) Scope and Duration.--
          (1) Scope.--The project shall cover at least 2 States 
        that are among the States with--
                  (A) the highest per capita utilization rates 
                of medicare services, and
                  (B) at least 3 contractors.
          (2) Duration.--The project shall last for not longer 
        than 3 years.
  (c) Waiver.--The Secretary of Health and Human Services shall 
waive such provisions of title XVIII of the Social Security Act 
as may be necessary to provide for payment for services under 
the project in accordance with subsection (a).
  (d) Qualifications of Contractors.--
          (1) In general.--The Secretary shall enter into a 
        recovery audit contract under this section with an 
        entity only if the entity has staff that has the 
        appropriate clinical knowledge of and experience with 
        the payment rules and regulations under the medicare 
        program or the entity has or will contract with another 
        entity that has such knowledgeable and experienced 
        staff.
          (2) Ineligibility of certain contractors.--The 
        Secretary may not enter into a recovery audit contract 
        under this section with an entity to the extent that 
        the entity is a fiscal intermediary under section 1816 
        of the Social Security Act (42 U.S.C. 1395h), a carrier 
        under section 1842 of such Act (42 U.S.C. 1395u), or a 
        Medicare Administrative Contractor under section 1874A 
        of such Act.
          (3) Preference for entities with demonstrated 
        proficiency with private insurers.--In awarding 
        contracts to recovery audit contractors under this 
        section, the Secretary shall give preference to those 
        risk entities that the Secretary determines have 
        demonstrated more than 3 years direct management 
        experience and a proficiency in recovery audits with 
        private insurers or under the medicaid program under 
        title XIX of such Act.
  (e) Construction Relating to Conduct of Investigation of 
Fraud.--A recovery of an overpayment to a provider by a 
recovery audit contractor shall not be construed to prohibit 
the Secretary or the Attorney General from investigating and 
prosecuting, if appropriate, allegations of fraud or abuse 
arising from such overpayment.
  (f) Report.--The Secretary of Health and Human Services shall 
submit to Congress a report on the project not later than 6 
months after the date of its completion. Such reports shall 
include information on the impact of the project on savings to 
the medicare program and recommendations on the cost-
effectiveness of extending or expanding the project.

                TITLE IV--RURAL HEALTH CARE IMPROVEMENTS

SEC. 401. FAIRNESS IN THE MEDICARE DISPROPORTIONATE SHARE HOSPITAL 
                    (DSH) ADJUSTMENT FOR RURAL HOSPITALS.

  (a) Equalizing DSH Payment Amounts.--
          (1) In general.--Section 1886(d)(5)(F)(vii) (42 
        U.S.C. 1395ww(d)(5)(F)(vii)) is amended by inserting 
        ``, and, after October 1, 2004, for any other hospital 
        described in clause (iv),'' after ``clause (iv)(I)'' in 
        the matter preceding subclause (I).
          (2) Conforming amendments.--Section 1886(d)(5)(F) (42 
        U.S.C. 1395ww(d)(5)(F)) is amended--
                  (A) in clause (iv)--
                          (i) in subclause (II)--
                                  (I) by inserting ``and before 
                                October 1, 2004,'' after 
                                ``April 1, 2001,''; and
                                  (II) by inserting ``or, for 
                                discharges occurring on or 
                                after October 1, 2004, is equal 
                                to the percent determined in 
                                accordance with the applicable 
                                formula described in clause 
                                (vii)'' after ``clause 
                                (xiii)'';
                          (ii) in subclause (III)--
                                  (I) by inserting ``and before 
                                October 1, 2004,'' after 
                                ``April 1, 2001,''; and
                                  (II) by inserting ``or, for 
                                discharges occurring on or 
                                after October 1, 2004, is equal 
                                to the percent determined in 
                                accordance with the applicable 
                                formula described in clause 
                                (vii)'' after ``clause (xii)'';
                          (iii) in subclause (IV)--
                                  (I) by inserting ``and before 
                                October 1, 2004,'' after 
                                ``April 1, 2001,''; and
                                  (II) by inserting ``or, for 
                                discharges occurring on or 
                                after October 1, 2004, is equal 
                                to the percent determined in 
                                accordance with the applicable 
                                formula described in clause 
                                (vii)'' after ``clause (x) or 
                                (xi)'';
                          (iv) in subclause (V)--
                                  (I) by inserting ``and before 
                                October 1, 2004,'' after 
                                ``April 1, 2001,''; and
                                  (II) by inserting ``or, for 
                                discharges occurring on or 
                                after October 1, 2004, is equal 
                                to the percent determined in 
                                accordance with the applicable 
                                formula described in clause 
                                (vii)'' after ``clause (xi)''; 
                                and
                          (v) in subclause (VI)--
                                  (I) by inserting ``and before 
                                October 1, 2004,'' after 
                                ``April 1, 2001,''; and
                                  (II) by inserting ``or, for 
                                discharges occurring on or 
                                after October 1, 2004, is equal 
                                to the percent determined in 
                                accordance with the applicable 
                                formula described in clause 
                                (vii)'' after ``clause (x)'';
                  (B) in clause (viii), by striking ``The 
                formula'' and inserting ``For discharges 
                occurring before October 1, 2004, the 
                formula''; and
                  (C) in each of clauses (x), (xi), (xii), and 
                (xiii), by striking ``For purposes'' and 
                inserting ``With respect to discharges 
                occurring before October 1, 2004, for 
                purposes''.
  (b) Effective Date.--The amendments made by this section 
shall apply to discharges occurring on or after October 1, 
2004.

SEC. 402. IMMEDIATE ESTABLISHMENT OF UNIFORM STANDARDIZED AMOUNT IN 
                    RURAL AND SMALL URBAN AREAS.

  (a) In General.--Section 1886(d)(3)(A) (42 U.S.C. 
1395ww(d)(3)(A)) is amended--
          (1) in clause (iv), by inserting ``and ending on or 
        before September 30, 2003,'' after ``October 1, 
        1995,''; and
          (2) by redesignating clauses (v) and (vi) as clauses 
        (vii) and (viii), respectively, and inserting after 
        clause (iv) the following new clauses:
          ``(v) For discharges occurring in the fiscal year 
        beginning on October 1, 2003, the average standardized 
        amount for hospitals located in areas other than a 
        large urban area shall be equal to the average 
        standardized amount for hospitals located in a large 
        urban area.''.
  (b) Conforming Amendments.--
          (1) Computing drg-specific rates.--Section 
        1886(d)(3)(D) (42 U.S.C. 1395ww(d)(3)(D)) is amended--
                  (A) in the heading, by striking ``in 
                different areas'';
                  (B) in the matter preceding clause (i), by 
                striking ``, each of'';
                  (C) in clause (i)--
                          (i) in the matter preceding subclause 
                        (I), by inserting ``for fiscal years 
                        before fiscal year 2004,'' before ``for 
                        hospitals''; and
                          (ii) in subclause (II), by striking 
                        ``and'' after the semicolon at the end;
                  (D) in clause (ii)--
                          (i) in the matter preceding subclause 
                        (I), by inserting ``for fiscal years 
                        before fiscal year 2004,'' before ``for 
                        hospitals''; and
                          (ii) in subclause (II), by striking 
                        the period at the end and inserting ``; 
                        and''; and
                  (E) by adding at the end the following new 
                clause:
                  ``(iii) for a fiscal year beginning after 
                fiscal year 2003, for hospitals located in all 
                areas, to the product of--
                          ``(I) the applicable standardized 
                        amount (computed under subparagraph 
                        (A)), reduced under subparagraph (B), 
                        and adjusted or reduced under 
                        subparagraph (C) for the fiscal year; 
                        and
                          ``(II) the weighting factor 
                        (determined under paragraph (4)(B)) for 
                        that diagnosis-related group.''.
          (2) Technical conforming sunset.--Section 1886(d)(3) 
        (42 U.S.C. 1395ww(d)(3)) is amended--
                  (A) in the matter preceding subparagraph (A), 
                by inserting ``, for fiscal years before fiscal 
                year 1997,'' before ``a regional adjusted DRG 
                prospective payment rate''; and
                  (B) in subparagraph (D), in the matter 
                preceding clause (i), by inserting ``, for 
                fiscal years before fiscal year 1997,'' before 
                ``a regional DRG prospective payment rate for 
                each region,''.

SEC. 403. ESTABLISHMENT OF ESSENTIAL RURAL HOSPITAL CLASSIFICATION.

  (a) Classification.--Section 1861(mm) (42 U.S.C. 1395x(mm)) 
is amended--
          (1) in the heading by adding ``Essential Rural 
        Hospitals'' at the end; and
          (2) by adding at the end the following new 
        paragraphs:
  ``(4)(A) The term `essential rural hospital' means a 
subsection (d) hospital (as defined in section 1886(d)(1)(B)) 
that is located in a rural area (as defined for purposes of 
section 1886(d)), has more than 25 licensed acute care 
inpatient beds, has applied to the Secretary for classification 
as such a hospital, and with respect to which the Secretary has 
determined that the closure of the hospital would significantly 
diminish the ability of medicare beneficiaries to obtain 
essential health care services.
  ``(B) The determination under subparagraph (A) shall be based 
on the following criteria:
          ``(i) High proportion of medicare beneficiaries 
        receiving care from hospital.--(I) A high percentage of 
        such beneficiaries residing in the area of the hospital 
        who are hospitalized (during the most recent year for 
        which complete data are available) receive basic 
        inpatient medical care at the hospital.
          ``(II) For a hospital with more than 200 licensed 
        beds, a high percentage of such beneficiaries residing 
        in such area who are hospitalized (during such recent 
        year) receive specialized surgical inpatient care at 
        the hospital.
          ``(III) Almost all physicians described in section 
        1861(r)(1) in such area have privileges at the hospital 
        and provide their inpatient services primarily at the 
        hospital.
          ``(ii) Significant adverse impact in absence of 
        hospital.--If the hospital were to close--
                  ``(I) there would be a significant amount of 
                time needed for residents to reach emergency 
                treatment, resulting in a potential significant 
                harm to beneficiaries with critical illnesses 
                or injuries;
                  ``(II) there would be an inability in the 
                community to stablize emergency cases for 
                transfers to another acute care setting, 
                resulting in a potential for significant harm 
                to medicare beneficiaries; and
                  ``(III) any other nearby hospital lacks the 
                physical and clinical capacity to take over the 
                hospital's typical admissions.
  ``(C) In making such determination, the Secretary may also 
consider the following:
          ``(i) Free-standing ambulatory surgery centers, 
        office-based oncology care, and imaging center services 
        are insufficient in the hospital's area to handle the 
        outpatient care of the hospital.
          ``(ii) Beneficiaries in nearby areas would be 
        adversely affected if the hospital were to close as the 
        hospital provides specialized knowledge and services to 
        a network of smaller hospitals and critical access 
        hospitals.
          ``(iii) Medicare beneficiaries would have difficulty 
        in accessing care if the hospital were to close as the 
        hospital provides significant subsidies to support 
        ambulatory care in local clinics, including mental 
        health clinics and to support post acute care.
          ``(iv) The hospital has a committment to provide 
        graduate medical education in a rural area.
          ``(C) Quality care.--The hospital inpatient score for 
        quality of care is not less than the median hospital 
        score for qualify of care for hospitals in the State, 
        as established under standards of the utilization and 
        quality control peer review organization under part B 
        of title XI or other quality standards recognized by 
        the Secretary.
A hospital classified as an essential rural hospital may not 
change such classification and a hospital so classified shall 
not be treated as a sole community hospital, medicare dependent 
hospital, or rural referral center for purposes of section 
1886.''.
  (b) Payment Based on 102 Percent of Allowed Costs.--
          (1) Inpatient hospital services.--Section 1886(d) (42 
        U.S.C. 1395ww(d)) is amended by adding at the end the 
        following:
  ``(11) In the case of a hospital classified as an essential 
rural hospital under section 1861(mm)(4) for a cost reporting 
period, the payment under this subsection for inpatient 
hospital services for discharges occurring during the period 
shall be based on 102 percent of the reasonable costs for such 
services. Nothing in this paragraph shall be construed as 
affecting the application or amount of deductibles or 
copayments otherwise applicable to such services under part A 
or as waiving any requirement for billing for such services.''.
          (2) Hospital outpatient services.--Section 
        1833(t)(13) (42 U.S.C. 1395l(t)(13)) is amended by 
        adding at the end the following new subparagraph:
                  ``(B) Special rule for essential rural 
                hospitals.--In the case of a hospital 
                classified as an essential rural hospital under 
                section 1861(mm)(4) for a cost reporting 
                period, the payment under this subsection for 
                covered OPD services during the period shall be 
                based on 102 percent of the reasonable costs 
                for such services. Nothing in this subparagraph 
                shall be construed as affecting the application 
                or amount of deductibles or copayments 
                otherwise applicable to such services under 
                this part or as waiving any requirement for 
                billing for such services.''.
  (c) Effective Date.--The amendments made by this section 
shall apply to cost reporting periods beginning on or after 
October 1, 2004.

SEC. 404. MORE FREQUENT UPDATE IN WEIGHTS USED IN HOSPITAL MARKET 
                    BASKET.

  (a) More Frequent Updates in Weights.--After revising the 
weights used in the hospital market basket under section 
1886(b)(3)(B)(iii) of the Social Security Act (42 U.S.C. 
1395ww(b)(3)(B)(iii)) to reflect the most current data 
available, the Secretary shall establish a frequency for 
revising such weights, including the labor share, in such 
market basket to reflect the most current data available more 
frequently than once every 5 years.
  (b) Report.--Not later than October 1, 2004, the Secretary 
shall submit a report to Congress on the frequency established 
under subsection (a), including an explanation of the reasons 
for, and options considered, in determining such frequency.

SEC. 405. IMPROVEMENTS TO CRITICAL ACCESS HOSPITAL PROGRAM.

  (a) Increase in Payment Amounts.--
          (1) In general.--Sections 1814(l), 1834(g)(1), and 
        1883(a)(3) (42 U.S.C. 1395f(l); 1395m(g)(1); 42 U.S.C. 
        1395tt(a)(3)) are each amended by inserting ``equal to 
        102 percent of'' before ``the reasonable costs''.
          (2) Effective date.--The amendments made by paragraph 
        (1) shall apply to payments for services furnished 
        during cost reporting periods beginning on or after 
        October 1, 2003.
  (b) Coverage of Costs for Certain Emergency Room On-Call 
Providers.--
          (1) In general.--Section 1834(g)(5) (42 U.S.C. 
        1395m(g)(5)) is amended--
                  (A) in the heading--
                          (i) by inserting ``certain'' before 
                        ``emergency''; and
                          (ii) by striking ``physicians'' and 
                        inserting ``providers'';
                  (B) by striking ``emergency room physicians 
                who are on-call (as defined by the Secretary)'' 
                and inserting ``physicians, physician 
                assistants, nurse practitioners, and clinical 
                nurse specialists who are on-call (as defined 
                by the Secretary) to provide emergency 
                services''; and
                  (C) by striking ``physicians' services'' and 
                inserting ``services covered under this 
                title''.
          (2) Effective date.--The amendment made by paragraph 
        (1) shall apply with respect to costs incurred for 
        services provided on or after January 1, 2004.
  (c) Permitting CAHs To Allocate Swing Beds and Acute Care 
Inpatient Beds Subject to a Total Limit of 25 Beds.--
          (1) In general.--Section 1820(c)(2)(B)(iii) (42 
        U.S.C. 1395i-4(c)(2)(B)(iii)) is amended to read as 
        follows:
                          ``(iii) provides not more than a 
                        total of 25 extended care service beds 
                        (pursuant to an agreement under 
                        subsection (f)) and acute care 
                        inpatient beds (meeting such standards 
                        as the Secretary may establish) for 
                        providing inpatient care for a period 
                        that does not exceed, as determined on 
                        an annual, average basis, 96 hours per 
                        patient;''.
          (2) Conforming amendment.--Section 1820(f) (42 U.S.C. 
        1395i-4(f)) is amended by striking ``and the number of 
        beds used at any time for acute care inpatient services 
        does not exceed 15 beds''.
          (3) Effective date.--The amendments made by this 
        subsection shall with respect to designations made on 
        or after October 1, 2004.
  (d) Elimination of the Isolation Test for Cost-Based CAH 
Ambulance Services.--
          (1) Elimination.--
                  (A) In general.--Section 1834(l)(8) (42 
                U.S.C. 1395m(l)(8)), as added by section 205(a) 
                of BIPA (114 Stat. 2763A-482), is amended by 
                striking the comma at the end of subparagraph 
                (B) and all that follows and inserting a 
                period.
                  (B) Effective date.--The amendment made by 
                subparagraph (A) shall apply to services 
                furnished on or after January 1, 2005.
          (2) Technical correction.--Section 1834(l) (42 U.S.C. 
        1395m(l)) is amended by redesignating paragraph (8), as 
        added by section 221(a) of BIPA (114 Stat. 2763A-486), 
        as paragraph (9).
  (e) Reinstatement of Periodic Interim Payment (PIP).--
          (1) In general.--Section 1815(e)(2) (42 U.S.C. 
        1395g(e)(2)) is amended--
                  (A) in the matter before subparagraph (A), by 
                inserting ``, in the cases described in 
                subparagraphs (A) through (D)'' after ``1986''; 
                and
                  (B) by striking ``and'' at the end of 
                subparagraph (C);
                  (C) by adding ``and'' at the end of 
                subparagraph (D); and
                  (D) by inserting after subparagraph (D) the 
                following new subparagraph:
          ``(E) inpatient critical access hospital services;''.
          (2) Development of alternative methods of periodic 
        interim payments.--With respect to periodic interim 
        payments to critical access hospitals for inpatient 
        critical access hospital services under section 
        1815(e)(2)(E) of the Social Security Act, as added by 
        paragraph (1), the Secretary shall develop alternative 
        methods for such payments that are based on 
        expenditures of the hospital.
          (3) Reinstatement of pip.--The amendments made by 
        paragraph (1) shall apply to payments made on or after 
        January 1, 2004.
  (f) Condition for Application of Special Physician Payment 
Adjustment.--
          (1) In general.--Section 1834(g)(2) (42 U.S.C. 
        1395m(g)(2)) is amended by adding after and below 
        subparagraph (B) the following:
        ``The Secretary may not require, as a condition for 
        applying subparagraph (B) with respect to a critical 
        access hospital, that each physician providing 
        professional services in the hospital must assign 
        billing rights with respect to such services, except 
        that such subparagraph shall not apply to those 
        physicians who have not assigned such billing 
        rights.''.
          (2) Effective date.--The amendment made by paragraph 
        (1) shall be effective as if included in the enactment 
        of section 403(d) of the Medicare, Medicaid, and SCHIP 
        Balanced Budget Refinement Act of 1999 (113 Stat. 
        1501A-371).
  (g) Additional 5-Year Period of Funding for Grant Program.--
          (1) In general.--Section 1820(g) (42 U.S.C. 1395i-
        4(g)) is amended by adding at the end the following new 
        paragraph:
          ``(4) Funding.--
                  ``(A) In general.--Subject to subparagraph 
                (B), payment for grants made under this 
                subsection during fiscal years 2004 through 
                2008 shall be made from the Federal Hospital 
                Insurance Trust Fund.
                  ``(B) Annual aggregate limitation.--In no 
                case may the amount of payment provided for 
                under subparagraph (A) for a fiscal year exceed 
                $25,000,000.''.
          (2) Conforming amendment.--Section 1820 (42 U.S.C. 
        1395i-4) is amended by striking subsection (j).

SEC. 406. REDISTRIBUTION OF UNUSED RESIDENT POSITIONS.

  (a) In General.--Section 1886(h)(4) (42 U.S.C. 1395ww(h)(4)) 
is amended--
          (1) in subparagraph (F)(i), by inserting ``subject to 
        subparagraph (I),'' after ``October 1, 1997,'';
          (2) in subparagraph (H)(i), by inserting ``subject to 
        subparagraph (I),'' after ``subparagraphs (F) and 
        (G),''; and
          (3) by adding at the end the following new 
        subparagraph:
                  ``(I) Redistribution of unused resident 
                positions.--
                          ``(i) Reduction in limit based on 
                        unused positions.--
                                  ``(I) In general.--If a 
                                hospital's resident level (as 
                                defined in clause (iii)(I)) is 
                                less than the otherwise 
                                applicable resident limit (as 
                                defined in clause (iii)(II)) 
                                for each of the reference 
                                periods (as defined in 
                                subclause (II)), effective for 
                                cost reporting periods 
                                beginning on or after January 
                                1, 2004, the otherwise 
                                applicable resident limit shall 
                                be reduced by 75 percent of the 
                                difference between such limit 
                                and the reference resident 
                                level specified in subclause 
                                (III) (or subclause (IV) if 
                                applicable).
                                  ``(II) Reference periods 
                                defined.--In this clause, the 
                                term `reference periods' means, 
                                for a hospital, the 3 most 
                                recent consecutive cost 
                                reporting periods of the 
                                hospital for which cost reports 
                                have been settled (or, if not, 
                                submitted) on or before 
                                September 30, 2002.
                                  ``(III) Reference resident 
                                level.--Subject to subclause 
                                (IV), the reference resident 
                                level specified in this 
                                subclause for a hospital is the 
                                highest resident level for the 
                                hospital during any of the 
                                reference periods.
                                  ``(IV) Adjustment process.--
                                Upon the timely request of a 
                                hospital, the Secretary may 
                                adjust the reference resident 
                                level for a hospital to be the 
                                resident level for the hospital 
                                for the cost reporting period 
                                that includes July 1, 2003.
                                  ``(V) Affiliation.--With 
                                respect to hospitals which are 
                                members of the same affiliated 
                                group (as defined by the 
                                Secretary under subparagraph 
                                (H)(ii)), the provisions of 
                                this section shall be applied 
                                with respect to such an 
                                affiliated group by deeming the 
                                affiliated group to be a single 
                                hospital.
                          ``(ii) Redistribution.--
                                  ``(I) In general.--The 
                                Secretary is authorized to 
                                increase the otherwise 
                                applicable resident limits for 
                                hospitals by an aggregate 
                                number estimated by the 
                                Secretary that does not exceed 
                                the aggregate reduction in such 
                                limits attributable to clause 
                                (i) (without taking into 
                                account any adjustment under 
                                subclause (IV) of such clause).
                                  ``(II) Effective date.--No 
                                increase under subclause (I) 
                                shall be permitted or taken 
                                into account for a hospital for 
                                any portion of a cost reporting 
                                period that occurs before July 
                                1, 2004, or before the date of 
                                the hospital's application for 
                                an increase under this clause. 
                                No such increase shall be 
                                permitted for a hospital unless 
                                the hospital has applied to the 
                                Secretary for such increase by 
                                December 31, 2005.
                                  ``(III) Considerations in 
                                redistribution.--In determining 
                                for which hospitals the 
                                increase in the otherwise 
                                applicable resident limit is 
                                provided under subclause (I), 
                                the Secretary shall take into 
                                account the need for such an 
                                increase by specialty and 
                                location involved, consistent 
                                with subclause (IV).
                                  ``(IV) Priority for rural and 
                                small urban areas.--In 
                                determining for which hospitals 
                                and residency training programs 
                                an increase in the otherwise 
                                applicable resident limit is 
                                provided under subclause (I), 
                                the Secretary shall first 
                                distribute the increase to 
                                programs of hospitals located 
                                in rural areas or in urban 
                                areas that are not large urban 
                                areas (as defined for purposes 
                                of subsection (d)) on a first-
                                come-first-served basis (as 
                                determined by the Secretary) 
                                based on a demonstration that 
                                the hospital will fill the 
                                positions made available under 
                                this clause and not to exceed 
                                an increase of 25 full-time 
                                equivalent positions with 
                                respect to any hospital.
                                  ``(V) Application of locality 
                                adjusted national average per 
                                resident amount.--With respect 
                                to additional residency 
                                positions in a hospital 
                                attributable to the increase 
                                provided under this clause, 
                                notwithstanding any other 
                                provision of this subsection, 
                                the approved FTE resident 
                                amount is deemed to be equal to 
                                the locality adjusted national 
                                average per resident amount 
                                computed under subparagraph (E) 
                                for that hospital.
                                  ``(VI) Construction.--Nothing 
                                in this clause shall be 
                                construed as permitting the 
                                redistribution of reductions in 
                                residency positions 
                                attributable to voluntary 
                                reduction programs under 
                                paragraph (6) or as affecting 
                                the ability of a hospital to 
                                establish new medical residency 
                                training programs under 
                                subparagraph (H).
                          ``(iii) Resident level and limit 
                        defined.--In this subparagraph:
                                  ``(I) Resident level.--The 
                                term `resident level' means, 
                                with respect to a hospital, the 
                                total number of full-time 
                                equivalent residents, before 
                                the application of weighting 
                                factors (as determined under 
                                this paragraph), in the fields 
                                of allopathic and osteopathic 
                                medicine for the hospital.
                                  ``(II) Otherwise applicable 
                                resident limit.--The term 
                                `otherwise applicable resident 
                                limit' means, with respect to a 
                                hospital, the limit otherwise 
                                applicable under subparagraphs 
                                (F)(i) and (H) on the resident 
                                level for the hospital 
                                determined without regard to 
                                this subparagraph.''.
  (b) Conforming Amendment to IME.--Section 1886(d)(5)(B)(v) 
(42 U.S.C. 1395ww(d)(5)(B)(v)) is amended by adding at the end 
the following: ``The provisions of subparagraph (I) of 
subsection (h)(4) shall apply with respect to the first sentece 
of this clause in the same manner as it applies with respect to 
subparagraph (F) of such subsection.''.
  (c) Report on Extension of Applications Under Redistribution 
Program.--Not later than July 1, 2005, the Secretary shall 
submit to Congress a report containing recommendations 
regarding whether to extend the deadline for applications for 
an increase in resident limits under section 
1886(h)(4)(I)(ii)(II) of the Social Security Act (as added by 
subsection (a)).

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.

  (a) Hold Harmless Provisions.--
          (1) In general.--Section 1833(t)(7)(D)(i) (42 U.S.C. 
        1395l(t)(7)(D)(i)) is amended--
                  (A) in the heading, by striking ``small'' and 
                inserting ``certain'';
                  (B) by inserting ``or a sole community 
                hospital (as defined in section 
                1886(d)(5)(D)(iii)) located in a rural area'' 
                after ``100 beds''; and
                  (C) by striking ``2004'' and inserting 
                ``2006''.
          (2) Effective date.--The amendment made by subsection 
        (a)(2) shall apply with respect to payment for OPD 
        services furnished on and after January 1, 2004.
  (b) Study; Adjustment.--
          (1) Study.--The Secretary shall conduct a study to 
        determine if, under the prospective payment system for 
        hospital outpatient department services under section 
        1833(t) of the Social Security Act (42 U.S.C. 
        1395l(t)), costs incurred by rural providers of 
        services by ambulatory payment classification groups 
        (APCs) exceed those costs incurred by urban providers 
        of services.
          (2) Adjustment.--Insofar as the Secretary determines 
        under paragraph (1) that costs incurred by rural 
        providers exceed those costs incurred by urban 
        providers of services, the Secretary shall provide for 
        an appropriate adjustment under such section 1833(t) to 
        reflect those higher costs by January 1, 2005.

SEC. 408. EXCLUSION OF CERTAIN RURAL HEALTH CLINIC AND FEDERALLY 
                    QUALIFIED HEALTH CENTER SERVICES FROM THE 
                    PROSPECTIVE PAYMENT SYSTEM FOR SKILLED NURSING 
                    FACILITIES.

  (a) In General.--Section 1888(e)(2)(A) (42 U.S.C. 
1395yy(e)(2)(A)) is amended--
          (1) in clause (i)(II), by striking ``clauses (ii) and 
        (iii)'' and inserting ``clauses (ii), (iii), and 
        (iv)''; and
          (2) by adding at the end the following new clause:
                          ``(iv) Exclusion of certain rural 
                        health clinic and federally qualified 
                        health center services.--Services 
                        described in this clause are--
                                  ``(I) rural health clinic 
                                services (as defined in 
                                paragraph (1) of section 
                                1861(aa)); and
                                  ``(II) Federally qualified 
                                health center services (as 
                                defined in paragraph (3) of 
                                such section);
                        that would be described in clause (ii) 
                        if such services were not furnished by 
                        an individual affiliated with a rural 
                        health clinic or a Federally qualified 
                        health center.''.
  (b) Effective Date.--The amendments made by subsection (a) 
shall apply to services furnished on or after January 1, 2004.

SEC. 409. RECOGNITION OF ATTENDING NURSE PRACTITIONERS AS ATTENDING 
                    PHYSICIANS TO SERVE HOSPICE PATIENTS.

  (a) In General.--Section 1861(dd)(3)(B) (42 U.S.C. 
1395x(dd)(3)(B)) is amended by inserting ``or nurse 
practitioner (as defined in subsection (aa)(5))'' after ``the 
physician (as defined in subsection (r)(1))''.
  (b) Prohibition on Nurse Practitioner Certifying Need for 
Hospice.--Section 1814(a)(7)(A)(i)(I) (42 U.S.C. 
1395f(a)(7)(A)(i)(I)) is amended by inserting ``(which for 
purposes of this subparagraph does not include a nurse 
practitioner)'' after ``attending physician (as defined in 
section 1861(dd)(3)(B))''.

SEC. 410. IMPROVEMENT IN PAYMENTS TO RETAIN EMERGENCY CAPACITY FOR 
                    AMBULANCE SERVICES IN RURAL AREAS.

  Section 1834(l) (42 U.S.C. 1395m(l)) is amended--
          (1) by redesignating paragraph (8), as added by 
        section 221(a) of BIPA (114 Stat. 2763A-486), as 
        paragraph (9); and
          (2) by adding at the end the following new paragraph:
          ``(10) Assistance for rural providers furnishing 
        services in low medicare population density areas.--
                  ``(A) In general.--In the case of ground 
                ambulance services furnished on or after 
                January 1, 2004, for which the transportation 
                originates in a qualified rural area (as 
                defined in subparagraph (B)), the Secretary 
                shall provide for an increase in the base rate 
                of the fee schedule for mileage for a trip 
                established under this subsection. In 
                establishing such increase, the Secretary 
                shall, based on the relationship of cost and 
                volume, estimate the average increase in cost 
                per trip for such services as compared with the 
                cost per trip for the average ambulance 
                service.
                  ``(B) Qualified rural area defined.--For 
                purposes of subparagraph (A), the term 
                `qualified rural area' is a rural area (as 
                defined in section 1886(d)(2)(D)) with a 
                population density of medicare beneficiaries 
                residing in the area that is in the lowest 
                three quartiles of all rural county 
                populations.''.

SEC. 411. TWO-YEAR INCREASE FOR HOME HEALTH SERVICES FURNISHED IN A 
                    RURAL AREA.

  (a) In General.--In the case of home health services 
furnished in a rural area (as defined in section 1886(d)(2)(D) 
of the Social Security Act (42 U.S.C. 1395ww(d)(2)(D))) during 
2004 and 2005, the Secretary shall increase the payment amount 
otherwise made under section 1895 of such Act (42 U.S.C. 
1395fff ) for such services by 10 percent.
  (b) Waiving Budget Neutrality.--The Secretary shall not 
reduce the standard prospective payment amount (or amounts) 
under section 1895 of the Social Security Act (42 U.S.C. 
1395fff ) applicable to home health services furnished during a 
period to offset the increase in payments resulting from the 
application of subsection (a).

SEC. 412. PROVIDING SAFE HARBOR FOR CERTAIN COLLABORATIVE EFFORTS THAT 
                    BENEFIT MEDICALLY UNDERSERVED POPULATIONS.

  (a) In General.--Section 1128B(b)(3) (42 U.S.C. 1320a-
7(b)(3)) is amended--
          (1) in subparagraph (E), by striking ``and'' after 
        the semicolon at the end;
          (2) in subparagraph (F), by striking the period at 
        the end and inserting ``; and''; and
          (3) by adding at the end the following new 
        subparagraph:
                  ``(G) any remuneration between a public or 
                nonprofit private health center entity 
                described under clause (i) or (ii) of section 
                1905(l)(2)(B) and any individual or entity 
                providing goods, items, services, donations or 
                loans, or a combination thereof, to such health 
                center entity pursuant to a contract, lease, 
                grant, loan, or other agreement, if such 
                agreement contributes to the ability of the 
                health center entity to maintain or increase 
                the availability, or enhance the quality, of 
                services provided to a medically underserved 
                population served by the health center 
                entity.''.
  (b) Rulemaking for Exception for Health Center Entity 
Arrangements.--
          (1) Establishment.--
                  (A) In general.--The Secretary of Health and 
                Human Services (in this subsection referred to 
                as the ``Secretary'') shall establish, on an 
                expedited basis, standards relating to the 
                exception described in section 1128B(b)(3)(G) 
                of the Social Security Act, as added by 
                subsection (a), for health center entity 
                arrangements to the antikickback penalties.
                  (B) Factors to consider.--The Secretary shall 
                consider the following factors, among others, 
                in establishing standards relating to the 
                exception for health center entity arrangements 
                under subparagraph (A):
                          (i) Whether the arrangement between 
                        the health center entity and the other 
                        party results in savings of Federal 
                        grant funds or increased revenues to 
                        the health center entity.
                          (ii) Whether the arrangement between 
                        the health center entity and the other 
                        party restricts or limits a patient's 
                        freedom of choice.
                          (iii) Whether the arrangement between 
                        the health center entity and the other 
                        party protects a health care 
                        professional's independent medical 
                        judgment regarding medically 
                        appropriate treatment.
                The Secretary may also include other standards 
                and criteria that are consistent with the 
                intent of Congress in enacting the exception 
                established under this section.
          (2) Interim final effect.--No later than 180 days 
        after the date of enactment of this Act, the Secretary 
        shall publish a rule in the Federal Register consistent 
        with the factors under paragraph (1)(B). Such rule 
        shall be effective and final immediately on an interim 
        basis, subject to such change and revision, after 
        public notice and opportunity (for a period of not more 
        than 60 days) for public comment, as is consistent with 
        this subsection.

SEC. 413. GAO STUDY OF GEOGRAPHIC DIFFERENCES IN PAYMENTS FOR 
                    PHYSICIANS' SERVICES.

  (a) Study.--The Comptroller General of the United States 
shall conduct a study of differences in payment amounts under 
the physician fee schedule under section 1848 of the Social 
Security Act (42 U.S.C. 1395w-4) for physicians' services in 
different geographic areas. Such study shall include--
          (1) an assessment of the validity of the geographic 
        adjustment factors used for each component of the fee 
        schedule;
          (2) an evaluation of the measures used for such 
        adjustment, including the frequency of revisions; and
          (3) an evaluation of the methods used to determine 
        professional liability insurance costs used in 
        computing the malpractice component, including a review 
        of increases in professional liability insurance 
        premiums and variation in such increases by State and 
        physician specialty and methods used to update the 
        geographic cost of practice index and relative weights 
        for the malpractice component.
  (b) Report.--Not later than 1 year after the date of the 
enactment of this Act, the Comptroller General shall submit to 
Congress a report on the study conducted under subsection (a). 
The report shall include recommendations regarding the use of 
more current data in computing geographic cost of practice 
indices as well as the use of data directly representative of 
physicians' costs (rather than proxy measures of such costs).

SEC. 414. TREATMENT OF MISSING COST REPORTING PERIODS FOR SOLE 
                    COMMUNITY HOSPITALS.

  (a) In General.--Section 1886(b)(3)(I) (42 U.S.C. 
1395ww(b)(3)(I)) is amended by adding at the end the following 
new clause:
  ``(iii) In no case shall a hospital be denied treatment as a 
sole community hospital or payment (on the basis of a target 
rate as such as a hospital) because data are unavailable for 
any cost reporting period due to changes in ownership, changes 
in fiscal intermediaries, or other extraordinary circumstances, 
so long as data for at least one applicable base cost reporting 
period is available.''.
  (b) Effective Date.--The amendment made by subsection (a) 
shall apply to cost reporting periods beginning on or after 
January 1, 2004.

SEC. 415. EXTENSION OF TELEMEDICINE DEMONSTRATION PROJECT.

  Section 4207 of Balanced Budget Act of 1997 (Public Law 105-
33) is amended--
          (1) in subsection (a)(4), by striking ``4-year'' and 
        inserting ``8-year''; and
          (2) in subsection (d)(3), by striking ``$30,000,000'' 
        and inserting ``$60,000,000''.

SEC. 416. ADJUSTMENT TO THE MEDICARE INPATIENT HOSPITAL PPS WAGE INDEX 
                    TO REVISE THE LABOR-RELATED SHARE OF SUCH INDEX.

  (a) In General.--Section 1886(d)(3)(E) (42 U.S.C. 
1395ww(d)(3)(E)) is amended--
          (1) by striking ``wage levels.--The Secretary'' and 
        inserting ``wage levels.--
                  ``(i) In general.--Except as provided in 
                clause (ii), the Secretary''; and
          (2) by adding at the end the following new clause:
                  ``(ii) Alternative proportion to be adjusted 
                beginning in fiscal year 2004.--
                          ``(I) In general.--Except as provided 
                        in subclause (II), for discharges 
                        occurring on or after October 1, 2003, 
                        the Secretary shall substitute the `62 
                        percent' for the proportion described 
                        in the first sentence of clause (i).
                          ``(II) Hold harmless for certain 
                        hospitals.--If the application of 
                        subclause (I) would result in lower 
                        payments to a hospital than would 
                        otherwise be made, then this 
                        subparagraph shall be applied as if 
                        this clause had not been enacted.''.
  (b) Waiving Budget Neutrality.--Section 1886(d)(3)(E) (42 
U.S.C. 1395ww(d)(3)(E)), as amended by subsection (a), is 
amended by adding at the end of clause (i) the following new 
sentence: ``The Secretary shall apply the previous sentence for 
any period as if the amendments made by section 402(a) of the 
Medicare Prescription Drug and Modernization Act of 2003 had 
not been enacted.''.

SEC. 417. MEDICARE INCENTIVE PAYMENT PROGRAM IMPROVEMENTS FOR PHYSICIAN 
                    SCARCITY.

  (a) Additional Bonus Payment for Certain Physician Scarcity 
Areas.--
          (1) In general.--Section 1833 (42 U.S.C. 1395l) is 
        amended by adding at the end the following new 
        subsection:
  ``(u) Incentive Payments for Physician Scarcity Areas.--
          ``(1) In general.--In the case of physicians' 
        services furnished in a year--
                  ``(A) by a primary care physician in a 
                primary care scarcity county (identified under 
                paragraph (4)); or
                  ``(B) by a physician who is not a primary 
                care physician in a specialist care scarcity 
                county (as so identified),
        in addition to the amount of payment that would 
        otherwise be made for such services under this part, 
        there also shall be paid an amount equal to 5 percent 
        of the payment amount for the service under this part.
          ``(2) Determination of ratios of physicians to 
        medicare beneficiaries in area.--Based upon available 
        data, the Secretary shall periodically determine, for 
        each county or equivalent area in the United States, 
        the following:
                  ``(A) Number of physicians practicing in the 
                area.--The number of physicians who furnish 
                physicians' services in the active practice of 
                medicine or osteopathy in that county or area, 
                other than physicians whose practice is 
                exclusively for the Federal Government, 
                physicians who are retired, or physicians who 
                only provide administrative services. Of such 
                number, the number of such physicians who are--
                          ``(i) primary care physicians; or
                          ``(ii) physicians who are not primary 
                        care physicians.
                  ``(B) Number of medicare beneficiaries 
                residing in the area.--The number of 
                individuals who are residing in the county and 
                are entitled to benefits under part A or 
                enrolled under this part, or both.
                  ``(C) Determination of ratios.--
                          ``(i) Primary care ratio.--The ratio 
                        (in this paragraph referred to as the 
                        `primary care ratio') of the number of 
                        primary care physicians (determined 
                        under subparagraph (A)(i)), to number 
                        of medicare beneficiaries determined 
                        under subparagraph (B).
                          ``(ii) Specialist care ratio.--The 
                        ratio (in this paragraph referred to as 
                        the `specialist care ratio') of the 
                        number of other physicians (determined 
                        under subparagraph (A)(ii)), to number 
                        of medicare beneficiaries determined 
                        under subparagraph (B).
          ``(3) Ranking of counties.--The Secretary shall rank 
        each such county or area based separately on its 
        primary care ratio and its specialist care ratio.
          ``(4) Identification of counties.--The Secretary 
        shall identify--
                  ``(A) those counties and areas (in this 
                paragraph referred to as `primary care scarcity 
                counties') with the lowest primary care ratios 
                that represent, if each such county or area 
                were weighted by the number of medicare 
                beneficiaries determined under paragraph 
                (2)(B), an aggregate total of 20 percent of the 
                total of the medicare beneficiaries determined 
                under such paragraph; and
                  ``(B) those counties and areas (in this 
                subsection referred to as `specialist care 
                scarcity counties') with the lowest specialist 
                care ratios that represent, if each such county 
                or area were weighted by the number of medicare 
                beneficiaries determined under paragraph 
                (2)(B), an aggregate total of 20 percent of the 
                total of the medicare beneficiaries determined 
                under such paragraph.
        There is no administrative or judicial review 
        respecting the identification of a county or area or 
        the assignment of a specialty of any physician under 
        this paragraph.
          ``(5) Rural census tracks.--To the extent feasible, 
        the Secretary shall treat a rural census tract of a 
        metropolitan statistical area (as determined under the 
        most recent modification of the Goldsmith Modification, 
        originally published in the Federal Register on 
        February 27, 1992 (57 Fed. Reg. 6725) as an equivalent 
        area for purposes of qualifying as a primary care 
        scarcity county or specialist care scarcity county 
        under this subsection.
          ``(6) Physician Defined.--For purposes of this 
        paragraph, the term `physician' means a physician 
        described in section 1861(r)(1) and the term `primary 
        care physician' means a physician who is identified in 
        the available data as a general practitioner, family 
        practice practitioner, general internist, or 
        obstetrician or gynecologist.
          ``(7) Publication of list of counties.--In carrying 
        out this subsection for a year, the Secretary shall 
        include, as part of the proposed and final rule to 
        implement the physician fee schedule under section 1848 
        for the year, a list of all areas which will qualify as 
        a primary care scarcity county or specialist care 
        scarcity county under this subsection for the year 
        involved.''.
          (2) Effective date.--The amendments made by 
        subsection (a) shall apply to physicians' services 
        furnished or after January 1, 2004.
  (b) Improvement to Medicare Incentive Payment Program.--
          (1) In general.--Section 1833(m) (42 U.S.C. 1395l(m)) 
        is amended--
                  (A) by inserting ``(1)'' after ``(m)''; and
                  (B) by adding at the end the following new 
                paragraphs:
  ``(2) The Secretary shall establish procedures under which 
the Secretary, and not the physician furnishing the service, is 
responsible for determining when a payment is required to be 
made under paragraph (1).
  ``(3) In carrying out paragraph (1) for a year, the Secretary 
shall include, as part of the proposed and final rule to 
implement the physician fee schedule under section 1848 for the 
year, a list of all areas which will qualify as a health 
professional shortage area under paragraph (1) for the year 
involved.''.
          (2) Effective date.--The amendments made by paragraph 
        (1) shall apply to physicians' services furnished or 
        after January 1, 2004.

SEC. 418. MEDICARE INPATIENT HOSPITAL PAYMENT ADJUSTMENT FOR LOW-VOLUME 
                    HOSPITALS.

  Section 1886(d) (42 U.S.C. 1395ww(d)) is amended by adding at 
the end the following new paragraph:
          ``(12) Payment adjustment for low-volume hospitals.--
                  ``(A) Payment adjustment.--
                          ``(i) In general.--Notwithstanding 
                        any other provision of this section, 
                        for each cost reporting period 
                        (beginning with the cost reporting 
                        period that begins in fiscal year 
                        2004), the Secretary shall provide for 
                        an additional payment amount to each 
                        low-volume hospital (as defined in 
                        clause (iii)) for discharges occurring 
                        during that cost reporting period which 
                        is equal to the applicable percentage 
                        increase (determined under clause (ii)) 
                        in the amount paid to such hospital 
                        under this section for such discharges.
                          ``(ii) Applicable percentage 
                        increase.--The Secretary shall 
                        determine a percentage increase 
                        applicable under this paragraph that 
                        ensures that--
                                  ``(I) no percentage increase 
                                in payments under this 
                                paragraph exceeds 25 percent of 
                                the amount of payment that 
                                would (but for this paragraph) 
                                otherwise be made to a low-
                                volume hospital under this 
                                section for each discharge;
                                  ``(II) low-volume hospitals 
                                that have the lowest number of 
                                discharges during a cost 
                                reporting period receive the 
                                highest percentage increases in 
                                payments due to the application 
                                of this paragraph; and
                                  ``(III) the percentage 
                                increase in payments to any 
                                low-volume hospital due to the 
                                application of this paragraph 
                                is reduced as the number of 
                                discharges per cost reporting 
                                period increases.
                          ``(iii) Low-volume hospital 
                        defined.--For purposes of this 
                        paragraph, the term `low-volume 
                        hospital' means, for a cost reporting 
                        period, a subsection (d) hospital (as 
                        defined in paragraph (1)(B)) other than 
                        a critical access hospital (as defined 
                        in section 1861(mm)(1)) that--
                                  ``(I) the Secretary 
                                determines had an average of 
                                less than 2,000 discharges 
                                (determined with respect to all 
                                patients and not just 
                                individuals receiving benefits 
                                under this title) during the 3 
                                most recent cost reporting 
                                periods for which data are 
                                available that precede the cost 
                                reporting period to which this 
                                paragraph applies; and
                                  ``(II) is located at least 15 
                                miles from a like hospital (or 
                                is deemed by the Secretary to 
                                be so located by reason of such 
                                factors as the Secretary 
                                determines appropriate, 
                                including the time required for 
                                an individual to travel to the 
                                nearest alternative source of 
                                appropriate inpatient care 
                                (after taking into account the 
                                location of such alternative 
                                source of inpatient care and 
                                any weather or travel 
                                conditions that may affect such 
                                travel time).
                  ``(B) Prohibiting certain reductions.--
                Notwithstanding subsection (e), the Secretary 
                shall not reduce the payment amounts under this 
                section to offset the increase in payments 
                resulting from the application of subparagraph 
                (A).''.

SEC. 419. TREATMENT OF CERTAIN CLINICAL DIAGNOSTIC LABORATORY TESTS 
                    FURNISHED BY A SOLE COMMUNITY HOSPITAL.

  Notwithstanding subsections (a), (b), and (h) of section 1833 
of the Social Security Act (42 U.S.C. 1395l) and section 
1834(d)(1) of such Act (42 U.S.C. 1395m(d)(1)), in the case of 
a clinical diagnostic laboratory test covered under part B of 
title XVIII of such Act that is furnished in 2004 or 2005 by a 
sole community hospital (as defined in section 
1886(d)(5)(D)(iii) of such Act (42 U.S.C. 
1395ww(d)(5)(D)(iii))) as part of services furnished to 
patients of the hospital, the following rules shall apply:
          (1) Payment based on reasonable costs.--The amount of 
        payment for such test shall be 100 percent of the 
        reasonable costs of the hospital in furnishing such 
        test.
          (2) No beneficiary cost-sharing.--Notwithstanding 
        section 432, no coinsurance, deductible, copayment, or 
        other cost-sharing otherwise applicable under such part 
        B shall apply with respect to such test.

SEC. 420. ESTABLISHMENT OF FLOOR ON GEOGRAPHIC ADJUSTMENTS OF PAYMENTS 
                    FOR PHYSICIANS' SERVICES.

  Section 1848(e)(1) (42 U.S.C. 1395w-4(e)(1)) is amended--
          (1) in subparagraph (A), by striking ``subparagraphs 
        (B) and (C)'' and inserting ``subparagraphs (B), (C), 
        (E), and (F)''; and
          (2) by adding at the end the following new 
        subparagraphs:
                  ``(E) Floor for work geographic indices.--
                          ``(i) In general.--For purposes of 
                        payment for services furnished on or 
                        after January 1, 2004, and before 
                        January 1, 2008, after calculating the 
                        work geographic indices in subparagraph 
                        (A)(iii), the Secretary shall increase 
                        the work geographic index to the work 
                        floor index for any locality for which 
                        such geographic index is less than the 
                        work floor index.
                          ``(ii) Work floor index.--For 
                        purposes of clause (i), the term 
                        `applicable floor index' means--
                                  ``(I) 0.980 with respect to 
                                services furnished during 2004; 
                                and
                                  ``(II) 1.000 for services 
                                furnished during 2005, 2006, 
                                and 2007.
                  ``(F) Floor for practice expense and 
                malpractice geographic indices.--For purposes 
                of payment for services furnished on or after 
                January 1, 2005, and before January 1, 2008, 
                after calculating the practice expense and 
                malpractice indices in clauses (i) and (ii) of 
                subparagraph (A) and in subparagraph (B), the 
                Secretary shall increase any such index to 1.00 
                for any locality for which such index is less 
                than 1.00.

SEC. 421. AMBULANCE PAYMENT RATES.

  (a) Payment Rates.--Section 1834(l)(3) (42 U.S.C. 
1395m(l)(3)) is amended to read as follows:
          ``(3) Payment rates.--
                  ``(A) In general.--Subject to any adjustment 
                under subparagraph (B) and paragraph (9) and 
                the full payment of a national mileage rate 
                pursuant to subparagraph (2)(E), in 
                establishing such fee schedule, the following 
                rules shall apply:
                          ``(i) Payment rates in 2003.--
                                  ``(I) Ground ambulance 
                                services.--In the case of 
                                ground ambulance services 
                                furnished under this part in 
                                2003, the Secretary shall set 
                                the payment rates under the fee 
                                schedule for such services at a 
                                rate based on the average costs 
                                (as determined by the Secretary 
                                on the basis of the most recent 
                                and reliable information 
                                available) incurred by full 
                                cost ambulance suppliers in 
                                providing nonemergency basic 
                                life support ambulance services 
                                covered under this title, with 
                                adjustments to the rates for 
                                other ground ambulance service 
                                levels to be determined based 
                                on the rule established under 
                                paragraph (1). For the purposes 
                                of the preceding sentence, the 
                                term `full cost ambulance 
                                supplier' means a supplier for 
                                which volunteers or other 
                                unpaid staff comprise less than 
                                20 percent of the supplier's 
                                total staff and which receives 
                                less than 20 percent of space 
                                and other capital assets free 
                                of charge.
                                  ``(II) Other ambulance 
                                services.--In the case of 
                                ambulance services not 
                                described in subclause (I) that 
                                are furnished under this part 
                                in 2003, the Secretary shall 
                                set the payment rates under the 
                                fee schedule for such services 
                                based on the rule established 
                                under paragraph (1).
                          ``(ii) Payment rates in subsequent 
                        years for all ambulance services.--In 
                        the case of any ambulance service 
                        furnished under this part in 2004 or 
                        any subsequent year, the Secretary 
                        shall set the payment rates under the 
                        fee schedule for such service at 
                        amounts equal to the payment rate under 
                        the fee schedule for that service 
                        furnished during the previous year, 
                        increased by the percentage increase in 
                        the Consumer Price Index for all urban 
                        consumers (United States city average) 
                        for the 12-month period ending with 
                        June of the previous year.
                  ``(B) Adjustment in rural rates.--For years 
                beginning with 2004, the Secretary, after 
                taking into consideration the recommendations 
                contained in the report submitted under section 
                221(b)(3) the Medicare, Medicaid, and SCHIP 
                Benefits Improvements and Protection Act of 
                2000, shall adjust the fee schedule payment 
                rates that would otherwise apply under this 
                subsection for ambulance services provided in 
                low density rural areas based on the increased 
                cost (if any) of providing such services in 
                such areas.''.
  (b) Conforming Amendment.--Section 221(c) of BIPA is 
repealed.

                 TITLE V--PROVISIONS RELATING TO PART A

                Subtitle A--Inpatient Hospital Services

SEC. 501. ADJUSTMENT FOR INDIRECT COSTS OF MEDICAL EDUCATION (IME).

  Section 1886(d)(5)(B)(ii) (42 U.S.C. 1395ww(d)(5)(B)(ii)) is 
amended--
          (1) by striking ``and'' at the end of subclause (VI);
          (2) in subclause (VII)--
                  (A) by striking ``on or after October 1, 
                2002,'' and inserting ``during fiscal year 
                2003,''; and
                  (B) by striking the period at the end and 
                inserting ``; and''; and
          (3) by inserting after subclause (VII) the following 
        new subclauses:
                  ``(VIII) during each of fiscal years 2004 and 
                2005, ``c'' is equal to 1.47; and
                  ``(IX) on or after October 1, 2005, ``c'' is 
                equal to 1.35.''.

SEC. 502. RECOGNITION OF NEW MEDICAL TECHNOLOGIES UNDER INPATIENT 
                    HOSPITAL PPS.

  (a) Improving Timeliness of Data Collection.--Section 
1886(d)(5)(K) (42 U.S.C. 1395ww(d)(5)(K)) is amended by adding 
at the end the following new clause:
  ``(vii) Under the mechanism under this subparagraph, the 
Secretary shall provide for the addition of new diagnosis and 
procedure codes in April 1 of each year, but the addition of 
such codes shall not require the Secretary to adjust the 
payment (or diagnosis-related group classification) under this 
subsection until the fiscal year that begins after such 
date.''.
  (b) Eligibility Standard for Technology Outliers.--
          (1) Minimum period for recognition of new 
        technologies.--Section 1886(d)(5)(K)(vi) (42 U.S.C. 
        1395ww(d)(5)(K)(vi)) is amended--
                  (A) by inserting ``(I)'' after ``(vi)''; and
                  (B) by adding at the end the following new 
                subclause:
  ``(II) Under such criteria, a service or technology shall not 
be denied treatment as a new service or technology on the basis 
of the period of time in which the service or technology has 
been in use if such period ends before the end of the 2-to-3-
year period that begins on the effective date of implementation 
of a code under ICD-9-CM (or a successor coding methodology) 
that enables the identification of specific discharges in which 
the service or technology has been used.''.
          (2) Adjustment of threshold.--Section 
        1886(d)(5)(K)(ii)(I) (42 U.S.C. 1395ww(d)(5)(K)(ii)(I)) 
        is amended by inserting ``(applying a threshold 
        specified by the Secretary that is 75 percent of one 
        standard deviation for the diagnosis-related group 
        involved)'' after ``is inadequate''.
          (3) Criterion for substantial improvement.--Section 
        1886(d)(5)(K)(vi) (42 U.S.C. 1395ww(d)(5)(K)(vi)), as 
        amended by paragraph (1), is further amended by adding 
        at the end the following subclause:
  ``(III) The Secretary shall by regulation provide for further 
clarification of the criteria applied to determine whether a 
new service or technology represents an advance in medical 
technology that substantially improves the diagnosis or 
treatment of beneficiaries. Under such criteria, in determining 
whether a new service or technology represents an advance in 
medical technology that substantially improves the diagnosis or 
treatment of beneficiaries, the Secretary shall deem a service 
or technology as meeting such requirement if the service or 
technology is a drug or biological that is designated under 
section 506 of the Federal Food, Drug, and Cosmetic Act, 
approved under section 314.510 or 601.41 of title 21, Code of 
Federal Regulations, or designated for priority review when the 
marketing application for such drug or biological was filed or 
is a medical device for which an exemption has been granted 
under section 520(m) of such Act, or for which priority review 
has been provided under section 515(d)(5) of such Act. Nothing 
in this subclause shall be construed as effecting the authority 
of the Secretary to determine whether items and services are 
medically necessary and appropriate under section 
1862(a)(1).''.
          (4) Process for public input.--Section 1886(d)(5)(K) 
        (42 U.S.C. 1395ww(d)(5)(K)), as amended by paragraph 
        (1), is amended--
                  (A) in clause (i), by adding at the end the 
                following: ``Such mechanism shall be modified 
                to meet the requirements of clause (viii).''; 
                and
                  (B) by adding at the end the following new 
                clause:
  ``(viii) The mechanism established pursuant to clause (i) 
shall be adjusted to provide, before publication of a proposed 
rule, for public input regarding whether a new service or 
technology not described in the second sentence of clause 
(vi)(III) represents an advance in medical technology that 
substantially improves the diagnosis or treatment of 
beneficiaries as follows:
          ``(I) The Secretary shall make public and 
        periodically update a list of all the services and 
        technologies for which an application for additional 
        payment under this subparagraph is pending.
          ``(II) The Secretary shall accept comments, 
        recommendations, and data from the public regarding 
        whether the service or technology represents a 
        substantial improvement.
          ``(III) The Secretary shall provide for a meeting at 
        which organizations representing hospitals, physicians, 
        medicare beneficiaries, manufacturers, and any other 
        interested party may present comments, recommendations, 
        and data to the clinical staff of the Centers for 
        Medicare & Medicaid Services before publication of a 
        notice of proposed rulemaking regarding whether service 
        or technology represents a substantial improvement.''.
  (c) Preference for Use of DRG Adjustment.--Section 
1886(d)(5)(K) (42 U.S.C. 1395ww(d)(5)(K)) is further amended by 
adding at the end the following new clause:
  ``(ix) Before establishing any add-on payment under this 
subparagraph with respect to a new technology, the Secretary 
shall seek to identify one or more diagnosis-related groups 
associated with such technology, based on similar clinical or 
anatomical characteristics and the cost of the technology. 
Within such groups the Secretary shall assign an eligible new 
technology into a diagnosis-related group where the average 
costs of care most closely approximate the costs of care of 
using the new technology. In such case, the new technology 
would no longer meet the threshold of exceeding 75 percent of 
the standard deviation for the diagnosis-related group involved 
under clause (ii)(I). No add-on payment under this subparagraph 
shall be made with respect to such new technology and this 
clause shall not affect the application of paragraph 
(4)(C)(iii).''.
  (d) Improvement in Payment for New Technology.--Section 
1886(d)(5)(K)(ii)(III) (42 U.S.C. 1395ww(d)(5)(K)(ii)(III)) is 
amended by inserting after ``the estimated average cost of such 
service or technology'' the following: ``(based on the marginal 
rate applied to costs under subparagraph (A))''.
  (e) Establishment of New Funding for Hospital Inpatient 
Technology.--Section 1886(d)(5)(K)(ii)(III) (42 U.S.C. 
1395ww(d)(5)(K)(ii)(III)) is amended by striking ``subject to 
paragraph (4)(C)(iii),''.
  (f) Effective Date.--
          (1) In general.--The Secretary shall implement the 
        amendments made by this section so that they apply to 
        classification for fiscal years beginning with fiscal 
        year 2005.
          (2) Reconsiderations of applications for fiscal year 
        2003 that are denied.--In the case of an application 
        for a classification of a medical service or technology 
        as a new medical service or technology under section 
        1886(d)(5)(K) of the Social Security Act (42 U.S.C. 
        1395ww(d)(5)(K)) that was filed for fiscal year 2004 
        and that is denied--
                  (A) the Secretary shall automatically 
                reconsider the application as an application 
                for fiscal year 2005 under the amendments made 
                by this section; and
                  (B) the maximum time period otherwise 
                permitted for such classification of the 
                service or technology shall be extended by 12 
                months.

SEC. 503. INCREASE IN FEDERAL RATE FOR HOSPITALS IN PUERTO RICO.

  Section 1886(d)(9) (42 U.S.C. 1395ww(d)(9)) is amended--
          (1) in subparagraph (A)--
                  (A) in clause (i), by striking ``for 
                discharges beginning on or after October 1, 
                1997, 50 percent (and for discharges between 
                October 1, 1987, and September 30, 1997, 75 
                percent)'' and inserting ``the applicable 
                Puerto Rico percentage (specified in 
                subparagraph (E))''; and
                  (B) in clause (ii), by striking ``for 
                discharges beginning in a fiscal year beginning 
                on or after October 1, 1997, 50 percent (and 
                for discharges between October 1, 1987, and 
                September 30, 1997, 25 percent)'' and inserting 
                ``the applicable Federal percentage (specified 
                in subparagraph (E))''; and
          (2) by adding at the end the following new 
        subparagraph:
  ``(E) For purposes of subparagraph (A), for discharges 
occurring--
          ``(i) on or after October 1, 1987, and before October 
        1, 1997, the applicable Puerto Rico percentage is 75 
        percent and the applicable Federal percentage is 25 
        percent;
          ``(ii) on or after October 1, 1997, and before 
        October 1, 2003, the applicable Puerto Rico percentage 
        is 50 percent and the applicable Federal percentage is 
        50 percent;
          ``(iii) during fiscal year 2004, the applicable 
        Puerto Rico percentage is 41 percent and the applicable 
        Federal percentage is 59 percent;
          ``(iv) during fiscal year 2005, the applicable Puerto 
        Rico percentage is 33 percent and the applicable 
        Federal percentage is 67 percent; and
          ``(v) on or after October 1, 2005, the applicable 
        Puerto Rico percentage is 25 percent and the applicable 
        Federal percentage is 75 percent.''.

SEC. 504. WAGE INDEX ADJUSTMENT RECLASSIFICATION REFORM .

  (a) In General.--Section 1886(d) (42 U.S.C. 1395ww(d)) is 
amended by adding at the end the following:
  ``(11)(A) In order to recognize commuting patterns among 
Metropolitan Statistical Areas and between such Areas and rural 
areas, the Secretary shall establish a process, upon 
application of a subsection (d) hospital that establishes that 
it is a qualifying hospital described in subparagraph (B), for 
an increase of the wage index applied under paragraph (3)(E) 
for the hospital in the amount computed under subparagraph (D).
  ``(B) A qualifying hospital described in this subparagraph is 
a subsection (d) hospital--
          ``(i) the average wages of which exceed the average 
        wages for the area in which the hospital is located; 
        and
          ``(ii) which has at least 10 percent of its employees 
        who reside in one or more higher wage index areas.
  ``(C) For purposes of this paragraph, the term `higher wage 
index area' means, with respect to a hospital, an area with a 
wage index that exceeds that of the area in which the hospital 
is located.
  ``(D) The increase in the wage index under subparagraph (A) 
for a hospital shall be equal to the percentage of the 
employees of the hospital that resides in any higher wage index 
area multiplied by the sum of the products, for each higher 
wage index area of--
          ``(i) the difference between (I) the wage index for 
        such area, and (II) the wage index of the area in which 
        the hospital is located (before the application of this 
        paragraph); and
          ``(ii) the number of employees of the hospital that 
        reside in such higher wage index area divided by the 
        total number of such employees that reside in all high 
        wage index areas.
  ``(E) The process under this paragraph shall be based upon 
the process used by the Medicare Geographic Classification 
Review Board under paragraph (10) with respect to data 
submitted by hospitals to the Board on the location of 
residence of hospital employees and wages under the applicable 
schedule established for geographic reclassification.
  ``(F) A reclassification under this paragraph shall be 
effective for a period of 3 fiscal years, except that the 
Secretary shall establish procedures under which a subsection 
(d) hospital may elect to terminate such reclassification 
before the end of such period.
  ``(G) A hospital that is reclassified under this paragraph 
for a period is not eligible for reclassification under 
paragraphs (8) or (10) during that period.
  ``(H) Any increase in a wage index under this paragraph for a 
hospital shall not be taken into account for purposes of--
          ``(i) computing the wage index for the area in which 
        the hospital is located or any other area; or
          ``(ii) applying any budget neutrality adjustment with 
        respect to such index under paragraph (8)(D).''.
  (b) Effective Date.--The amendment made by subsection (a) 
shall first apply to the wage index for cost reporting period 
beginning on or after October 1, 2004.

SEC. 505. CLARIFICATIONS TO CERTAIN EXCEPTIONS TO MEDICARE LIMITS ON 
                    PHYSICIAN REFERRALS.

  (a) Ownership and Investment Interests in Whole Hospitals.--
          (1) In general.--Section 1877(d)(3) (42 U.S.C. 
        1395nn(d)(3)) is amended--
                  (A) by striking ``and'' at the end of 
                subparagraph (A); and
                  (B) by redesignating subparagraph (B) as 
                subparagraph (C) and inserting after 
                subparagraph (A) the following:
                  ``(B) the hospital is not a specialty 
                hospital (as defined in subsection (h)(7)); 
                and''.
          (2) Definition.--Section 1877(h) (42 U.S.C. 
        1395nn(h)) is amended by adding at the end the 
        following:
          ``(7) Specialty hospital.--
                  ``(A) In general.--For purposes of this 
                section, except as provided in subparagraph 
                (B), the term `specialty hospital' means a 
                hospital that is primarily or exclusively 
                engaged in the care and treatment of one of the 
                following:
                          ``(i) patients with a cardiac 
                        condition;
                          ``(ii) patients with an orthopedic 
                        condition;
                          ``(iii) patients receiving a surgical 
                        procedure; or
                          ``(iv) any other specialized category 
                        of patients or cases that the Secretary 
                        designates as inconsistent with the 
                        purpose of permitting physician 
                        ownership and investment interests in a 
                        hospital under this section.
                  ``(B) Exception.--For purposes of this 
                section, the term `specialty hospital' does not 
                include any hospital--
                          ``(i) determined by the Secretary--
                                  ``(I) to be in operation 
                                before June 12, 2003; or
                                  ``(II) under development as 
                                of such date;
                          ``(ii) for which the number of beds 
                        and the number of physician investors 
                        at any time on or after such date is no 
                        greater than the number of such beds or 
                        investors as of such date; and
                          ``(iii) that meets such other 
                        requirements as the Secretary may 
                        specify.''.
  (b) Effective Date.--Subject to subsection (c), the 
amendments made by this section shall apply to referrals made 
for designated health services on or after January 1, 2004.
  (c) Application of Exception for Hospitals Under 
Development.--For purposes of section 1877(h)(7)(B)(i)(II) of 
the Social Security Act, as added by subsection (a)(2), in 
determining whether a hospital is under development as of June 
12, 2003, the Secretary shall consider--
          (1) whether architectural plans have been completed, 
        funding has been received, zoning requirements have 
        been met, and necessary approvals from appropriate 
        State agencies have been received; and
          (2) any other evidence the Secretary determines would 
        indicate whether a hospital is under development as of 
        such date.

                      Subtitle B--Other Provisions

SEC. 511. PAYMENT FOR COVERED SKILLED NURSING FACILITY SERVICES.

  (a) Adjustment to RUGs for AIDS Residents.--Paragraph (12) of 
section 1888(e) (42 U.S.C. 1395yy(e)) is amended to read as 
follows:
          ``(12) Adjustment for residents with aids.--
                  ``(A) In general.--Subject to subparagraph 
                (B), in the case of a resident of a skilled 
                nursing facility who is afflicted with acquired 
                immune deficiency syndrome (AIDS), the per diem 
                amount of payment otherwise applicable shall be 
                increased by 128 percent to reflect increased 
                costs associated with such residents.
                  ``(B) Sunset.--Subparagraph (A) shall not 
                apply on and after such date as the Secretary 
                certifies that there is an appropriate 
                adjustment in the case mix under paragraph 
                (4)(G)(i) to compensate for the increased costs 
                associated with residents described in such 
                subparagraph.''.
  (b) Effective Date.--The amendment made by paragraph (1) 
shall apply to services furnished on or after October 1, 2003.

SEC. 512. COVERAGE OF HOSPICE CONSULTATION SERVICES.

  (a) Coverage of Hospice Consultation Services.--Section 
1812(a) (42 U.S.C. 1395d(a)) is amended--
          (1) by striking ``and'' at the end of paragraph (3);
          (2) by striking the period at the end of paragraph 
        (4) and inserting ``; and''; and
          (3) by inserting after paragraph (4) the following 
        new paragraph:
          ``(5) for individuals who are terminally ill, have 
        not made an election under subsection (d)(1), and have 
        not previously received services under this paragraph, 
        services that are furnished by a physician who is 
        either the medical director or an employee of a hospice 
        program and that consist of--
                  ``(A) an evaluation of the individual's need 
                for pain and symptom management;
                  ``(B) counseling the individual with respect 
                to end-of-life issues and care options; and
                  ``(C) advising the individual regarding 
                advanced care planning.''.
  (b) Payment.--Section 1814(i) (42 U.S.C. l395f(i)) is amended 
by adding at the end the following new paragraph:
  ``(4) The amount paid to a hospice program with respect to 
the services under section 1812(a)(5) for which payment may be 
made under this part shall be equal to an amount equivalent to 
the amount established for an office or other outpatient visit 
for evaluation and management associated with presenting 
problems of moderate severity under the fee schedule 
established under section 1848(b), other than the portion of 
such amount attributable to the practice expense component.''.
  (c) Conforming Amendment.--Section 1861(dd)(2)(A)(i) (42 
U.S.C. 1395x(dd)(2)(A)(i)) is amended by inserting before the 
comma at the end the following: ``and services described in 
section 1812(a)(5)''.
  (d) Effective Date.--The amendments made by this section 
shall apply to services provided by a hospice program on or 
after January 1, 2004.

                TITLE VI--PROVISIONS RELATING TO PART B

                    Subtitle A--Physicians' Services

SEC. 601. REVISION OF UPDATES FOR PHYSICIANS' SERVICES.

  (a) Update for 2004 and 2005.--
          (1) In general.--Section 1848(d) (42 U.S.C. 1395w-
        4(d)) is amended by adding at the end the following new 
        paragraph:
          ``(5) Update for 2004 and 2005.--The update to the 
        single conversion factor established in paragraph 
        (1)(C) for each of 2004 and 2005 shall be not less than 
        1.5 percent.''.
          (2) Conforming amendment.--Paragraph (4)(B) of such 
        section is amended, in the matter before clause (i), by 
        inserting ``and paragraph (5)'' after ``subparagraph 
        (D)''.
          (3) Not treated as change in law and regulation in 
        sustainable growth rate determination.--The amendments 
        made by this subsection shall not be treated as a 
        change in law for purposes of applying section 
        1848(f)(2)(D) of the Social Security Act (42 U.S.C. 
        1395w-4(f)(2)(D)).
  (b) Use of 10-Year Rolling Average in Computing Gross 
Domestic Product.--
          (1) In general.--Section 1848(f)(2)(C) (42 U.S.C. 
        1395w-4(f)(2)(C)) is amended--
                  (A) by striking ``projected'' and inserting 
                ``annual average''; and
                  (B) by striking ``from the previous 
                applicable period to the applicable period 
                involved'' and inserting ``during the 10-year 
                period ending with the applicable period 
                involved''.
          (2) Effective date.--The amendment made by paragraph 
        (1) shall apply to computations of the sustainable 
        growth rate for years beginning with 2003.

SEC. 602. STUDIES ON ACCESS TO PHYSICIANS' SERVICES.

  (a) GAO Study on Beneficiary Access to Physicians' 
Services.--
          (1) Study.--The Comptroller General of the United 
        States shall conduct a study on access of medicare 
        beneficiaries to physicians' services under the 
        medicare program. The study shall include--
                  (A) an assessment of the use by beneficiaries 
                of such services through an analysis of claims 
                submitted by physicians for such services under 
                part B of the medicare program;
                  (B) an examination of changes in the use by 
                beneficiaries of physicians' services over 
                time;
                  (C) an examination of the extent to which 
                physicians are not accepting new medicare 
                beneficiaries as patients.
          (2) Report.--Not later than 18 months after the date 
        of the enactment of this Act, the Comptroller General 
        shall submit to Congress a report on the study 
        conducted under paragraph (1). The report shall include 
        a determination whether--
                  (A) data from claims submitted by physicians 
                under part B of the medicare program indicate 
                potential access problems for medicare 
                beneficiaries in certain geographic areas; and
                  (B) access by medicare beneficiaries to 
                physicians' services may have improved, 
                remained constant, or deteriorated over time.
  (b) Study and Report on Supply of Physicians.--
          (1) Study.--The Secretary shall request the Institute 
        of Medicine of the National Academy of Sciences to 
        conduct a study on the adequacy of the supply of 
        physicians (including specialists) in the United States 
        and the factors that affect such supply.
          (2) Report to congress.--Not later than 2 years after 
        the date of enactment of this section, the Secretary 
        shall submit to Congress a report on the results of the 
        study described in paragraph (1), including any 
        recommendations for legislation.
  (c) GAO Study of Medicare Payment for Inhalation Therapy.--
          (1) Study.--The Comptroller General of the United 
        States shall conduct a study to examine the adequacy of 
        current reimbursements for inhalation therapy under the 
        medicare program.
          (2) Report.--Not later than May 1, 2004, the 
        Comptroller General shall submit to Congress a report 
        on the study conducted under paragraph (1).

SEC. 603. MEDPAC REPORT ON PAYMENT FOR PHYSICIANS' SERVICES.

  (a) Practice Expense Component.--Not later than 1 year after 
the date of the enactment of this Act, the Medicare Payment 
Advisory Commission shall submit to Congress a report on the 
effect of refinements to the practice expense component of 
payments for physicians' services, after the transition to a 
full resource-based payment system in 2002, under section 1848 
of the Social Security Act (42 U.S.C. 1395w-4). Such report 
shall examine the following matters by physician specialty:
          (1) The effect of such refinements on payment for 
        physicians' services.
          (2) The interaction of the practice expense component 
        with other components of and adjustments to payment for 
        physicians' services under such section.
          (3) The appropriateness of the amount of compensation 
        by reason of such refinements.
          (4) The effect of such refinements on access to care 
        by medicare beneficiaries to physicians' services.
          (5) The effect of such refinements on physician 
        participation under the medicare program.
  (b) Volume of Physician Services.--The Medicare Payment 
Advisory Commission shall submit to Congress a report on the 
extent to which increases in the volume of physicians' services 
under part B of the medicare program are a result of care that 
improves the health and well-being of medicare beneficiaries. 
The study shall include the following:
          (1) An analysis of recent and historic growth in the 
        components that the Secretary includes under the 
        sustainable growth rate (under section 1848(f) of the 
        Social Security Act).
          (2) An examination of the relative growth of volume 
        in physician services between medicare beneficiaries 
        and other populations.
          (3) An analysis of the degree to which new 
        technology, including coverage determinations of the 
        Centers for Medicare & Medicaid Services, has affected 
        the volume of physicians' services.
          (4) An examination of the impact on volume of 
        demographic changes.
          (5) An examination of shifts in the site of service 
        of services that influence the number and intensity of 
        services furnished in physicians' offices and the 
        extent to which changes in reimbursement rates to other 
        providers have affected these changes.
          (6) An evaluation of the extent to which the Centers 
        for Medicare & Medicaid Services takes into account the 
        impact of law and regulations on the sustainable growth 
        rate.

                    Subtitle B--Preventive Services

SEC. 611. COVERAGE OF AN INITIAL PREVENTIVE PHYSICAL EXAMINATION.

  (a) Coverage.--Section 1861(s)(2) (42 U.S.C. 1395x(s)(2)) is 
amended--
          (1) in subparagraph (U), by striking ``and'' at the 
        end;
          (2) in subparagraph (V), by inserting ``and'' at the 
        end; and
          (3) by adding at the end the following new 
        subparagraph:
          ``(W) an initial preventive physical examination (as 
        defined in subsection (ww));''.
  (b) Services Described.--Section 1861 (42 U.S.C. 1395x) is 
amended by adding at the end the following new subsection:

               ``Initial Preventive Physical Examination

  ``(ww) The term `initial preventive physical examination' 
means physicians' services consisting of a physical examination 
with the goal of health promotion and disease detection and 
includes items and services (excluding clinical laboratory 
tests), as determined by the Secretary, consistent with the 
recommendations of the United States Preventive Services Task 
Force.''.
  (c) Waiver of Deductible and Coinsurance.--
          (1) Deductible.--The first sentence of section 
        1833(b) (42 U.S.C. 1395l(b)) is amended--
                  (A) by striking ``and'' before ``(6)'', and
                  (B) by inserting before the period at the end 
                the following: ``, and (7) such deductible 
                shall not apply with respect to an initial 
                preventive physical examination (as defined in 
                section 1861(ww))''.
          (2) Coinsurance.--Section 1833(a)(1) (42 U.S.C. 
        1395l(a)(1)) is amended--
                  (A) in clause (N), by inserting ``(or 100 
                percent in the case of an initial preventive 
                physical examination, as defined in section 
                1861(ww))'' after ``80 percent''; and
                  (B) in clause (O), by inserting ``(or 100 
                percent in the case of an initial preventive 
                physical examination, as defined in section 
                1861(ww))'' after ``80 percent''.
  (d) Payment as Physicians' Services.--Section 1848(j)(3) (42 
U.S.C. 1395w-4(j)(3)) is amended by inserting ``(2)(W),'' after 
``(2)(S),''.
  (e) Other Conforming Amendments.--Section 1862(a) (42 U.S.C. 
1395y(a)) is amended--
          (1) in paragraph (1)--
                  (A) by striking ``and'' at the end of 
                subparagraph (H);
                  (B) by striking the semicolon at the end of 
                subparagraph (I) and inserting ``, and''; and
                  (C) by adding at the end the following new 
                subparagraph:
          ``(J) in the case of an initial preventive physical 
        examination, which is performed not later than 6 months 
        after the date the individual's first coverage period 
        begins under part B;''; and
          (2) in paragraph (7), by striking ``or (H)'' and 
        inserting ``(H), or (J)''.
  (f) Effective Date.--The amendments made by this section 
shall apply to services furnished on or after January 1, 2004, 
but only for individuals whose coverage period begins on or 
after such date.

SEC. 612. COVERAGE OF CHOLESTEROL AND BLOOD LIPID SCREENING.

  (a) Coverage.--Section 1861(s)(2) (42 U.S.C. 1395x(s)(2)), as 
amended by section 611(a), is amended--
          (1) in subparagraph (V), by striking ``and'' at the 
        end;
          (2) in subparagraph (W), by inserting ``and'' at the 
        end; and
          (3) by adding at the end the following new 
        subparagraph:
                  ``(X) cholesterol and other blood lipid 
                screening tests (as defined in subsection 
                (XX));''.
  (b) Services Described.--Section 1861 (42 U.S.C. 1395x), as 
amended by section 611(b), is amended by adding at the end the 
following new subsection:

           ``Cholesterol and Other Blood Lipid Screening Test

  ``(xx)(1) The term `cholesterol and other blood lipid 
screening test' means diagnostic testing of cholesterol and 
other lipid levels of the blood for the purpose of early 
detection of abnormal cholesterol and other lipid levels.
  ``(2) The Secretary shall establish standards, in 
consultation with appropriate organizations, regarding the 
frequency and type of cholesterol and other blood lipid 
screening tests, except that such frequency may not be more 
often than once every 2 years.''.
  (c) Frequency.--Section 1862(a)(1) (42 U.S.C. 1395y(a)(1)), 
as amended by section 611(e), is amended--
          (1) by striking ``and'' at the end of subparagraph 
        (I);
          (2) by striking the semicolon at the end of 
        subparagraph (J) and inserting ``; and''; and
          (3) by adding at the end the following new 
        subparagraph:
          ``(K) in the case of a cholesterol and other blood 
        lipid screening test (as defined in section 
        1861(xx)(1)), which is performed more frequently than 
        is covered under section 1861(xx)(2).''.
  (d) Effective Date.--The amendments made by this section 
shall apply to tests furnished on or after January 1, 2005.

SEC. 613. WAIVER OF DEDUCTIBLE FOR COLORECTAL CANCER SCREENING TESTS.

  (a) In General.--The first sentence of section 1833(b) (42 
U.S.C. 1395l(b)), as amended by section 611(c)(1), is amended--
          (1) by striking ``and'' before ``(7)''; and
          (2) by inserting before the period at the end the 
        following: ``, and (8) such deductible shall not apply 
        with respect to colorectal cancer screening tests (as 
        described in section 1861(pp)(1))''.
  (b) Conforming Amendments.--Paragraphs (2)(C)(ii) and 
(3)(C)(ii) of section 1834(d) (42 U.S.C. 1395m(d)) are each 
amended--
          (1) by striking ``deductible and'' in the heading; 
        and
          (2) in subclause (I), by striking ``deductible or'' 
        each place it appears.
  (c) Effective Date.--The amendment made by this section shall 
apply to items and services furnished on or after Janaury 1, 
2004.

SEC. 614. IMPROVED PAYMENT FOR CERTAIN MAMMOGRAPHY SERVICES.

  (a) Exclusion From OPD Fee Schedule.--Section 
1833(t)(1)(B)(iv) (42 U.S.C. 1395l(t)(1)(B)(iv)) is amended by 
inserting before the period at the end the following: ``and 
does not include screening mammography (as defined in section 
1861(jj)) and unilateral and bilateral diagnostic 
mammography''.
  (b) Adjustment to Technical Component.--For diagnostic 
mammography performed on or after January 1, 2004, for which 
payment is made under the physician fee schedule under section 
1848 of the Social Security Act (42 U.S.C. 1395w-4), the 
Secretary, based on the most recent cost data available, shall 
provide for an appropriate adjustment in the payment amount for 
the technical component of the diagnostic mammography.
  (c) Effective Date.--The amendment made by subsection (a) 
shall apply to mammography performed on or after January 1, 
2004.

                       Subtitle C--Other Services

SEC. 621. HOSPITAL OUTPATIENT DEPARTMENT (HOPD) PAYMENT REFORM.

  (a) Payment for Drugs.--
          (1) Modification of ambulatory payment classification 
        (apc) groups.--Section 1833(t) (42 U.S.C. 1395l(t)) is 
        amended--
                  (A) by redesignating paragraph (13) as 
                paragraph (14); and
                  (B) by inserting after paragraph (12) the 
                following new paragraph:
          ``(13) Drug apc payment rates.--
                  ``(A) In general.--With respect to payment 
                for covered OPD services that includes a 
                specified covered outpatient drug (defined in 
                subparagraph (B)), the amount provided for 
                payment for such drug under the payment system 
                under this subsection for services furnished 
                in--
                          ``(i) 2004, 2005, or 2006, shall in 
                        no case--
                                  ``(I) exceed 95 percent of 
                                the average wholesale price for 
                                the drug; or
                                  ``(II) be less than the 
                                transition percentage (under 
                                subparagraph (C)) of the 
                                average wholesale price for the 
                                drug; or
                          ``(ii) a subsequent year, shall be 
                        equal to the average price for the drug 
                        for that area and year established 
                        under the competitive acquisition 
                        program under section 1847A as 
                        calculated and applied by the Secretary 
                        for purposes of this paragraph.
                  ``(B) Specified covered outpatient drug 
                defined.--
                          ``(i) In general.--In this paragraph, 
                        the term `specified covered outpatient 
                        drug' means, subject to clause (ii), a 
                        covered outpatient drug (as defined in 
                        1927(k)(2), that is--
                                  ``(I) a radiopharmaceutical; 
                                or
                                  ``(II) a drug or biological 
                                for which payment was made 
                                under paragraph (6) (relating 
                                to pass-through payments) on or 
                                before December 31, 2002.
                          ``(ii) Exception.--Such term does not 
                        include--
                                  ``(I) a drug for which 
                                payment is first made on or 
                                after January 1, 2003, under 
                                paragraph (6); or
                                  ``(II) a drug for a which a 
                                temporary HCPCS code has not 
                                been assigned.
                  ``(C) Transition towards historical average 
                acquisition cost.--The transition percentage 
                under this subparagraph for drugs furnished in 
                a year is determined in accordance with the 
                following table:

                                                                        The transition percentage for--

                        For the year--                                             Innovator
                                                                Single source   multiple source   Generic drugs
                                                                 drugs are--      drugs are--         are--

2004.........................................................              83%            81.5%              46%
2005.........................................................              77%              75%              46%
2006.........................................................              71%              68%              46%

                  ``(D) Payment for new drugs until temporary 
                HCPCS code assigned.--With respect to payment 
                for covered OPD services that includes a 
                covered outpatient drug (as defined in 1927(k)) 
                for a which a temporary HCPCS code has not been 
                assigned, the amount provided for payment for 
                such drug under the payment system under this 
                subsection shall be equal to 95 percent of the 
                average wholesale price for the drug.
                  ``(E) Classes of drugs.--For purposes of this 
                paragraph, each of the following shall be 
                treated as a separate class of drugs:
                          ``(i) Sole source drugs.--A sole 
                        source drug which for purposes of this 
                        paragraph means a drug or biological 
                        that is not a multiple source drug (as 
                        defined in subclauses (I) and (II) of 
                        section 1927(k)(7)(A)(i)) and is not a 
                        drug approved under an abbreviated new 
                        drug application under section 355(j) 
                        of the Federal Food, Drug, and Cosmetic 
                        Act.
                          ``(ii) Innovator multiple source 
                        drugs.--Innovator multiple source drugs 
                        (as defined in section 
                        1927(k)(7)(A)(ii)).
                          ``(iii) Noninnovator multiple source 
                        drugs.--Noninnovator multiple source 
                        drugs (as defined in section 
                        1927(k)(7)(A)(iii)).
                  ``(F) Inapplicability of expenditures in 
                determining conversion factors.--Additional 
                expenditures resulting from this paragraph and 
                paragraph (14)(C) in a year shall not be taken 
                into account in establishing the conversion 
                factor for that year.''.
          (2) Reduction in threshold for separate apcs for 
        drugs.--Section 1833(t)(14), as redesignated by 
        paragraph (1)(A), is amended by adding at the end the 
        following new subparagraph:
                  ``(B) Threshold for establishment of separate 
                apcs for drugs.--The Secretary shall reduce the 
                threshold for the establishment of separate 
                ambulatory procedure classification groups 
                (APCs) with respect to drugs to $50 per 
                administration.''.
          (3) Exclusion of separate drug apcs from outlier 
        payments.--Section 1833(t)(5) is amended by adding at 
        the end the following new subparagraph:
                  ``(E) Exclusion of separate drug apcs from 
                outlier payments.--No additional payment shall 
                be made under subparagraph (A) in the case of 
                ambulatory procedure codes established 
                separately for drugs.''.
          (4) Payment for pass through drugs.--Clause (i) of 
        section 1833(t)(6)(D) (42 U.S.C. 1395l(t)(6)(D)) is 
        amended by inserting after ``under section 1842(o)'' 
        the following: ``(or if the drug is covered under a 
        competitive acquisition contract under section 1847A 
        for an area, an amount determined by the Secretary 
        equal to the average price for the drug for that area 
        and year established under such section as calculated 
        and applied by the Secretary for purposes of this 
        paragraph)''.
          (5) Effective date.--The amendments made by this 
        subsection shall apply to services furnished on or 
        after January 1, 2004.
  (b) Special Payment for Brachytherapy.--
          (1) In general.--Section 1833(t)(14), as so 
        redesignated and amended by subsection (a)(2), is 
        amended by adding at the end the following new 
        subparagraph:
                  ``(C) Payment for devices of brachytherapy at 
                charges adjusted to cost.--Notwithstanding the 
                preceding provisions of this subsection, for a 
                device of brachytherapy furnished on or after 
                January 1, 2004, and before January 1, 2007, 
                the payment basis for the device under this 
                subsection shall be equal to the hospital's 
                charges for each device furnished, adjusted to 
                cost.''.
          (2) Specification of groups for brachytherapy 
        devices.--Section 1833(t)(2) (42 U.S.C. 1395l(t)(2) is 
        amended--
                  (A) in subparagraph (F), by striking ``and'' 
                at the end;
                  (B) in subparagraph (G), by striking the 
                period at the end and inserting ``; and''; and
                  (C) by adding at the end the following new 
                subparagraph:
                  ``(H) with respect to devices of 
                brachytherapy, the Secretary shall create 
                additional groups of covered OPD services that 
                classify such devices separately from the other 
                services (or group of services) paid for under 
                this subsection in a manner reflecting the 
                number, isotope, and radioactive intensity of 
                such devices furnished, including separate 
                groups for palladium-103 and iodine-125 
                devices.''.
          (3) GAO report.--The Comptroller General of the 
        United States shall conduct a study to determine 
        appropriate payment amounts under section 
        1833(t)(13)(B) of the Social Security Act, as added by 
        paragraph (1), for devices of brachytherapy. Not later 
        than January 1, 2005, the Comptroller General shall 
        submit to Congress and the Secretary a report on the 
        study conducted under this paragraph, and shall include 
        specific recommendations for appropriate payments for 
        such devices.
  (c) Application of Functional Equivalence Test.--
          (1) In general.--Section 1833(t)(6) (42 U.S.C. 
        1395l(t)(6)) is amended by adding at the end the 
        following new subparagraph:
                  ``(F) Limitation on application of functional 
                equivalence standard.--The Secretary may not 
                apply a `functional equivalence' payment 
                standard (including such standard promulgated 
                on November 1, 2002) or any other similar 
                standard in order to deem a particular drug or 
                biological to be identical to or similar to 
                another drug or biological with respect to its 
                mechanism of action or clinical effect to deny 
                pass-through status to new drugs or biologics 
                or to remove such status of an existing 
                eligible drug or biologic under this paragraph 
                unless--
                          ``(i) the Secretary develops by 
                        regulation (after providing notice and 
                        a period for public comment) criteria 
                        for the application of such standard; 
                        and
                          ``(ii) such criteria provide for 
                        coordination with the Federal Food and 
                        Drug Administration and require 
                        scientific studies that show the 
                        clinical relationship between the drugs 
                        or biologicals treated as functionally 
                        equivalent.''.
          (2) Effective date.--The amendment made by paragraph 
        (1) shall apply to the application of a functional 
        equivalence standard to a drug or biological on or 
        after the date of the enactment of this Act, unless 
        such application was being made to such drug or 
        biological prior to June 13, 2003.
  (d) Hospital Acquisition Cost Study.--
          (1) In general.--The Secretary shall conduct a study 
        on the costs incurred by hospitals in acquiring covered 
        outpatient drugs for which payment is made under 
        section 1833(t) of the Social Security Act (42 U.S.C. 
        1395l(t)).
          (2) Drugs covered.--The study in paragraph (1) shall 
        not include those drugs for which the acquisition costs 
        is less than $50 per administration.
          (3) Representative sample of hospitals.--In 
        conducting the study under paragraph (1), the Secretary 
        shall collect data from a statistically valid sample of 
        hospitals with an urban/rural stratification.
          (4) Report.--Not later than January 1, 2006, the 
        Secretary shall submit to Congress a report on the 
        study conducted under paragraph (1), and shall include 
        recommendations with respect to the following:
                  (A) Whether the study should be repeated, and 
                if so, how frequently.
                  (B) Whether the study produced useful data on 
                hospital acquisition cost.
                  (C) Whether data produced in the study is 
                appropriate for use in making adjustments to 
                payments for drugs and biologicals under 
                section 1847A of the Social Security Act.
                  (D) Whether separate estimates can made of 
                overhead costs, including handing and 
                administering costs for drugs.

SEC. 622. PAYMENT FOR AMBULANCE SERVICES.

  (a) Phase-In Providing Floor Using Blend of Fee Schedule and 
Regional Fee Schedules.--Section 1834(l) (42 U.S.C. 1395m(l)), 
as amended by section 410(a), is amended--
          (1) in paragraph (2)(E), by inserting ``consistent 
        with paragraph (11)'' after ``in an efficient and fair 
        manner''; and
          (2) by adding at the end the following new paragraph:
          ``(11) Phase-in providing floor using blend of fee 
        schedule and regional fee schedules.--In carrying out 
        the phase-in under paragraph (2)(E) for each level of 
        service furnished in a year, the portion of the payment 
        amount that is based on the fee schedule shall not be 
        less than the following blended rate of the fee 
        schedule under paragraph (1) and of a regional fee 
        schedule for the region involved:
                  ``(A) For 2004, the blended rate shall be 
                based 20 percent on the fee schedule under 
                paragraph (1) and 80 percent on the regional 
                fee schedule.
                  ``(B) For 2005, the blended rate shall be 
                based 40 percent on the fee schedule under 
                paragraph (1) and 60 percent on the regional 
                fee schedule.
                  ``(C) For 2006, the blended rate shall be 
                based 60 percent on the fee schedule under 
                paragraph (1) and 40 percent on the regional 
                fee schedule.
                  ``(D) For 2007, 2008, and 2009, the blended 
                rate shall be based 80 percent on the fee 
                schedule under paragraph (1) and 20 percent on 
                the regional fee schedule.
                  ``(E) For 2010 and each succeeding year, the 
                blended rate shall be based 100 percent on the 
                fee schedule under paragraph (1).
        For purposes of this paragraph, the Secretary shall 
        establish a regional fee schedule for each of the 9 
        Census divisions using the methodology (used in 
        establishing the fee schedule under paragraph (1)) to 
        calculate a regional conversion factor and a regional 
        mileage payment rate and using the same payment 
        adjustments and the same relative value units as used 
        in the fee schedule under such paragraph.''.
  (b) Adjustment in Payment for Certain Long Trips.--Section 
1834(l), as amended by subsection (a), is further amended by 
adding at the end the following new paragraph:
          ``(12) Adjustment in payment for certain long 
        trips.--In the case of ground ambulance services 
        furnished on or after January 1, 2004, and before 
        January 1, 2009, regardless of where the transportation 
        originates, the fee schedule established under this 
        subsection shall provide that, with respect to the 
        payment rate for mileage for a trip above 50 miles the 
        per mile rate otherwise established shall be increased 
        by \1/4\ of the payment per mile otherwise applicable 
        to such miles.''.
  (c) GAO Report on Costs and Access.--Not later than December 
31, 2005, the Comptroller General of the United States shall 
submit to Congress an initial report on how costs differ among 
the types of ambulance providers and on access, supply, and 
quality of ambulance services in those regions and States that 
have a reduction in payment under the medicare ambulance fee 
schedule (under section 1834(l) of the Social Security Act, as 
amended by this section). Not later than December 31, 2007, the 
Comptroller General shall submit to Congress a final report on 
such access and supply.
  (d) Effective Date.--The amendments made by this section 
shall apply to ambulance services furnished on or after January 
1, 2004.

SEC. 623. RENAL DIALYSIS SERVICES.

  (a) Demonstration of Alternative Delivery Models.--
          (1) Use of advisory board.--In carrying out the 
        demonstration project relating to improving care for 
        people with end-stage renal disease through alternative 
        delivery models (as published in the Federal Register 
        of June 4, 2003), the Secretary shall establish an 
        advisory board comprised of representatives described 
        in paragraph (2) to provide advice and recommendations 
        with respect to the establishment and operation of such 
        demonstration project.
          (2) Representatives.--Representatives referred to in 
        paragraph (1) include representatives of the following:
                  (A) Patient organizations.
                  (B) Clinicians.
                  (C) The medicare payment advisory commission, 
                established under section 1805 of the Social 
                Security Act (42 U.S.C. 1395b-6).
                  (D) The National Kidney Foundation.
                  (E) The National Institute of Diabetes and 
                Digestive and Kidney Diseases of National 
                Institutes of Health.
                  (F) End-stage renal disease networks.
                  (G) Medicare contractors to monitor quality 
                of care.
                  (I) providers of services and renal dialysis 
                facilities furnishing end-stage renal disease 
                services.
                  (J) Economists.
                  (K) Researchers.
  (b) Restoring Composite Rate Exceptions for Pediatric 
Facilities.--
          (1) In general.--Section 422(a)(2) of BIPA is 
        amended--
                  (A) in subparagraph (A), by striking ``and 
                (C)'' and inserting ``, (C), and (D)'';
                  (B) in subparagraph (B), by striking ``In the 
                case'' and inserting ``Subject to subparagraph 
                (D), in the case''; and
                  (C) by adding at the end the following new 
                subparagraph:
                  ``(D) Inapplicability to pediatric 
                facilities.--Subparagraphs (A) and (B) shall 
                not apply, as of October 1, 2002, to pediatric 
                facilities that do not have an exception rate 
                described in subparagraph (C) in effect on such 
                date. For purposes of this subparagraph, the 
                term `pediatric facility' means a renal 
                facility at least 50 percent of whose patients 
                are individuals under 18 years of age.''.
          (2) Conforming amendment.--The fourth sentence of 
        section 1881(b)(7) (42 U.S.C. 1395rr(b)(7)), as amended 
        by subsection (b), is further amended by striking 
        ``Until'' and inserting ``Subject to section 422(a)(2) 
        of the Medicare, Medicaid, and SCHIP Benefits 
        Improvement and Protection Act of 2000, and until''.
  (c) Increase in Renal Dialysis Composite Rate for Services 
Furnished in 2004.--Notwithstanding any other provision of law, 
with respect to payment under part B of title XVIII of the 
Social Security Act for renal dialysis services furnished in 
2004, the composite payment rate otherwise established under 
section 1881(b)(7) of such Act (42 U.S.C. 1395rr(b)(7)) shall 
be increased by 1.6 percent.

SEC. 624. ONE-YEAR MORATORIUM ON THERAPY CAPS; PROVISIONS RELATING TO 
                    REPORTS.

  (a) 1-Year Moratorium on Therapy Caps.--Section 1833(g)(4) 
(42 U.S.C. 1395l(g)(4)) is amended by striking ``and 2002'' and 
inserting ``2002, and 2004''.
  (b) Prompt Submission of Overdue Reports on Payment and 
Utilization of Outpatient Therapy Services.--Not later than 
December 31, 2003, the Secretary shall submit to Congress the 
reports required under section 4541(d)(2) of the Balanced 
Budget Act of 1997 (relating to alternatives to a single annual 
dollar cap on outpatient therapy) and under section 221(d) of 
the Medicare, Medicaid, and SCHIP Balanced Budget Refinement 
Act of 1999 (relating to utilization patterns for outpatient 
therapy).
  (c) Identification of Conditions and Diseases Justifying 
Waiver of Therapy Cap.--
          (1) Study.--The Secretary shall request the Institute 
        of Medicine of the National Academy of Sciences to 
        identify conditions or diseases that should justify 
        conducting an assessment of the need to waive the 
        therapy caps under section 1833(g)(4) of the Social 
        Security Act (42 U.S.C. 1395l(g)(4)).
          (2) Reports to congress.--
                  (A) Preliminary report.--Not later than July 
                1, 2004, the Secretary shall submit to Congress 
                a preliminary report on the conditions and 
                diseases identified under paragraph (1).
                  (B) Final report.--Not later than September 
                1, 2004, the Secretary shall submit to Congress 
                a final report on such conditions and diseases.
                  (C) Recommendations.--Not later than October 
                1, 2004, the Secretary shall submit to Congress 
                a recommendation of criteria, with respect to 
                such conditions and disease, under which a 
                waiver of the therapy caps would apply.
  (d) GAO Study of Patient Access to Physical Therapist 
Services.--
          (1) Study.--The Comptroller General of the United 
        States shall conduct a study on access to physical 
        therapist services in States authorizing such services 
        without a physician referral and in States that require 
        such a physician referral. The study shall--
                  (A) examine the use of and referral patterns 
                for physical therapist services for patients 
                age 50 and older in States that authorize such 
                services without a physician referral and in 
                States that require such a physician referral;
                  (B) examine the use of and referral patterns 
                for physical therapist services for patients 
                who are medicare beneficiaries;
                  (C) examine the potential effect of 
                prohibiting a physician from referring patients 
                to physical therapy services owned by the 
                physician and provided in the physician's 
                office;
                  (D) examine the delivery of physical 
                therapists' services within the facilities of 
                Department of Defense; and
                  (E) analyze the potential impact on medicare 
                beneficiaries and on expenditures under the 
                medicare program of eliminating the need for a 
                physician referral and physician certification 
                for physical therapist services under the 
                medicare program.
          (2) Report.--The Comptroller General shall submit to 
        Congress a report on the study conducted under 
        paragraph (1) by not later than 1 year after the date 
        of the enactment of this Act.

SEC. 625. ADJUSTMENT TO PAYMENTS FOR SERVICES FURNISHED IN AMBULATORY 
                    SURGICAL CENTERS.

  Section 1833(i)(2)(C) (42 U.S.C. 1395l(i)(2)(C)) is amended 
in the last sentence by inserting ``and each of fiscal years 
2004 through 2008'' after ``In each of the fiscal years 1998 
through 2002''.

SEC. 626. PAYMENT FOR CERTAIN SHOES AND INSERTS UNDER THE FEE SCHEDULE 
                    FOR ORTHOTICS AND PROSTHETICS.

  (a) In General.--Section 1833(o) (42 U.S.C. 1395l(o)) is 
amended--
          (1) in paragraph (1), by striking ``no more than the 
        limits established under paragraph (2)'' and inserting 
        ``no more than the amount of payment applicable under 
        paragraph (2)''; and
          (2) in paragraph (2), to read as follows:
  ``(2)(A) Except as provided by the Secretary under 
subparagraphs (B) and (C), the amount of payment under this 
paragraph for custom molded shoes, extra depth shoes, and 
inserts shall be the amount determined for such items by the 
Secretary under section 1834(h).
  ``(B) The Secretary or a carrier may establish payment 
amounts for shoes and inserts that are lower than the amount 
established under section 1834(h) if the Secretary finds that 
shoes and inserts of an appropriate quality are readily 
available at or below the amount established under such 
section.
  ``(C) In accordance with procedures established by the 
Secretary, an individual entitled to benefits with respect to 
shoes described in section 1861(s)(12) may substitute 
modification of such shoes instead of obtaining one (or more, 
as specified by the Secretary) pair of inserts (other than the 
original pair of inserts with respect to such shoes). In such 
case, the Secretary shall substitute, for the payment amount 
established under section 1834(h), a payment amount that the 
Secretary estimates will assure that there is no net increase 
in expenditures under this subsection as a result of this 
subparagraph.''.
  (b) Conforming Amendments.--(1) Section 1834(h)(4)(C) (42 
U.S.C. 1395m(h)(4)(C)) is amended by inserting ``(and includes 
shoes described in section 1861(s)(12))'' after ``in section 
1861(s)(9)''.
  (2) Section 1842(s)(2) (42 U.S.C. 1395u(s)(2)) is amended by 
striking subparagraph (C).
  (c) Effective Date.--The amendments made by this section 
shall apply to items furnished on or after January 1, 2004.

SEC. 627. WAIVER OF PART B LATE ENROLLMENT PENALTY FOR CERTAIN MILITARY 
                    RETIREES; SPECIAL ENROLLMENT PERIOD.

  (a) Waiver of Penalty.--
          (1) In general.--Section 1839(b) (42 U.S.C. 1395r(b)) 
        is amended by adding at the end the following new 
        sentence: ``No increase in the premium shall be 
        effected for a month in the case of an individual who 
        is 65 years of age or older, who enrolls under this 
        part during 2001, 2002, 2003, or 2004 and who 
        demonstrates to the Secretary before December 31, 2004, 
        that the individual is a covered beneficiary (as 
        defined in section 1072(5) of title 10, United States 
        Code). The Secretary of Health and Human Services shall 
        consult with the Secretary of Defense in identifying 
        individuals described in the previous sentence.''.
          (2) Effective date.--The amendment made by paragraph 
        (1) shall apply to premiums for months beginning with 
        January 2004. The Secretary of Health and Human 
        Services shall establish a method for providing rebates 
        of premium penalties paid for months on or after 
        January 2004 for which a penalty does not apply under 
        such amendment but for which a penalty was previously 
        collected.
  (b) Medicare Part B Special Enrollment Period.--
          (1) In general.--In the case of any individual who, 
        as of the date of the enactment of this Act, is 65 
        years of age or older, is eligible to enroll but is not 
        enrolled under part B of title XVIII of the Social 
        Security Act, and is a covered beneficiary (as defined 
        in section 1072(5) of title 10, United States Code), 
        the Secretary of Health and Human Services shall 
        provide for a special enrollment period during which 
        the individual may enroll under such part. Such period 
        shall begin as soon as possible after the date of the 
        enactment of this Act and shall end on December 31, 
        2004.
          (2) Coverage period.--In the case of an individual 
        who enrolls during the special enrollment period 
        provided under paragraph (1), the coverage period under 
        part B of title XVIII of the Social Security Act shall 
        begin on the first day of the month following the month 
        in which the individual enrolls.

SEC. 628. EXTENSION OF COVERAGE OF INTRAVENOUS IMMUNE GLOBULIN (IVIG) 
                    FOR THE TREATMENT OF PRIMARY IMMUNE DEFICIENCY 
                    DISEASES IN THE HOME.

  (a) In General.--Section 1861 (42 U.S.C. 1395x), as amended 
by sections 611(a) and 612(a) is amended--
          (1) in subsection (s)(2)--
                  (A) by striking ``and'' at the end of 
                subparagraph (W);
                  (B) by adding ``and'' at the end of 
                subparagraph (X); and
                  (C) by adding at the end the following new 
                subparagraph:
                  ``(Y) intravenous immune globulin for the 
                treatment of primary immune deficiency diseases 
                in the home (as defined in subsection (yy));''; 
                and
          (2) by adding at the end the following new 
        subsection:

                     ``Intravenous Immune Globulin

  ``(yy) The term `intravenous immune globulin' means an 
approved pooled plasma derivative for the treatment in the 
patient's home of a patient with a diagnosed primary immune 
deficiency disease, but not including items or services related 
to the administration of the derivative, if a physician 
determines administration of the derivative in the patient's 
home is medically appropriate.''.
  (b) Payment as a Drug or Biological.--Section 1833(a)(1)(S) 
(42 U.S.C. 1395l(a)(1)(S)) is amended by inserting ``(including 
intravenous immune globulin (as defined in section 1861(yy)))'' 
after ``with respect to drugs and biologicals''.
  (c) Effective Date.--The amendments made by this section 
shall apply to items furnished administered on or after January 
1, 2004.

SEC. 629. MEDICARE COVERAGE OF DIABETES LABORATORY DIAGNOSTIC TESTS.

  (a) Coverage.--Section 1861(s)(2) (42 U.S.C. 1395x(s)(2)), as 
amended by sections 611 and 612, is amended--
          (1) in subparagraph (W), by striking ``and'' at the 
        end;
          (2) in subparagraph (X), by adding ``and'' at the 
        end; and
          (3) by adding at the end the following new 
        subparagraph:
          ``(Y) diabetes screening tests and services (as 
        defined in subsection (yy));''.
  (b) Services Described.--Section 1861 (42 U.S.C. 1395x), as 
amended by sections 611 and 612, is further amended by adding 
at the end the following new subsection:

                ``Diabetes Screening Tests and Services

  ``(yy)(1) The term `diabetes screening tests' means 
diagnostic testing furnished to an individual at risk for 
diabetes (as defined in paragraph (2)) for the purpose of early 
detection of diabetes, including--
          ``(A) a fasting plasma glucose test; and
          ``(B) such other tests, and modifications to tests, 
        as the Secretary determines appropriate, in 
        consultation with appropriate organizations.
  ``(2) For purposes of paragraph (1), the term `individual at 
risk for diabetes' means an individual who has any, a 
combination of, or all of the following risk factors for 
diabetes:
          ``(A) A family history of diabetes.
          ``(B) Overweight defined as a body mass index greater 
        than or equal to 25 kg/m2.
          ``(C) Habitual physical inactivity.
          ``(D) Belonging to a high-risk ethnic or racial 
        group.
          ``(E) Previous identification of an elevated impaired 
        fasting glucose.
          ``(F) Identification of impaired glucose tolerance.
          ``(G) Hypertension.
          ``(H) Dyslipidemia.
          ``(I) History of gestational diabetes mellitus or 
        delivery of a baby weighing greater than 9 pounds.
          ``(J) Polycystic ovary syndrome.
  ``(3) The Secretary shall establish standards, in 
consultation with appropriate organizations, regarding the 
frequency of diabetes screening tests, except that such 
frequency may not be more often than twice within the 12-month 
period following the date of the most recent diabetes screening 
test of that individual.''.
  (c) Frequency.--Section 1862(a)(1) (42 U.S.C. 1395y(a)(1)), 
as amended by sections 611 and 612, is amended--
          (1) by striking ``and'' at the end of subparagraph 
        (J);
          (2) by striking the semicolon at the end of 
        subparagraph (K) and inserting ``; and''; and
          (3) by adding at the end the following new 
        subparagraph:
          ``(L) in the case of a diabetes screening tests or 
        service (as defined in section 1861(yy)(1)), which is 
        performed more frequently than is covered under section 
        1861(yy)(3).''.
  (d) Effective Date.--The amendments made by this section 
shall apply to tests furnished on or after the date that is 90 
days after the date of enactment of this Act.

            TITLE VII--PROVISIONS RELATING TO PARTS A AND B

                    Subtitle A--Home Health Services

SEC. 701. UPDATE IN HOME HEALTH SERVICES.

  (a) Change to Calender Year Update.--
          (1) In general.--Section 1895(b) (42 U.S.C. 
        1395fff(b)(3)) is amended--
                  (A) in paragraph (3)(B)(i)--
                          (i) by striking ``each fiscal year 
                        (beginning with fiscal year 2002)'' and 
                        inserting ``fiscal year 2002 and for 
                        fiscal year 2003 and for each 
                        subsequent year (beginning with 
                        2004)''; and
                          (ii) by inserting ``or year'' after 
                        ``the fiscal year'';
                  (B) in paragraph (3)(B)(ii)(II), by striking 
                ``any subsequent fiscal year'' and inserting 
                ``2004 and any subsequent year'';
                  (C) in paragraph (3)(B)(iii), by inserting 
                ``or year'' after ``fiscal year'' each place it 
                appears;
                  (D) in paragraph (3)(B)(iv)--
                          (i) by inserting ``or year'' after 
                        ``fiscal year'' each place it appears; 
                        and
                          (ii) by inserting ``or years'' after 
                        ``fiscal years''; and
                  (E) in paragraph (5), by inserting ``or 
                year'' after ``fiscal year''.
          (2) Transition rule.--The standard prospective 
        payment amount (or amounts) under section 1895(b)(3) of 
        the Social Security Act for the calendar quarter 
        beginning on October 1, 2003, shall be such amount (or 
        amounts) for the previous calendar quarter.
  (b) Changes in Updates for 2004, 2005, and 2006.--Section 
1895(b)(3)(B)(ii) (42 U.S.C. 1395fff(b)(3)(B)(ii)), as amended 
by subsection (a)(1)(B), is amended--
          (1) by striking ``or'' at the end of subclause (I);
          (2) by redesignating subclause (II) as subclause 
        (III);
          (3) in subclause (III), as so redesignated, by 
        striking ``2004'' and inserting ``2007''; and
          (4) by inserting after subclause (I) the following 
        new subclause:
                                  ``(II) each of 2004, 2005, 
                                and 2006 the home health market 
                                basket percentage increase 
                                minus 0.4 percentage points; 
                                or''.

SEC. 702. MEDPAC STUDY ON MEDICARE MARGINS OF HOME HEALTH AGENCIES.

  (a) Study.--The Medicare Payment Advisory Commission shall 
conduct a study of payment margins of home health agencies 
under the home health prospective payment system under section 
1895 of the Social Security Act (42 U.S.C. 1395fff). Such study 
shall examine whether systematic differences in payment margins 
are related to differences in case mix (as measured by home 
health resource groups (HHRGs)) among such agencies. The study 
shall use the partial or full-year cost reports filed by home 
health agencies.
  (b) Report.--Not later than 2 years after the date of the 
enactment of this Act, the Commission shall submit to Congress 
a report on the study under subsection (a).

SEC. 703. DEMONSTRATION PROJECT TO CLARIFY THE DEFINITION OF HOMEBOUND.

  (a) Demonstration Project.--Not later than 180 days after the 
date of the enactment of this Act, the Secretary shall conduct 
a two-year demonstration project under part B of title XVIII of 
the Social Security Act under which medicare beneficiaries with 
chronic conditions described in subsection (b) are deemed to be 
homebound for purposes of receiving home health services under 
the medicare program.
  (b) Medicare Beneficiary Described.--For purposes of 
subsection (a), a medicare beneficiary is eligible to be deemed 
to be homebound, without regard to the purpose, frequency, or 
duration of absences from the home, if the beneficiary--
          (1) has been certified by one physician as an 
        individual who has a permanent and severe condition 
        that will not improve;
          (2) requires the individual to receive assistance 
        from another individual with at least 3 out of the 5 
        activities of daily living for the rest of the 
        individual's life;
          (3) requires 1 or more home health services to 
        achieve a functional condition that gives the 
        individual the ability to leave home; and
          (4) requires technological assistance or the 
        assistance of another person to leave the home.
  (c) Demonstration Project Sites.--The demonstration project 
established under this section shall be conducted in 3 States 
selected by the Secretary to represent the Northeast, Midwest, 
and Western regions of the United States.
  (d) Limitation on Number of Participants.--The aggregate 
number of such beneficiaries that may participate in the 
project may not exceed 15,000.
  (e) Data.--The Secretary shall collect such data on the 
demonstration project with respect to the provision of home 
health services to medicare beneficiaries that relates to 
quality of care, patient outcomes, and additional costs, if 
any, to the medicare program.
  (f) Report to Congress.--Not later than 1 year after the date 
of the completion of the demonstration project under this 
section, the Secretary shall submit to Congress a report on the 
project using the data collected under subsection (e) and shall 
include--
          (1) an examination of whether the provision of home 
        health services to medicare beneficiaries under the 
        project--
                  (A) adversely effects the provision of home 
                health services under the medicare program; or
                  (B) directly causes an unreasonable increase 
                of expenditures under the medicare program for 
                the provision of such services that is directly 
                attributable to such clarification;
          (2) the specific data evidencing the amount of any 
        increase in expenditures that is a directly 
        attributable to the demonstration project (expressed 
        both in absolute dollar terms and as a percentage) 
        above expenditures that would otherwise have been 
        incurred for home health services under the medicare 
        program; and
          (3) specific recommendations to exempt permanently 
        and severely disabled homebound beneficiaries from 
        restrictions on the length, frequency and purpose of 
        their absences from the home to qualify for home health 
        services without incurring additional unreasonable 
        costs to the medicare program.
  (g) Waiver Authority.--The Secretary shall waive compliance 
with the requirements of title XVIII of the Social Security Act 
(42 U.S.C. 1395 et seq.) to such extent and for such period as 
the Secretary determines is necessary to conduct demonstration 
projects.
  (h) Construction.--Nothing in this section shall be construed 
as waiving any applicable civil monetary penalty, criminal 
penalty, or other remedy available to the Secretary under title 
XI or title XVIII of the Social Security Act for acts 
prohibited under such titles, including penalties for false 
certifications for purposes of receipt of items or services 
under the medicare program.
  (i) Authorization of Appropriations.--Payments for the costs 
of carrying out the demonstration project under this section 
shall be made from the Federal Supplementary Insurance Trust 
Fund under section 1841 of such Act (42 U.S.C. 1395t).
  (j) Definitions.--In this section:
          (1) Medicare beneficiary.--The term ``medicare 
        beneficiary'' means an individual who is enrolled under 
        part B of title XVIII of the Social Security Act.
          (2) Home health services.--The term ``home health 
        services'' has the meaning given such term in section 
        1861(m) of the Social Security Act (42 U.S.C. 
        1395x(m)).
          (3) Activities of daily living defined.--The term 
        ``activities of daily living'' means eating, toileting, 
        transferring, bathing, and dressing.
          (4) Secretary.--The term ``Secretary'' means the 
        Secretary of Health and Human Services.

                  Subtitle B--Chronic Care Improvement

SEC. 721. VOLUNTARY CHRONIC CARE IMPROVEMENT UNDER TRADITIONAL FEE-FOR-
                    SERVICE.

  Title XVIII is amended by inserting after section 1806 the 
following new section:

                       ``CHRONIC CARE IMPROVEMENT

  ``Sec. 1807. (a) In General.--
          ``(1) In general.--The Secretary shall establish a 
        process for providing chronic care improvement programs 
        in each CCIA region for medicare beneficiaries who are 
        not enrolled under part C and who have certain chronic 
        conditions, such as congestive heart failure, diabetes, 
        chronic obstructive pulmonary disease (COPD), stroke, 
        prostate and colon cancer, hypertension, or other 
        disease as identified by the Secretary as appropriate 
        for chronic care improvement. Such a process shall 
        begin to be implemented no later than 1 year after the 
        date of the enactment of this section.
          ``(2) Terminology.--For purposes of this section:
                  ``(A) CCIA region.--The term `CCIA region' 
                means a chronic care improvement administrative 
                region delineated under subsection (b)(2).
                  ``(B) Chronic care improvement program.--The 
                terms `chronic care improvement program' and 
                `program' means such a program provided by a 
                contractor under this section.
                  ``(C) Contractor.--The term `contractor' 
                means an entity with a contract to provide a 
                chronic care improvement program in a CCIA 
                region under this section.
                  ``(D) Individual plan.--The term `individual 
                plan' means a chronic care improvement plan 
                established under subsection (c)(5) for an 
                individual.
          ``(3) Construction.--Nothing in this section shall be 
        construed as expanding the amount, duration, or scope 
        of benefits under this title.
  ``(b) Competitive Bidding Process.--
          ``(1) In general.--Under this section the Secretary 
        shall award contracts to qualified entities for chronic 
        care improvement programs for each CCIA region under 
        this section through a competitive bidding process.
          ``(2) Process.--Under such process--
                  ``(A) the Secretary shall delineate the 
                United States into multiple chronic care 
                improvement administrative regions; and
                  ``(B) the Secretary shall select at least 2 
                winning bidders in each CCIA region on the 
                basis of the ability of each bidder to carry 
                out a chronic care improvement program in 
                accordance with this section, in order to 
                achieve improved health and financial outcomes.
          ``(3) Eligible contractor.--A contractor may be a 
        disease improvement organization, health insurer, 
        provider organization, a group of physicians, or any 
        other legal entity that the Secretary determines 
        appropriate.
  ``(c) Chronic Care Improvement Programs.--
          ``(1) In general.--Each contract under this section 
        shall provide for the operation of a chronic care 
        improvement program by a contractor in a CCIA region 
        consistent with this subsection.
          ``(2) Identification of prospective program 
        participants.--Each contractor shall have a method for 
        identifying medicare beneficiaries in the region to 
        whom it will offer services under its program. The 
        contractor shall identify such beneficiaries through 
        claims or other data and other means permitted 
        consistent with applicable disclosure provisions.
          ``(3) Initial contact by secretary.--The Secretary 
        shall communicate with each beneficiary identified 
        under paragraph (2) as a prospective participant in one 
        or more programs concerning participation in a program. 
        Such communication may be made by the Secretary (or on 
        behalf of the Secretary) and shall include information 
        on the following:
                  ``(A) A description of the advantages to the 
                beneficiary in participating in a program.
                  ``(B) Notification that the contractor 
                offering a program may contact the beneficiary 
                directly concerning such participation.
                  ``(C) Notification that participation in a 
                program is voluntary.
                  ``(D) A description of the method for the 
                beneficiary to select the single program in 
                which the beneficiary wishes to participate and 
                for declining to participate and a method for 
                obtaining additional information concerning 
                such participation.
          ``(4) Participation.--A medicare beneficiary may 
        participate in only one program under this section and 
        may terminate participation at any time in a manner 
        specified by the Secretary.
          ``(5) Individual chronic care improvement plans.--
                  ``(A) In general.--For each beneficiary 
                participating in a program of a contractor 
                under this section, the contractor shall 
                develop with the beneficiary an individualized, 
                goal-oriented chronic care improvement plan.
                  ``(B) Elements of individual plan.--Each 
                individual plan developed under subparagraph 
                (A) shall include a single point of contact to 
                coordinate care and the following, as 
                appropriate:
                          ``(i) Self-improvement education for 
                        the beneficiary (such as education for 
                        disease management through medical 
                        nutrition therapy) and support 
                        education for health care providers, 
                        primary caregivers, and family members.
                          ``(ii) Coordination of health care 
                        services, such as application of a 
                        prescription drug regimen and home 
                        health services.
                          ``(iii) Collaboration with physicians 
                        and other providers to enhance 
                        communication of relevant clinical 
                        information.
                          ``(iv) The use of monitoring 
                        technologies that enable patient 
                        guidance through the exchange of 
                        pertinent clinical information, such as 
                        vital signs, symptomatic information, 
                        and health self-assessment.
                          ``(v) The provision of information 
                        about hospice care, pain and palliative 
                        care, and end-of-life care.
                  ``(C) Contractor responsibilities.--In 
                establishing and carrying out individual plans 
                under a program, a contractor shall, directly 
                or through subcontractors--
                          ``(i) guide participants in managing 
                        their health, including all their co-
                        morbidities, and in performing 
                        activities as specified under the 
                        elements of the plan;
                          ``(ii) use decision support tools 
                        such as evidence-based practice 
                        guidelines or other criteria as 
                        determined by the Secretary; and
                          ``(iii) develop a clinical 
                        information database to track and 
                        monitor each participant across 
                        settings and to evaluate outcomes.
          ``(6) Additional requirements.--The Secretary may 
        establish additional requirements for programs and 
        contractors under this section.
          ``(7) Accreditation.--The Secretary may provide that 
        programs that are accredited by qualified organizations 
        may be deemed to meet such requirements under this 
        section as the Secretary may specify.
  ``(c) Contract Terms.--
          ``(1) In general.--A contract under this section 
        shall contain such terms and conditions as the 
        Secretary may specify consistent with this section. The 
        Secretary may not enter into a contract with an entity 
        under this section unless the entity meets such 
        clinical, quality improvement, financial, and other 
        requirements as the Secretary deems to be appropriate 
        for the population to be served.
          ``(2) Use of subcontractors permitted.--A contractor 
        may carry out a program directly or through contracts 
        with subcontractors.
          ``(3) Budget neutral payment condition.--In entering 
        into a contract with an entity under this subsection, 
        the Secretary shall establish payment rates that assure 
        that there will be no net aggregate increase in 
        payments under this title over any period of 3 years or 
        longer, as agreed to by the Secretary. Under this 
        section, the Secretary shall assure that medicare 
        program outlays plus administrative expenses (that 
        would not have been paid under this title without 
        implementation of this section), including contractor 
        fees, shall not exceed the expenditures that would have 
        been incurred under this title for a comparable 
        population in the absence of the program under this 
        section for the 3-year contract period.
          ``(4) At risk relationship.--For purposes of section 
        1128B(b)(3)(F), a contract under this section shall be 
        treated as a risk-sharing arrangement referred to in 
        such section.
          ``(5) Performance standards.--Payment to contractors 
        under this section shall be subject to the contractor's 
        meeting of clinical and financial performance standards 
        set by the Secretary.
          ``(6) Contractor outcomes report.--Each contractor 
        offering a program shall monitor and report to the 
        Secretary, in a manner specified by the Secretary, the 
        quality of care and efficacy of such program in terms 
        of--
                  ``(A) process measures, such as reductions in 
                errors of treatment and rehospitalization 
                rates;
                  ``(B) beneficiary and provider satisfaction;
                  ``(C) health outcomes; and
                  ``(D) financial outcomes.
          ``(7) Phased in implementation.--Nothing in this 
        section shall be construed as preventing the Secretary 
        from phasing in the implementation of programs.
  ``(d) Biannual Outcomes Reports.--The Secretary shall submit 
to the Congress biannual reports on the implementation of this 
section. Each such report shall include information on--
          ``(1) the scope of implementation (in terms of both 
        regions and chronic conditions);
          ``(2) program design; and
          ``(3) improvements in health outcomes and financial 
        efficiencies that result from such implementation.
  ``(e) Clinical Trials.--The Secretary shall conduct 
randomized clinical trials, that compare program participants 
with medicare beneficiaries who are offered, but decline, to 
participate, in order to assess the potential of programs to--
          ``(1) reduce costs under this title; and
          ``(2) improve health outcomes under this title.
  ``(f) Authorization of Appropriations.--There are authorized 
to be appropriated to the Secretary, in appropriate part from 
the Hospital Insurance Trust Fund and the Supplementary Medical 
Insurance Trust Fund, such sums as may be necessary to provide 
for contracts with chronic care improvement programs under this 
section.
  ``(g) Limitation on Funding.--In no case shall the funding 
under this section exceed $100,000,000 over a period of 3 
years.''.

SEC. 722. CHRONIC CARE IMPROVEMENT UNDER MEDICARE+CHOICE PLANS.

  (a) In General.--Section 1852 (42 U.S.C. 1395w-22) is 
amended--
          (1) by amending subsection (e) to read as follows:
  ``(e) Implementation of Chronic Care Improvement Programs for 
Beneficiaries With Multiple or Sufficiently Severe Chronic 
Conditions.--
          ``(1) In general.--Each Medicare+Choice organization 
        with respect to each Medicare+Choice plan it offers 
        shall have in effect, for enrollees with multiple or 
        sufficiently severe chronic conditions, a chronic care 
        improvement program that is designed to manage the 
        needs of such enrollees and that meets the requirements 
        of this subsection.
          ``(2) Enrollee with multiple or sufficiently severe 
        chronic conditions.--For purposes of this subsection, 
        the term `enrollee with multiple or sufficiently severe 
        chronic conditions' means, with respect to an enrollee 
        in a Medicare+Choice plan of a Medicare+Choice 
        organization, an enrollee in the plan who has one or 
        more chronic conditions, such as congestive heart 
        failure, diabetes, COPD, stroke, prostate and colon 
        cancer, hypertension, or other disease as identified by 
        the organization as appropriate for chronic care 
        improvement.
          ``(3) General requirements.--
                  ``(A) In general.--Each chronic care 
                improvement program under this subsection shall 
                be conducted consistent with this subsection.
                  ``(B) Identification of enrollees.--Each such 
                program shall have a method for monitoring and 
                identifying enrollees with multiple or 
                sufficiently severe chronic conditions that 
                meet the organization's criteria for 
                participation under the program.
                  ``(C) Development of plans.--For an enrollee 
                identified under subparagraph (B) for 
                participation in a program, the program shall 
                develop, with the enrollee's consent, an 
                individualized, goal-oriented chronic care 
                improvement plan for chronic care improvement.
                  ``(D) Elements of plans.--Each chronic care 
                improvement plan developed under subparagraph 
                (C) shall include a single point of contact to 
                coordinate care and the following, as 
                appropriate:
                          ``(i) Self-improvement education for 
                        the enrollee (such as education for 
                        disease management through medical 
                        nutrition therapy) and support 
                        education for health care providers, 
                        primary caregivers, and family members.
                          ``(ii) Coordination of health care 
                        services, such as application of a 
                        prescription drug regimen and home 
                        health services.
                          ``(iii) Collaboration with physicians 
                        and other providers to enhance 
                        communication of relevant clinical 
                        information.
                          ``(iv) The use of monitoring 
                        technologies that enable patient 
                        guidance through the exchange of 
                        pertinent clinical information, such as 
                        vital signs, symptomatic information, 
                        and health self-assessment.
                          ``(v) The provision of information 
                        about hospice care, pain and palliative 
                        care, and end-of-life care.
                  ``(E) Organization responsibilities.--In 
                establishing and carrying out chronic care 
                improvement plans for participants under this 
                paragraph, a Medicare+Choice organization 
                shall, directly or through subcontractors--
                          ``(i) guide participants in managing 
                        their health, including all their co-
                        morbidities, and in performing the 
                        activities as specified under the 
                        elements of the plan;
                          ``(ii) use decision support tools 
                        such as evidence-based practice 
                        guidelines or other criteria as 
                        determined by the Secretary; and
                          ``(iii) develop a clinical 
                        information database to track and 
                        monitor each participant across 
                        settings and to evaluate outcomes.
          ``(3) Additional requirements.--The Secretary may 
        establish additional requirements for chronic care 
        improvement programs under this section.
          ``(4) Accreditation.--The Secretary may provide that 
        chronic care improvement programs that are accredited 
        by qualified organizations may be deemed to meet such 
        requirements under this subsection as the Secretary may 
        specify.
          ``(5) Outcomes report.--Each Medicare+Choice 
        organization with respect to its chronic care 
        improvement program under this subsection shall monitor 
        and report to the Secretary information on the quality 
        of care and efficacy of such program as the Secretary 
        may require.''; and
          (2) by amending subparagraph (I) of subsection (c)(1) 
        to read as follows:
                  ``(I) Chronic care improvement program.--A 
                description of the organization's chronic care 
                improvement program under subsection (e).''.
  (b) Effective Date.--The amendments made by this section 
shall apply for contract years beginning on or after 1 year 
after the date of the enactment of this Act.

SEC. 723. INSTITUTE OF MEDICINE REPORT.

  (a) Study.--
          (1) In general.--The Secretary of Health and Human 
        Services shall contract with the Institute of Medicine 
        of the National Academy of Sciences to conduct a study 
        of the barriers to effective integrated care 
        improvement for medicare beneficiaries with multiple or 
        severe chronic conditions across settings and over time 
        and to submit a report under subsection (b).
          (2) Specific items.--The study shall examine the 
        statutory and regulatory barriers to coordinating care 
        across settings for medicare beneficiaries in 
        transition from one setting to another (such as between 
        hospital, nursing facility, home health, hospice, and 
        home). The study shall specifically identify the 
        following:
                  (A) Clinical, financial, or administrative 
                requirements in the medicare program that 
                present barriers to effective, seamless 
                transitions across care settings.
                  (B) Policies that impede the establishment of 
                administrative and clinical information systems 
                to track health status, utilization, cost, and 
                quality data across settings.
                  (C) State-level requirements that may present 
                barriers to better care for medicare 
                beneficiaries.
          (3) Consultation.--The study under this subsection 
        shall be conducted in consultation with experts in the 
        field of chronic care, consumers, and family 
        caregivers, working to integrate care delivery and 
        create more seamless transitions across settings and 
        over time.
  (b) Report.--The report under this subsection shall be 
submitted to the Secretary and Congress not later than 18 
months after the date of the enactment of this Act.

SEC. 724. MEDPAC REPORT.

  (a) Evaluation.--shall conduct an evaluation that includes a 
description of the status of the implementation of chronic care 
improvement programs under section 1807 of the Social Security 
Act, the quality of health care services provided to 
individuals in such program, the health status of the 
participants of such program, and the cost savings attributed 
to implementation of such program.
  (b) Report.--Not later than 2 years after the date of 
implementation of such chronic care improvement programs, the 
Commission shall submit a report on such evaluation.

                      Subtitle C--Other Provisions

SEC. 731. MODIFICATIONS TO MEDICARE PAYMENT ADVISORY COMMISSION 
                    (MEDPAC).

  (a) Examination of Budget Consequences.--Section 1805(b) (42 
U.S.C. 1395b-6(b)) is amended by adding at the end the 
following new paragraph:
          ``(8) Examination of budget consequences.--Before 
        making any recommendations, the Commission shall 
        examine the budget consequences of such 
        recommendations, directly or through consultation with 
        appropriate expert entities.''.
  (b) Consideration of Efficient Provision of Services.--
Section 1805(b)(2)(B)(i) (42 U.S.C. 1395b-6(b)(2)(B)(i)) is 
amended by inserting ``the efficient provision of'' after 
``expenditures for''.
  (c) Application of Disclosure Requirements.--
          (1) In general.--Section 1805(c)(2)(D) (42 U.S.C. 
        1395b-6(c)(2)(D)) is amended by adding at the end the 
        following: ``Members of the Commission shall be treated 
        as employees of the Congress for purposes of applying 
        title I of the Ethics in Government Act of 1978 (Public 
        Law 95-521).''.
          (2) Effective date.--The amendment made by paragraph 
        (1) shall take effect on January 1, 2004.
  (d) Additional Reports.--
          (1) Data needs and sources.--The Medicare Payment 
        Advisory Commission shall conduct a study, and submit a 
        report to Congress by not later than June 1, 2004, on 
        the need for current data, and sources of current data 
        available, to determine the solvency and financial 
        circumstances of hospitals and other medicare providers 
        of services. The Commission shall examine data on 
        uncompensated care, as well as the share of 
        uncompensated care accounted for by the expenses for 
        treating illegal aliens.
          (2) Use of tax-related returns.--Using return 
        information provided under Form 990 of the Internal 
        Revenue Service, the Commission shall submit to 
        Congress, by not later than June 1, 2004, a report on 
        the following:
                  (A) Investments, endowments, and fundraising 
                of hospitals participating under the medicare 
                program and related foundations.
                  (B) Access to capital financing for private 
                and for not-for-profit hospitals.

SEC. 732. DEMONSTRATION PROJECT FOR MEDICAL ADULT DAY CARE SERVICES.

  (a) Establishment.--Subject to the succeeding provisions of 
this section, the Secretary of Health and Human Services shall 
establish a demonstration project (in this section referred to 
as the ``demonstration project'') under which the Secretary 
shall, as part of a plan of an episode of care for home health 
services established for a medicare beneficiary, permit a home 
health agency, directly or under arrangements with a medical 
adult day care facility, to provide medical adult day care 
services as a substitute for a portion of home health services 
that would otherwise be provided in the beneficiary's home.
  (b) Payment.--
          (1) In general.--The amount of payment for an episode 
        of care for home health services, a portion of which 
        consists of substitute medical adult day care services, 
        under the demonstration project shall be made at a rate 
        equal to 95 percent of the amount that would otherwise 
        apply for such home health services under section 1895 
        of the Social Security Act (42 u.s.c. 1395fff). In no 
        case may a home health agency, or a medical adult day 
        care facility under arrangements with a home health 
        agency, separately charge a beneficiary for medical 
        adult day care services furnished under the plan of 
        care.
          (2) Budget neutrality for demonstration project.--
        Notwithstanding any other provision of law, the 
        Secretary shall provide for an appropriate reduction in 
        the aggregate amount of additional payments made under 
        section 1895 of the Social Security Act (42 U.S.C. 
        1395fff) to reflect any increase in amounts expended 
        from the Trust Funds as a result of the demonstration 
        project conducted under this section.
  (c) Demonstration Project Sites.--The project established 
under this section shall be conducted in not more than 5 States 
selected by the Secretary that license or certify providers of 
services that furnish medical adult day care services.
  (d) Duration.--The Secretary shall conduct the demonstration 
project for a period of 3 years.
  (e) Voluntary Participation.--Participation of medicare 
beneficiaries in the demonstration project shall be voluntary. 
The total number of such beneficiaries that may participate in 
the project at any given time may not exceed 15,000.
  (f) Preference in Selecting Agencies.--In selecting home 
health agencies to participate under the demonstration project, 
the Secretary shall give preference to those agencies that are 
currently licensed or certified through common ownership and 
control to furnish medical adult day care services.
  (g) Waiver Authority.--The Secretary may waive such 
requirements of title XVIII of the Social Security Act as may 
be necessary for the purposes of carrying out the demonstration 
project, other than waiving the requirement that an individual 
be homebound in order to be eligible for benefits for home 
health services.
  (h) Evaluation and Report.--The Secretary shall conduct an 
evaluation of the clinical and cost effectiveness of the 
demonstration project. Not later 30 months after the 
commencement of the project, the Secretary shall submit to 
Congress a report on the evaluation, and shall include in the 
report the following:
          (1) An analysis of the patient outcomes and costs of 
        furnishing care to the medicare beneficiaries 
        participating in the project as compared to such 
        outcomes and costs to beneficiaries receiving only home 
        health services for the same health conditions.
          (2) Such recommendations regarding the extension, 
        expansion, or termination of the project as the 
        Secretary determines appropriate.
  (i) Definitions.--In this section:
          (1) Home health agency.--The term ``home health 
        agency'' has the meaning given such term in section 
        1861(o) of the Social Security Act (42 U.S.C. 
        1395x(o)).
          (2) Medical adult day care facility.--The term 
        ``medical adult day care facility'' means a facility 
        that--
                  (A) has been licensed or certified by a State 
                to furnish medical adult day care services in 
                the State for a continuous 2-year period;
                  (B) is engaged in providing skilled nursing 
                services and other therapeutic services 
                directly or under arrangement with a home 
                health agency;
                  (C) meets such standards established by the 
                Secretary to assure quality of care and such 
                other requirements as the Secretary finds 
                necessary in the interest of the health and 
                safety of individuals who are furnished 
                services in the facility; and
                  (D) provides medical adult day care services.
          (3) Medical adult day care services.--The term 
        ``medical adult day care services'' means--
                  (A) home health service items and services 
                described in paragraphs (1) through (7) of 
                section 1861(m) furnished in a medical adult 
                day care facility;
                  (B) a program of supervised activities 
                furnished in a group setting in the facility 
                that--
                          (i) meet such criteria as the 
                        Secretary determines appropriate; and
                          (ii) is designed to promote physical 
                        and mental health of the individuals; 
                        and
                  (C) such other services as the Secretary may 
                specify.
          (4) Medicare beneficiary.--The term ``medicare 
        beneficiary'' means an individual entitled to benefits 
        under part A of this title, enrolled under part B of 
        this title, or both.

SEC. 733. IMPROVEMENTS IN NATIONAL AND LOCAL COVERAGE DETERMINATION 
                    PROCESS TO RESPOND TO CHANGES IN TECHNOLOGY.

  (a) National and Local Coverage Determination Process.--
          (1) In general.--Section 1862 (42 U.S.C. 1395y) is 
        amended--
                  (A) in the third sentence of subsection (a) 
                by inserting ``consistent with subsection (k)'' 
                after ``the Secretary shall ensure''; and
                  (B) by adding at the end the following new 
                subsection:
  ``(k) National and Local Coverage Determination Process.--
          ``(1) Criteria and evidence used in making national 
        coverage determinations.--The Secretary shall make 
        available to the public the criteria the Secretary uses 
        in making national coverage determinations, including 
        how evidence to demonstrate that a procedure or device 
        is reasonable and necessary is considered.
          ``(2) Timeframe for decisions on requests for 
        national coverage determinations.--In the case of a 
        request for a national coverage determination that--
                  ``(A) does not require a technology 
                assessment from an outside entity or 
                deliberation from the Medicare Coverage 
                Advisory Committee, the decision on the request 
                shall be made not later than 6 months after the 
                date of the request; or
                  ``(B) requires such an assessment or 
                deliberation and in which a clinical trial is 
                not requested, the decision on the request 
                shall be made not later than 12 months after 
                the date of the request.
          ``(3) Process for public comment in national coverage 
        determinations.--At the end of the 6-month period that 
        begins on the date a request for a national coverage 
        determination is made, the Secretary shall--
                  ``(A) make a draft of proposed decision on 
                the request available to the public through the 
                Medicare Internet site of the Department of 
                Health and Human Services or other appropriate 
                means;
                  ``(B) provide a 30-day period for public 
                comment on such draft;
                  ``(C) make a final decision on the request 
                within 60 days of the conclusion of the 30-day 
                period referred to under subparagraph (B);
                  ``(D) include in such final decision 
                summaries of the public comments received and 
                responses thereto;
                  ``(E) make available to the public the 
                clinical evidence and other data used in making 
                such a decision when the decision differs from 
                the recommendations of the Medicare Coverage 
                Advisory Committee; and.
                  ``(F) in the case of a decision to grant the 
                coverage determination, assign or temporary or 
                permanent code during the 60-day period 
                referred to in subparagraph (C).
          ``(4) Consultation with outside experts in certain 
        national coverage determinations.--With respect to a 
        request for a national coverage determination for which 
        there is not a review by the Medicare Coverage Advisory 
        Committee, the Secretary shall consult with appropriate 
        outside clinical experts.
          ``(5) Local coverage determination process.--With 
        respect to local coverage determinations made on or 
        after January 1, 2004--
                  ``(A) Plan to promote consistency of coverage 
                determinations.--The Secretary shall develop a 
                plan to evaluate new local coverage 
                determinations to determine which 
                determinations should be adopted nationally and 
                to what extent greater consistency can be 
                achieved among local coverage determinations.
                  ``(B) Consultation.--The Secretary shall 
                require the fiscal intermediaries or carriers 
                providing services within the same area to 
                consult on all new local coverage 
                determinations within the area.
                  ``(C) Dissemination of information.--The 
                Secretary should serve as a center to 
                disseminate information on local coverage 
                determinations among fiscal intermediaries and 
                carriers to reduce duplication of effort.
          ``(6) National and local coverage determination 
        defined.--For purposes of this subsection, the terms 
        `national coverage determination' and `local coverage 
        determination' have the meaning given such terms in 
        paragraphs (1)(B) and (2)(B), respectively, of section 
        1869(f).''.
          (2) Effective date.--The amendments made by paragraph 
        (1) shall apply to national and local coverage 
        determinations as of January 1, 2004.
  (b) Medicare Coverage of Routine Costs Associated With 
Certain Clinical Trials.--
          (1) In general.--With respect to the coverage of 
        routine costs of care for beneficiaries participating 
        in a qualifying clinical trial, as set forth on the 
        date of the enactment of this Act in National Coverage 
        Determination 30-1 of the Medicare Coverage Issues 
        Manual, the Secretary shall deem clinical trials 
        conducted in accordance with an investigational device 
        exemption approved under section 520(g) of the Federal 
        Food, Drug, and Cosmetic Act (42 U.S.C. 360j(g)) to be 
        automatically qualified for such coverage.
          (2) Rule of construction.--Nothing in this subsection 
        shall be construed as authorizing or requiring the 
        Secretary to modify the regulations set forth on the 
        date of the enactment of this Act at subpart B of part 
        405 of title 42, Code of Federal Regulations, or 
        subpart A of part 411 of such title, relating to 
        coverage of, and payment for, a medical device that is 
        the subject of an investigational device exemption by 
        the Food and Drug Administration (except as may be 
        necessary to implement paragraph (1)).
          (3) Effective date.--This subsection shall apply to 
        clinical trials begun before, on, or after the date of 
        the enactment of this Act and to items and services 
        furnished on or after such date.
  (c) Issuance of Temporary National Codes.--Not later than 
January 1, 2004, the Secretary shall implement revised 
procedures for the issuance of temporary national HCPCS codes 
under part B of title XVIII of the Social Security Act.

SEC. 734. TREATMENT OF CERTAIN PHYSICIAN PATHOLOGY SERVICES.

  (a) In General.--Section 1848(i) (42 U.S.C. 1395w-4(i)) is 
amended by adding at the end the following new paragraph:
          ``(4) Treatment of certain inpatient physician 
        pathology services.--
                  ``(A) In general.--With respect to services 
                furnished on or after January 1, 2001, and 
                before January 1, 2006, if an independent 
                laboratory furnishes the technical component of 
                a physician pathology service to a fee-for-
                service medicare beneficiary who is an 
                inpatient or outpatient of a covered hospital, 
                the Secretary shall treat such component as a 
                service for which payment shall be made to the 
                laboratory under this section and not as an 
                inpatient hospital service for which payment is 
                made to the hospital under section 1886(d) or 
                as a hospital outpatient service for which 
                payment is made to the hospital under section 
                1833(t).
                  ``(B) Definitions.--In this paragraph:
                          ``(i) Covered hospital.--
                                  ``(I) In general.--The term 
                                `covered hospital' means, with 
                                respect to an inpatient or 
                                outpatient, a hospital that had 
                                an arrangement with an 
                                independent laboratory that was 
                                in effect as of July 22, 1999, 
                                under which a laboratory 
                                furnished the technical 
                                component of physician 
                                pathology services to fee-for-
                                service medicare beneficiaries 
                                who were hospital inpatients or 
                                outpatients, respectively, and 
                                submitted claims for payment 
                                for such component to a carrier 
                                with a contract under section 
                                1842 and not to the hospital.
                                  ``(II) Change in ownership 
                                does not affect 
                                determination.--A change in 
                                ownership with respect to a 
                                hospital on or after the date 
                                referred to in subclause (I) 
                                shall not affect the 
                                determination of whether such 
                                hospital is a covered hospital 
                                for purposes of such subclause.
                          ``(ii) Fee-for-service medicare 
                        beneficiary.--The term `fee-for-service 
                        medicare beneficiary' means an 
                        individual who is entitled to benefits 
                        under part A, or enrolled under this 
                        part, or both, but is not enrolled in 
                        any of the following:
                                  ``(I) A Medicare+Choice plan 
                                under part C.
                                  ``(II) A plan offered by an 
                                eligible organization under 
                                section 1876.
                                  ``(III) A program of all-
                                inclusive care for the elderly 
                                (PACE) under section 1894.
                                  ``(IV) A social health 
                                maintenance organization (SHMO) 
                                demonstration project 
                                established under section 
                                4018(b) of the Omnibus Budget 
                                Reconciliation Act of 1987 
                                (Public Law 100-203).''.
  (b) Conforming Amendment.--Section 542 of the Medicare, 
Medicaid, and SCHIP Benefits Improvement and Protection Act of 
2000 (114 Stat. 2763A-550), as enacted into law by section 
1(a)(6) of Public Law 106-554, is repealed.
  (c) Effective Dates.--The amendments made by this section 
shall take effect as if included in the enactment of the 
Medicare, Medicaid, and SCHIP Benefits Improvement and 
Protection Act of 2000 (Appendix F, 114 Stat. 2763A-463), as 
enacted into law by section 1(a)(6) of Public Law 106-554.

SEC. 735. MEDICARE PANCREATIC ISLET CELL TRANSPLANT DEMONSTRATION 
                    PROJECT.

  (a) Establishment.--In order to test the appropriateness of 
pancreatic islet cell transplantation, not later than 120 days 
after the date of the enactment of this Act, the Secretary 
shall establish a demonstration project which the Secretary, 
provides for payment under the medicare program under title 
XVIII of the Social Security Act for pancreatic islet cell 
transplantation and related items and services in the case of 
medicare beneficiaries who have type I (juvenile) diabetes and 
have end stage renal disease.
  (b) Duration of Project.--The authority of the Secretary to 
conduct the demonstration project under this section shall 
terminate on the date that is 5 years after the date of the 
establishment of the project.
  (c) Evaluation and Report.--The Secretary shall conduct an 
evaluation of the outcomes of the demonstration project. Not 
later than 120 days after the date of the termination of the 
demonstration project under subsection (b), the Secretary shall 
submit to Congress a report on the project, including 
recommendations for such legislative and administrative action 
as the Secretary deems appropriate.
  (d) Payment Methodology.--The Secretary shall establish an 
appropriate payment methodology for the provision of items and 
services under the demonstration project, which may include a 
payment methodology that bundles, to the maximum extent 
feasible, payment for all such items and services.
  (e) Waiver Authority.--The Secretary may waive compliance 
with the requirements of title XVIII of the Social Security Act 
to such extent and for such period as the Secretary determines 
is necessary to conduct the demonstration project.

                          TITLE VIII--MEDICAID

SEC. 801. CONTINUATION OF MEDICAID DSH ALLOTMENT ADJUSTMENTS UNDER BIPA 
                    2000.

  (a) In General.--Section 1923(f) of the Social Security Act 
(42 U.S.C. 1396r-4(f))--
          (1) in paragraph (2)--
                  (A) in the heading, by striking ``through 
                2002'' and inserting ``through 2000'';
                  (B) by striking ``ending with fiscal year 
                2002'' and inserting ``ending with fiscal year 
                2000''; and
                  (C) in the table in such paragraph, by 
                striking the columns labeled ``FY 01'' and 
                ``FY02'';
          (2) in paragraph (3)(A), by striking ``paragraph 
        (2)'' and inserting ``paragraph (4)''; and
          (3) in paragraph (4), as added by section 701(a)(1) 
        of the Medicare, Medicaid, and SCHIP Benefits 
        Improvement and Protection Act of 2000 (as enacted into 
        law by section 1(a)(6) of Public Law 106-554)--
                  (A) by striking ``for fiscal years 2001 and 
                2002'' in the heading;
                  (B) in subparagraph (A), by striking 
                ``Notwithstanding paragraph (2), the'' and 
                inserting ``The'';
                  (C) in subparagraph (C)--
                          (i) by striking ``No application'' 
                        and inserting ``Application''; and
                          (ii) by striking ``without regard 
                        to'' and inserting ``taking into 
                        account''.
  (b) Increase in Medicaid DSH Allotment for the District of 
Columbia.--
          (1) In general.--Effective for DSH allotments 
        beginning with fiscal year 2003, the item in the table 
        contained in section 1923(f)(2) of the Social Security 
        Act (42 U.S.C. 1396r-4(f)(2)) for the District of 
        Columbia for the DSH allotment for FY 00 (fiscal year 
        2000) is amended by striking ``32'' and inserting 
        ``49''.
          (2) Construction.--Nothing in paragraph (1) shall be 
        construed as preventing the application of section 
        1923(f)(4) of the Social Security Act (as amended by 
        subsection (a)) to the District of Columbia for fiscal 
        year 2003 and subsequent fiscal years.
  (c) Effective Date.--The amendments made by this section 
shall apply to DSH allotments for fiscal years beginning with 
fiscal year 2003.

SEC. 802. INCREASE IN FLOOR FOR TREATMENT AS AN EXTREMELY LOW DSH STATE 
                    TO 3 PERCENT IN FISCAL YEAR 2003.

  (a) Increase in DSH Floor.--Section 1923(f)(5) of the Social 
Security Act (42 U.S.C. 1396r-4(f)(5)) is amended--
          (1) by striking ``fiscal year 1999'' and inserting 
        ``fiscal year 2001'';
          (2) by striking ``August 31, 2000'' and inserting 
        ``August 31, 2002'';
          (3) by striking ``1 percent'' each place it appears 
        and inserting ``3 percent''; and
          (4) by striking ``fiscal year 2001'' and inserting 
        ``fiscal year 2003''.
  (b) Effective Date.--The amendments made by subsection (a) 
take effect as if enacted on October 1, 2002, and apply to DSH 
allotments under title XIX of the Social Security Act for 
fiscal year 2003 and each fiscal year thereafter.

SEC. 803. CLARIFICATION OF INCLUSION OF INPATIENT DRUG PRICES CHARGED 
                    TO CERTAIN PUBLIC HOSPITALS IN THE BEST PRICE 
                    EXEMPTIONS FOR THE MEDICAID DRUG REBATE PROGRAM.

  (a) In General.--Section 1927(c)(1)(C)(i)(I) (42 U.S.C. 
1396r-8(c)(1)(C)(i)(I)) is amended by inserting before the 
semicolon the following: ``(including inpatient prices charged 
to hospitals described in section 340B(a)(4)(L) of the Public 
Health Service Act)''.

         TITLE IX--REGULATORY REDUCTION AND CONTRACTING REFORM

                     Subtitle A--Regulatory Reform

SEC. 901. CONSTRUCTION; DEFINITION OF SUPPLIER.

  (a) Construction.--Nothing in this title shall be construed--
          (1) to compromise or affect existing legal remedies 
        for addressing fraud or abuse, whether it be criminal 
        prosecution, civil enforcement, or administrative 
        remedies, including under sections 3729 through 3733 of 
        title 31, United States Code (known as the False Claims 
        Act); or
          (2) to prevent or impede the Department of Health and 
        Human Services in any way from its ongoing efforts to 
        eliminate waste, fraud, and abuse in the medicare 
        program.
Furthermore, the consolidation of medicare administrative 
contracting set forth in this Act does not constitute 
consolidation of the Federal Hospital Insurance Trust Fund and 
the Federal Supplementary Medical Insurance Trust Fund or 
reflect any position on that issue.
  (b) Definition of Supplier.--Section 1861 (42 U.S.C. 1395x) 
is amended by inserting after subsection (c) the following new 
subsection:

                               ``Supplier

  ``(d) The term `supplier' means, unless the context otherwise 
requires, a physician or other practitioner, a facility, or 
other entity (other than a provider of services) that furnishes 
items or services under this title.''.

SEC. 902. ISSUANCE OF REGULATIONS.

  (a) Regular Timeline for Publication of Final Rules.--
          (1) In general.--Section 1871(a) (42 U.S.C. 
        1395hh(a)) is amended by adding at the end the 
        following new paragraph:
  ``(3)(A) The Secretary, in consultation with the Director of 
the Office of Management and Budget, shall establish and 
publish a regular timeline for the publication of final 
regulations based on the previous publication of a proposed 
regulation or an interim final regulation.
  ``(B) Such timeline may vary among different regulations 
based on differences in the complexity of the regulation, the 
number and scope of comments received, and other relevant 
factors, but shall not be longer than 3 years except under 
exceptional circumstances. If the Secretary intends to vary 
such timeline with respect to the publication of a final 
regulation, the Secretary shall cause to have published in the 
Federal Register notice of the different timeline by not later 
than the timeline previously established with respect to such 
regulation. Such notice shall include a brief explanation of 
the justification for such variation.
  ``(C) In the case of interim final regulations, upon the 
expiration of the regular timeline established under this 
paragraph for the publication of a final regulation after 
opportunity for public comment, the interim final regulation 
shall not continue in effect unless the Secretary publishes (at 
the end of the regular timeline and, if applicable, at the end 
of each succeeding 1-year period) a notice of continuation of 
the regulation that includes an explanation of why the regular 
timeline (and any subsequent 1-year extension) was not complied 
with. If such a notice is published, the regular timeline (or 
such timeline as previously extended under this paragraph) for 
publication of the final regulation shall be treated as having 
been extended for 1 additional year.
  ``(D) The Secretary shall annually submit to Congress a 
report that describes the instances in which the Secretary 
failed to publish a final regulation within the applicable 
regular timeline under this paragraph and that provides an 
explanation for such failures.''.
          (2) Effective date.--The amendment made by paragraph 
        (1) shall take effect on the date of the enactment of 
        this Act. The Secretary shall provide for an 
        appropriate transition to take into account the backlog 
        of previously published interim final regulations.
  (b) Limitations on New Matter in Final Regulations.--
          (1) In general.--Section 1871(a) (42 U.S.C. 
        1395hh(a)), as amended by subsection (a), is amended by 
        adding at the end the following new paragraph:
  ``(4) If the Secretary publishes a final regulation that 
includes a provision that is not a logical outgrowth of a 
previously published notice of proposed rulemaking or interim 
final rule, such provision shall be treated as a proposed 
regulation and shall not take effect until there is the further 
opportunity for public comment and a publication of the 
provision again as a final regulation.''.
          (2) Effective date.--The amendment made by paragraph 
        (1) shall apply to final regulations published on or 
        after the date of the enactment of this Act.

SEC. 903. COMPLIANCE WITH CHANGES IN REGULATIONS AND POLICIES.

  (a) No Retroactive Application of Substantive Changes.--
          (1) In general.--Section 1871 (42 U.S.C. 1395hh), as 
        amended by section 902(a), is amended by adding at the 
        end the following new subsection:
  ``(e)(1)(A) A substantive change in regulations, manual 
instructions, interpretative rules, statements of policy, or 
guidelines of general applicability under this title shall not 
be applied (by extrapolation or otherwise) retroactively to 
items and services furnished before the effective date of the 
change, unless the Secretary determines that--
          ``(i) such retroactive application is necessary to 
        comply with statutory requirements; or
          ``(ii) failure to apply the change retroactively 
        would be contrary to the public interest.''.
          (2) Effective date.--The amendment made by paragraph 
        (1) shall apply to substantive changes issued on or 
        after the date of the enactment of this Act.
  (b) Timeline for Compliance With Substantive Changes After 
Notice.--
          (1) In general.--Section 1871(e)(1), as added by 
        subsection (a), is amended by adding at the end the 
        following:
  ``(B)(i) Except as provided in clause (ii), a substantive 
change referred to in subparagraph (A) shall not become 
effective before the end of the 30-day period that begins on 
the date that the Secretary has issued or published, as the 
case may be, the substantive change.
  ``(ii) The Secretary may provide for such a substantive 
change to take effect on a date that precedes the end of the 
30-day period under clause (i) if the Secretary finds that 
waiver of such 30-day period is necessary to comply with 
statutory requirements or that the application of such 30-day 
period is contrary to the public interest. If the Secretary 
provides for an earlier effective date pursuant to this clause, 
the Secretary shall include in the issuance or publication of 
the substantive change a finding described in the first 
sentence, and a brief statement of the reasons for such 
finding.
  ``(C) No action shall be taken against a provider of services 
or supplier with respect to noncompliance with such a 
substantive change for items and services furnished before the 
effective date of such a change.''.
          (2) Effective date.--The amendment made by paragraph 
        (1) shall apply to compliance actions undertaken on or 
        after the date of the enactment of this Act.
  (c) Reliance on Guidance.--
          (1) In general.--Section 1871(e), as added by 
        subsection (a), is further amended by adding at the end 
        the following new paragraph:
  ``(2)(A) If--
          ``(i) a provider of services or supplier follows the 
        written guidance (which may be transmitted 
        electronically) provided by the Secretary or by a 
        medicare contractor (as defined in section 1889(g)) 
        acting within the scope of the contractor's contract 
        authority, with respect to the furnishing of items or 
        services and submission of a claim for benefits for 
        such items or services with respect to such provider or 
        supplier;
          ``(ii) the Secretary determines that the provider of 
        services or supplier has accurately presented the 
        circumstances relating to such items, services, and 
        claim to the contractor in writing; and
          ``(iii) the guidance was in error;
the provider of services or supplier shall not be subject to 
any sanction (including any penalty or requirement for 
repayment of any amount) if the provider of services or 
supplier reasonably relied on such guidance.
  ``(B) Subparagraph (A) shall not be construed as preventing 
the recoupment or repayment (without any additional penalty) 
relating to an overpayment insofar as the overpayment was 
solely the result of a clerical or technical operational 
error.''.
          (2) Effective date.--The amendment made by paragraph 
        (1) shall take effect on the date of the enactment of 
        this Act but shall not apply to any sanction for which 
        notice was provided on or before the date of the 
        enactment of this Act.

SEC. 904. REPORTS AND STUDIES RELATING TO REGULATORY REFORM.

  (a) GAO Study on Advisory Opinion Authority.--
          (1) Study.--The Comptroller General of the United 
        States shall conduct a study to determine the 
        feasibility and appropriateness of establishing in the 
        Secretary authority to provide legally binding advisory 
        opinions on appropriate interpretation and application 
        of regulations to carry out the medicare program under 
        title XVIII of the Social Security Act. Such study 
        shall examine the appropriate timeframe for issuing 
        such advisory opinions, as well as the need for 
        additional staff and funding to provide such opinions.
          (2) Report.--The Comptroller General shall submit to 
        Congress a report on the study conducted under 
        paragraph (1) by not later than one year after the date 
        of the enactment of this Act.
  (b) Report on Legal and Regulatory Inconsistencies.--Section 
1871 (42 U.S.C. 1395hh), as amended by section 902(a), is 
amended by adding at the end the following new subsection:
  ``(f)(1) Not later than 2 years after the date of the 
enactment of this subsection, and every 2 years thereafter, the 
Secretary shall submit to Congress a report with respect to the 
administration of this title and areas of inconsistency or 
conflict among the various provisions under law and regulation.
  ``(2) In preparing a report under paragraph (1), the 
Secretary shall collect--
          ``(A) information from individuals entitled to 
        benefits under part A or enrolled under part B, or 
        both, providers of services, and suppliers and from the 
        Medicare Beneficiary Ombudsman and the Medicare 
        Provider Ombudsman with respect to such areas of 
        inconsistency and conflict; and
          ``(B) information from medicare contractors that 
        tracks the nature of written and telephone inquiries.
  ``(3) A report under paragraph (1) shall include a 
description of efforts by the Secretary to reduce such 
inconsistency or conflicts, and recommendations for legislation 
or administrative action that the Secretary determines 
appropriate to further reduce such inconsistency or 
conflicts.''.

                     Subtitle B--Contracting Reform

SEC. 911. INCREASED FLEXIBILITY IN MEDICARE ADMINISTRATION.

  (a) Consolidation and Flexibility in Medicare 
Administration.--
          (1) In general.--Title XVIII is amended by inserting 
        after section 1874 the following new section:

          ``CONTRACTS WITH MEDICARE ADMINISTRATIVE CONTRACTORS

  ``Sec. 1874A. (a) Authority.--
          ``(1) Authority to enter into contracts.--The 
        Secretary may enter into contracts with any eligible 
        entity to serve as a medicare administrative contractor 
        with respect to the performance of any or all of the 
        functions described in paragraph (4) or parts of those 
        functions (or, to the extent provided in a contract, to 
        secure performance thereof by other entities).
          ``(2) Eligibility of entities.--An entity is eligible 
        to enter into a contract with respect to the 
        performance of a particular function described in 
        paragraph (4) only if--
                  ``(A) the entity has demonstrated capability 
                to carry out such function;
                  ``(B) the entity complies with such conflict 
                of interest standards as are generally 
                applicable to Federal acquisition and 
                procurement;
                  ``(C) the entity has sufficient assets to 
                financially support the performance of such 
                function; and
                  ``(D) the entity meets such other 
                requirements as the Secretary may impose.
          ``(3) Medicare administrative contractor defined.--
        For purposes of this title and title XI--
                  ``(A) In general.--The term `medicare 
                administrative contractor' means an agency, 
                organization, or other person with a contract 
                under this section.
                  ``(B) Appropriate medicare administrative 
                contractor.--With respect to the performance of 
                a particular function in relation to an 
                individual entitled to benefits under part A or 
                enrolled under part B, or both, a specific 
                provider of services or supplier (or class of 
                such providers of services or suppliers), the 
                `appropriate' medicare administrative 
                contractor is the medicare administrative 
                contractor that has a contract under this 
                section with respect to the performance of that 
                function in relation to that individual, 
                provider of services or supplier or class of 
                provider of services or supplier.
          ``(4) Functions described.--The functions referred to 
        in paragraphs (1) and (2) are payment functions, 
        provider services functions, and functions relating to 
        services furnished to individuals entitled to benefits 
        under part A or enrolled under part B, or both, as 
        follows:
                  ``(A) Determination of payment amounts.--
                Determining (subject to the provisions of 
                section 1878 and to such review by the 
                Secretary as may be provided for by the 
                contracts) the amount of the payments required 
                pursuant to this title to be made to providers 
                of services, suppliers and individuals.
                  ``(B) Making payments.--Making payments 
                described in subparagraph (A) (including 
                receipt, disbursement, and accounting for funds 
                in making such payments).
                  ``(C) Beneficiary education and assistance.--
                Providing education and outreach to individuals 
                entitled to benefits under part A or enrolled 
                under part B, or both, and providing assistance 
                to those individuals with specific issues, 
                concerns or problems.
                  ``(D) Provider consultative services.--
                Providing consultative services to 
                institutions, agencies, and other persons to 
                enable them to establish and maintain fiscal 
                records necessary for purposes of this title 
                and otherwise to qualify as providers of 
                services or suppliers.
                  ``(E) Communication with providers.--
                Communicating to providers of services and 
                suppliers any information or instructions 
                furnished to the medicare administrative 
                contractor by the Secretary, and facilitating 
                communication between such providers and 
                suppliers and the Secretary.
                  ``(F) Provider education and technical 
                assistance.--Performing the functions relating 
                to provider education, training, and technical 
                assistance.
                  ``(G) Additional functions.--Performing such 
                other functions as are necessary to carry out 
                the purposes of this title.
          ``(5) Relationship to mip contracts.--
                  ``(A) Nonduplication of duties.--In entering 
                into contracts under this section, the 
                Secretary shall assure that functions of 
                medicare administrative contractors in carrying 
                out activities under parts A and B do not 
                duplicate activities carried out under the 
                Medicare Integrity Program under section 1893. 
                The previous sentence shall not apply with 
                respect to the activity described in section 
                1893(b)(5) (relating to prior authorization of 
                certain items of durable medical equipment 
                under section 1834(a)(15)).
                  ``(B) Construction.--An entity shall not be 
                treated as a medicare administrative contractor 
                merely by reason of having entered into a 
                contract with the Secretary under section 1893.
          ``(6) Application of federal acquisition 
        regulation.--Except to the extent inconsistent with a 
        specific requirement of this title, the Federal 
        Acquisition Regulation applies to contracts under this 
        title.
  ``(b) Contracting Requirements.--
          ``(1) Use of competitive procedures.--
                  ``(A) In general.--Except as provided in laws 
                with general applicability to Federal 
                acquisition and procurement or in subparagraph 
                (B), the Secretary shall use competitive 
                procedures when entering into contracts with 
                medicare administrative contractors under this 
                section, taking into account performance 
                quality as well as price and other factors.
                  ``(B) Renewal of contracts.--The Secretary 
                may renew a contract with a medicare 
                administrative contractor under this section 
                from term to term without regard to section 5 
                of title 41, United States Code, or any other 
                provision of law requiring competition, if the 
                medicare administrative contractor has met or 
                exceeded the performance requirements 
                applicable with respect to the contract and 
                contractor, except that the Secretary shall 
                provide for the application of competitive 
                procedures under such a contract not less 
                frequently than once every five years.
                  ``(C) Transfer of functions.--The Secretary 
                may transfer functions among medicare 
                administrative contractors consistent with the 
                provisions of this paragraph. The Secretary 
                shall ensure that performance quality is 
                considered in such transfers. The Secretary 
                shall provide public notice (whether in the 
                Federal Register or otherwise) of any such 
                transfer (including a description of the 
                functions so transferred, a description of the 
                providers of services and suppliers affected by 
                such transfer, and contact information for the 
                contractors involved).
                  ``(D) Incentives for quality.--The Secretary 
                shall provide incentives for medicare 
                administrative contractors to provide quality 
                service and to promote efficiency.
          ``(2) Compliance with requirements.--No contract 
        under this section shall be entered into with any 
        medicare administrative contractor unless the Secretary 
        finds that such medicare administrative contractor will 
        perform its obligations under the contract efficiently 
        and effectively and will meet such requirements as to 
        financial responsibility, legal authority, quality of 
        services provided, and other matters as the Secretary 
        finds pertinent.
          ``(3) Performance requirements.--
                  ``(A) Development of specific performance 
                requirements.--In developing contract 
                performance requirements, the Secretary shall 
                develop performance requirements applicable to 
                functions described in subsection (a)(4).
                  ``(B) Consultation.-- In developing such 
                requirements, the Secretary may consult with 
                providers of services and suppliers, 
                organizations representing individuals entitled 
                to benefits under part A or enrolled under part 
                B, or both, and organizations and agencies 
                performing functions necessary to carry out the 
                purposes of this section with respect to such 
                performance requirements.
                  ``(C) Inclusion in contracts.--All contractor 
                performance requirements shall be set forth in 
                the contract between the Secretary and the 
                appropriate medicare administrative contractor. 
                Such performance requirements--
                          ``(i) shall reflect the performance 
                        requirements developed under 
                        subparagraph (A), but may include 
                        additional performance requirements;
                          ``(ii) shall be used for evaluating 
                        contractor performance under the 
                        contract; and
                          ``(iii) shall be consistent with the 
                        written statement of work provided 
                        under the contract.
          ``(4) Information requirements.--The Secretary shall 
        not enter into a contract with a medicare 
        administrative contractor under this section unless the 
        contractor agrees--
                  ``(A) to furnish to the Secretary such timely 
                information and reports as the Secretary may 
                find necessary in performing his functions 
                under this title; and
                  ``(B) to maintain such records and afford 
                such access thereto as the Secretary finds 
                necessary to assure the correctness and 
                verification of the information and reports 
                under subparagraph (A) and otherwise to carry 
                out the purposes of this title.
          ``(5) Surety bond.--A contract with a medicare 
        administrative contractor under this section may 
        require the medicare administrative contractor, and any 
        of its officers or employees certifying payments or 
        disbursing funds pursuant to the contract, or otherwise 
        participating in carrying out the contract, to give 
        surety bond to the United States in such amount as the 
        Secretary may deem appropriate.
  ``(c) Terms and Conditions.--
          ``(1) In general.--A contract with any medicare 
        administrative contractor under this section may 
        contain such terms and conditions as the Secretary 
        finds necessary or appropriate and may provide for 
        advances of funds to the medicare administrative 
        contractor for the making of payments by it under 
        subsection (a)(4)(B).
          ``(2) Prohibition on mandates for certain data 
        collection.--The Secretary may not require, as a 
        condition of entering into, or renewing, a contract 
        under this section, that the medicare administrative 
        contractor match data obtained other than in its 
        activities under this title with data used in the 
        administration of this title for purposes of 
        identifying situations in which the provisions of 
        section 1862(b) may apply.
  ``(d) Limitation on Liability of Medicare Administrative 
Contractors and Certain Officers.--
          ``(1) Certifying officer.--No individual designated 
        pursuant to a contract under this section as a 
        certifying officer shall, in the absence of the 
        reckless disregard of the individual's obligations or 
        the intent by that individual to defraud the United 
        States, be liable with respect to any payments 
        certified by the individual under this section.
          ``(2) Disbursing officer.--No disbursing officer 
        shall, in the absence of the reckless disregard of the 
        officer's obligations or the intent by that officer to 
        defraud the United States, be liable with respect to 
        any payment by such officer under this section if it 
        was based upon an authorization (which meets the 
        applicable requirements for such internal controls 
        established by the Comptroller General) of a certifying 
        officer designated as provided in paragraph (1) of this 
        subsection.
          ``(3) Liability of medicare administrative 
        contractor.--
          ``(A) In general.--No medicare administrative 
        contractor shall be liable to the United States for a 
        payment by a certifying or disbursing officer unless, 
        in connection with such payment, the medicare 
        administrative contractor acted with reckless disregard 
        of its obligations under its medicare administrative 
        contract or with intent to defraud the United States.
          ``(B) Relationship to false claims act.--Nothing in 
        this subsection shall be construed to limit liability 
        for conduct that would constitute a violation of 
        sections 3729 through 3731 of title 31, United States 
        Code (commonly known as the `False Claims Act').
          ``(4) Indemnification by secretary.--
                  ``(A) In general.--Subject to subparagraphs 
                (B) and (D), in the case of a medicare 
                administrative contractor (or a person who is a 
                director, officer, or employee of such a 
                contractor or who is engaged by the contractor 
                to participate directly in the claims 
                administration process) who is made a party to 
                any judicial or administrative proceeding 
                arising from or relating directly to the claims 
                administration process under this title, the 
                Secretary may, to the extent the Secretary 
                determines to be appropriate and as specified 
                in the contract with the contractor, indemnify 
                the contractor and such persons.
                  ``(B) Conditions.--The Secretary may not 
                provide indemnification under subparagraph (A) 
                insofar as the liability for such costs arises 
                directly from conduct that is determined by the 
                judicial proceeding or by the Secretary to be 
                criminal in nature, fraudulent, or grossly 
                negligent. If indemnification is provided by 
                the Secretary with respect to a contractor 
                before a determination that such costs arose 
                directly from such conduct, the contractor 
                shall reimburse the Secretary for costs of 
                indemnification.
                  ``(C) Scope of indemnification.--
                Indemnification by the Secretary under 
                subparagraph (A) may include payment of 
                judgments, settlements (subject to subparagraph 
                (D)), awards, and costs (including reasonable 
                legal expenses).
                  ``(D) Written approval for settlements.--A 
                contractor or other person described in 
                subparagraph (A) may not propose to negotiate a 
                settlement or compromise of a proceeding 
                described in such subparagraph without the 
                prior written approval of the Secretary to 
                negotiate such settlement or compromise. Any 
                indemnification under subparagraph (A) with 
                respect to amounts paid under a settlement or 
                compromise of a proceeding described in such 
                subparagraph are conditioned upon prior written 
                approval by the Secretary of the final 
                settlement or compromise.
                  ``(E) Construction.--Nothing in this 
                paragraph shall be construed--
                          ``(i) to change any common law 
                        immunity that may be available to a 
                        medicare administrative contractor or 
                        person described in subparagraph (A); 
                        or
                          ``(ii) to permit the payment of costs 
                        not otherwise allowable, reasonable, or 
                        allocable under the Federal Acquisition 
                        Regulations.''.
          (2) Consideration of incorporation of current law 
        standards.--In developing contract performance 
        requirements under section 1874A(b) of the Social 
        Security Act, as inserted by paragraph (1), the 
        Secretary shall consider inclusion of the performance 
        standards described in sections 1816(f)(2) of such Act 
        (relating to timely processing of reconsiderations and 
        applications for exemptions) and section 1842(b)(2)(B) 
        of such Act (relating to timely review of 
        determinations and fair hearing requests), as such 
        sections were in effect before the date of the 
        enactment of this Act.
  (b) Conforming Amendments to Section 1816 (Relating to Fiscal 
Intermediaries).--Section 1816 (42 U.S.C. 1395h) is amended as 
follows:
          (1) The heading is amended to read as follows:

        ``PROVISIONS RELATING TO THE ADMINISTRATION OF PART A''.

          (2) Subsection (a) is amended to read as follows:
  ``(a) The administration of this part shall be conducted 
through contracts with medicare administrative contractors 
under section 1874A.''.
          (3) Subsection (b) is repealed.
          (4) Subsection (c) is amended--
                  (A) by striking paragraph (1); and
                  (B) in each of paragraphs (2)(A) and (3)(A), 
                by striking ``agreement under this section'' 
                and inserting ``contract under section 1874A 
                that provides for making payments under this 
                part''.
          (5) Subsections (d) through (i) are repealed.
          (6) Subsections (j) and (k) are each amended--
                  (A) by striking ``An agreement with an agency 
                or organization under this section'' and 
                inserting ``A contract with a medicare 
                administrative contractor under section 1874A 
                with respect to the administration of this 
                part''; and
                  (B) by striking ``such agency or 
                organization'' and inserting ``such medicare 
                administrative contractor'' each place it 
                appears.
          (7) Subsection (l) is repealed.
  (c) Conforming Amendments to Section 1842 (Relating to 
Carriers).--Section 1842 (42 U.S.C. 1395u) is amended as 
follows:
          (1) The heading is amended to read as follows:

        ``PROVISIONS RELATING TO THE ADMINISTRATION OF PART B''.

          (2) Subsection (a) is amended to read as follows:
  ``(a) The administration of this part shall be conducted 
through contracts with medicare administrative contractors 
under section 1874A.''.
          (3) Subsection (b) is amended--
                  (A) by striking paragraph (1);
                  (B) in paragraph (2)--
                          (i) by striking subparagraphs (A) and 
                        (B);
                          (ii) in subparagraph (C), by striking 
                        ``carriers'' and inserting ``medicare 
                        administrative contractors''; and
                          (iii) by striking subparagraphs (D) 
                        and (E);
                  (C) in paragraph (3)--
                          (i) in the matter before subparagraph 
                        (A), by striking ``Each such contract 
                        shall provide that the carrier'' and 
                        inserting ``The Secretary'';
                          (ii) by striking ``will'' the first 
                        place it appears in each of 
                        subparagraphs (A), (B), (F), (G), (H), 
                        and (L) and inserting ``shall'';
                          (iii) in subparagraph (B), in the 
                        matter before clause (i), by striking 
                        ``to the policyholders and subscribers 
                        of the carrier'' and inserting ``to the 
                        policyholders and subscribers of the 
                        medicare administrative contractor'';
                          (iv) by striking subparagraphs (C), 
                        (D), and (E);
                          (v) in subparagraph (H)--
                                  (I) by striking ``if it makes 
                                determinations or payments with 
                                respect to physicians' 
                                services,'' in the matter 
                                preceding clause (i); and
                                  (II) by striking ``carrier'' 
                                and inserting ``medicare 
                                administrative contractor'' in 
                                clause (i);
                          (vi) by striking subparagraph (I);
                          (vii) in subparagraph (L), by 
                        striking the semicolon and inserting a 
                        period;
                          (viii) in the first sentence, after 
                        subparagraph (L), by striking ``and 
                        shall contain'' and all that follows 
                        through the period; and
                          (ix) in the seventh sentence, by 
                        inserting ``medicare administrative 
                        contractor,'' after ``carrier,''; and
                  (D) by striking paragraph (5);
                  (E) in paragraph (6)(D)(iv), by striking 
                ``carrier'' and inserting ``medicare 
                administrative contractor''; and
                  (F) in paragraph (7), by striking ``the 
                carrier'' and inserting ``the Secretary'' each 
                place it appears.
          (4) Subsection (c) is amended--
                  (A) by striking paragraph (1);
                  (B) in paragraph (2)(A), by striking 
                ``contract under this section which provides 
                for the disbursement of funds, as described in 
                subsection (a)(1)(B),'' and inserting 
                ``contract under section 1874A that provides 
                for making payments under this part'';
                  (C) in paragraph (3)(A), by striking 
                ``subsection (a)(1)(B)'' and inserting 
                ``section 1874A(a)(3)(B)'';
                  (D) in paragraph (4), in the matter preceding 
                subparagraph (A), by striking ``carrier'' and 
                inserting ``medicare administrative 
                contractor''; and
                  (E) by striking paragraphs (5) and (6).
          (5) Subsections (d), (e), and (f) are repealed.
          (6) Subsection (g) is amended by striking ``carrier 
        or carriers'' and inserting ``medicare administrative 
        contractor or contractors''.
          (7) Subsection (h) is amended--
                  (A) in paragraph (2)--
                          (i) by striking ``Each carrier having 
                        an agreement with the Secretary under 
                        subsection (a)'' and inserting ``The 
                        Secretary''; and
                          (ii) by striking ``Each such 
                        carrier'' and inserting ``The 
                        Secretary'';
                  (B) in paragraph (3)(A)--
                          (i) by striking ``a carrier having an 
                        agreement with the Secretary under 
                        subsection (a)'' and inserting 
                        ``medicare administrative contractor 
                        having a contract under section 1874A 
                        that provides for making payments under 
                        this part''; and
                          (ii) by striking ``such carrier'' and 
                        inserting ``such contractor'';
                  (C) in paragraph (3)(B)--
                          (i) by striking ``a carrier'' and 
                        inserting ``a medicare administrative 
                        contractor'' each place it appears; and
                          (ii) by striking ``the carrier'' and 
                        inserting ``the contractor'' each place 
                        it appears; and
                  (D) in paragraphs (5)(A) and (5)(B)(iii), by 
                striking ``carriers'' and inserting ``medicare 
                administrative contractors'' each place it 
                appears.
          (8) Subsection (l) is amended--
                  (A) in paragraph (1)(A)(iii), by striking 
                ``carrier'' and inserting ``medicare 
                administrative contractor''; and
                  (B) in paragraph (2), by striking ``carrier'' 
                and inserting ``medicare administrative 
                contractor''.
          (9) Subsection (p)(3)(A) is amended by striking 
        ``carrier'' and inserting ``medicare administrative 
        contractor''.
          (10) Subsection (q)(1)(A) is amended by striking 
        ``carrier''.
  (d) Effective Date; Transition Rule.--
          (1) Effective date.--
                  (A) In general.--Except as otherwise provided 
                in this subsection, the amendments made by this 
                section shall take effect on October 1, 2005, 
                and the Secretary is authorized to take such 
                steps before such date as may be necessary to 
                implement such amendments on a timely basis.
                  (B) Construction for current contracts.--Such 
                amendments shall not apply to contracts in 
                effect before the date specified under 
                subparagraph (A) that continue to retain the 
                terms and conditions in effect on such date 
                (except as otherwise provided under this Act, 
                other than under this section) until such date 
                as the contract is let out for competitive 
                bidding under such amendments.
                  (C) Deadline for competitive bidding.--The 
                Secretary shall provide for the letting by 
                competitive bidding of all contracts for 
                functions of medicare administrative 
                contractors for annual contract periods that 
                begin on or after October 1, 2010.
                  (D) Waiver of provider nomination provisions 
                during transition.--During the period beginning 
                on the date of the enactment of this Act and 
                before the date specified under subparagraph 
                (A), the Secretary may enter into new 
                agreements under section 1816 of the Social 
                Security Act (42 U.S.C. 1395h) without regard 
                to any of the provider nomination provisions of 
                such section.
          (2) General transition rules.--The Secretary shall 
        take such steps, consistent with paragraph (1)(B) and 
        (1)(C), as are necessary to provide for an appropriate 
        transition from contracts under section 1816 and 
        section 1842 of the Social Security Act (42 U.S.C. 
        1395h, 1395u) to contracts under section 1874A, as 
        added by subsection (a)(1).
          (3) Authorizing continuation of mip functions under 
        current contracts and agreements and under rollover 
        contracts.--The provisions contained in the exception 
        in section 1893(d)(2) of the Social Security Act (42 
        U.S.C. 1395ddd(d)(2)) shall continue to apply 
        notwithstanding the amendments made by this section, 
        and any reference in such provisions to an agreement or 
        contract shall be deemed to include a contract under 
        section 1874A of such Act, as inserted by subsection 
        (a)(1), that continues the activities referred to in 
        such provisions.
  (e) References.--On and after the effective date provided 
under subsection (d)(1), any reference to a fiscal intermediary 
or carrier under title XI or XVIII of the Social Security Act 
(or any regulation, manual instruction, interpretative rule, 
statement of policy, or guideline issued to carry out such 
titles) shall be deemed a reference to a medicare 
administrative contractor (as provided under section 1874A of 
the Social Security Act).
  (f) Reports on Implementation.--
          (1) Plan for implementation.--By not later than 
        October 1, 2004, the Secretary shall submit a report to 
        Congress and the Comptroller General of the United 
        States that describes the plan for implementation of 
        the amendments made by this section. The Comptroller 
        General shall conduct an evaluation of such plan and 
        shall submit to Congress, not later than 6 months after 
        the date the report is received, a report on such 
        evaluation and shall include in such report such 
        recommendations as the Comptroller General deems 
        appropriate.
          (2) Status of implementation.--The Secretary shall 
        submit a report to Congress not later than October 1, 
        2008, that describes the status of implementation of 
        such amendments and that includes a description of the 
        following:
                  (A) The number of contracts that have been 
                competitively bid as of such date.
                  (B) The distribution of functions among 
                contracts and contractors.
                  (C) A timeline for complete transition to 
                full competition.
                  (D) A detailed description of how the 
                Secretary has modified oversight and management 
                of medicare contractors to adapt to full 
                competition.

SEC. 912. REQUIREMENTS FOR INFORMATION SECURITY FOR MEDICARE 
                    ADMINISTRATIVE CONTRACTORS.

  (a) In General.--Section 1874A, as added by section 
911(a)(1), is amended by adding at the end the following new 
subsection:
  ``(e) Requirements for Information Security.--
          ``(1) Development of information security program.--A 
        medicare administrative contractor that performs the 
        functions referred to in subparagraphs (A) and (B) of 
        subsection (a)(4) (relating to determining and making 
        payments) shall implement a contractor-wide information 
        security program to provide information security for 
        the operation and assets of the contractor with respect 
        to such functions under this title. An information 
        security program under this paragraph shall meet the 
        requirements for information security programs imposed 
        on Federal agencies under paragraphs (1) through (8) of 
        section 3544(b) of title 44, United States Code (other 
        than the requirements under paragraphs (2)(D)(i), 
        (5)(A), and (5)(B) of such section).
          ``(2) Independent audits.--
                  ``(A) Performance of annual evaluations.--
                Each year a medicare administrative contractor 
                that performs the functions referred to in 
                subparagraphs (A) and (B) of subsection (a)(4) 
                (relating to determining and making payments) 
                shall undergo an evaluation of the information 
                security of the contractor with respect to such 
                functions under this title. The evaluation 
                shall--
                          ``(i) be performed by an entity that 
                        meets such requirements for 
                        independence as the Inspector General 
                        of the Department of Health and Human 
                        Services may establish; and
                          ``(ii) test the effectiveness of 
                        information security control techniques 
                        of an appropriate subset of the 
                        contractor's information systems (as 
                        defined in section 3502(8) of title 44, 
                        United States Code) relating to such 
                        functions under this title and an 
                        assessment of compliance with the 
                        requirements of this subsection and 
                        related information security policies, 
                        procedures, standards and guidelines, 
                        including policies and procedures as 
                        may be prescribed by the Director of 
                        the Office of Management and Budget and 
                        applicable information security 
                        standards promulgated under section 
                        11331 of title 40, United States Code.
                  ``(B) Deadline for initial evaluation.--
                          ``(i) New contractors.--In the case 
                        of a medicare administrative contractor 
                        covered by this subsection that has not 
                        previously performed the functions 
                        referred to in subparagraphs (A) and 
                        (B) of subsection (a)(4) (relating to 
                        determining and making payments) as a 
                        fiscal intermediary or carrier under 
                        section 1816 or 1842, the first 
                        independent evaluation conducted 
                        pursuant subparagraph (A) shall be 
                        completed prior to commencing such 
                        functions.
                          ``(ii) Other contractors.--In the 
                        case of a medicare administrative 
                        contractor covered by this subsection 
                        that is not described in clause (i), 
                        the first independent evaluation 
                        conducted pursuant subparagraph (A) 
                        shall be completed within 1 year after 
                        the date the contractor commences 
                        functions referred to in clause (i) 
                        under this section.
                  ``(C) Reports on evaluations.--
                          ``(i) To the department of health and 
                        human services.--The results of 
                        independent evaluations under 
                        subparagraph (A) shall be submitted 
                        promptly to the Inspector General of 
                        the Department of Health and Human 
                        Services and to the Secretary.
                          ``(ii) To congress.--The Inspector 
                        General of Department of Health and 
                        Human Services shall submit to Congress 
                        annual reports on the results of such 
                        evaluations, including assessments of 
                        the scope and sufficiency of such 
                        evaluations.
                          ``(iii) Agency reporting.--The 
                        Secretary shall address the results of 
                        such evaluations in reports required 
                        under section 3544(c) of title 44, 
                        United States Code.''.
  (b) Application of Requirements to Fiscal Intermediaries and 
Carriers.--
          (1) In general.--The provisions of section 
        1874A(e)(2) of the Social Security Act (other than 
        subparagraph (B)), as added by subsection (a), shall 
        apply to each fiscal intermediary under section 1816 of 
        the Social Security Act (42 U.S.C. 1395h) and each 
        carrier under section 1842 of such Act (42 U.S.C. 
        1395u) in the same manner as they apply to medicare 
        administrative contractors under such provisions.
          (2) Deadline for initial evaluation.--In the case of 
        such a fiscal intermediary or carrier with an agreement 
        or contract under such respective section in effect as 
        of the date of the enactment of this Act, the first 
        evaluation under section 1874A(e)(2)(A) of the Social 
        Security Act (as added by subsection (a)), pursuant to 
        paragraph (1), shall be completed (and a report on the 
        evaluation submitted to the Secretary) by not later 
        than 1 year after such date.

                   Subtitle C--Education and Outreach

SEC. 921. PROVIDER EDUCATION AND TECHNICAL ASSISTANCE.

  (a) Coordination of Education Funding.--
          (1) In general.--Title XVIII is amended by inserting 
        after section 1888 the following new section:

             ``PROVIDER EDUCATION AND TECHNICAL ASSISTANCE

  ``Sec. 1889. (a) Coordination of Education Funding.--The 
Secretary shall coordinate the educational activities provided 
through medicare contractors (as defined in subsection (g), 
including under section 1893) in order to maximize the 
effectiveness of Federal education efforts for providers of 
services and suppliers.''.
          (2) Effective date.--The amendment made by paragraph 
        (1) shall take effect on the date of the enactment of 
        this Act.
          (3) Report.--Not later than October 1, 2004, the 
        Secretary shall submit to Congress a report that 
        includes a description and evaluation of the steps 
        taken to coordinate the funding of provider education 
        under section 1889(a) of the Social Security Act, as 
        added by paragraph (1).
  (b) Incentives To Improve Contractor Performance.--
          (1) In general.--Section 1874A, as added by section 
        911(a)(1) and as amended by section 912(a), is amended 
        by adding at the end the following new subsection:
  ``(f) Incentives To Improve Contractor Performance in 
Provider Education and Outreach.--The Secretary shall use 
specific claims payment error rates or similar methodology of 
medicare administrative contractors in the processing or 
reviewing of medicare claims in order to give such contractors 
an incentive to implement effective education and outreach 
programs for providers of services and suppliers.''.
          (2) Application to fiscal intermediaries and 
        carriers.--The provisions of section 1874A(f) of the 
        Social Security Act, as added by paragraph (1), shall 
        apply to each fiscal intermediary under section 1816 of 
        the Social Security Act (42 U.S.C. 1395h) and each 
        carrier under section 1842 of such Act (42 U.S.C. 
        1395u) in the same manner as they apply to medicare 
        administrative contractors under such provisions.
          (3) GAO report on adequacy of methodology.--Not later 
        than October 1, 2004, the Comptroller General of the 
        United States shall submit to Congress and to the 
        Secretary a report on the adequacy of the methodology 
        under section 1874A(f) of the Social Security Act, as 
        added by paragraph (1), and shall include in the report 
        such recommendations as the Comptroller General 
        determines appropriate with respect to the methodology.
          (4) Report on use of methodology in assessing 
        contractor performance.--Not later than October 1, 
        2004, the Secretary shall submit to Congress a report 
        that describes how the Secretary intends to use such 
        methodology in assessing medicare contractor 
        performance in implementing effective education and 
        outreach programs, including whether to use such 
        methodology as a basis for performance bonuses. The 
        report shall include an analysis of the sources of 
        identified errors and potential changes in systems of 
        contractors and rules of the Secretary that could 
        reduce claims error rates.
  (c) Provision of Access to and Prompt Responses From Medicare 
Administrative Contractors.--
          (1) In general.--Section 1874A, as added by section 
        911(a)(1) and as amended by section 912(a) and 
        subsection (b), is further amended by adding at the end 
        the following new subsection:
  ``(g) Communications With Beneficiaries, Providers of 
Services and Suppliers.--
          ``(1) Communication strategy.--The Secretary shall 
        develop a strategy for communications with individuals 
        entitled to benefits under part A or enrolled under 
        part B, or both, and with providers of services and 
        suppliers under this title.
          ``(2) Response to written inquiries.--Each medicare 
        administrative contractor shall, for those providers of 
        services and suppliers which submit claims to the 
        contractor for claims processing and for those 
        individuals entitled to benefits under part A or 
        enrolled under part B, or both, with respect to whom 
        claims are submitted for claims processing, provide 
        general written responses (which may be through 
        electronic transmission) in a clear, concise, and 
        accurate manner to inquiries of providers of services, 
        suppliers and individuals entitled to benefits under 
        part A or enrolled under part B, or both, concerning 
        the programs under this title within 45 business days 
        of the date of receipt of such inquiries.
          ``(3) Response to toll-free lines.--The Secretary 
        shall ensure that each medicare administrative 
        contractor shall provide, for those providers of 
        services and suppliers which submit claims to the 
        contractor for claims processing and for those 
        individuals entitled to benefits under part A or 
        enrolled under part B, or both, with respect to whom 
        claims are submitted for claims processing, a toll-free 
        telephone number at which such individuals, providers 
        of services and suppliers may obtain information 
        regarding billing, coding, claims, coverage, and other 
        appropriate information under this title.
          ``(4) Monitoring of contractor responses.--
                  ``(A) In general.--Each medicare 
                administrative contractor shall, consistent 
                with standards developed by the Secretary under 
                subparagraph (B)--
                          ``(i) maintain a system for 
                        identifying who provides the 
                        information referred to in paragraphs 
                        (2) and (3); and
                          ``(ii) monitor the accuracy, 
                        consistency, and timeliness of the 
                        information so provided.
                  ``(B) Development of standards.--
                          ``(i) In general.--The Secretary 
                        shall establish and make public 
                        standards to monitor the accuracy, 
                        consistency, and timeliness of the 
                        information provided in response to 
                        written and telephone inquiries under 
                        this subsection. Such standards shall 
                        be consistent with the performance 
                        requirements established under 
                        subsection (b)(3).
                          ``(ii) Evaluation.--In conducting 
                        evaluations of individual medicare 
                        administrative contractors, the 
                        Secretary shall take into account the 
                        results of the monitoring conducted 
                        under subparagraph (A) taking into 
                        account as performance requirements the 
                        standards established under clause (i). 
                        The Secretary shall, in consultation 
                        with organizations representing 
                        providers of services, suppliers, and 
                        individuals entitled to benefits under 
                        part A or enrolled under part B, or 
                        both, establish standards relating to 
                        the accuracy, consistency, and 
                        timeliness of the information so 
                        provided.
                  ``(C) Direct monitoring.--Nothing in this 
                paragraph shall be construed as preventing the 
                Secretary from directly monitoring the 
                accuracy, consistency, and timeliness of the 
                information so provided.''.
          (2) Effective date.--The amendment made by paragraph 
        (1) shall take effect October 1, 2004.
          (3) Application to fiscal intermediaries and 
        carriers.--The provisions of section 1874A(g) of the 
        Social Security Act, as added by paragraph (1), shall 
        apply to each fiscal intermediary under section 1816 of 
        the Social Security Act (42 U.S.C. 1395h) and each 
        carrier under section 1842 of such Act (42 U.S.C. 
        1395u) in the same manner as they apply to medicare 
        administrative contractors under such provisions.
  (d) Improved Provider Education and Training.--
          (1) In general.--Section 1889, as added by subsection 
        (a), is amended by adding at the end the following new 
        subsections:
  ``(b) Enhanced Education and Training.--
          ``(1) Additional resources.--There are authorized to 
        be appropriated to the Secretary (in appropriate part 
        from the Federal Hospital Insurance Trust Fund and the 
        Federal Supplementary Medical Insurance Trust Fund) 
        $25,000,000 for each of fiscal years 2005 and 2006 and 
        such sums as may be necessary for succeeding fiscal 
        years.
          ``(2) Use.--The funds made available under paragraph 
        (1) shall be used to increase the conduct by medicare 
        contractors of education and training of providers of 
        services and suppliers regarding billing, coding, and 
        other appropriate items and may also be used to improve 
        the accuracy, consistency, and timeliness of contractor 
        responses.
  ``(c) Tailoring Education and Training Activities for Small 
Providers or Suppliers.--
          ``(1) In general.--Insofar as a medicare contractor 
        conducts education and training activities, it shall 
        tailor such activities to meet the special needs of 
        small providers of services or suppliers (as defined in 
        paragraph (2)).
          ``(2) Small provider of services or supplier.--In 
        this subsection, the term `small provider of services 
        or supplier' means--
                  ``(A) a provider of services with fewer than 
                25 full-time-equivalent employees; or
                  ``(B) a supplier with fewer than 10 full-
                time-equivalent employees.''.
          (2) Effective date.--The amendment made by paragraph 
        (1) shall take effect on October 1, 2004.
  (e) Requirement To Maintain Internet Sites.--
          (1) In general.--Section 1889, as added by subsection 
        (a) and as amended by subsection (d), is further 
        amended by adding at the end the following new 
        subsection:
  ``(d) Internet Sites; FAQs.--The Secretary, and each medicare 
contractor insofar as it provides services (including claims 
processing) for providers of services or suppliers, shall 
maintain an Internet site which--
          ``(1) provides answers in an easily accessible format 
        to frequently asked questions, and
          ``(2) includes other published materials of the 
        contractor,
that relate to providers of services and suppliers under the 
programs under this title (and title XI insofar as it relates 
to such programs).''.
          (2) Effective date.--The amendment made by paragraph 
        (1) shall take effect on October 1, 2004.
  (f) Additional Provider Education Provisions.--
          (1) In general.--Section 1889, as added by subsection 
        (a) and as amended by subsections (d) and (e), is 
        further amended by adding at the end the following new 
        subsections:
  ``(e) Encouragement of Participation in Education Program 
Activities.--A medicare contractor may not use a record of 
attendance at (or failure to attend) educational activities or 
other information gathered during an educational program 
conducted under this section or otherwise by the Secretary to 
select or track providers of services or suppliers for the 
purpose of conducting any type of audit or prepayment review.
  ``(f) Construction.--Nothing in this section or section 
1893(g) shall be construed as providing for disclosure by a 
medicare contractor of information that would compromise 
pending law enforcement activities or reveal findings of law 
enforcement-related audits.
  ``(g) Definitions.--For purposes of this section, the term 
`medicare contractor' includes the following:
          ``(1) A medicare administrative contractor with a 
        contract under section 1874A, including a fiscal 
        intermediary with a contract under section 1816 and a 
        carrier with a contract under section 1842.
          ``(2) An eligible entity with a contract under 
        section 1893.
Such term does not include, with respect to activities of a 
specific provider of services or supplier an entity that has no 
authority under this title or title IX with respect to such 
activities and such provider of services or supplier.''.
          (2) Effective date.--The amendment made by paragraph 
        (1) shall take effect on the date of the enactment of 
        this Act.

SEC. 922. SMALL PROVIDER TECHNICAL ASSISTANCE DEMONSTRATION PROGRAM.

  (a) Establishment.--
          (1) In general.--The Secretary shall establish a 
        demonstration program (in this section referred to as 
        the ``demonstration program'') under which technical 
        assistance described in paragraph (2) is made 
        available, upon request and on a voluntary basis, to 
        small providers of services or suppliers in order to 
        improve compliance with the applicable requirements of 
        the programs under medicare program under title XVIII 
        of the Social Security Act (including provisions of 
        title XI of such Act insofar as they relate to such 
        title and are not administered by the Office of the 
        Inspector General of the Department of Health and Human 
        Services).
          (2) Forms of technical assistance.--The technical 
        assistance described in this paragraph is--
                  (A) evaluation and recommendations regarding 
                billing and related systems; and
                  (B) information and assistance regarding 
                policies and procedures under the medicare 
                program, including coding and reimbursement.
          (3) Small providers of services or suppliers.--In 
        this section, the term ``small providers of services or 
        suppliers'' means--
                  (A) a provider of services with fewer than 25 
                full-time-equivalent employees; or
                  (B) a supplier with fewer than 10 full-time-
                equivalent employees.
  (b) Qualification of Contractors.--In conducting the 
demonstration program, the Secretary shall enter into contracts 
with qualified organizations (such as peer review organizations 
or entities described in section 1889(g)(2) of the Social 
Security Act, as inserted by section 5(f)(1)) with appropriate 
expertise with billing systems of the full range of providers 
of services and suppliers to provide the technical assistance. 
In awarding such contracts, the Secretary shall consider any 
prior investigations of the entity's work by the Inspector 
General of Department of Health and Human Services or the 
Comptroller General of the United States.
  (c) Description of Technical Assistance.--The technical 
assistance provided under the demonstration program shall 
include a direct and in-person examination of billing systems 
and internal controls of small providers of services or 
suppliers to determine program compliance and to suggest more 
efficient or effective means of achieving such compliance.
  (d) Avoidance of Recovery Actions for Problems Identified as 
Corrected.--The Secretary shall provide that, absent evidence 
of fraud and notwithstanding any other provision of law, any 
errors found in a compliance review for a small provider of 
services or supplier that participates in the demonstration 
program shall not be subject to recovery action if the 
technical assistance personnel under the program determine 
that--
          (1) the problem that is the subject of the compliance 
        review has been corrected to their satisfaction within 
        30 days of the date of the visit by such personnel to 
        the small provider of services or supplier; and
          (2) such problem remains corrected for such period as 
        is appropriate.
The previous sentence applies only to claims filed as part of 
the demonstration program and lasts only for the duration of 
such program and only as long as the small provider of services 
or supplier is a participant in such program.
  (e) GAO Evaluation.--Not later than 2 years after the date of 
the date the demonstration program is first implemented, the 
Comptroller General, in consultation with the Inspector General 
of the Department of Health and Human Services, shall conduct 
an evaluation of the demonstration program. The evaluation 
shall include a determination of whether claims error rates are 
reduced for small providers of services or suppliers who 
participated in the program and the extent of improper payments 
made as a result of the demonstration program. The Comptroller 
General shall submit a report to the Secretary and the Congress 
on such evaluation and shall include in such report 
recommendations regarding the continuation or extension of the 
demonstration program.
  (f) Financial Participation by Providers.--The provision of 
technical assistance to a small provider of services or 
supplier under the demonstration program is conditioned upon 
the small provider of services or supplier paying an amount 
estimated (and disclosed in advance of a provider's or 
supplier's participation in the program) to be equal to 25 
percent of the cost of the technical assistance.
  (g) Authorization of Appropriations.--There are authorized to 
be appropriated to the Secretary (in appropriate part from the 
Federal Hospital Insurance Trust Fund and the Federal 
Supplementary Medical Insurance Trust Fund) to carry out the 
demonstration program--
          (1) for fiscal year 2005, $1,000,000, and
          (2) for fiscal year 2006, $6,000,000.

SEC. 923. MEDICARE PROVIDER OMBUDSMAN; MEDICARE BENEFICIARY OMBUDSMAN.

  (a) Medicare Provider Ombudsman.--Section 1868 (42 U.S.C. 
1395ee) is amended--
          (1) by adding at the end of the heading the 
        following: ``; medicare provider ombudsman'';
          (2) by inserting ``Practicing Physicians Advisory 
        Council.--(1)'' after ``(a)'';
          (3) in paragraph (1), as so redesignated under 
        paragraph (2), by striking ``in this section'' and 
        inserting ``in this subsection'';
          (4) by redesignating subsections (b) and (c) as 
        paragraphs (2) and (3), respectively; and
          (5) by adding at the end the following new 
        subsection:
  ``(b) Medicare Provider Ombudsman.--The Secretary shall 
appoint within the Department of Health and Human Services a 
Medicare Provider Ombudsman. The Ombudsman shall--
          ``(1) provide assistance, on a confidential basis, to 
        providers of services and suppliers with respect to 
        complaints, grievances, and requests for information 
        concerning the programs under this title (including 
        provisions of title XI insofar as they relate to this 
        title and are not administered by the Office of the 
        Inspector General of the Department of Health and Human 
        Services) and in the resolution of unclear or 
        conflicting guidance given by the Secretary and 
        medicare contractors to such providers of services and 
        suppliers regarding such programs and provisions and 
        requirements under this title and such provisions; and
          ``(2) submit recommendations to the Secretary for 
        improvement in the administration of this title and 
        such provisions, including--
                  ``(A) recommendations to respond to recurring 
                patterns of confusion in this title and such 
                provisions (including recommendations regarding 
                suspending imposition of sanctions where there 
                is widespread confusion in program 
                administration), and
                  ``(B) recommendations to provide for an 
                appropriate and consistent response (including 
                not providing for audits) in cases of self-
                identified overpayments by providers of 
                services and suppliers.
The Ombudsman shall not serve as an advocate for any increases 
in payments or new coverage of services, but may identify 
issues and problems in payment or coverage policies.''.
  (b) Medicare Beneficiary Ombudsman.--Title XVIII, as 
previously amended, is amended by inserting after section 1809 
the following new section:

                    ``MEDICARE BENEFICIARY OMBUDSMAN

  ``Sec. 1810. (a) In General.--The Secretary shall appoint 
within the Department of Health and Human Services a Medicare 
Beneficiary Ombudsman who shall have expertise and experience 
in the fields of health care and education of (and assistance 
to) individuals entitled to benefits under this title.
  ``(b) Duties.--The Medicare Beneficiary Ombudsman shall--
          ``(1) receive complaints, grievances, and requests 
        for information submitted by individuals entitled to 
        benefits under part A or enrolled under part B, or 
        both, with respect to any aspect of the medicare 
        program;
          ``(2) provide assistance with respect to complaints, 
        grievances, and requests referred to in paragraph (1), 
        including--
                  ``(A) assistance in collecting relevant 
                information for such individuals, to seek an 
                appeal of a decision or determination made by a 
                fiscal intermediary, carrier, Medicare+Choice 
                organization, or the Secretary;
                  ``(B) assistance to such individuals with any 
                problems arising from disenrollment from a 
                Medicare+Choice plan under part C; and
                  ``(C) assistance to such individuals in 
                presenting information under section 1860D-
                2(b)(4)(D)(v); and
          ``(3) submit annual reports to Congress and the 
        Secretary that describe the activities of the Office 
        and that include such recommendations for improvement 
        in the administration of this title as the Ombudsman 
        determines appropriate.
The Ombudsman shall not serve as an advocate for any increases 
in payments or new coverage of services, but may identify 
issues and problems in payment or coverage policies.
  ``(c) Working With Health Insurance Counseling Programs.--To 
the extent possible, the Ombudsman shall work with health 
insurance counseling programs (receiving funding under section 
4360 of Omnibus Budget Reconciliation Act of 1990) to 
facilitate the provision of information to individuals entitled 
to benefits under part A or enrolled under part B, or both 
regarding Medicare+Choice plans and changes to those plans. 
Nothing in this subsection shall preclude further collaboration 
between the Ombudsman and such programs.''.
  (c) Deadline for Appointment.--The Secretary shall appoint 
the Medicare Provider Ombudsman and the Medicare Beneficiary 
Ombudsman, under the amendments made by subsections (a) and 
(b), respectively, by not later than 1 year after the date of 
the enactment of this Act.
  (d) Funding.--There are authorized to be appropriated to the 
Secretary (in appropriate part from the Federal Hospital 
Insurance Trust Fund and the Federal Supplementary Medical 
Insurance Trust Fund) to carry out the provisions of subsection 
(b) of section 1868 of the Social Security Act (relating to the 
Medicare Provider Ombudsman), as added by subsection (a)(5) and 
section 1807 of such Act (relating to the Medicare Beneficiary 
Ombudsman), as added by subsection (b), such sums as are 
necessary for fiscal year 2004 and each succeeding fiscal year.
  (e) Use of Central, Toll-Free Number (1-800-MEDICARE).--
          (1) Phone triage system; listing in medicare handbook 
        instead of other toll-free numbers.--Section 1804(b) 
        (42 U.S.C. 1395b-2(b)) is amended by adding at the end 
        the following: ``The Secretary shall provide, through 
        the toll-free number 1-800-MEDICARE, for a means by 
        which individuals seeking information about, or 
        assistance with, such programs who phone such toll-free 
        number are transferred (without charge) to appropriate 
        entities for the provision of such information or 
        assistance. Such toll-free number shall be the toll-
        free number listed for general information and 
        assistance in the annual notice under subsection (a) 
        instead of the listing of numbers of individual 
        contractors.''.
          (2) Monitoring accuracy.--
                  (A) Study.--The Comptroller General of the 
                United States shall conduct a study to monitor 
                the accuracy and consistency of information 
                provided to individuals entitled to benefits 
                under part A or enrolled under part B, or both, 
                through the toll-free number 1-800-MEDICARE, 
                including an assessment of whether the 
                information provided is sufficient to answer 
                questions of such individuals. In conducting 
                the study, the Comptroller General shall 
                examine the education and training of the 
                individuals providing information through such 
                number.
                  (B) Report.--Not later than 1 year after the 
                date of the enactment of this Act, the 
                Comptroller General shall submit to Congress a 
                report on the study conducted under 
                subparagraph (A).

SEC. 924. BENEFICIARY OUTREACH DEMONSTRATION PROGRAM.

  (a) In General.--The Secretary shall establish a 
demonstration program (in this section referred to as the 
``demonstration program'') under which medicare specialists 
employed by the Department of Health and Human Services provide 
advice and assistance to individuals entitled to benefits under 
part A of title XVIII of the Social Security Act, or enrolled 
under part B of such title, or both, regarding the medicare 
program at the location of existing local offices of the Social 
Security Administration.
  (b) Locations.--
          (1) In general.--The demonstration program shall be 
        conducted in at least 6 offices or areas. Subject to 
        paragraph (2), in selecting such offices and areas, the 
        Secretary shall provide preference for offices with a 
        high volume of visits by individuals referred to in 
        subsection (a).
          (2) Assistance for rural beneficiaries.--The 
        Secretary shall provide for the selection of at least 2 
        rural areas to participate in the demonstration 
        program. In conducting the demonstration program in 
        such rural areas, the Secretary shall provide for 
        medicare specialists to travel among local offices in a 
        rural area on a scheduled basis.
  (c) Duration.--The demonstration program shall be conducted 
over a 3-year period.
  (d) Evaluation and Report.--
          (1) Evaluation.--The Secretary shall provide for an 
        evaluation of the demonstration program. Such 
        evaluation shall include an analysis of--
                  (A) utilization of, and satisfaction of those 
                individuals referred to in subsection (a) with, 
                the assistance provided under the program; and
                  (B) the cost-effectiveness of providing 
                beneficiary assistance through out-stationing 
                medicare specialists at local offices of the 
                Social Security Administration.
          (2) Report.--The Secretary shall submit to Congress a 
        report on such evaluation and shall include in such 
        report recommendations regarding the feasibility of 
        permanently out-stationing medicare specialists at 
        local offices of the Social Security Administration.

SEC. 925. INCLUSION OF ADDITIONAL INFORMATION IN NOTICES TO 
                    BENEFICIARIES ABOUT SKILLED NURSING FACILITY 
                    BENEFITS.

  (a) In General.--The Secretary shall provide that in medicare 
beneficiary notices provided (under section 1806(a) of the 
Social Security Act, 42 U.S.C. 1395b-7(a)) with respect to the 
provision of post-hospital extended care services under part A 
of title XVIII of the Social Security Act, there shall be 
included information on the number of days of coverage of such 
services remaining under such part for the medicare beneficiary 
and spell of illness involved.
  (b) Effective Date.--Subsection (a) shall apply to notices 
provided during calendar quarters beginning more than 6 months 
after the date of the enactment of this Act.

SEC. 926. INFORMATION ON MEDICARE-CERTIFIED SKILLED NURSING FACILITIES 
                    IN HOSPITAL DISCHARGE PLANS.

  (a) Availability of Data.--The Secretary shall publicly 
provide information that enables hospital discharge planners, 
medicare beneficiaries, and the public to identify skilled 
nursing facilities that are participating in the medicare 
program.
  (b) Inclusion of Information in Certain Hospital Discharge 
Plans.--
          (1) In general.--Section 1861(ee)(2)(D) (42 U.S.C. 
        1395x(ee)(2)(D)) is amended--
                  (A) by striking ``hospice services'' and 
                inserting ``hospice care and post-hospital 
                extended care services''; and
                  (B) by inserting before the period at the end 
                the following: ``and, in the case of 
                individuals who are likely to need post-
                hospital extended care services, the 
                availability of such services through 
                facilities that participate in the program 
                under this title and that serve the area in 
                which the patient resides''.
          (2) Effective date.--The amendments made by paragraph 
        (1) shall apply to discharge plans made on or after 
        such date as the Secretary shall specify, but not later 
        than 6 months after the date the Secretary provides for 
        availability of information under subsection (a).

                    Subtitle D--Appeals and Recovery

SEC. 931. TRANSFER OF RESPONSIBILITY FOR MEDICARE APPEALS.

  (a) Transition Plan.--
          (1) In general.--Not later than October 1, 2004, the 
        Commissioner of Social Security and the Secretary shall 
        develop and transmit to Congress and the Comptroller 
        General of the United States a plan under which the 
        functions of administrative law judges responsible for 
        hearing cases under title XVIII of the Social Security 
        Act (and related provisions in title XI of such Act) 
        are transferred from the responsibility of the 
        Commissioner and the Social Security Administration to 
        the Secretary and the Department of Health and Human 
        Services.
          (2) GAO evaluation.--The Comptroller General of the 
        United States shall evaluate the plan and, not later 
        than the date that is 6 months after the date on which 
        the plan is received by the Comptroller General, shall 
        submit to Congress a report on such evaluation.
  (b) Transfer of Adjudication Authority.--
          (1) In general.--Not earlier than July 1, 2005, and 
        not later than October 1, 2005, the Commissioner of 
        Social Security and the Secretary shall implement the 
        transition plan under subsection (a) and transfer the 
        administrative law judge functions described in such 
        subsection from the Social Security Administration to 
        the Secretary.
          (2) Assuring independence of judges.--The Secretary 
        shall assure the independence of administrative law 
        judges performing the administrative law judge 
        functions transferred under paragraph (1) from the 
        Centers for Medicare & Medicaid Services and its 
        contractors. In order to assure such independence, the 
        Secretary shall place such judges in an administrative 
        office that is organizationally and functionally 
        separate from such Centers. Such judges shall report 
        to, and be under the general supervision of, the 
        Secretary, but shall not report to, or be subject to 
        supervision by, another other officer of the 
        Department.
          (3) Geographic distribution.--The Secretary shall 
        provide for an appropriate geographic distribution of 
        administrative law judges performing the administrative 
        law judge functions transferred under paragraph (1) 
        throughout the United States to ensure timely access to 
        such judges.
          (4) Hiring authority.--Subject to the amounts 
        provided in advance in appropriations Act, the 
        Secretary shall have authority to hire administrative 
        law judges to hear such cases, giving priority to those 
        judges with prior experience in handling medicare 
        appeals and in a manner consistent with paragraph (3), 
        and to hire support staff for such judges.
          (5) Financing.--Amounts payable under law to the 
        Commissioner for administrative law judges performing 
        the administrative law judge functions transferred 
        under paragraph (1) from the Federal Hospital Insurance 
        Trust Fund and the Federal Supplementary Medical 
        Insurance Trust Fund shall become payable to the 
        Secretary for the functions so transferred.
          (6) Shared resources.--The Secretary shall enter into 
        such arrangements with the Commissioner as may be 
        appropriate with respect to transferred functions of 
        administrative law judges to share office space, 
        support staff, and other resources, with appropriate 
        reimbursement from the Trust Funds described in 
        paragraph (5).
  (c) Increased Financial Support.--In addition to any amounts 
otherwise appropriated, to ensure timely action on appeals 
before administrative law judges and the Departmental Appeals 
Board consistent with section 1869 of the Social Security Act 
(as amended by section 521 of BIPA, 114 Stat. 2763A-534), there 
are authorized to be appropriated (in appropriate part from the 
Federal Hospital Insurance Trust Fund and the Federal 
Supplementary Medical Insurance Trust Fund) to the Secretary 
such sums as are necessary for fiscal year 2005 and each 
subsequent fiscal year to--
          (1) increase the number of administrative law judges 
        (and their staffs) under subsection (b)(4);
          (2) improve education and training opportunities for 
        administrative law judges (and their staffs); and
          (3) increase the staff of the Departmental Appeals 
        Board.
  (d) Conforming Amendment.--Section 1869(f)(2)(A)(i) (42 
U.S.C. 1395ff(f)(2)(A)(i)), as added by section 522(a) of BIPA 
(114 Stat. 2763A-543), is amended by striking ``of the Social 
Security Administration''.

SEC. 932. PROCESS FOR EXPEDITED ACCESS TO REVIEW.

  (a) Expedited Access to Judicial Review.--Section 1869(b) (42 
U.S.C. 1395ff(b)) as amended by BIPA, is amended--
          (1) in paragraph (1)(A), by inserting ``, subject to 
        paragraph (2),'' before ``to judicial review of the 
        Secretary's final decision'';
          (2) in paragraph (1)(F)--
                  (A) by striking clause (ii);
                  (B) by striking ``proceeding'' and all that 
                follows through ``determination'' and inserting 
                ``determinations and reconsiderations''; and
                  (C) by redesignating subclauses (I) and (II) 
                as clauses (i) and (ii) and by moving the 
                indentation of such subclauses (and the matter 
                that follows) 2 ems to the left; and
          (3) by adding at the end the following new paragraph:
          ``(2) Expedited access to judicial review.--
                  ``(A) In general.--The Secretary shall 
                establish a process under which a provider of 
                services or supplier that furnishes an item or 
                service or an individual entitled to benefits 
                under part A or enrolled under part B, or both, 
                who has filed an appeal under paragraph (1) may 
                obtain access to judicial review when a review 
                panel (described in subparagraph (D)), on its 
                own motion or at the request of the appellant, 
                determines that no entity in the administrative 
                appeals process has the authority to decide the 
                question of law or regulation relevant to the 
                matters in controversy and that there is no 
                material issue of fact in dispute. The 
                appellant may make such request only once with 
                respect to a question of law or regulation in a 
                case of an appeal.
                  ``(B) Prompt determinations.--If, after or 
                coincident with appropriately filing a request 
                for an administrative hearing, the appellant 
                requests a determination by the appropriate 
                review panel that no review panel has the 
                authority to decide the question of law or 
                regulations relevant to the matters in 
                controversy and that there is no material issue 
                of fact in dispute and if such request is 
                accompanied by the documents and materials as 
                the appropriate review panel shall require for 
                purposes of making such determination, such 
                review panel shall make a determination on the 
                request in writing within 60 days after the 
                date such review panel receives the request and 
                such accompanying documents and materials. Such 
                a determination by such review panel shall be 
                considered a final decision and not subject to 
                review by the Secretary.
                  ``(C) Access to judicial review.--
                          ``(i) In general.--If the appropriate 
                        review panel--
                                  ``(I) determines that there 
                                are no material issues of fact 
                                in dispute and that the only 
                                issue is one of law or 
                                regulation that no review panel 
                                has the authority to decide; or
                                  ``(II) fails to make such 
                                determination within the period 
                                provided under subparagraph 
                                (B);
                        then the appellant may bring a civil 
                        action as described in this 
                        subparagraph.
                          ``(ii) Deadline for filing.--Such 
                        action shall be filed, in the case 
                        described in--
                                  ``(I) clause (i)(I), within 
                                60 days of date of the 
                                determination described in such 
                                subparagraph; or
                                  ``(II) clause (i)(II), within 
                                60 days of the end of the 
                                period provided under 
                                subparagraph (B) for the 
                                determination.
                          ``(iii) Venue.--Such action shall be 
                        brought in the district court of the 
                        United States for the judicial district 
                        in which the appellant is located (or, 
                        in the case of an action brought 
                        jointly by more than one applicant, the 
                        judicial district in which the greatest 
                        number of applicants are located) or in 
                        the district court for the District of 
                        Columbia.
                          ``(iv) Interest on amounts in 
                        controversy.--Where a provider of 
                        services or supplier seeks judicial 
                        review pursuant to this paragraph, the 
                        amount in controversy shall be subject 
                        to annual interest beginning on the 
                        first day of the first month beginning 
                        after the 60-day period as determined 
                        pursuant to clause (ii) and equal to 
                        the rate of interest on obligations 
                        issued for purchase by the Federal 
                        Hospital Insurance Trust Fund and by 
                        the Federal Supplementary Medical 
                        Insurance Trust Fund for the month in 
                        which the civil action authorized under 
                        this paragraph is commenced, to be 
                        awarded by the reviewing court in favor 
                        of the prevailing party. No interest 
                        awarded pursuant to the preceding 
                        sentence shall be deemed income or cost 
                        for the purposes of determining 
                        reimbursement due providers of services 
                        or suppliers under this Act.
                  ``(D) Review panels.--For purposes of this 
                subsection, a `review panel' is a panel 
                consisting of 3 members (who shall be 
                administrative law judges, members of the 
                Departmental Appeals Board, or qualified 
                individuals associated with a qualified 
                independent contractor (as defined in 
                subsection (c)(2)) or with another independent 
                entity) designated by the Secretary for 
                purposes of making determinations under this 
                paragraph.''.
  (b) Application to Provider Agreement Determinations.--
Section 1866(h)(1) (42 U.S.C. 1395cc(h)(1)) is amended--
          (1) by inserting ``(A)'' after ``(h)(1)''; and
          (2) by adding at the end the following new 
        subparagraph:
  ``(B) An institution or agency described in subparagraph (A) 
that has filed for a hearing under subparagraph (A) shall have 
expedited access to judicial review under this subparagraph in 
the same manner as providers of services, suppliers, and 
individuals entitled to benefits under part A or enrolled under 
part B, or both, may obtain expedited access to judicial review 
under the process established under section 1869(b)(2). Nothing 
in this subparagraph shall be construed to affect the 
application of any remedy imposed under section 1819 during the 
pendency of an appeal under this subparagraph.''.
  (c) Effective Date.--The amendments made by this section 
shall apply to appeals filed on or after October 1, 2004.
  (d) Expedited Review of Certain Provider Agreement 
Determinations.--
          (1) Termination and certain other immediate 
        remedies.--The Secretary shall develop and implement a 
        process to expedite proceedings under sections 1866(h) 
        of the Social Security Act (42 U.S.C. 1395cc(h)) in 
        which the remedy of termination of participation, or a 
        remedy described in clause (i) or (iii) of section 
        1819(h)(2)(B) of such Act (42 U.S.C. 1395i-3(h)(2)(B)) 
        which is applied on an immediate basis, has been 
        imposed. Under such process priority shall be provided 
        in cases of termination.
          (2) Increased financial support.--In addition to any 
        amounts otherwise appropriated, to reduce by 50 percent 
        the average time for administrative determinations on 
        appeals under section 1866(h) of the Social Security 
        Act (42 U.S.C. 1395cc(h)), there are authorized to be 
        appropriated (in appropriate part from the Federal 
        Hospital Insurance Trust Fund and the Federal 
        Supplementary Medical Insurance Trust Fund) to the 
        Secretary such additional sums for fiscal year 2005 and 
        each subsequent fiscal year as may be necessary. The 
        purposes for which such amounts are available include 
        increasing the number of administrative law judges (and 
        their staffs) and the appellate level staff at the 
        Departmental Appeals Board of the Department of Health 
        and Human Services and educating such judges and staffs 
        on long-term care issues.

SEC. 933. REVISIONS TO MEDICARE APPEALS PROCESS.

  (a) Requiring Full and Early Presentation of Evidence.--
          (1) In general.--Section 1869(b) (42 U.S.C. 
        1395ff(b)), as amended by BIPA and as amended by 
        section 932(a), is further amended by adding at the end 
        the following new paragraph:
          ``(3) Requiring full and early presentation of 
        evidence by providers.--A provider of services or 
        supplier may not introduce evidence in any appeal under 
        this section that was not presented at the 
        reconsideration conducted by the qualified independent 
        contractor under subsection (c), unless there is good 
        cause which precluded the introduction of such evidence 
        at or before that reconsideration.''.
          (2) Effective date.--The amendment made by paragraph 
        (1) shall take effect on October 1, 2004.
  (b) Use of Patients' Medical Records.--Section 
1869(c)(3)(B)(i) (42 U.S.C. 1395ff(c)(3)(B)(i)), as amended by 
BIPA, is amended by inserting ``(including the medical records 
of the individual involved)'' after ``clinical experience''.
  (c) Notice Requirements for Medicare Appeals.--
          (1) Initial determinations and redeterminations.--
        Section 1869(a) (42 U.S.C. 1395ff(a)), as amended by 
        BIPA, is amended by adding at the end the following new 
        paragraphs:
          ``(4) Requirements of notice of determinations.--With 
        respect to an initial determination insofar as it 
        results in a denial of a claim for benefits--
                  ``(A) the written notice on the determination 
                shall include--
                          ``(i) the reasons for the 
                        determination, including whether a 
                        local medical review policy or a local 
                        coverage determination was used;
                          ``(ii) the procedures for obtaining 
                        additional information concerning the 
                        determination, including the 
                        information described in subparagraph 
                        (B); and
                          ``(iii) notification of the right to 
                        seek a redetermination or otherwise 
                        appeal the determination and 
                        instructions on how to initiate such a 
                        redetermination under this section; and
                  ``(B) the person provided such notice may 
                obtain, upon request, the specific provision of 
                the policy, manual, or regulation used in 
                making the determination.
          ``(5) Requirements of notice of redeterminations.--
        With respect to a redetermination insofar as it results 
        in a denial of a claim for benefits--
                  ``(A) the written notice on the 
                redetermination shall include--
                          ``(i) the specific reasons for the 
                        redetermination;
                          ``(ii) as appropriate, a summary of 
                        the clinical or scientific evidence 
                        used in making the redetermination;
                          ``(iii) a description of the 
                        procedures for obtaining additional 
                        information concerning the 
                        redetermination; and
                          ``(iv) notification of the right to 
                        appeal the redetermination and 
                        instructions on how to initiate such an 
                        appeal under this section;
                  ``(B) such written notice shall be provided 
                in printed form and written in a manner 
                calculated to be understood by the individual 
                entitled to benefits under part A or enrolled 
                under part B, or both; and
                  ``(C) the person provided such notice may 
                obtain, upon request, information on the 
                specific provision of the policy, manual, or 
                regulation used in making the 
                redetermination.''.
          (2) Reconsiderations.--Section 1869(c)(3)(E) (42 
        U.S.C. 1395ff(c)(3)(E)), as amended by BIPA, is 
        amended--
                  (A) by inserting ``be written in a manner 
                calculated to be understood by the individual 
                entitled to benefits under part A or enrolled 
                under part B, or both, and shall include (to 
                the extent appropriate)'' after ``in writing, 
                ''; and
                  (B) by inserting ``and a notification of the 
                right to appeal such determination and 
                instructions on how to initiate such appeal 
                under this section'' after ``such decision,''.
          (3) Appeals.--Section 1869(d) (42 U.S.C. 1395ff(d)), 
        as amended by BIPA, is amended--
                  (A) in the heading, by inserting ``; Notice'' 
                after ``Secretary''; and
                  (B) by adding at the end the following new 
                paragraph:
          ``(4) Notice.--Notice of the decision of an 
        administrative law judge shall be in writing in a 
        manner calculated to be understood by the individual 
        entitled to benefits under part A or enrolled under 
        part B, or both, and shall include--
                  ``(A) the specific reasons for the 
                determination (including, to the extent 
                appropriate, a summary of the clinical or 
                scientific evidence used in making the 
                determination);
                  ``(B) the procedures for obtaining additional 
                information concerning the decision; and
                  ``(C) notification of the right to appeal the 
                decision and instructions on how to initiate 
                such an appeal under this section.''.
          (4) Submission of record for appeal.--Section 
        1869(c)(3)(J)(i) (42 U.S.C. 1395ff(c)(3)(J)(i)) by 
        striking ``prepare'' and inserting ``submit'' and by 
        striking ``with respect to'' and all that follows 
        through ``and relevant policies''.
  (d) Qualified Independent Contractors.--
          (1) Eligibility requirements of qualified independent 
        contractors.--Section 1869(c)(3) (42 U.S.C. 
        1395ff(c)(3)), as amended by BIPA, is amended--
                  (A) in subparagraph (A), by striking 
                ``sufficient training and expertise in medical 
                science and legal matters'' and inserting 
                ``sufficient medical, legal, and other 
                expertise (including knowledge of the program 
                under this title) and sufficient staffing''; 
                and
                  (B) by adding at the end the following new 
                subparagraph:
                  ``(K) Independence requirements.--
                          ``(i) In general.--Subject to clause 
                        (ii), a qualified independent 
                        contractor shall not conduct any 
                        activities in a case unless the 
                        entity--
                                  ``(I) is not a related party 
                                (as defined in subsection 
                                (g)(5));
                                  ``(II) does not have a 
                                material familial, financial, 
                                or professional relationship 
                                with such a party in relation 
                                to such case; and
                                  ``(III) does not otherwise 
                                have a conflict of interest 
                                with such a party.
                          ``(ii) Exception for reasonable 
                        compensation.--Nothing in clause (i) 
                        shall be construed to prohibit receipt 
                        by a qualified independent contractor 
                        of compensation from the Secretary for 
                        the conduct of activities under this 
                        section if the compensation is provided 
                        consistent with clause (iii).
                          ``(iii) Limitations on entity 
                        compensation.--Compensation provided by 
                        the Secretary to a qualified 
                        independent contractor in connection 
                        with reviews under this section shall 
                        not be contingent on any decision 
                        rendered by the contractor or by any 
                        reviewing professional.''.
          (2) Eligibility requirements for reviewers.--Section 
        1869 (42 U.S.C. 1395ff), as amended by BIPA, is 
        amended--
                  (A) by amending subsection (c)(3)(D) to read 
                as follows:
                  ``(D) Qualifications for reviewers.--The 
                requirements of subsection (g) shall be met 
                (relating to qualifications of reviewing 
                professionals).''; and
                  (B) by adding at the end the following new 
                subsection:
  ``(g) Qualifications of Reviewers.--
          ``(1) In general.--In reviewing determinations under 
        this section, a qualified independent contractor shall 
        assure that--
                  ``(A) each individual conducting a review 
                shall meet the qualifications of paragraph (2);
                  ``(B) compensation provided by the contractor 
                to each such reviewer is consistent with 
                paragraph (3); and
                  ``(C) in the case of a review by a panel 
                described in subsection (c)(3)(B) composed of 
                physicians or other health care professionals 
                (each in this subsection referred to as a 
                `reviewing professional'), a reviewing 
                professional meets the qualifications described 
                in paragraph (4) and, where a claim is 
                regarding the furnishing of treatment by a 
                physician (allopathic or osteopathic) or the 
                provision of items or services by a physician 
                (allopathic or osteopathic), each reviewing 
                professional shall be a physician (allopathic 
                or osteopathic).
          ``(2) Independence.--
                  ``(A) In general.--Subject to subparagraph 
                (B), each individual conducting a review in a 
                case shall--
                          ``(i) not be a related party (as 
                        defined in paragraph (5));
                          ``(ii) not have a material familial, 
                        financial, or professional relationship 
                        with such a party in the case under 
                        review; and
                          ``(iii) not otherwise have a conflict 
                        of interest with such a party.
                  ``(B) Exception.--Nothing in subparagraph (A) 
                shall be construed to--
                          ``(i) prohibit an individual, solely 
                        on the basis of a participation 
                        agreement with a fiscal intermediary, 
                        carrier, or other contractor, from 
                        serving as a reviewing professional 
                        if--
                                  ``(I) the individual is not 
                                involved in the provision of 
                                items or services in the case 
                                under review;
                                  ``(II) the fact of such an 
                                agreement is disclosed to the 
                                Secretary and the individual 
                                entitled to benefits under part 
                                A or enrolled under part B, or 
                                both, (or authorized 
                                representative) and neither 
                                party objects; and
                                  ``(III) the individual is not 
                                an employee of the 
                                intermediary, carrier, or 
                                contractor and does not provide 
                                services exclusively or 
                                primarily to or on behalf of 
                                such intermediary, carrier, or 
                                contractor;
                          ``(ii) prohibit an individual who has 
                        staff privileges at the institution 
                        where the treatment involved takes 
                        place from serving as a reviewer merely 
                        on the basis of having such staff 
                        privileges if the existence of such 
                        privileges is disclosed to the 
                        Secretary and such individual (or 
                        authorized representative), and neither 
                        party objects; or
                          ``(iii) prohibit receipt of 
                        compensation by a reviewing 
                        professional from a contractor if the 
                        compensation is provided consistent 
                        with paragraph (3).
                For purposes of this paragraph, the term 
                `participation agreement' means an agreement 
                relating to the provision of health care 
                services by the individual and does not include 
                the provision of services as a reviewer under 
                this subsection.
          ``(3) Limitations on reviewer compensation.--
        Compensation provided by a qualified independent 
        contractor to a reviewer in connection with a review 
        under this section shall not be contingent on the 
        decision rendered by the reviewer.
          ``(4) Licensure and expertise.--Each reviewing 
        professional shall be--
                  ``(A) a physician (allopathic or osteopathic) 
                who is appropriately credentialed or licensed 
                in one or more States to deliver health care 
                services and has medical expertise in the field 
                of practice that is appropriate for the items 
                or services at issue; or
                  ``(B) a health care professional who is 
                legally authorized in one or more States (in 
                accordance with State law or the State 
                regulatory mechanism provided by State law) to 
                furnish the health care items or services at 
                issue and has medical expertise in the field of 
                practice that is appropriate for such items or 
                services.
          ``(5) Related party defined.--For purposes of this 
        section, the term `related party' means, with respect 
        to a case under this title involving a specific 
        individual entitled to benefits under part A or 
        enrolled under part B, or both, any of the following:
                  ``(A) The Secretary, the medicare 
                administrative contractor involved, or any 
                fiduciary, officer, director, or employee of 
                the Department of Health and Human Services, or 
                of such contractor.
                  ``(B) The individual (or authorized 
                representative).
                  ``(C) The health care professional that 
                provides the items or services involved in the 
                case.
                  ``(D) The institution at which the items or 
                services (or treatment) involved in the case 
                are provided.
                  ``(E) The manufacturer of any drug or other 
                item that is included in the items or services 
                involved in the case.
                  ``(F) Any other party determined under any 
                regulations to have a substantial interest in 
                the case involved.''.
          (3) Reducing minimum number of qualified independent 
        contractors.--Section 1869(c)(4) (42 U.S.C. 
        1395ff(c)(4)) is amended by striking ``not fewer than 
        12 qualified independent contractors under this 
        subsection'' and inserting ``with a sufficient number 
        of qualified independent contractors (but not fewer 
        than 4 such contractors) to conduct reconsiderations 
        consistent with the timeframes applicable under this 
        subsection''.
          (4) Effective date.--The amendments made by 
        paragraphs (1) and (2) shall be effective as if 
        included in the enactment of the respective provisions 
        of subtitle C of title V of BIPA, (114 Stat. 2763A-
        534).
          (5) Transition.--In applying section 1869(g) of the 
        Social Security Act (as added by paragraph (2)), any 
        reference to a medicare administrative contractor shall 
        be deemed to include a reference to a fiscal 
        intermediary under section 1816 of the Social Security 
        Act (42 U.S.C. 1395h) and a carrier under section 1842 
        of such Act (42 U.S.C. 1395u).

SEC. 934. PREPAYMENT REVIEW.

  (a) In General.--Section 1874A, as added by section 911(a)(1) 
and as amended by sections 912(b), 921(b)(1), and 921(c)(1), is 
further amended by adding at the end the following new 
subsection:
  ``(h) Conduct of Prepayment Review.--
          ``(1) Conduct of random prepayment review.--
                  ``(A) In general.--A medicare administrative 
                contractor may conduct random prepayment review 
                only to develop a contractor-wide or program-
                wide claims payment error rates or under such 
                additional circumstances as may be provided 
                under regulations, developed in consultation 
                with providers of services and suppliers.
                  ``(B) Use of standard protocols when 
                conducting prepayment reviews.--When a medicare 
                administrative contractor conducts a random 
                prepayment review, the contractor may conduct 
                such review only in accordance with a standard 
                protocol for random prepayment audits developed 
                by the Secretary.
                  ``(C) Construction.--Nothing in this 
                paragraph shall be construed as preventing the 
                denial of payments for claims actually reviewed 
                under a random prepayment review.
                  ``(D) Random prepayment review.--For purposes 
                of this subsection, the term `random prepayment 
                review' means a demand for the production of 
                records or documentation absent cause with 
                respect to a claim.
          ``(2) Limitations on non-random prepayment review.--
                  ``(A) Limitations on initiation of non-random 
                prepayment review.--A medicare administrative 
                contractor may not initiate non-random 
                prepayment review of a provider of services or 
                supplier based on the initial identification by 
                that provider of services or supplier of an 
                improper billing practice unless there is a 
                likelihood of sustained or high level of 
                payment error (as defined in subsection 
                (i)(3)(A)).
                  ``(B) Termination of non-random prepayment 
                review.--The Secretary shall issue regulations 
                relating to the termination, including 
                termination dates, of non-random prepayment 
                review. Such regulations may vary such a 
                termination date based upon the differences in 
                the circumstances triggering prepayment 
                review.''.
  (b) Effective Date.--
          (1) In general.--Except as provided in this 
        subsection, the amendment made by subsection (a) shall 
        take effect 1 year after the date of the enactment of 
        this Act.
          (2) Deadline for promulgation of certain 
        regulations.--The Secretary shall first issue 
        regulations under section 1874A(h) of the Social 
        Security Act, as added by subsection (a), by not later 
        than 1 year after the date of the enactment of this 
        Act.
          (3) Application of standard protocols for random 
        prepayment review.--Section 1874A(h)(1)(B) of the 
        Social Security Act, as added by subsection (a), shall 
        apply to random prepayment reviews conducted on or 
        after such date (not later than 1 year after the date 
        of the enactment of this Act) as the Secretary shall 
        specify.
  (c) Application to Fiscal Intermediaries and Carriers.--The 
provisions of section 1874A(h) of the Social Security Act, as 
added by subsection (a), shall apply to each fiscal 
intermediary under section 1816 of the Social Security Act (42 
U.S.C. 1395h) and each carrier under section 1842 of such Act 
(42 U.S.C. 1395u) in the same manner as they apply to medicare 
administrative contractors under such provisions.

SEC. 935. RECOVERY OF OVERPAYMENTS.

  (a) In General.--Section 1893 (42 U.S.C. 1395ddd) is amended 
by adding at the end the following new subsection:
  ``(f) Recovery of Overpayments.--
          ``(1) Use of repayment plans.--
                  ``(A) In general.--If the repayment, within 
                30 days by a provider of services or supplier, 
                of an overpayment under this title would 
                constitute a hardship (as defined in 
                subparagraph (B)), subject to subparagraph (C), 
                upon request of the provider of services or 
                supplier the Secretary shall enter into a plan 
                with the provider of services or supplier for 
                the repayment (through offset or otherwise) of 
                such overpayment over a period of at least 6 
                months but not longer than 3 years (or not 
                longer than 5 years in the case of extreme 
                hardship, as determined by the Secretary). 
                Interest shall accrue on the balance through 
                the period of repayment. Such plan shall meet 
                terms and conditions determined to be 
                appropriate by the Secretary.
                  ``(B) Hardship.--
                          ``(i) In general.--For purposes of 
                        subparagraph (A), the repayment of an 
                        overpayment (or overpayments) within 30 
                        days is deemed to constitute a hardship 
                        if--
                                  ``(I) in the case of a 
                                provider of services that files 
                                cost reports, the aggregate 
                                amount of the overpayments 
                                exceeds 10 percent of the 
                                amount paid under this title to 
                                the provider of services for 
                                the cost reporting period 
                                covered by the most recently 
                                submitted cost report; or
                                  ``(II) in the case of another 
                                provider of services or 
                                supplier, the aggregate amount 
                                of the overpayments exceeds 10 
                                percent of the amount paid 
                                under this title to the 
                                provider of services or 
                                supplier for the previous 
                                calendar year.
                          ``(ii) Rule of application.--The 
                        Secretary shall establish rules for the 
                        application of this subparagraph in the 
                        case of a provider of services or 
                        supplier that was not paid under this 
                        title during the previous year or was 
                        paid under this title only during a 
                        portion of that year.
                          ``(iii) Treatment of previous 
                        overpayments.--If a provider of 
                        services or supplier has entered into a 
                        repayment plan under subparagraph (A) 
                        with respect to a specific overpayment 
                        amount, such payment amount under the 
                        repayment plan shall not be taken into 
                        account under clause (i) with respect 
                        to subsequent overpayment amounts.
                  ``(C) Exceptions.--Subparagraph (A) shall not 
                apply if--
                          ``(i) the Secretary has reason to 
                        suspect that the provider of services 
                        or supplier may file for bankruptcy or 
                        otherwise cease to do business or 
                        discontinue participation in the 
                        program under this title; or
                          ``(ii) there is an indication of 
                        fraud or abuse committed against the 
                        program.
                  ``(D) Immediate collection if violation of 
                repayment plan.--If a provider of services or 
                supplier fails to make a payment in accordance 
                with a repayment plan under this paragraph, the 
                Secretary may immediately seek to offset or 
                otherwise recover the total balance outstanding 
                (including applicable interest) under the 
                repayment plan.
                  ``(E) Relation to no fault provision.--
                Nothing in this paragraph shall be construed as 
                affecting the application of section 1870(c) 
                (relating to no adjustment in the cases of 
                certain overpayments).
          ``(2) Limitation on recoupment.--
                  ``(A) In general.--In the case of a provider 
                of services or supplier that is determined to 
                have received an overpayment under this title 
                and that seeks a reconsideration by a qualified 
                independent contractor on such determination 
                under section 1869(b)(1), the Secretary may not 
                take any action (or authorize any other person, 
                including any medicare contractor, as defined 
                in subparagraph (C)) to recoup the overpayment 
                until the date the decision on the 
                reconsideration has been rendered. If the 
                provisions of section 1869(b)(1) (providing for 
                such a reconsideration by a qualified 
                independent contractor) are not in effect, in 
                applying the previous sentence any reference to 
                such a reconsideration shall be treated as a 
                reference to a redetermination by the fiscal 
                intermediary or carrier involved.
                  ``(B) Collection with interest.--Insofar as 
                the determination on such appeal is against the 
                provider of services or supplier, interest on 
                the overpayment shall accrue on and after the 
                date of the original notice of overpayment. 
                Insofar as such determination against the 
                provider of services or supplier is later 
                reversed, the Secretary shall provide for 
                repayment of the amount recouped plus interest 
                at the same rate as would apply under the 
                previous sentence for the period in which the 
                amount was recouped.
                  ``(C) Medicare contractor defined.--For 
                purposes of this subsection, the term `medicare 
                contractor' has the meaning given such term in 
                section 1889(g).
          ``(3) Limitation on use of extrapolation.--A medicare 
        contractor may not use extrapolation to determine 
        overpayment amounts to be recovered by recoupment, 
        offset, or otherwise unless--
                  ``(A) there is a sustained or high level of 
                payment error (as defined by the Secretary by 
                regulation); or
                  ``(B) documented educational intervention has 
                failed to correct the payment error (as 
                determined by the Secretary).
          ``(4) Provision of supporting documentation.--In the 
        case of a provider of services or supplier with respect 
        to which amounts were previously overpaid, a medicare 
        contractor may request the periodic production of 
        records or supporting documentation for a limited 
        sample of submitted claims to ensure that the previous 
        practice is not continuing.
          ``(5) Consent settlement reforms.--
                  ``(A) In general.--The Secretary may use a 
                consent settlement (as defined in subparagraph 
                (D)) to settle a projected overpayment.
                  ``(B) Opportunity to submit additional 
                information before consent settlement offer.--
                Before offering a provider of services or 
                supplier a consent settlement, the Secretary 
                shall--
                          ``(i) communicate to the provider of 
                        services or supplier--
                                  ``(I) that, based on a review 
                                of the medical records 
                                requested by the Secretary, a 
                                preliminary evaluation of those 
                                records indicates that there 
                                would be an overpayment;
                                  ``(II) the nature of the 
                                problems identified in such 
                                evaluation; and
                                  ``(III) the steps that the 
                                provider of services or 
                                supplier should take to address 
                                the problems; and
                          ``(ii) provide for a 45-day period 
                        during which the provider of services 
                        or supplier may furnish additional 
                        information concerning the medical 
                        records for the claims that had been 
                        reviewed.
                  ``(C) Consent settlement offer.--The 
                Secretary shall review any additional 
                information furnished by the provider of 
                services or supplier under subparagraph 
                (B)(ii). Taking into consideration such 
                information, the Secretary shall determine if 
                there still appears to be an overpayment. If 
                so, the Secretary--
                          ``(i) shall provide notice of such 
                        determination to the provider of 
                        services or supplier, including an 
                        explanation of the reason for such 
                        determination; and
                          ``(ii) in order to resolve the 
                        overpayment, may offer the provider of 
                        services or supplier--
                                  ``(I) the opportunity for a 
                                statistically valid random 
                                sample; or
                                  ``(II) a consent settlement.
                The opportunity provided under clause (ii)(I) 
                does not waive any appeal rights with respect 
                to the alleged overpayment involved.
                  ``(D) Consent settlement defined.--For 
                purposes of this paragraph, the term `consent 
                settlement' means an agreement between the 
                Secretary and a provider of services or 
                supplier whereby both parties agree to settle a 
                projected overpayment based on less than a 
                statistically valid sample of claims and the 
                provider of services or supplier agrees not to 
                appeal the claims involved.
          ``(6) Notice of over-utilization of codes.--The 
        Secretary shall establish, in consultation with 
        organizations representing the classes of providers of 
        services and suppliers, a process under which the 
        Secretary provides for notice to classes of providers 
        of services and suppliers served by the contractor in 
        cases in which the contractor has identified that 
        particular billing codes may be overutilized by that 
        class of providers of services or suppliers under the 
        programs under this title (or provisions of title XI 
        insofar as they relate to such programs).
          ``(7) Payment audits.--
                  ``(A) Written notice for post-payment 
                audits.--Subject to subparagraph (C), if a 
                medicare contractor decides to conduct a post-
                payment audit of a provider of services or 
                supplier under this title, the contractor shall 
                provide the provider of services or supplier 
                with written notice (which may be in electronic 
                form) of the intent to conduct such an audit.
                  ``(B) Explanation of findings for all 
                audits.--Subject to subparagraph (C), if a 
                medicare contractor audits a provider of 
                services or supplier under this title, the 
                contractor shall--
                          ``(i) give the provider of services 
                        or supplier a full review and 
                        explanation of the findings of the 
                        audit in a manner that is 
                        understandable to the provider of 
                        services or supplier and permits the 
                        development of an appropriate 
                        corrective action plan;
                          ``(ii) inform the provider of 
                        services or supplier of the appeal 
                        rights under this title as well as 
                        consent settlement options (which are 
                        at the discretion of the Secretary);
                          ``(iii) give the provider of services 
                        or supplier an opportunity to provide 
                        additional information to the 
                        contractor; and
                          ``(iv) take into account information 
                        provided, on a timely basis, by the 
                        provider of services or supplier under 
                        clause (iii).
                  ``(C) Exception.--Subparagraphs (A) and (B) 
                shall not apply if the provision of notice or 
                findings would compromise pending law 
                enforcement activities, whether civil or 
                criminal, or reveal findings of law 
                enforcement-related audits.
          ``(8) Standard methodology for probe sampling.--The 
        Secretary shall establish a standard methodology for 
        medicare contractors to use in selecting a sample of 
        claims for review in the case of an abnormal billing 
        pattern.''.
  (b) Effective Dates and Deadlines.--
          (1) Use of repayment plans.--Section 1893(f)(1) of 
        the Social Security Act, as added by subsection (a), 
        shall apply to requests for repayment plans made after 
        the date of the enactment of this Act.
          (2) Limitation on recoupment.--Section 1893(f)(2) of 
        the Social Security Act, as added by subsection (a), 
        shall apply to actions taken after the date of the 
        enactment of this Act.
          (3) Use of extrapolation.--Section 1893(f)(3) of the 
        Social Security Act, as added by subsection (a), shall 
        apply to statistically valid random samples initiated 
        after the date that is 1 year after the date of the 
        enactment of this Act.
          (4) Provision of supporting documentation.--Section 
        1893(f)(4) of the Social Security Act, as added by 
        subsection (a), shall take effect on the date of the 
        enactment of this Act.
          (5) Consent settlement.--Section 1893(f)(5) of the 
        Social Security Act, as added by subsection (a), shall 
        apply to consent settlements entered into after the 
        date of the enactment of this Act.
          (6) Notice of overutilization.--Not later than 1 year 
        after the date of the enactment of this Act, the 
        Secretary shall first establish the process for notice 
        of overutilization of billing codes under section 
        1893A(f)(6) of the Social Security Act, as added by 
        subsection (a).
          (7) Payment audits.--Section 1893A(f)(7) of the 
        Social Security Act, as added by subsection (a), shall 
        apply to audits initiated after the date of the 
        enactment of this Act.
          (8) Standard for abnormal billing patterns.--Not 
        later than 1 year after the date of the enactment of 
        this Act, the Secretary shall first establish a 
        standard methodology for selection of sample claims for 
        abnormal billing patterns under section 1893(f)(8) of 
        the Social Security Act, as added by subsection (a).

SEC. 936. PROVIDER ENROLLMENT PROCESS; RIGHT OF APPEAL.

  (a) In General.--Section 1866 (42 U.S.C. 1395cc) is amended--
          (1) by adding at the end of the heading the 
        following: ``; enrollment processes''; and
          (2) by adding at the end the following new 
        subsection:
  ``(j) Enrollment Process for Providers of Services and 
Suppliers.--
          ``(1) Enrollment process.--
                  ``(A) In general.--The Secretary shall 
                establish by regulation a process for the 
                enrollment of providers of services and 
                suppliers under this title.
                  ``(B) Deadlines.--The Secretary shall 
                establish by regulation procedures under which 
                there are deadlines for actions on applications 
                for enrollment (and, if applicable, renewal of 
                enrollment). The Secretary shall monitor the 
                performance of medicare administrative 
                contractors in meeting the deadlines 
                established under this subparagraph.
                  ``(C) Consultation before changing provider 
                enrollment forms.--The Secretary shall consult 
                with providers of services and suppliers before 
                making changes in the provider enrollment forms 
                required of such providers and suppliers to be 
                eligible to submit claims for which payment may 
                be made under this title.
          ``(2) Hearing rights in cases of denial or non-
        renewal.--A provider of services or supplier whose 
        application to enroll (or, if applicable, to renew 
        enrollment) under this title is denied may have a 
        hearing and judicial review of such denial under the 
        procedures that apply under subsection (h)(1)(A) to a 
        provider of services that is dissatisfied with a 
        determination by the Secretary.''.
  (b) Effective Dates.--
          (1) Enrollment process.--The Secretary shall provide 
        for the establishment of the enrollment process under 
        section 1866(j)(1) of the Social Security Act, as added 
        by subsection (a)(2), within 6 months after the date of 
        the enactment of this Act.
          (2) Consultation.--Section 1866(j)(1)(C) of the 
        Social Security Act, as added by subsection (a)(2), 
        shall apply with respect to changes in provider 
        enrollment forms made on or after January 1, 2004.
          (3) Hearing rights.--Section 1866(j)(2) of the Social 
        Security Act, as added by subsection (a)(2), shall 
        apply to denials occurring on or after such date (not 
        later than 1 year after the date of the enactment of 
        this Act) as the Secretary specifies.

SEC. 937. PROCESS FOR CORRECTION OF MINOR ERRORS AND OMISSIONS WITHOUT 
                    PURSUING APPEALS PROCESS.

  (a) Claims.--The Secretary shall develop, in consultation 
with appropriate medicare contractors (as defined in section 
1889(g) of the Social Security Act, as inserted by section 
301(a)(1)) and representatives of providers of services and 
suppliers, a process whereby, in the case of minor errors or 
omissions (as defined by the Secretary) that are detected in 
the submission of claims under the programs under title XVIII 
of such Act, a provider of services or supplier is given an 
opportunity to correct such an error or omission without the 
need to initiate an appeal. Such process shall include the 
ability to resubmit corrected claims.
  (b) Permitting Use of Corrected and Supplementary Data.--
          (1) In general.--Section 1886(d)(10)(D)(vi) (42 
        U.S.C. 1395ww(d)(10)(D)(vi)) is amended by adding after 
        subclause (II) at the end the following:
``Notwithstanding subclause (I), a hospital may submit, and the 
Secretary may accept upon verification, data that corrects or 
supplements the data described in such subclause without regard 
to whether the corrected or supplementary data relate to a cost 
report that has been settled.''.
          (2) Effective date.--The amendment made by paragraph 
        (1) shall apply to fiscal years beginning with fiscal 
        year 2004.
          (3) Submittal and resubmittal of applications 
        permitted for fiscal year 2004.--
                  (A) In general.--Notwithstanding any other 
                provision of law, a hospital may submit (or 
                resubmit) an application for a change described 
                in section 1886(d)(10)(C)(i)(II) of the Social 
                Security Act for fiscal year 2004 if the 
                hospital demonstrates on a timely basis to the 
                satisfaction of the Secretary that the use of 
                corrected or supplementary data under the 
                amendment made by paragraph (1) would 
                materially affect the approval of such an 
                application.
                  (B) Application of budget neutrality.--If one 
                or more hospital's applications are approved as 
                a result of paragraph (1) and subparagraph (A) 
                for fiscal year 2004, the Secretary shall make 
                a proportional adjustment in the standardized 
                amounts determined under section 1886(d)(3) of 
                the Social Security Act (42 U.S.C. 
                1395ww(d)(3)) for fiscal year 2004 to assure 
                that approval of such applications does not 
                result in aggregate payments under section 
                1886(d) of such Act that are greater or less 
                than those that would otherwise be made if 
                paragraph (1) and subparagraph (A) did not 
                apply.

SEC. 938. PRIOR DETERMINATION PROCESS FOR CERTAIN ITEMS AND SERVICES; 
                    ADVANCE BENEFICIARY NOTICES.

  (a) In General.--Section 1869 (42 U.S.C. 1395ff(b)), as 
amended by sections 521 and 522 of BIPA and section 
933(d)(2)(B), is further amended by adding at the end the 
following new subsection:
  ``(h) Prior Determination Process for Certain Items and 
Services.--
          ``(1) Establishment of process.--
                  ``(A) In general.--With respect to a medicare 
                administrative contractor that has a contract 
                under section 1874A that provides for making 
                payments under this title with respect to 
                eligible items and services described in 
                subparagraph (C), the Secretary shall establish 
                a prior determination process that meets the 
                requirements of this subsection and that shall 
                be applied by such contractor in the case of 
                eligible requesters.
                  ``(B) Eligible requester.--For purposes of 
                this subsection, each of the following shall be 
                an eligible requester:
                          ``(i) A physician, but only with 
                        respect to eligible items and services 
                        for which the physician may be paid 
                        directly.
                          ``(ii) An individual entitled to 
                        benefits under this title, but only 
                        with respect to an item or service for 
                        which the individual receives, from the 
                        physician who may be paid directly for 
                        the item or service, an advance 
                        beneficiary notice under section 
                        1879(a) that payment may not be made 
                        (or may no longer be made) for the item 
                        or service under this title.
                  ``(C) Eligible items and services.--For 
                purposes of this subsection and subject to 
                paragraph (2), eligible items and services are 
                items and services which are physicians' 
                services (as defined in paragraph (4)(A) of 
                section 1848(f) for purposes of calculating the 
                sustainable growth rate under such section).
          ``(2) Secretarial flexibility.--The Secretary shall 
        establish by regulation reasonable limits on the 
        categories of eligible items and services for which a 
        prior determination of coverage may be requested under 
        this subsection. In establishing such limits, the 
        Secretary may consider the dollar amount involved with 
        respect to the item or service, administrative costs 
        and burdens, and other relevant factors.
          ``(3) Request for prior determination.--
                  ``(A) In general.--Subject to paragraph (2), 
                under the process established under this 
                subsection an eligible requester may submit to 
                the contractor a request for a determination, 
                before the furnishing of an eligible item or 
                service involved as to whether the item or 
                service is covered under this title consistent 
                with the applicable requirements of section 
                1862(a)(1)(A) (relating to medical necessity).
                  ``(B) Accompanying documentation.--The 
                Secretary may require that the request be 
                accompanied by a description of the item or 
                service, supporting documentation relating to 
                the medical necessity for the item or service, 
                and any other appropriate documentation. In the 
                case of a request submitted by an eligible 
                requester who is described in paragraph 
                (1)(B)(ii), the Secretary may require that the 
                request also be accompanied by a copy of the 
                advance beneficiary notice involved.
          ``(4) Response to request.--
                  ``(A) In general.--Under such process, the 
                contractor shall provide the eligible requester 
                with written notice of a determination as to 
                whether--
                          ``(i) the item or service is so 
                        covered;
                          ``(ii) the item or service is not so 
                        covered; or
                          ``(iii) the contractor lacks 
                        sufficient information to make a 
                        coverage determination.
                If the contractor makes the determination 
                described in clause (iii), the contractor shall 
                include in the notice a description of the 
                additional information required to make the 
                coverage determination.
                  ``(B) Deadline to respond.--Such notice shall 
                be provided within the same time period as the 
                time period applicable to the contractor 
                providing notice of initial determinations on a 
                claim for benefits under subsection (a)(2)(A).
                  ``(C) Informing beneficiary in case of 
                physician request.--In the case of a request in 
                which an eligible requester is not the 
                individual described in paragraph (1)(B)(ii), 
                the process shall provide that the individual 
                to whom the item or service is proposed to be 
                furnished shall be informed of any 
                determination described in clause (ii) 
                (relating to a determination of non-coverage) 
                and the right (referred to in paragraph (6)(B)) 
                to obtain the item or service and have a claim 
                submitted for the item or service.
          ``(5) Effect of determinations.--
                  ``(A) Binding nature of positive 
                determination.--If the contractor makes the 
                determination described in paragraph (4)(A)(i), 
                such determination shall be binding on the 
                contractor in the absence of fraud or evidence 
                of misrepresentation of facts presented to the 
                contractor.
                  ``(B) Notice and right to redetermination in 
                case of a denial.--
                          ``(i) In general.--If the contractor 
                        makes the determination described in 
                        paragraph (4)(A)(ii)--
                                  ``(I) the eligible requester 
                                has the right to a 
                                redetermination by the 
                                contractor on the determination 
                                that the item or service is not 
                                so covered; and
                                  ``(II) the contractor shall 
                                include in notice under 
                                paragraph (4)(A) a brief 
                                explanation of the basis for 
                                the determination, including on 
                                what national or local coverage 
                                or noncoverage determination 
                                (if any) the determination is 
                                based, and the right to such a 
                                redetermination.
                          ``(ii) Deadline for 
                        redeterminations.--The contractor shall 
                        complete and provide notice of such 
                        redetermination within the same time 
                        period as the time period applicable to 
                        the contractor providing notice of 
                        redeterminations relating to a claim 
                        for benefits under subsection 
                        (a)(3)(C)(ii).
          ``(6) Limitation on further review.--
                  ``(A) In general.--Contractor determinations 
                described in paragraph (4)(A)(ii) or 
                (4)(A)(iii) (and redeterminations made under 
                paragraph (5)(B)), relating to pre-service 
                claims are not subject to further 
                administrative appeal or judicial review under 
                this section or otherwise.
                  ``(B) Decision not to seek prior 
                determination or negative determination does 
                not impact right to obtain services, seek 
                reimbursement, or appeal rights.--Nothing in 
                this subsection shall be construed as affecting 
                the right of an individual who--
                          ``(i) decides not to seek a prior 
                        determination under this subsection 
                        with respect to items or services; or
                          ``(ii) seeks such a determination and 
                        has received a determination described 
                        in paragraph (4)(A)(ii),
                from receiving (and submitting a claim for) 
                such items services and from obtaining 
                administrative or judicial review respecting 
                such claim under the other applicable 
                provisions of this section. Failure to seek a 
                prior determination under this subsection with 
                respect to items and services shall not be 
                taken into account in such administrative or 
                judicial review.
                  ``(C) No prior determination after receipt of 
                services.--Once an individual is provided items 
                and services, there shall be no prior 
                determination under this subsection with 
                respect to such items or services.''.
  (b) Effective Date; Transition.--
          (1) Effective date.--The Secretary shall establish 
        the prior determination process under the amendment 
        made by subsection (a) in such a manner as to provide 
        for the acceptance of requests for determinations under 
        such process filed not later than 18 months after the 
        date of the enactment of this Act.
          (2) Transition.--During the period in which the 
        amendment made by subsection (a) has become effective 
        but contracts are not provided under section 1874A of 
        the Social Security Act with medicare administrative 
        contractors, any reference in section 1869(g) of such 
        Act (as added by such amendment) to such a contractor 
        is deemed a reference to a fiscal intermediary or 
        carrier with an agreement under section 1816, or 
        contract under section 1842, respectively, of such Act.
          (3) Limitation on application to sgr.--For purposes 
        of applying section 1848(f)(2)(D) of the Social 
        Security Act (42 U.S.C. 1395w-4(f)(2)(D)), the 
        amendment made by subsection (a) shall not be 
        considered to be a change in law or regulation.
  (c) Provisions Relating to Advance Beneficiary Notices; 
Report on Prior Determination Process.--
          (1) Data collection.--The Secretary shall establish a 
        process for the collection of information on the 
        instances in which an advance beneficiary notice (as 
        defined in paragraph (5)) has been provided and on 
        instances in which a beneficiary indicates on such a 
        notice that the beneficiary does not intend to seek to 
        have the item or service that is the subject of the 
        notice furnished.
          (2) Outreach and education.--The Secretary shall 
        establish a program of outreach and education for 
        beneficiaries and providers of services and other 
        persons on the appropriate use of advance beneficiary 
        notices and coverage policies under the medicare 
        program.
          (3) GAO report report on use of advance beneficiary 
        notices.--Not later than 18 months after the date on 
        which section 1869(g) of the Social Security Act (as 
        added by subsection (a)) takes effect, the Comptroller 
        General of the United States shall submit to Congress a 
        report on the use of advance beneficiary notices under 
        title XVIII of such Act. Such report shall include 
        information concerning the providers of services and 
        other persons that have provided such notices and the 
        response of beneficiaries to such notices.
          (4) GAO report on use of prior determination 
        process.--Not later than 18 months after the date on 
        which section 1869(g) of the Social Security Act (as 
        added by subsection (a)) takes effect, the Comptroller 
        General of the United States shall submit to Congress a 
        report on the use of the prior determination process 
        under such section. Such report shall include--
                  (A) information concerning the types of 
                procedures for which a prior determination has 
                been sought, determinations made under the 
                process, and changes in receipt of services 
                resulting from the application of such process; 
                and
                  (B) an evaluation of whether the process was 
                useful for physicians (and other suppliers) and 
                beneficiaries, whether it was timely, and 
                whether the amount of information required was 
                burdensome to physicians and beneficiaries.
          (5) Advance beneficiary notice defined.--In this 
        subsection, the term ``advance beneficiary notice'' 
        means a written notice provided under section 1879(a) 
        of the Social Security Act (42 U.S.C. 1395pp(a)) to an 
        individual entitled to benefits under part A or B of 
        title XVIII of such Act before items or services are 
        furnished under such part in cases where a provider of 
        services or other person that would furnish the item or 
        service believes that payment will not be made for some 
        or all of such items or services under such title.

                  Subtitle V--Miscellaneous Provisions

SEC. 941. POLICY DEVELOPMENT REGARDING EVALUATION AND MANAGEMENT (E & 
                    M) DOCUMENTATION GUIDELINES.

  (a) In General.--The Secretary may not implement any new 
documentation guidelines for, or clinical examples of, 
evaluation and management physician services under the title 
XVIII of the Social Security Act on or after the date of the 
enactment of this Act unless the Secretary--
          (1) has developed the guidelines in collaboration 
        with practicing physicians (including both generalists 
        and specialists) and provided for an assessment of the 
        proposed guidelines by the physician community;
          (2) has established a plan that contains specific 
        goals, including a schedule, for improving the use of 
        such guidelines;
          (3) has conducted appropriate and representative 
        pilot projects under subsection (b) to test 
        modifications to the evaluation and management 
        documentation guidelines;
          (4) finds that the objectives described in subsection 
        (c) will be met in the implementation of such 
        guidelines; and
          (5) has established, and is implementing, a program 
        to educate physicians on the use of such guidelines and 
        that includes appropriate outreach.
The Secretary shall make changes to the manner in which 
existing evaluation and management documentation guidelines are 
implemented to reduce paperwork burdens on physicians.
  (b) Pilot Projects to Test Evaluation and Management 
Documentation Guidelines.--
          (1) In general.--The Secretary shall conduct under 
        this subsection appropriate and representative pilot 
        projects to test new evaluation and management 
        documentation guidelines referred to in subsection (a).
          (2) Length and consultation.--Each pilot project 
        under this subsection shall--
                  (A) be voluntary;
                  (B) be of sufficient length as determined by 
                the Secretary to allow for preparatory 
                physician and medicare contractor education, 
                analysis, and use and assessment of potential 
                evaluation and management guidelines; and
                  (C) be conducted, in development and 
                throughout the planning and operational stages 
                of the project, in consultation with practicing 
                physicians (including both generalists and 
                specialists).
          (3) Range of pilot projects.--Of the pilot projects 
        conducted under this subsection--
                  (A) at least one shall focus on a peer review 
                method by physicians (not employed by a 
                medicare contractor) which evaluates medical 
                record information for claims submitted by 
                physicians identified as statistical outliers 
                relative to definitions published in the 
                Current Procedures Terminology (CPT) code book 
                of the American Medical Association;
                  (B) at least one shall focus on an 
                alternative method to detailed guidelines based 
                on physician documentation of face to face 
                encounter time with a patient;
                  (C) at least one shall be conducted for 
                services furnished in a rural area and at least 
                one for services furnished outside such an 
                area; and
                  (D) at least one shall be conducted in a 
                setting where physicians bill under physicians' 
                services in teaching settings and at least one 
                shall be conducted in a setting other than a 
                teaching setting.
          (4) Banning of targeting of pilot project 
        participants.--Data collected under this subsection 
        shall not be used as the basis for overpayment demands 
        or post-payment audits. Such limitation applies only to 
        claims filed as part of the pilot project and lasts 
        only for the duration of the pilot project and only as 
        long as the provider is a participant in the pilot 
        project.
          (5) Study of impact.--Each pilot project shall 
        examine the effect of the new evaluation and management 
        documentation guidelines on--
                  (A) different types of physician practices, 
                including those with fewer than 10 full-time-
                equivalent employees (including physicians); 
                and
                  (B) the costs of physician compliance, 
                including education, implementation, auditing, 
                and monitoring.
          (6) Periodic reports.--The Secretary shall submit to 
        Congress periodic reports on the pilot projects under 
        this subsection.
  (c) Objectives for Evaluation and Management Guidelines.--The 
objectives for modified evaluation and management documentation 
guidelines developed by the Secretary shall be to--
          (1) identify clinically relevant documentation needed 
        to code accurately and assess coding levels accurately;
          (2) decrease the level of non-clinically pertinent 
        and burdensome documentation time and content in the 
        physician's medical record;
          (3) increase accuracy by reviewers; and
          (4) educate both physicians and reviewers.
  (d) Study of Simpler, Alternative Systems of Documentation 
for Physician Claims.--
          (1) Study.--The Secretary shall carry out a study of 
        the matters described in paragraph (2).
          (2) Matters described.--The matters referred to in 
        paragraph (1) are--
                  (A) the development of a simpler, alternative 
                system of requirements for documentation 
                accompanying claims for evaluation and 
                management physician services for which payment 
                is made under title XVIII of the Social 
                Security Act; and
                  (B) consideration of systems other than 
                current coding and documentation requirements 
                for payment for such physician services.
          (3) Consultation with practicing physicians.--In 
        designing and carrying out the study under paragraph 
        (1), the Secretary shall consult with practicing 
        physicians, including physicians who are part of group 
        practices and including both generalists and 
        specialists.
          (4) Application of hipaa uniform coding 
        requirements.--In developing an alternative system 
        under paragraph (2), the Secretary shall consider 
        requirements of administrative simplification under 
        part C of title XI of the Social Security Act.
          (5) Report to congress.--(A) Not later than October 
        1, 2005, the Secretary shall submit to Congress a 
        report on the results of the study conducted under 
        paragraph (1).
          (B) The Medicare Payment Advisory Commission shall 
        conduct an analysis of the results of the study 
        included in the report under subparagraph (A) and shall 
        submit a report on such analysis to Congress.
  (e) Study on Appropriate Coding of Certain Extended Office 
Visits.--The Secretary shall conduct a study of the 
appropriateness of coding in cases of extended office visits in 
which there is no diagnosis made. Not later than October 1, 
2005, the Secretary shall submit a report to Congress on such 
study and shall include recommendations on how to code 
appropriately for such visits in a manner that takes into 
account the amount of time the physician spent with the 
patient.
  (f) Definitions.--In this section--
          (1) the term ``rural area'' has the meaning given 
        that term in section 1886(d)(2)(D) of the Social 
        Security Act, 42 U.S.C. 1395ww(d)(2)(D); and
          (2) the term ``teaching settings'' are those settings 
        described in section 415.150 of title 42, Code of 
        Federal Regulations.

SEC. 942. IMPROVEMENT IN OVERSIGHT OF TECHNOLOGY AND COVERAGE.

  (a) Council for Technology and Innovation.--Section 1868 (42 
U.S.C. 1395ee), as amended by section 921(a), is amended by 
adding at the end the following new subsection:
  ``(c) Council for Technology and Innovation.--
          ``(1) Establishment.--The Secretary shall establish a 
        Council for Technology and Innovation within the 
        Centers for Medicare & Medicaid Services (in this 
        section referred to as `CMS').
          ``(2) Composition.--The Council shall be composed of 
        senior CMS staff and clinicians and shall be chaired by 
        the Executive Coordinator for Technology and Innovation 
        (appointed or designated under paragraph (4)).
          ``(3) Duties.--The Council shall coordinate the 
        activities of coverage, coding, and payment processes 
        under this title with respect to new technologies and 
        procedures, including new drug therapies, and shall 
        coordinate the exchange of information on new 
        technologies between CMS and other entities that make 
        similar decisions.
          ``(4) Executive coordinator for technology and 
        innovation.--The Secretary shall appoint (or designate) 
        a noncareer appointee (as defined in section 3132(a)(7) 
        of title 5, United States Code) who shall serve as the 
        Executive Coordinator for Technology and Innovation. 
        Such executive coordinator shall report to the 
        Administrator of CMS, shall chair the Council, shall 
        oversee the execution of its duties, and shall serve as 
        a single point of contact for outside groups and 
        entities regarding the coverage, coding, and payment 
        processes under this title.''.
  (b) Methods for Determining Payment Basis for New Lab 
Tests.--Section 1833(h) (42 U.S.C. 1395l(h)) is amended by 
adding at the end the following:
  ``(8)(A) The Secretary shall establish by regulation 
procedures for determining the basis for, and amount of, 
payment under this subsection for any clinical diagnostic 
laboratory test with respect to which a new or substantially 
revised HCPCS code is assigned on or after January 1, 2005 (in 
this paragraph referred to as `new tests').
  ``(B) Determinations under subparagraph (A) shall be made 
only after the Secretary--
          ``(i) makes available to the public (through an 
        Internet site and other appropriate mechanisms) a list 
        that includes any such test for which establishment of 
        a payment amount under this subsection is being 
        considered for a year;
          ``(ii) on the same day such list is made available, 
        causes to have published in the Federal Register notice 
        of a meeting to receive comments and recommendations 
        (and data on which recommendations are based) from the 
        public on the appropriate basis under this subsection 
        for establishing payment amounts for the tests on such 
        list;
          ``(iii) not less than 30 days after publication of 
        such notice convenes a meeting, that includes 
        representatives of officials of the Centers for 
        Medicare & Medicaid Services involved in determining 
        payment amounts, to receive such comments and 
        recommendations (and data on which the recommendations 
        are based);
          ``(iv) taking into account the comments and 
        recommendations (and accompanying data) received at 
        such meeting, develops and makes available to the 
        public (through an Internet site and other appropriate 
        mechanisms) a list of proposed determinations with 
        respect to the appropriate basis for establishing a 
        payment amount under this subsection for each such 
        code, together with an explanation of the reasons for 
        each such determination, the data on which the 
        determinations are based, and a request for public 
        written comments on the proposed determination; and
          ``(v) taking into account the comments received 
        during the public comment period, develops and makes 
        available to the public (through an Internet site and 
        other appropriate mechanisms) a list of final 
        determinations of the payment amounts for such tests 
        under this subsection, together with the rationale for 
        each such determination, the data on which the 
        determinations are based, and responses to comments and 
        suggestions received from the public.
  ``(C) Under the procedures established pursuant to 
subparagraph (A), the Secretary shall--
          ``(i) set forth the criteria for making 
        determinations under subparagraph (A); and
          ``(ii) make available to the public the data (other 
        than proprietary data) considered in making such 
        determinations.
  ``(D) The Secretary may convene such further public meetings 
to receive public comments on payment amounts for new tests 
under this subsection as the Secretary deems appropriate.
  ``(E) For purposes of this paragraph:
          ``(i) The term `HCPCS' refers to the Health Care 
        Procedure Coding System.
          ``(ii) A code shall be considered to be 
        `substantially revised' if there is a substantive 
        change to the definition of the test or procedure to 
        which the code applies (such as a new analyte or a new 
        methodology for measuring an existing analyte-specific 
        test).''.
  (c) GAO Study on Improvements in External Data Collection for 
Use in the Medicare Inpatient Payment System.--
          (1) Study.--The Comptroller General of the United 
        States shall conduct a study that analyzes which 
        external data can be collected in a shorter time frame 
        by the Centers for Medicare & Medicaid Services for use 
        in computing payments for inpatient hospital services. 
        The study may include an evaluation of the feasibility 
        and appropriateness of using of quarterly samples or 
        special surveys or any other methods. The study shall 
        include an analysis of whether other executive 
        agencies, such as the Bureau of Labor Statistics in the 
        Department of Commerce, are best suited to collect this 
        information.
          (2) Report.--By not later than October 1, 2004, the 
        Comptroller General shall submit a report to Congress 
        on the study under paragraph (1).
  (d) Process for Adoption of ICD Codes as Data Standard.--
Section 1172(f) (42 U.S.C. 1320d-1(f)) is amended by inserting 
after the first sentence the following: ``Notwithstanding the 
preceding sentence, if the National Committee on Vital and 
Health Statistics has not made a recommendation to the 
Secretary before the date of the enactment of this sentence, 
with respect to the adoption of the International 
Classification of Diseases, 10th Revision, Procedure Coding 
System (`ICD-10-PCS') and the International Classification of 
Diseases, 10th Revision, Clinical Modification (`ICD-10-CM') as 
a standard under this part for the reporting of diagnoses, the 
Secretary may implement ICD-10-PCS only with respect to 
inpatient services as such a standard.''.

SEC. 943. TREATMENT OF HOSPITALS FOR CERTAIN SERVICES UNDER MEDICARE 
                    SECONDARY PAYOR (MSP) PROVISIONS.

  (a) In General.--The Secretary shall not require a hospital 
(including a critical access hospital) to ask questions (or 
obtain information) relating to the application of section 
1862(b) of the Social Security Act (relating to medicare 
secondary payor provisions) in the case of reference laboratory 
services described in subsection (b), if the Secretary does not 
impose such requirement in the case of such services furnished 
by an independent laboratory.
  (b) Reference Laboratory Services Described.--Reference 
laboratory services described in this subsection are clinical 
laboratory diagnostic tests (or the interpretation of such 
tests, or both) furnished without a face-to-face encounter 
between the individual entitled to benefits under part A or 
enrolled under part B, or both, and the hospital involved and 
in which the hospital submits a claim only for such test or 
interpretation.

SEC. 944. EMTALA IMPROVEMENTS.

  (a) Payment for EMTALA-Mandated Screening and Stabilization 
Services.--
          (1) In general.--Section 1862 (42 U.S.C. 1395y) is 
        amended by inserting after subsection (c) the following 
        new subsection:
  ``(d) For purposes of subsection (a)(1)(A), in the case of 
any item or service that is required to be provided pursuant to 
section 1867 to an individual who is entitled to benefits under 
this title, determinations as to whether the item or service is 
reasonable and necessary shall be made on the basis of the 
information available to the treating physician or practitioner 
(including the patient's presenting symptoms or complaint) at 
the time the item or service was ordered or furnished by the 
physician or practitioner (and not on the patient's principal 
diagnosis). When making such determinations with respect to 
such an item or service, the Secretary shall not consider the 
frequency with which the item or service was provided to the 
patient before or after the time of the admission or visit.''.
          (2) Effective date.--The amendment made by paragraph 
        (1) shall apply to items and services furnished on or 
        after January 1, 2004.
  (b) Notification of Providers When EMTALA Investigation 
Closed.--Section 1867(d) (42 U.S.C. 42 U.S.C. 1395dd(d)) is 
amended by adding at the end the following new paragraph:
          ``(4) Notice upon closing an investigation.--The 
        Secretary shall establish a procedure to notify 
        hospitals and physicians when an investigation under 
        this section is closed.''.
  (c) Prior Review by Peer Review Organizations in EMTALA Cases 
Involving Termination of Participation.--
          (1) In general.--Section 1867(d)(3) (42 U.S.C. 
        1395dd(d)(3)) is amended--
                  (A) in the first sentence, by inserting ``or 
                in terminating a hospital's participation under 
                this title'' after ``in imposing sanctions 
                under paragraph (1)''; and
                  (B) by adding at the end the following new 
                sentences: ``Except in the case in which a 
                delay would jeopardize the health or safety of 
                individuals, the Secretary shall also request 
                such a review before making a compliance 
                determination as part of the process of 
                terminating a hospital's participation under 
                this title for violations related to the 
                appropriateness of a medical screening 
                examination, stabilizing treatment, or an 
                appropriate transfer as required by this 
                section, and shall provide a period of 5 days 
                for such review. The Secretary shall provide a 
                copy of the organization's report to the 
                hospital or physician consistent with 
                confidentiality requirements imposed on the 
                organization under such part B.''.
          (2) Effective date.--The amendments made by paragraph 
        (1) shall apply to terminations of participation 
        initiated on or after the date of the enactment of this 
        Act.

SEC. 945. EMERGENCY MEDICAL TREATMENT AND ACTIVE LABOR ACT (EMTALA) 
                    TECHNICAL ADVISORY GROUP.

  (a) Establishment.--The Secretary shall establish a Technical 
Advisory Group (in this section referred to as the ``Advisory 
Group'') to review issues related to the Emergency Medical 
Treatment and Labor Act (EMTALA) and its implementation. In 
this section, the term ``EMTALA'' refers to the provisions of 
section 1867 of the Social Security Act (42 U.S.C. 1395dd).
  (b) Membership.--The Advisory Group shall be composed of 19 
members, including the Administrator of the Centers for 
Medicare & Medicaid Services and the Inspector General of the 
Department of Health and Human Services and of which--
          (1) 4 shall be representatives of hospitals, 
        including at least one public hospital, that have 
        experience with the application of EMTALA and at least 
        2 of which have not been cited for EMTALA violations;
          (2) 7 shall be practicing physicians drawn from the 
        fields of emergency medicine, cardiology or 
        cardiothoracic surgery, orthopedic surgery, 
        neurosurgery, pediatrics or a pediatric subspecialty, 
        obstetrics-gynecology, and psychiatry, with not more 
        than one physician from any particular field;
          (3) 2 shall represent patients;
          (4) 2 shall be staff involved in EMTALA 
        investigations from different regional offices of the 
        Centers for Medicare & Medicaid Services; and
          (5) 1 shall be from a State survey office involved in 
        EMTALA investigations and 1 shall be from a peer review 
        organization, both of whom shall be from areas other 
        than the regions represented under paragraph (4).
In selecting members described in paragraphs (1) through (3), 
the Secretary shall consider qualified individuals nominated by 
organizations representing providers and patients.
  (c) General Responsibilities.--The Advisory Group--
          (1) shall review EMTALA regulations;
          (2) may provide advice and recommendations to the 
        Secretary with respect to those regulations and their 
        application to hospitals and physicians;
          (3) shall solicit comments and recommendations from 
        hospitals, physicians, and the public regarding the 
        implementation of such regulations; and
          (4) may disseminate information on the application of 
        such regulations to hospitals, physicians, and the 
        public.
  (d) Administrative Matters.--
          (1) Chairperson.--The members of the Advisory Group 
        shall elect a member to serve as chairperson of the 
        Advisory Group for the life of the Advisory Group.
          (2) Meetings.--The Advisory Group shall first meet at 
        the direction of the Secretary. The Advisory Group 
        shall then meet twice per year and at such other times 
        as the Advisory Group may provide.
  (e) Termination.--The Advisory Group shall terminate 30 
months after the date of its first meeting.
  (f) Waiver of Administrative Limitation.--The Secretary shall 
establish the Advisory Group notwithstanding any limitation 
that may apply to the number of advisory committees that may be 
established (within the Department of Health and Human Services 
or otherwise).

SEC. 946. AUTHORIZING USE OF ARRANGEMENTS TO PROVIDE CORE HOSPICE 
                    SERVICES IN CERTAIN CIRCUMSTANCES.

  (a) In General.--Section 1861(dd)(5) (42 U.S.C. 1395x(dd)(5)) 
is amended by adding at the end the following:
  ``(D) In extraordinary, exigent, or other non-routine 
circumstances, such as unanticipated periods of high patient 
loads, staffing shortages due to illness or other events, or 
temporary travel of a patient outside a hospice program's 
service area, a hospice program may enter into arrangements 
with another hospice program for the provision by that other 
program of services described in paragraph (2)(A)(ii)(I). The 
provisions of paragraph (2)(A)(ii)(II) shall apply with respect 
to the services provided under such arrangements.
  ``(E) A hospice program may provide services described in 
paragraph (1)(A) other than directly by the program if the 
services are highly specialized services of a registered 
professional nurse and are provided non-routinely and so 
infrequently so that the provision of such services directly 
would be impracticable and prohibitively expensive.''.
  (b) Conforming Payment Provision.--Section 1814(i) (42 U.S.C. 
1395f(i)) is amended by adding at the end the following new 
paragraph:
  ``(4) In the case of hospice care provided by a hospice 
program under arrangements under section 1861(dd)(5)(D) made by 
another hospice program, the hospice program that made the 
arrangements shall bill and be paid for the hospice care.''.
  (c) Effective Date.--The amendments made by this section 
shall apply to hospice care provided on or after the date of 
the enactment of this Act.

SEC. 947. APPLICATION OF OSHA BLOODBORNE PATHOGENS STANDARD TO CERTAIN 
                    HOSPITALS.

  (a) In General.--Section 1866 (42 U.S.C. 1395cc) is amended--
          (1) in subsection (a)(1)--
                  (A) in subparagraph (R), by striking ``and'' 
                at the end;
                  (B) in subparagraph (S), by striking the 
                period at the end and inserting ``, and''; and
                  (C) by inserting after subparagraph (S) the 
                following new subparagraph:
          ``(T) in the case of hospitals that are not otherwise 
        subject to the Occupational Safety and Health Act of 
        1970, to comply with the Bloodborne Pathogens standard 
        under section 1910.1030 of title 29 of the Code of 
        Federal Regulations (or as subsequently 
        redesignated).''; and
          (2) by adding at the end of subsection (b) the 
        following new paragraph:
  ``(4)(A) A hospital that fails to comply with the requirement 
of subsection (a)(1)(T) (relating to the Bloodborne Pathogens 
standard) is subject to a civil money penalty in an amount 
described in subparagraph (B), but is not subject to 
termination of an agreement under this section.
  ``(B) The amount referred to in subparagraph (A) is an amount 
that is similar to the amount of civil penalties that may be 
imposed under section 17 of the Occupational Safety and Health 
Act of 1970 for a violation of the Bloodborne Pathogens 
standard referred to in subsection (a)(1)(T) by a hospital that 
is subject to the provisions of such Act.
  ``(C) A civil money penalty under this paragraph shall be 
imposed and collected in the same manner as civil money 
penalties under subsection (a) of section 1128A are imposed and 
collected under that section.''.
  (b) Effective Date.--The amendments made by this subsection 
(a) shall apply to hospitals as of July 1, 2004.

SEC. 948. BIPA-RELATED TECHNICAL AMENDMENTS AND CORRECTIONS.

  (a) Technical Amendments Relating to Advisory Committee under 
BIPA Section 522.--(1) Subsection (i) of section 1114 (42 
U.S.C. 1314)--
          (A) is transferred to section 1862 and added at the 
        end of such section; and
          (B) is redesignated as subsection (j).
  (2) Section 1862 (42 U.S.C. 1395y) is amended--
          (A) in the last sentence of subsection (a), by 
        striking ``established under section 1114(f)''; and
          (B) in subsection (j), as so transferred and 
        redesignated--
                  (i) by striking ``under subsection (f)''; and
                  (ii) by striking ``section 1862(a)(1)'' and 
                inserting ``subsection (a)(1)''.
  (b) Terminology Corrections.--(1) Section 1869(c)(3)(I)(ii) 
(42 U.S.C. 1395ff(c)(3)(I)(ii)), as amended by section 521 of 
BIPA, is amended--
          (A) in subclause (III), by striking ``policy'' and 
        inserting ``determination''; and
          (B) in subclause (IV), by striking ``medical review 
        policies'' and inserting ``coverage determinations''.
  (2) Section 1852(a)(2)(C) (42 U.S.C. 1395w-22(a)(2)(C)) is 
amended by striking ``policy'' and ``policy'' and inserting 
``determination'' each place it appears and ``determination'', 
respectively.
  (c) Reference Corrections.--Section 1869(f)(4) (42 U.S.C. 
1395ff(f)(4)), as added by section 522 of BIPA, is amended--
          (1) in subparagraph (A)(iv), by striking ``subclause 
        (I), (II), or (III)'' and inserting ``clause (i), (ii), 
        or (iii)'';
          (2) in subparagraph (B), by striking ``clause 
        (i)(IV)'' and ``clause (i)(III)'' and inserting 
        ``subparagraph (A)(iv)'' and ``subparagraph (A)(iii)'', 
        respectively; and
          (3) in subparagraph (C), by striking ``clause (i)'', 
        ``subclause (IV)'' and ``subparagraph (A)'' and 
        inserting ``subparagraph (A)'', ``clause (iv)'' and 
        ``paragraph (1)(A)'', respectively each place it 
        appears.
  (d) Other Corrections.--Effective as if included in the 
enactment of section 521(c) of BIPA, section 1154(e) (42 U.S.C. 
1320c-3(e)) is amended by striking paragraph (5).
  (e) Effective Date.--Except as otherwise provided, the 
amendments made by this section shall be effective as if 
included in the enactment of BIPA.

SEC. 949. CONFORMING AUTHORITY TO WAIVE A PROGRAM EXCLUSION.

  The first sentence of section 1128(c)(3)(B) (42 U.S.C. 1320a-
7(c)(3)(B)) is amended to read as follows: ``Subject to 
subparagraph (G), in the case of an exclusion under subsection 
(a), the minimum period of exclusion shall be not less than 
five years, except that, upon the request of the administrator 
of a Federal health care program (as defined in section 
1128B(f)) who determines that the exclusion would impose a 
hardship on individuals entitled to benefits under part A of 
title XVIII or enrolled under part B of such title, or both, 
the Secretary may waive the exclusion under subsection (a)(1), 
(a)(3), or (a)(4) with respect to that program in the case of 
an individual or entity that is the sole community physician or 
sole source of essential specialized services in a 
community.''.

SEC. 950. TREATMENT OF CERTAIN DENTAL CLAIMS.

  (a) In General.--Section 1862 (42 U.S.C. 1395y) is amended by 
adding after subsection (g) the following new subsection:
  ``(h)(1) Subject to paragraph (2), a group health plan (as 
defined in subsection (a)(1)(A)(v)) providing supplemental or 
secondary coverage to individuals also entitled to services 
under this title shall not require a medicare claims 
determination under this title for dental benefits specifically 
excluded under subsection (a)(12) as a condition of making a 
claims determination for such benefits under the group health 
plan.
  ``(2) A group health plan may require a claims determination 
under this title in cases involving or appearing to involve 
inpatient dental hospital services or dental services expressly 
covered under this title pursuant to actions taken by the 
Secretary.''.
  (b) Effective Date.--The amendment made by subsection (a) 
shall take effect on the date that is 60 days after the date of 
the enactment of this Act.

SEC. 951. FURNISHING HOSPITALS WITH INFORMATION TO COMPUTE DSH FORMULA.

  Beginning not later than 1 year after the date of the 
enactment of this Act, the Secretary shall furnish to 
subsection (d) hospitals (as defined in section 1886(d)(1)(B) 
of the Social Security Act, 42 U.S.C. 1395ww(d)(1)(B)) the data 
necessary for such hospitals to compute the number of patient 
days described in subclause (II) of section 1886(d)(5)(F)(vi) 
of the Social Security Act (42 U.S.C. 1395ww(d)(5)(F)(vi)) used 
in computing the disproportionate patient percentage under such 
section for that hospital. Such data shall also be furnished to 
other hospitals which would qualify for additional payments 
under part A of title XVIII of the Social Security Act on the 
basis of such data.

SEC. 952. REVISIONS TO REASSIGNMENT PROVISIONS.

  (a) In General.--Section 1842(b)(6)(A) (42 U.S.C. 
1395u(b)(6)(A)) is amended by striking ``or (ii) (where the 
service was provided in a hospital, critical access hospital, 
clinic, or other facility) to the facility in which the service 
was provided if there is a contractual arrangement between such 
physician or other person and such facility under which such 
facility submits the bill for such service,'' and inserting 
``or (ii) where the service was provided under a contractual 
arrangement between such physician or other person and an 
entity (as defined by the Secretary), to the entity if, under 
the contractual arrangement, the entity submits the bill for 
the service and the contractual arrangement meets such other 
program integrity and other safeguards as the Secretary may 
determine to be appropriate,''.
  (b) Conforming Amendment.--The second sentence of section 
1842(b)(6) (42 U.S.C. 1395u(b)(6)) is amended by striking 
``except to an employer or facility'' and inserting ``except to 
an employer, entity, or other person''.
  (c) Effective Date.--The amendments made by section shall 
apply to payments made on or after the date of the enactment of 
this Act.

SEC. 953. OTHER PROVISIONS.

  (a) GAO Reports on the Physician Compensation.--
          (1) Sustainable Growth Rate and Updates.--Not later 
        than 6 months after the date of the enactment of this 
        Act, the Comptroller General of the United States shall 
        submit to Congress a report on the appropriateness of 
        the updates in the conversion factor under subsection 
        (d)(3) of section 1848 of the Social Security Act (42 
        U.S.C. 1395w-4), including the appropriateness of the 
        sustainable growth rate formula under subsection (f) of 
        such section for 2002 and succeeding years. Such report 
        shall examine the stability and predictability of such 
        updates and rate and alternatives for the use of such 
        rate in the updates.
          (2) Physician compensation generally.--Not later than 
        12 months after the date of the enactment of this Act, 
        the Comptroller General shall submit to Congress a 
        report on all aspects of physician compensation for 
        services furnished under title XVIII of the Social 
        Security Act, and how those aspects interact and the 
        effect on appropriate compensation for physician 
        services. Such report shall review alternatives for the 
        physician fee schedule under section 1848 of such title 
        (42 U.S.C. 1395w-4).
  (b) Annual Publication of List of National Coverage 
Determinations.--The Secretary shall provide, in an appropriate 
annual publication available to the public, a list of national 
coverage determinations made under title XVIII of the Social 
Security Act in the previous year and information on how to get 
more information with respect to such determinations.
  (c) GAO Report on Flexibility in Applying Home Health 
Conditions of Participation to Patients Who Are Not Medicare 
Beneficiaries.--Not later than 6 months after the date of the 
enactment of this Act, the Comptroller General of the United 
States shall submit to Congress a report on the implications if 
there were flexibility in the application of the medicare 
conditions of participation for home health agencies with 
respect to groups or types of patients who are not medicare 
beneficiaries. The report shall include an analysis of the 
potential impact of such flexible application on clinical 
operations and the recipients of such services and an analysis 
of methods for monitoring the quality of care provided to such 
recipients.
  (d) OIG Report on Notices Relating to Use of Hospital 
Lifetime Reserve Days.--Not later than 1 year after the date of 
the enactment of this Act, the Inspector General of the 
Department of Health and Human Services shall submit a report 
to Congress on--
          (1) the extent to which hospitals provide notice to 
        medicare beneficiaries in accordance with applicable 
        requirements before they use the 60 lifetime reserve 
        days described in section 1812(a)(1) of the Social 
        Security Act (42 U.S.C. 1395d(a)(1)); and
          (2) the appropriateness and feasibility of hospitals 
        providing a notice to such beneficiaries before they 
        completely exhaust such lifetime reserve days.

               TITLE X--IMPORTATION OF PRESCRIPTION DRUGS

SEC. 1001. IMPORTATION OF PRESCRIPTION DRUGS.

  (a) In General.--Chapter VIII of the Federal Food, Drug, and 
Cosmetic Act (21 U.S.C. 381 et seq.) is amended by striking 
section 804 and inserting the following:

``SEC. 804. IMPORTATION OF PRESCRIPTION DRUGS.

  ``(a) Definitions.--In this section:
          ``(1) Importer.--The term `importer' means a 
        pharmacist or wholesaler.
          ``(2) Pharmacist.--The term `pharmacist' means a 
        person licensed by a State to practice pharmacy, 
        including the dispensing and selling of prescription 
        drugs.
          ``(3) Prescription drug.--The term `prescription 
        drug' means a drug subject to section 503(b), other 
        than--
                  ``(A) a controlled substance (as defined in 
                section 102 of the Controlled Substances Act 
                (21 U.S.C. 802));
                  ``(B) a biological product (as defined in 
                section 351 of the Public Health Service Act 
                (42 U.S.C. 262));
                  ``(C) an infused drug (including a peritoneal 
                dialysis solution);
                  ``(D) an intravenously injected drug; or
                  ``(E) a drug that is inhaled during surgery.
          ``(4) Qualifying laboratory.--The term `qualifying 
        laboratory' means a laboratory in the United States 
        that has been approved by the Secretary for the 
        purposes of this section.
          ``(5) Wholesaler.--
                  ``(A) In general.--The term `wholesaler' 
                means a person licensed as a wholesaler or 
                distributor of prescription drugs in the United 
                States under section 503(e)(2)(A).
                  ``(B) Exclusion.--The term `wholesaler' does 
                not include a person authorized to import drugs 
                under section 801(d)(1).
  ``(b) Regulations.--The Secretary, after consultation with 
the United States Trade Representative and the Commissioner of 
Customs, shall promulgate regulations permitting pharmacists 
and wholesalers to import prescription drugs from Canada into 
the United States.
  ``(c) Limitation.--The regulations under subsection (b) 
shall--
          ``(1) require that safeguards be in place to ensure 
        that each prescription drug imported under the 
        regulations complies with section 505 (including with 
        respect to being safe and effective for the intended 
        use of the prescription drug), with sections 501 and 
        502, and with other applicable requirements of this 
        Act;
          ``(2) require that an importer of a prescription drug 
        under the regulations comply with subsections (d)(1) 
        and (e); and
          ``(3) contain any additional provisions determined by 
        the Secretary to be appropriate as a safeguard to 
        protect the public health or as a means to facilitate 
        the importation of prescription drugs.
  ``(d) Information and Records.--
          ``(1) In general.--The regulations under subsection 
        (b) shall require an importer of a prescription drug 
        under subsection (b) to submit to the Secretary the 
        following information and documentation:
                  ``(A) The name and quantity of the active 
                ingredient of the prescription drug.
                  ``(B) A description of the dosage form of the 
                prescription drug.
                  ``(C) The date on which the prescription drug 
                is shipped.
                  ``(D) The quantity of the prescription drug 
                that is shipped.
                  ``(E) The point of origin and destination of 
                the prescription drug.
                  ``(F) The price paid by the importer for the 
                prescription drug.
                  ``(G) Documentation from the foreign seller 
                specifying--
                          ``(i) the original source of the 
                        prescription drug; and
                          ``(ii) the quantity of each lot of 
                        the prescription drug originally 
                        received by the seller from that 
                        source.
                  ``(H) The lot or control number assigned to 
                the prescription drug by the manufacturer of 
                the prescription drug.
                  ``(I) The name, address, telephone number, 
                and professional license number (if any) of the 
                importer.
                  ``(J)(i) In the case of a prescription drug 
                that is shipped directly from the first foreign 
                recipient of the prescription drug from the 
                manufacturer:
                          ``(I) Documentation demonstrating 
                        that the prescription drug was received 
                        by the recipient from the manufacturer 
                        and subsequently shipped by the first 
                        foreign recipient to the importer.
                          ``(II) Documentation of the quantity 
                        of each lot of the prescription drug 
                        received by the first foreign recipient 
                        demonstrating that the quantity being 
                        imported into the United States is not 
                        more than the quantity that was 
                        received by the first foreign 
                        recipient.
                          ``(III)(aa) In the case of an initial 
                        imported shipment, documentation 
                        demonstrating that each batch of the 
                        prescription drug in the shipment was 
                        statistically sampled and tested for 
                        authenticity and degradation.
                          ``(bb) In the case of any subsequent 
                        shipment, documentation demonstrating 
                        that a statistically valid sample of 
                        the shipment was tested for 
                        authenticity and degradation.
                  ``(ii) In the case of a prescription drug 
                that is not shipped directly from the first 
                foreign recipient of the prescription drug from 
                the manufacturer, documentation demonstrating 
                that each batch in each shipment offered for 
                importation into the United States was 
                statistically sampled and tested for 
                authenticity and degradation.
                  ``(K) Certification from the importer or 
                manufacturer of the prescription drug that the 
                prescription drug--
                          ``(i) is approved for marketing in 
                        the United States; and
                          ``(ii) meets all labeling 
                        requirements under this Act.
                  ``(L) Laboratory records, including complete 
                data derived from all tests necessary to ensure 
                that the prescription drug is in compliance 
                with established specifications and standards.
                  ``(M) Documentation demonstrating that the 
                testing required by subparagraphs (J) and (L) 
                was conducted at a qualifying laboratory.
                  ``(N) Any other information that the 
                Secretary determines is necessary to ensure the 
                protection of the public health.
          ``(2) Maintenance by the secretary.--The Secretary 
        shall maintain information and documentation submitted 
        under paragraph (1) for such period of time as the 
        Secretary determines to be necessary.
  ``(e) Testing.--The regulations under subsection (b) shall 
require--
          ``(1) that testing described in subparagraphs (J) and 
        (L) of subsection (d)(1) be conducted by the importer 
        or by the manufacturer of the prescription drug at a 
        qualified laboratory;
          ``(2) if the tests are conducted by the importer--
                  ``(A) that information needed to--
                          ``(i) authenticate the prescription 
                        drug being tested; and
                          ``(ii) confirm that the labeling of 
                        the prescription drug complies with 
                        labeling requirements under this Act;
                be supplied by the manufacturer of the 
                prescription drug to the pharmacist or 
                wholesaler; and
                  ``(B) that the information supplied under 
                subparagraph (A) be kept in strict confidence 
                and used only for purposes of testing or 
                otherwise complying with this Act; and
          ``(3) may include such additional provisions as the 
        Secretary determines to be appropriate to provide for 
        the protection of trade secrets and commercial or 
        financial information that is privileged or 
        confidential.
  ``(f) Registration of Foreign Sellers.--Any establishment 
within Canada engaged in the distribution of a prescription 
drug that is imported or offered for importation into the 
United States shall register with the Secretary the name and 
place of business of the establishment.
  ``(g) Suspension of Importation.--The Secretary shall require 
that importations of a specific prescription drug or 
importations by a specific importer under subsection (b) be 
immediately suspended on discovery of a pattern of importation 
of that specific prescription drug or by that specific importer 
of drugs that are counterfeit or in violation of any 
requirement under this section, until an investigation is 
completed and the Secretary determines that the public is 
adequately protected from counterfeit and violative 
prescription drugs being imported under subsection (b).
  ``(h) Approved Labeling.--The manufacturer of a prescription 
drug shall provide an importer written authorization for the 
importer to use, at no cost, the approved labeling for the 
prescription drug.
  ``(i) Prohibition of Discrimination.--
          ``(1) In general.--It shall be unlawful for a 
        manufacturer of a prescription drug to discriminate 
        against, or cause any other person to discriminate 
        against, a pharmacist or wholesaler that purchases or 
        offers to purchase a prescription drug from the 
        manufacturer or from any person that distributes a 
        prescription drug manufactured by the drug 
        manufacturer.
          ``(2) Discrimination.--For the purposes of paragraph 
        (1), a manufacturer of a prescription drug shall be 
        considered to discriminate against a pharmacist or 
        wholesaler if the manufacturer enters into a contract 
        for sale of a prescription drug, places a limit on 
        supply, or employs any other measure, that has the 
        effect of--
                  ``(A) providing pharmacists or wholesalers 
                access to prescription drugs on terms or 
                conditions that are less favorable than the 
                terms or conditions provided to a foreign 
                purchaser (other than a charitable or 
                humanitarian organization) of the prescription 
                drug; or
                  ``(B) restricting the access of pharmacists 
                or wholesalers to a prescription drug that is 
                permitted to be imported into the United States 
                under this section.
  ``(j) Charitable Contributions.--Notwithstanding any other 
provision of this section, section 801(d)(1) continues to apply 
to a prescription drug that is donated or otherwise supplied at 
no charge by the manufacturer of the drug to a charitable or 
humanitarian organization (including the United Nations and 
affiliates) or to a government of a foreign country.
  ``(k) Waiver Authority for Importation by Individuals.--
          ``(1) Declarations.--Congress declares that in the 
        enforcement against individuals of the prohibition of 
        importation of prescription drugs and devices, the 
        Secretary should--
                  ``(A) focus enforcement on cases in which the 
                importation by an individual poses a 
                significant threat to public health; and
                  ``(B) exercise discretion to permit 
                individuals to make such importations in 
                circumstances in which--
                          ``(i) the importation is clearly for 
                        personal use; and
                          ``(ii) the prescription drug or 
                        device imported does not appear to 
                        present an unreasonable risk to the 
                        individual.
          ``(2) Waiver authority.--
                  ``(A) In general.--The Secretary may grant to 
                individuals, by regulation or on a case-by-case 
                basis, a waiver of the prohibition of 
                importation of a prescription drug or device or 
                class of prescription drugs or devices, under 
                such conditions as the Secretary determines to 
                be appropriate.
                  ``(B) Guidance on case-by-case waivers.--The 
                Secretary shall publish, and update as 
                necessary, guidance that accurately describes 
                circumstances in which the Secretary will 
                consistently grant waivers on a case-by-case 
                basis under subparagraph (A), so that 
                individuals may know with the greatest 
                practicable degree of certainty whether a 
                particular importation for personal use will be 
                permitted.
          ``(3) Drugs imported from canada.--In particular, the 
        Secretary shall by regulation grant individuals a 
        waiver to permit individuals to import into the United 
        States a prescription drug that--
                  ``(A) is imported from a licensed pharmacy 
                for personal use by an individual, not for 
                resale, in quantities that do not exceed a 90-
                day supply;
                  ``(B) is accompanied by a copy of a valid 
                prescription;
                  ``(C) is imported from Canada, from a seller 
                registered with the Secretary;
                  ``(D) is a prescription drug approved by the 
                Secretary under chapter V;
                  ``(E) is in the form of a final finished 
                dosage that was manufactured in an 
                establishment registered under section 510; and
                  ``(F) is imported under such other conditions 
                as the Secretary determines to be necessary to 
                ensure public safety.
  ``(l) Studies; Reports.--
          ``(1) By the institute of medicine of the national 
        academy of sciences.--
                  ``(A) Study.--
                          ``(i) In general.--The Secretary 
                        shall request that the Institute of 
                        Medicine of the National Academy of 
                        Sciences conduct a study of--
                                  ``(I) importations of 
                                prescription drugs made under 
                                the regulations under 
                                subsection (b); and
                                  ``(II) information and 
                                documentation submitted under 
                                subsection (d).
                          ``(ii) Requirements.--In conducting 
                        the study, the Institute of Medicine 
                        shall--
                                  ``(I) evaluate the compliance 
                                of importers with the 
                                regulations under subsection 
                                (b);
                                  ``(II) compare the number of 
                                shipments under the regulations 
                                under subsection (b) during the 
                                study period that are 
                                determined to be counterfeit, 
                                misbranded, or adulterated, and 
                                compare that number with the 
                                number of shipments made during 
                                the study period within the 
                                United States that are 
                                determined to be counterfeit, 
                                misbranded, or adulterated; and
                                  ``(III) consult with the 
                                Secretary, the United States 
                                Trade Representative, and the 
                                Commissioner of Patents and 
                                Trademarks to evaluate the 
                                effect of importations under 
                                the regulations under 
                                subsection (b) on trade and 
                                patent rights under Federal 
                                law.
                  ``(B) Report.--Not later than 2 years after 
                the effective date of the regulations under 
                subsection (b), the Institute of Medicine shall 
                submit to Congress a report describing the 
                findings of the study under subparagraph (A).
          ``(2) By the comptroller general.--
                  ``(A) Study.--The Comptroller General of the 
                United States shall conduct a study to 
                determine the effect of this section on the 
                price of prescription drugs sold to consumers 
                at retail.
                  ``(B) Report.--Not later than 18 months after 
                the effective date of the regulations under 
                subsection (b), the Comptroller General of the 
                United States shall submit to Congress a report 
                describing the findings of the study under 
                subparagraph (A).
  ``(m) Construction.--Nothing in this section limits the 
authority of the Secretary relating to the importation of 
prescription drugs, other than with respect to section 
801(d)(1) as provided in this section.
  ``(n) Effectiveness of Section.--
          ``(1) In general.--If, after the date that is 1 year 
        after the effective date of the regulations under 
        subsection (b) and before the date that is 18 months 
        after the effective date, the Secretary submits to 
        Congress a certification that, in the opinion of the 
        Secretary, based on substantial evidence obtained after 
        the effective date, the benefits of implementation of 
        this section do not outweigh any detriment of 
        implementation of this section, this section shall 
        cease to be effective as of the date that is 30 days 
        after the date on which the Secretary submits the 
        certification.
          ``(2) Procedure.--The Secretary shall not submit a 
        certification under paragraph (1) unless, after a 
        hearing on the record under sections 556 and 557 of 
        title 5, United States Code, the Secretary--
                  ``(A)(i) determines that it is more likely 
                than not that implementation of this section 
                would result in an increase in the risk to the 
                public health and safety;
                  ``(ii) identifies specifically, in 
                qualitative and quantitative terms, the nature 
                of the increased risk;
                  ``(iii) identifies specifically the causes of 
                the increased risk; and
                  ``(iv)(I) considers whether any measures can 
                be taken to avoid, reduce, or mitigate the 
                increased risk; and
                  ``(II) if the Secretary determines that any 
                measures described in subclause (I) would 
                require additional statutory authority, submits 
                to Congress a report describing the legislation 
                that would be required;
                  ``(B) identifies specifically, in qualitative 
                and quantitative terms, the benefits that would 
                result from implementation of this section 
                (including the benefit of reductions in the 
                cost of covered products to consumers in the 
                United States, allowing consumers to procure 
                needed medication that consumers might not 
                otherwise be able to procure without foregoing 
                other necessities of life); and
                  ``(C)(i) compares in specific terms the 
                detriment identified under subparagraph (A) 
                with the benefits identified under subparagraph 
                (B); and
                  ``(ii) determines that the benefits do not 
                outweigh the detriment.
  ``(o) Authorization of Appropriations.--There are authorized 
to be appropriated such sums as are necessary to carry out this 
section.
  ``(p) Conditions.--This section shall become effective only 
if the Secretary certifies to the Congress that implementation 
of this section will--
          ``(1) pose no additional risk to the public's health 
        and safety; and
          ``(2) result in a significant reduction in the cost 
        of covered products to the American consumer.''.
  (b) Conforming Amendments.--The Federal Food, Drug, and 
Cosmetic Act is amended--
          (1) in section 301(aa) (21 U.S.C. 331(aa)), by 
        striking ``covered product in violation of section 
        804'' and inserting ``prescription drug in violation of 
        section 804''; and
          (2) in section 303(a)(6) (21 U.S.C. 333(a)(6), by 
        striking ``covered product pursuant to section 804(a)'' 
        and inserting ``prescription drug under section 
        804(b)''.

             TITLE XI--ACCESS TO AFFORDABLE PHARMACEUTICALS

SEC. 1101. SHORT TITLE.

  This title may be cited as the ``Greater Access to Affordable 
Pharmaceuticals Act''.

SEC. 1102. 30-MONTH STAY-OF-EFFECTIVENESS PERIOD.

  (a) Abbreviated New Drug Applications.--Section 505(j) of the 
Federal Food, Drug, and Cosmetic Act (21 U.S.C. 355(j)) is 
amended--
          (1) in paragraph (2), by striking subparagraph (B) 
        and inserting the following:
  ``(B) Notice of opinion that patent is invalid or will not be 
infringed.--
          ``(i) Agreement to give notice.--An applicant that 
        makes a certification described in subparagraph 
        (A)(vii)(IV) shall include in the application a 
        statement that the applicant will give notice as 
        required by this subparagraph.
          ``(ii) Timing of notice.--An applicant that makes a 
        certification described in subparagraph (A)(vii)(IV) 
        shall give notice as required under this subparagraph--
                  ``(I) if the certification is in the 
                application, not later than 20 days after the 
                date of the postmark on the notice with which 
                the Secretary informs the applicant that the 
                application has been filed; or
                  ``(II) if the certification is in an 
                amendment or supplement to the application, at 
                the time at which the applicant submits the 
                amendment or supplement, regardless of whether 
                the applicant has already given notice with 
                respect to another such certification contained 
                in the application or in an amendment or 
                supplement to the application.
          ``(iii) Recipients of notice.--An applicant required 
        under this subparagraph to give notice shall give 
        notice to--
                  ``(I) each owner of the patent that is the 
                subject of the certification (or a 
                representative of the owner designated to 
                receive such a notice); and
                  ``(II) the holder of the approved application 
                under subsection (b) for the drug that is 
                claimed by the patent or a use of which is 
                claimed by the patent (or a representative of 
                the holder designated to receive such a 
                notice).
          ``(iv) Contents of notice.--A notice required under 
        this subparagraph shall--
                  ``(I) state that an application that contains 
                data from bioavailability or bioequivalence 
                studies has been submitted under this 
                subsection for the drug with respect to which 
                the certification is made to obtain approval to 
                engage in the commercial manufacture, use, or 
                sale of the drug before the expiration of the 
                patent referred to in the certification; and
                  ``(II) include a detailed statement of the 
                factual and legal basis of the opinion of the 
                applicant that the patent is invalid or will 
                not be infringed.''; and
          (2) in paragraph (5)--
                  (A) in subparagraph (B)--
                          (i) by striking ``under the 
                        following'' and inserting ``by applying 
                        the following to each certification 
                        made under paragraph (2)(A)(vii)''; and
                          (ii) in clause (iii)--
                                  (I) in the first sentence, by 
                                striking ``unless'' and all 
                                that follows and inserting 
                                ``unless, before the expiration 
                                of 45 days after the date on 
                                which the notice described in 
                                paragraph (2)(B) is received, 
                                an action is brought for 
                                infringement of the patent that 
                                is the subject of the 
                                certification and for which 
                                information was submitted to 
                                the Secretary under subsection 
                                (b)(1) or (c)(2) before the 
                                date on which the application 
                                (excluding an amendment or 
                                supplement to the application), 
                                which the Secretary later 
                                determines to be substantially 
                                complete, was submitted.''; and
                                  (II) in the second sentence--
                                          (aa) by striking 
                                        subclause (I) and 
                                        inserting the 
                                        following:
                  ``(I) if before the expiration of such period 
                the district court decides that the patent is 
                invalid or not infringed (including any 
                substantive determination that there is no 
                cause of action for patent infringement or 
                invalidity), the approval shall be made 
                effective on--
                          ``(aa) the date on which the court 
                        enters judgment reflecting the 
                        decision; or
                          ``(bb) the date of a settlement order 
                        or consent decree signed and entered by 
                        the court stating that the patent that 
                        is the subject of the certification is 
                        invalid or not infringed;'';
                                          (bb) by striking 
                                        subclause (II) and 
                                        inserting the 
                                        following:
                  ``(II) if before the expiration of such 
                period the district court decides that the 
                patent has been infringed--
                          ``(aa) if the judgment of the 
                        district court is appealed, the 
                        approval shall be made effective on--
                                  ``(AA) the date on which the 
                                court of appeals decides that 
                                the patent is invalid or not 
                                infringed (including any 
                                substantive determination that 
                                there is no cause of action for 
                                patent infringement or 
                                invalidity); or
                                  ``(BB) the date of a 
                                settlement order or consent 
                                decree signed and entered by 
                                the court of appeals stating 
                                that the patent that is the 
                                subject of the certification is 
                                invalid or not infringed; or
                          ``(bb) if the judgment of the 
                        district court is not appealed or is 
                        affirmed, the approval shall be made 
                        effective on the date specified by the 
                        district court in a court order under 
                        section 271(e)(4)(A) of title 35, 
                        United States Code;'';
                                          (cc) in subclause 
                                        (III), by striking ``on 
                                        the date of such court 
                                        decision.'' and 
                                        inserting ``as provided 
                                        in subclause (I); or''; 
                                        and
                                          (dd) by inserting 
                                        after subclause (III) 
                                        the following:
                  ``(IV) if before the expiration of such 
                period the court grants a preliminary 
                injunction prohibiting the applicant from 
                engaging in the commercial manufacture or sale 
                of the drug until the court decides the issues 
                of patent validity and infringement and if the 
                court decides that such patent has been 
                infringed, the approval shall be made effective 
                as provided in subclause (II).'';
                  (B) by redesignating subparagraphs (C) and 
                (D) as subparagraphs (E) and (F), respectively; 
                and
                  (C) by inserting after subparagraph (B) the 
                following:
                  ``(C) Civil action to obtain patent 
                certainty.--
                          ``(i) Declaratory judgment absent 
                        infringement action.--If an owner of 
                        the patent or the holder of the 
                        approved application under subsection 
                        (b) for the drug that is claimed by the 
                        patent or a use of which is claimed by 
                        the patent does not bring a civil 
                        action against the applicant for 
                        infringement of the patent on or before 
                        the date that is 45 days after the date 
                        on which the notice given under 
                        paragraph (2)(B) was received, the 
                        applicant may bring a civil action 
                        against the owner or holder (but not 
                        against any owner or holder that has 
                        brought such a civil action against 
                        that applicant, unless that civil 
                        action was dismissed without prejudice) 
                        for a declaratory judgment under 
                        section 2201 of title 28, United States 
                        Code, that the patent is invalid or 
                        will not be infringed by the drug for 
                        which the applicant seeks approval.
                          ``(ii) Counterclaim to infringement 
                        action.--
                                  ``(I) In general.--If an 
                                owner of the patent or the 
                                holder of the approved 
                                application under subsection 
                                (b) for the drug that is 
                                claimed by the patent or a use 
                                of which is claimed by the 
                                patent brings a patent 
                                infringement action against the 
                                applicant, the applicant may 
                                assert a counterclaim seeking 
                                an order requiring the holder 
                                to correct or delete the patent 
                                information submitted by the 
                                holder under subsection (b) or 
                                (c) on the ground that the 
                                patent does not claim either--
                                          ``(aa) the drug for 
                                        which the application 
                                        was approved; or
                                          ``(bb) an approved 
                                        method of using the 
                                        drug.
                                  ``(II) No independent cause 
                                of action.--Subclause (I) does 
                                not authorize the assertion of 
                                a claim described in subclause 
                                (I) in any civil action or 
                                proceeding other than a 
                                counterclaim described in 
                                subclause (I).
                          ``(iii) No damages.--An applicant 
                        shall not be entitled to damages in a 
                        civil action under subparagraph (i) or 
                        a counterclaim under subparagraph 
                        (ii).''.
  (b) Applications Generally.--Section 505 of the Federal Food, 
Drug, and Cosmetic Act (21 U.S.C. 355) is amended--
          (1) in subsection (b), by striking paragraph (3) and 
        inserting the following:
  ``(3) Notice of opinion that patent is invalid or will not be 
infringed.--
          ``(A) Agreement to give notice.--An applicant that 
        makes a certification described in paragraph (2)(A)(iv) 
        shall include in the application a statement that the 
        applicant will give notice as required by this 
        paragraph.
          ``(B) Timing of notice.--An applicant that makes a 
        certification described in paragraph (2)(A)(iv) shall 
        give notice as required under this paragraph--
                  ``(i) if the certification is in the 
                application, not later than 20 days after the 
                date of the postmark on the notice with which 
                the Secretary informs the applicant that the 
                application has been filed; or
                  ``(ii) if the certification is in an 
                amendment or supplement to the application, at 
                the time at which the applicant submits the 
                amendment or supplement, regardless of whether 
                the applicant has already given notice with 
                respect to another such certification contained 
                in the application or in an amendment or 
                supplement to the application.
          ``(C) Recipients of notice.--An applicant required 
        under this paragraph to give notice shall give notice 
        to--
                  ``(i) each owner of the patent that is the 
                subject of the certification (or a 
                representative of the owner designated to 
                receive such a notice); and
                  ``(ii) the holder of the approved application 
                under this subsection for the drug that is 
                claimed by the patent or a use of which is 
                claimed by the patent (or a representative of 
                the holder designated to receive such a 
                notice).
          ``(D) Contents of notice.--A notice required under 
        this paragraph shall--
                  ``(i) state that an application that contains 
                data from bioavailability or bioequivalence 
                studies has been submitted under this 
                subsection for the drug with respect to which 
                the certification is made to obtain approval to 
                engage in the commercial manufacture, use, or 
                sale of the drug before the expiration of the 
                patent referred to in the certification; and
                  ``(ii) include a detailed statement of the 
                factual and legal basis of the opinion of the 
                applicant that the patent is invalid or will 
                not be infringed.''; and
          (2) in subsection (c)(3)--
                  (A) in the first sentence, by striking 
                ``under the following'' and inserting ``by 
                applying the following to each certification 
                made under subsection (b)(2)(A)(iv)'';
                  (B) in subparagraph (C)--
                          (i) in the first sentence, by 
                        striking ``unless'' and all that 
                        follows and inserting ``unless, before 
                        the expiration of 45 days after the 
                        date on which the notice described in 
                        subsection (b)(3) is received, an 
                        action is brought for infringement of 
                        the patent that is the subject of the 
                        certification and for which information 
                        was submitted to the Secretary under 
                        paragraph (2) or subsection (b)(1) 
                        before the date on which the 
                        application (excluding an amendment or 
                        supplement to the application) was 
                        submitted.'';
                          (ii) in the second sentence--
                                  (I) by striking ``paragraph 
                                (3)(B)'' and inserting 
                                ``subsection (b)(3)'';
                                  (II) by striking clause (i) 
                                and inserting the following:
                  ``(i) if before the expiration of such period 
                the district court decides that the patent is 
                invalid or not infringed (including any 
                substantive determination that there is no 
                cause of action for patent infringement or 
                invalidity), the approval shall be made 
                effective on--
                          ``(I) the date on which the court 
                        enters judgment reflecting the 
                        decision; or
                          ``(II) the date of a settlement order 
                        or consent decree signed and entered by 
                        the court stating that the patent that 
                        is the subject of the certification is 
                        invalid or not infringed;'';
                                  (III) by striking clause (ii) 
                                and inserting the following:
                  ``(ii) if before the expiration of such 
                period the district court decides that the 
                patent has been infringed--
                          ``(I) if the judgment of the district 
                        court is appealed, the approval shall 
                        be made effective on--
                                  ``(aa) the date on which the 
                                court of appeals decides that 
                                the patent is invalid or not 
                                infringed (including any 
                                substantive determination that 
                                there is no cause of action for 
                                patent infringement or 
                                invalidity); or
                                  ``(bb) the date of a 
                                settlement order or consent 
                                decree signed and entered by 
                                the court of appeals stating 
                                that the patent that is the 
                                subject of the certification is 
                                invalid or not infringed; or
                          ``(II) if the judgment of the 
                        district court is not appealed or is 
                        affirmed, the approval shall be made 
                        effective on the date specified by the 
                        district court in a court order under 
                        section 271(e)(4)(A) of title 35, 
                        United States Code;'';
                                  (IV) in clause (iii), by 
                                striking ``on the date of such 
                                court decision.'' and inserting 
                                ``as provided in clause (i); 
                                or''; and
                                  (V) by inserting after clause 
                                (iii), the following:
                  ``(iv) if before the expiration of such 
                period the court grants a preliminary 
                injunction prohibiting the applicant from 
                engaging in the commercial manufacture or sale 
                of the drug until the court decides the issues 
                of patent validity and infringement and if the 
                court decides that such patent has been 
                infringed, the approval shall be made effective 
                as provided in clause (ii).''; and
                          (iii) in the third sentence, by 
                        striking ``paragraph (3)(B)'' and 
                        inserting ``subsection (b)(3)'';
                  (C) by redesignating subparagraph (D) as 
                subparagraph (E); and
                  (D) by inserting after subparagraph (C) the 
                following:
                  ``(D) Civil action to obtain patent 
                certainty.--
                          ``(i) Declaratory judgment absent 
                        infringement action.--If an owner of 
                        the patent or the holder of the 
                        approved application under subsection 
                        (b) for the drug that is claimed by the 
                        patent or a use of which is claimed by 
                        the patent does not bring a civil 
                        action against the applicant for 
                        infringement of the patent on or before 
                        the date that is 45 days after the date 
                        on which the notice given under 
                        subsection (b)(3) was received, the 
                        applicant may bring a civil action 
                        against the owner or holder (but not 
                        against any owner or holder that has 
                        brought such a civil action against 
                        that applicant, unless that civil 
                        action was dismissed without prejudice) 
                        for a declaratory judgment under 
                        section 2201 of title 28, United States 
                        Code, that the patent is invalid or 
                        will not be infringed by the drug for 
                        which the applicant seeks approval.
                          ``(ii) Counterclaim to infringement 
                        action.--
                                  ``(I) In general.--If an 
                                owner of the patent or the 
                                holder of the approved 
                                application under subsection 
                                (b) for the drug that is 
                                claimed by the patent or a use 
                                of which is claimed by the 
                                patent brings a patent 
                                infringement action against the 
                                applicant, the applicant may 
                                assert a counterclaim seeking 
                                an order requiring the holder 
                                to correct or delete the patent 
                                information submitted by the 
                                holder under subsection (b) or 
                                this subsection on the ground 
                                that the patent does not claim 
                                either--
                                          ``(aa) the drug for 
                                        which the application 
                                        was approved; or
                                          ``(bb) an approved 
                                        method of using the 
                                        drug.
                                  ``(II) No independent cause 
                                of action.--Subclause (I) does 
                                not authorize the assertion of 
                                a claim described in subclause 
                                (I) in any civil action or 
                                proceeding other than a 
                                counterclaim described in 
                                subclause (I).
                          ``(iii) No damages.--An applicant 
                        shall not be entitled to damages in a 
                        civil action under clause (i) or a 
                        counterclaim under clause (ii).''.
  (c) Infringement Actions.--Section 271(e) of title 35, United 
States Code, is amended by adding at the end the following:
          ``(5) The filing of an application described in 
        paragraph (2) that includes a certification under 
        subsection (b)(2)(A)(iv) or (j)(2)(A)(vii)(IV) of 
        section 505 of the Federal Food, Drug, and Cosmetic Act 
        (21 U.S.C. 355), and the failure of the owner of the 
        patent to bring an action for infringement of a patent 
        that is the subject of the certification before the 
        expiration of 45 days after the date on which the 
        notice given under subsection (b)(3) or (j)(2)(B) of 
        that section is received, shall establish an actual 
        controversy between the applicant and the patent owner 
        sufficient to confer subject matter jurisdiction in the 
        courts of the United States in any action brought by 
        the applicant under section 2201 of title 28 for a 
        declaratory judgment that any patent that is the 
        subject of the certification is invalid or not 
        infringed.''.
  (d) Applicability.--
          (1) In general.--Except as provided in paragraphs (2) 
        and (3), the amendments made by subsections (a), (b), 
        and (c) apply to any proceeding under section 505 of 
        the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 
        355) that is pending on or after the date of enactment 
        of this Act regardless of the date on which the 
        proceeding was commenced or is commenced.
          (2) Notice of opinion that patent is invalid or will 
        not be infringed.--The amendments made by subsections 
        (a)(1) and (b)(1) apply with respect to any 
        certification under subsection (b)(2)(A)(iv) or 
        (j)(2)(A)(vii)(IV) of section 505 of the Federal Food, 
        Drug, and Cosmetic Act (21 U.S.C. 355) after the date 
        of enactment of this Act in an application filed under 
        subsection (b)(2) or (j) of that section or in an 
        amendment or supplement to an application filed under 
        subsection (b)(2) or (j) of that section.
          (3) Effective date of approval.--The amendments made 
        by subsections (a)(2)(A)(ii)(I) and (b)(2)(B)(i) apply 
        with respect to any patent information submitted under 
        subsection (b)(1) or (c)(2) of section 505 of the 
        Federal Food, Drug, and Cosmetic Act (21 U.S.C. 355) 
        made after the date of enactment of this Act.

SEC. 1103. FORFEITURE OF 180-DAY EXCLUSIVITY PERIOD.

  (a) In General.--Section 505(j)(5) of the Federal Food, Drug, 
and Cosmetic Act (21 U.S.C. 355(j)(5)) (as amended by section 
1102) is amended--
          (1) in subparagraph (B), by striking clause (iv) and 
        inserting the following:
          ``(iv) 180-day exclusivity period.--
                  ``(I) Definitions.--In this paragraph:
                          ``(aa) 180-day exclusivity period.--
                        The term `180-day exclusivity period' 
                        means the 180-day period ending on the 
                        day before the date on which an 
                        application submitted by an applicant 
                        other than a first applicant could 
                        become effective under this clause.
                          ``(bb) First applicant.--The term 
                        `first applicant' means an applicant 
                        that, on the first day on which a 
                        substantially complete application 
                        containing a certification described in 
                        paragraph (2)(A)(vii)(IV) is submitted 
                        for approval of a drug, submits a 
                        substantially complete application 
                        containing a certification described in 
                        paragraph (2)(A)(vii)(IV) for the drug.
                          ``(cc) Substantially complete 
                        application.--The term `substantially 
                        complete application' means an 
                        application under this subsection that 
                        on its face is sufficiently complete to 
                        permit a substantive review and 
                        contains all the information required 
                        by paragraph (2)(A).
                          ``(dd) Tentative approval.--
                                  ``(AA) In general.--The term 
                                `tentative approval' means 
                                notification to an applicant by 
                                the Secretary that an 
                                application under this 
                                subsection meets the 
                                requirements of paragraph 
                                (2)(A), but cannot receive 
                                effective approval because the 
                                application does not meet the 
                                requirements of this 
                                subparagraph, there is a period 
                                of exclusivity for the listed 
                                drug under subparagraph (E) or 
                                section 505A, or there is a 7-
                                year period of exclusivity for 
                                the listed drug under section 
                                527.
                                  ``(BB) Limitation.--A drug 
                                that is granted tentative 
                                approval by the Secretary is 
                                not an approved drug and shall 
                                not have an effective approval 
                                until the Secretary issues an 
                                approval after any necessary 
                                additional review of the 
                                application.
                  ``(II) Effectiveness of application.--Subject 
                to subparagraph (D), if the application 
                contains a certification described in paragraph 
                (2)(A)(vii)(IV) and is for a drug for which a 
                first applicant has submitted an application 
                containing such a certification, the 
                application shall be made effective on the date 
                that is 180 days after the date of the first 
                commercial marketing of the drug (including the 
                commercial marketing of the listed drug) by any 
                first applicant.''; and
          (2) by inserting after subparagraph (C) the 
        following:
                  ``(D) Forfeiture of 180-day exclusivity 
                period.--
                          ``(i) Definition of forfeiture 
                        event.--In this subparagraph, the term 
                        `forfeiture event', with respect to an 
                        application under this subsection, 
                        means the occurrence of any of the 
                        following:
                                  ``(I) Failure to market.--The 
                                first applicant fails to market 
                                the drug by the later of--
                                          ``(aa) the earlier of 
                                        the date that is--
                                                  ``(AA) 75 
                                                days after the 
                                                date on which 
                                                the approval of 
                                                the application 
                                                of the first 
                                                applicant is 
                                                made effective 
                                                under 
                                                subparagraph 
                                                (B)(iii); or
                                                  ``(BB) 30 
                                                months after 
                                                the date of 
                                                submission of 
                                                the application 
                                                of the first 
                                                applicant; or
                                          ``(bb) with respect 
                                        to the first applicant 
                                        or any other applicant 
                                        (which other applicant 
                                        has received tentative 
                                        approval), the date 
                                        that is 75 days after 
                                        the date as of which, 
                                        as to each of the 
                                        patents with respect to 
                                        which the first 
                                        applicant submitted a 
                                        certification 
                                        qualifying the first 
                                        applicant for the 180-
                                        day exclusivity period 
                                        under subparagraph 
                                        (B)(iv), at least 1 of 
                                        the following has 
                                        occurred:
                                                  ``(AA) In an 
                                                infringement 
                                                action brought 
                                                against that 
                                                applicant with 
                                                respect to the 
                                                patent or in a 
                                                declaratory 
                                                judgment action 
                                                brought by that 
                                                applicant with 
                                                respect to the 
                                                patent, a court 
                                                enters a final 
                                                decision from 
                                                which no appeal 
                                                (other than a 
                                                petition to the 
                                                Supreme Court 
                                                for a writ of 
                                                certiorari) has 
                                                been or can be 
                                                taken that the 
                                                patent is 
                                                invalid or not 
                                                infringed.
                                                  ``(BB) In an 
                                                infringement 
                                                action or a 
                                                declaratory 
                                                judgment action 
                                                described in 
                                                subitem (AA), a 
                                                court signs a 
                                                settlement 
                                                order or 
                                                consent decree 
                                                that enters a 
                                                final judgment 
                                                that includes a 
                                                finding that 
                                                the patent is 
                                                invalid or not 
                                                infringed.
                                                  ``(CC) The 
                                                patent expires.
                                                  ``(DD) The 
                                                patent is 
                                                withdrawn by 
                                                the holder of 
                                                the application 
                                                approved under 
                                                subsection (b).
                                  ``(II) Withdrawal of 
                                application.--The first 
                                applicant withdraws the 
                                application or the Secretary 
                                considers the application to 
                                have been withdrawn as a result 
                                of a determination by the 
                                Secretary that the application 
                                does not meet the requirements 
                                for approval under paragraph 
                                (4).
                                  ``(III) Amendment of 
                                certification.--The first 
                                applicant amends or withdraws 
                                the certification for all of 
                                the patents with respect to 
                                which that applicant submitted 
                                a certification qualifying the 
                                applicant for the 180-day 
                                exclusivity period.
                                  ``(IV) Failure to obtain 
                                tentative approval.--The first 
                                applicant fails to obtain 
                                tentative approval of the 
                                application within 30 months 
                                after the date on which the 
                                application is filed, unless 
                                the failure is caused by a 
                                change in or a review of the 
                                requirements for approval of 
                                the application imposed after 
                                the date on which the 
                                application is filed.
                                  ``(V) Agreement with another 
                                applicant, the listed drug 
                                application holder, or a patent 
                                owner.--The first applicant 
                                enters into an agreement with 
                                another applicant under this 
                                subsection for the drug, the 
                                holder of the application for 
                                the listed drug, or an owner of 
                                the patent that is the subject 
                                of the certification under 
                                paragraph (2)(A)(vii)(IV), the 
                                Federal Trade Commission or the 
                                Attorney General files a 
                                complaint, and there is a final 
                                decision of the Federal Trade 
                                Commission or the court with 
                                regard to the complaint from 
                                which no appeal (other than a 
                                petition to the Supreme Court 
                                for a writ of certiorari) has 
                                been or can be taken that the 
                                agreement has violated the 
                                antitrust laws (as defined in 
                                section 1 of the Clayton Act 
                                (15 U.S.C. 12), except that the 
                                term includes section 5 of the 
                                Federal Trade Commission Act 
                                (15 U.S.C. 45) to the extent 
                                that that section applies to 
                                unfair methods of competition).
                                  ``(VI) Expiration of all 
                                patents.--All of the patents as 
                                to which the applicant 
                                submitted a certification 
                                qualifying it for the 180-day 
                                exclusivity period have 
                                expired.
                          ``(ii) Forfeiture.--The 180-day 
                        exclusivity period described in 
                        subparagraph (B)(iv) shall be forfeited 
                        by a first applicant if a forfeiture 
                        event occurs with respect to that first 
                        applicant.
                          ``(iii) Subsequent applicant.--If all 
                        first applicants forfeit the 180-day 
                        exclusivity period under clause (ii)--
                                  ``(I) approval of any 
                                application containing a 
                                certification described in 
                                paragraph (2)(A)(vii)(IV) shall 
                                be made effective in accordance 
                                with subparagraph (B)(iii); and
                                  ``(II) no applicant shall be 
                                eligible for a 180-day 
                                exclusivity period.''.
  (b) Effective Date.--
          (1) In general.--Except as provided in paragraph (2), 
        the amendment made by subsection (a) shall be effective 
        only with respect to an application filed under section 
        505(j) of the Federal Food, Drug, and Cosmetic Act (21 
        U.S.C. 355(j)) after the date of enactment of this Act 
        for a listed drug for which no certification under 
        section 505(j)(2)(A)(vii)(IV) of that Act was made 
        before the date of enactment of this Act.
          (2) Collusive agreements.--If a forfeiture event 
        described in section 505(j)(5)(D)(i)(V) of that Act 
        occurs in the case of an applicant, the applicant shall 
        forfeit the 180-day period under section 
        505(j)(5)(B)(iv) of that Act without regard to when the 
        first certification under section 505(j)(2)(A)(vii)(IV) 
        of that Act for the listed drug was made.
          (3) Decision of a court when the 180-day exclusivity 
        period has not been triggered.--With respect to an 
        application filed before, on, or after the date of 
        enactment of this Act for a listed drug for which a 
        certification under section 505(j)(2)(A)(vii)(IV) of 
        that Act was made before the date of enactment of this 
        Act and for which neither of the events described in 
        subclause (I) or (II) of section 505(j)(5)(B)(iv) of 
        that Act (as in effect on the day before the date of 
        enactment of this Act) has occurred on or before the 
        date of enactment of this Act, the term ``decision of a 
        court'' as used in clause (iv) of section 505(j)(5)(B) 
        of that Act means a final decision of a court from 
        which no appeal (other than a petition to the Supreme 
        Court for a writ of certiorari) has been or can be 
        taken.

SEC. 1104. BIOAVAILABILITY AND BIOEQUIVALENCE.

  (a) In General.--Section 505(j)(8) of the Federal Food, Drug, 
and Cosmetic Act (21 U.S.C. 355(j)(8)) is amended--
          (1) by striking subparagraph (A) and inserting the 
        following:
          ``(A)(i) The term `bioavailability' means the rate 
        and extent to which the active ingredient or 
        therapeutic ingredient is absorbed from a drug and 
        becomes available at the site of drug action.
          ``(ii) For a drug that is not intended to be absorbed 
        into the bloodstream, the Secretary may assess 
        bioavailability by scientifically valid measurements 
        intended to reflect the rate and extent to which the 
        active ingredient or therapeutic ingredient becomes 
        available at the site of drug action.''; and
          (2) by adding at the end the following:
          ``(C) For a drug that is not intended to be absorbed 
        into the bloodstream, the Secretary may establish 
        alternative, scientifically valid methods to show 
        bioequivalence if the alternative methods are expected 
        to detect a significant difference between the drug and 
        the listed drug in safety and therapeutic effect.''.
  (b) Effect of Amendment.--The amendment made by subsection 
(a) does not alter the standards for approval of drugs under 
section 505(j) of the Federal Food, Drug, and Cosmetic Act (21 
U.S.C. 355(j)).

SEC. 1105. REMEDIES FOR INFRINGEMENT.

  Section 287 of title 35, United States Code, is amended by 
adding at the end the following:
  ``(d) Consideration.--In making a determination with respect 
to remedy brought for infringement of a patent that claims a 
drug or a method or using a drug, the court shall consider 
whether information on the patent was filed as required under 
21 U.S.C. 355 (b) or (c), and, if such information was required 
to be filed but was not, the court may refuse to award treble 
damages under section 284.''.

SEC. 1106. CONFORMING AMENDMENTS.

  Section 505A of the Federal Food, Drug, and Cosmetic Act (21 
U.S.C. 355a) is amended--
          (1) in subsections (b)(1)(A)(i) and (c)(1)(A)(i), by 
        striking ``(j)(5)(D)(ii)'' each place it appears and 
        inserting ``(j)(5)(F)(ii)'';
          (2) in subsections (b)(1)(A)(ii) and (c)(1)(A)(ii), 
        by striking ``(j)(5)(D)'' each place it appears and 
        inserting ``(j)(5)(F)''; and
          (3) in subsections (e) and (l), by striking 
        ``505(j)(5)(D)'' each place it appears and inserting 
        ``505(j)(5)(F)''.

                                
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