I 

108TH CONGRESS 

1ST SESSION H. R. 2606

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

drug coverage under the Medicare Program, to make improvements in 

Medicare payment for rural providers, and for other purposes. 

IN THE HOUSE OF REPRESENTATIVES 

JUNE 25, 2003

Mr. THOMPSON of California (for himself, Mr. STENHOLM, Mr. TANNER, Mr. 

TURNER of Texas, Mr. BERRY, Mr. BISHOP of Georgia, Mr. BOYD, Mr. 

DAVIS of Tennessee, Mr. FORD, Mr. HOLDEN, Mr. ISRAEL, Mr. JOHN, 

Mr. LUCAS of Kentucky, Mr. MATHESON, Mr. MCINTYRE, Mr. MICHAUD, 

Mr. MOORE, Mr. POMEROY, Mr. SCOTT of Georgia, Mr. LIPINSKI, Mr. 

ALEXANDER, and Mr. CARDOZA) introduced the following bill; which was 

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

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

as fall within the jurisdiction of the committee concerned 

A BILL

To amend title XVIII of the Social Security Act to provide 

prescription drug coverage under the Medicare Program, 

to make improvements in Medicare payment for rural 

providers, and for other purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,
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1 SECTION 1. SHORT TITLE; AMENDMENTS TO SOCIAL SECU2 RITY ACT; REFERENCES TO BIPA AND SEC3 RETARY; TABLE OF CONTENTS. 

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

5 ‘‘Prescription Drug and Medicare Improvement Act of 

6 2003’’. 

7 (b) AMENDMENTS TO SOCIAL SECURITY ACT.—Ex8 cept as otherwise specifically provided, whenever in this 

9 Act an amendment is expressed in terms of an amendment 

10 to or repeal of a section or other provision, the reference 

11 shall be considered to be made to that section or other 

12 provision of the Social Security Act. 

13 (c) BIPA; SECRETARY.—In this Act: 

14 (1) BIPA.—The term ‘‘BIPA’’ means the 

15 Medicare, Medicaid, and SCHIP Benefits Improve16 ment and Protection Act of 2000, as enacted into 

17 law by section 1(a)(6) of Public Law 106–554. 

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

19 the Secretary of Health and Human Services. 

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

21 this Act is as follows:

Sec. 1. Short title; amendments to Social Security Act; references to BIPA and 

Secretary; table of contents. 

TITLE I—MEDICARE PRESCRIPTION DRUG BENEFIT 

Subtitle A—Medicare Voluntary Prescription Drug Delivery Program 

Sec. 101. Medicare voluntary prescription drug delivery program. 

‘‘PART D—VOLUNTARY PRESCRIPTION DRUG DELIVERY PROGRAM
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‘‘Sec. 1860D. Definitions; treatment of references to provisions in 

MedicareAdvantage program. 

‘‘Subpart 1—Establishment of Voluntary Prescription Drug Delivery Program 

‘‘Sec. 1860D–1. Establishment of voluntary prescription drug delivery program. 

‘‘Sec. 1860D–2. Enrollment under program. 

‘‘Sec. 1860D–3. Election of a Medicare Prescription Drug plan. 

‘‘Sec. 1860D–4. Providing information to beneficiaries. 

‘‘Sec. 1860D–5. Beneficiary protections. 

‘‘Sec. 1860D–6. Prescription drug benefits. 

‘‘Sec. 1860D–7. Requirements for entities offering Medicare Prescription 

Drug plans; establishment of standards. 

‘‘Subpart 2—Prescription Drug Delivery System 

‘‘Sec. 1860D–10. Establishment of service areas. 

‘‘Sec. 1860D–11. Publication of risk adjusters. 

‘‘Sec. 1860D–12. Submission of bids for proposed Medicare Prescription 

Drug plans. 

‘‘Sec. 1860D–13. Approval of proposed Medicare Prescription Drug plans. 

‘‘Sec. 1860D–14. Computation of monthly standard prescription drug coverage premiums. 

‘‘Sec. 1860D–15. Computation of monthly national average premium. 

‘‘Sec. 1860D–16. Payments to eligible entities. 

‘‘Sec. 1860D–17. Computation of monthly beneficiary obligation. 

‘‘Sec. 1860D–18. Collection of monthly beneficiary obligation. 

‘‘Sec. 1860D–19. Premium and cost-sharing subsidies for low-income individuals. 

‘‘Sec. 1860D–20. Reinsurance payments for expenses incurred in providing 

prescription drug coverage above the annual out-of-pocket 

threshold. 

‘‘Sec. 1860D–21. Direct subsidy for sponsor of a qualified retiree prescription drug plan for plan enrollees eligible for, but not enrolled in, this part. 

‘‘Subpart 3—Miscellaneous Provisions 

‘‘Sec. 1860D–25. Prescription Drug Account in the Federal Supplementary Medical Insurance Trust Fund. 

‘‘Sec. 1860D–26. Other related provisions. 

Sec. 102. Study and report on permitting part B only individuals to enroll in 

medicare voluntary prescription drug delivery program. 

Sec. 103. Rules relating to medigap policies that provide prescription drug coverage. 

Sec. 104. Medicaid and other amendments related to low-income beneficiaries. 

Sec. 105. Expansion of membership and duties of Medicare Payment Advisory 

Commission (MedPAC). 

Sec. 106. Study regarding variations in spending and drug utilization. 

Subtitle B—Medicare Prescription Drug Discount Card and Transitional 

Assistance for Low-Income Beneficiaries 

Sec. 111. Medicare prescription drug discount card and transitional assistance 

for low-income beneficiaries. 
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Subtitle C—Standards for Electronic Prescribing 

Sec. 121. Standards for electronic prescribing. 

Subtitle D—Other Provisions 

Sec. 131. Additional requirements for annual financial report and oversight on 

medicare program. 

Sec. 132. Trustees’ report on medicare’s unfunded obligations. 

TITLE II—MEDICAREADVANTAGE 

Subtitle A—MedicareAdvantage Competition 

Sec. 201. Eligibility, election, and enrollment. 

Sec. 202. Benefits and beneficiary protections. 

Sec. 203. Payments to MedicareAdvantage organizations. 

Sec. 204. Submission of bids; premiums. 

Sec. 205. Special rules for prescription drug benefits. 

Sec. 206. Facilitating employer participation. 

Sec. 207. Administration by the Center for Medicare Choices. 

Sec. 208. Conforming amendments. 

Sec. 209. Effective date.

Subtitle B—Preferred Provider Organizations 

Sec. 211. Establishment of MedicareAdvantage preferred provider program option. 

Subtitle C—Other Managed Care Reforms 

Sec. 221. Extension of reasonable cost contracts. 

Sec. 222. Specialized Medicare+Choice plans for special needs beneficiaries. 

Sec. 223. Payment by PACE providers for medicare and medicaid services furnished by noncontract providers. 

Sec. 224. Institute of Medicine evaluation and report on health care performance measures.

Sec. 225. Expanding the work of medicare quality improvement organizations 

to include parts C and D. 

TITLE III—CENTER FOR MEDICARE CHOICES 

Sec. 301. Establishment of the Center for Medicare Choices. 

Sec. 302. Miscellaneous administrative provisions. 

TITLE IV—MEDICARE FEE-FOR-SERVICE IMPROVEMENTS 

Subtitle A—Provisions Relating to Part A 

Sec. 401. Equalizing urban and rural standardized payment amounts under the 

medicare inpatient hospital prospective payment system. 

Sec. 402. Adjustment to the medicare inpatient hospital PPS wage index to revise the labor-related share of such index. 

Sec. 403. Medicare inpatient hospital payment adjustment for low-volume hospitals. 

Sec. 404. Fairness in the medicare disproportionate share hospital (DSH) adjustment for rural hospitals. 

Sec. 405. Critical access hospital (CAH) improvements. 
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Sec. 406. Authorizing use of arrangements to provide core hospice services in 

certain circumstances. 

Sec. 407. Services provided to hospice patients by nurse practitioners, clinical 

nurse specialists, and physician assistants. 

Sec. 408. Authority to include costs of training of psychologists in payments to 

hospitals under medicare. 

Sec. 409. Revision of Federal rate for hospitals in Puerto Rico. 

Sec. 410. Authority regarding geriatric fellowships. 

Sec. 411. Clarification of congressional intent regarding the counting of residents in a nonprovider setting and a technical amendment regarding the 3-year rolling average and the IME ratio. 

Sec. 412. Limitation on charges for inpatient hospital contract health services 

provided to Indians by medicare participating hospitals. 

Sec. 413. GAO study and report on appropriateness of payments under the prospective payment system for inpatient hospital services. 

Subtitle B—Provisions Relating to Part B 

Sec. 421. Establishment of floor on geographic adjustments of payments for 

physicians’ services. 

Sec. 422. Medicare incentive payment program improvements. 

Sec. 423. Increase in renal dialysis composite rate. 

Sec. 424. Extension of hold harmless provisions for small rural hospitals and 

treatment of certain sole community hospitals to limit decline 

in payment under the OPD PPS. 

Sec. 425. Increase in payments for certain services furnished by small rural and 

sole community hospitals under medicare prospective payment 

system for hospital outpatient department services. 

Sec. 426. Increase for ground ambulance services furnished in a rural area. 

Sec. 427. Ensuring appropriate coverage of air ambulance services under ambulance fee schedule. 

Sec. 428. Treatment of certain clinical diagnostic laboratory tests furnished by 

a sole community hospital. 

Sec. 429. Improvement in rural health clinic reimbursement. 

Sec. 430. Elimination of consolidated billing for certain services under the 

medicare PPS for skilled nursing facility services. 

Sec. 431. Freeze in payments for certain items of durable medical equipment 

and certain orthotics; establishment of quality standards and 

accreditation requirements for DME providers. 

Sec. 432. Application of coinsurance and deductible for clinical diagnostic laboratory tests. 

Sec. 433. Basing medicare payments for covered outpatient drugs on market 

prices. 

Sec. 434. Indexing part B deductible to inflation. 

Sec. 435. Revisions to reassignment provisions. 

Sec. 436. Extension of treatment of certain physician pathology services under 

medicare. 

Sec. 437. Adequate reimbursement for outpatient pharmacy therapy under the 

hospital outpatient PPS. 

Sec. 438. Limitation of application of functional equivalence standard. 

Sec. 439. Medicare coverage of routine costs associated with certain clinical 

trials. 

Sec. 440. Waiver of part B late enrollment penalty for certain military retirees; 

special enrollment period. 

Sec. 441. Demonstration of coverage of chiropractic services under medicare. 
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Sec. 442. Medicare health care quality demonstration programs. 

Sec. 443. Medicare complex clinical care management payment demonstration. 

Sec. 444. Medicare fee-for-service care coordination demonstration program. 

Sec. 445. GAO study of geographic differences in payments for physicians’ 

services. 

Subtitle C—Provisions Relating to Parts A and B 

Sec. 451. Increase for home health services furnished in a rural area. 

Sec. 452. Limitation on reduction in area wage adjustment factors under the 

prospective payment system for home health services. 

Sec. 453. Clarifications to certain exceptions to medicare limits on physician referrals. 

Sec. 454. Demonstration program for substitute adult day services. 

Sec. 455. Medicare secondary payor (MSP) provisions. 

TITLE V—MEDICARE APPEALS, REGULATORY, AND CONTRACTING 

IMPROVEMENTS 

Subtitle A—Regulatory Reform 

Sec. 501. Rules for the publication of a final regulation based on the previous 

publication of an interim final regulation. 

Sec. 502. Compliance with changes in regulations and policies. 

Sec. 503. Report on legal and regulatory inconsistencies.

Subtitle B—Appeals Process Reform 

Sec. 511. Submission of plan for transfer of responsibility for medicare appeals. 

Sec. 512. Expedited access to judicial review. 

Sec. 513. Expedited review of certain provider agreement determinations. 

Sec. 514. Revisions to medicare appeals process. 

Sec. 515. Hearing rights related to decisions by the Secretary to deny or not 

renew a medicare enrollment agreement; consultation before 

changing provider enrollment forms. 

Sec. 516. Appeals by providers when there is no other party available. 

Sec. 517. Provider access to review of local coverage determinations. 

Subtitle C—Contracting Reform 

Sec. 521. Increased flexibility in medicare administration. 

Subtitle D—Education and Outreach Improvements 

Sec. 531. Provider education and technical assistance. 

Sec. 532. Access to and prompt responses from medicare contractors. 

Sec. 533. Reliance on guidance. 

Sec. 534. Medicare provider ombudsman. 

Sec. 535. Beneficiary outreach demonstration programs. 

Subtitle E—Review, Recovery, and Enforcement Reform 

Sec. 541. Prepayment review. 

Sec. 542. Recovery of overpayments. 

Sec. 543. Process for correction of minor errors and omissions on claims without pursuing appeals process. 

Sec. 544. Authority to waive a program exclusion. 
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TITLE VI—OTHER PROVISIONS 

Sec. 601. Increase in medicaid DSH allotments for fiscal years 2004 and 2005. 

Sec. 602. Increase in floor for treatment as an extremely low DSH State under 

the medicaid program for fiscal years 2004 and 2005. 

Sec. 603. Increased reporting requirements to ensure the appropriateness of 

payment adjustments to disproportionate share hospitals under 

the medicaid program. 

Sec. 604. Clarification of inclusion of inpatient drug prices charged to certain 

public hospitals in the best price exemptions for the medicaid 

drug rebate program. 

Sec. 605. Assistance with coverage of legal immigrants under the medicaid program and SCHIP. 

Sec. 606. Establishment of consumer ombudsman account. 

Sec. 607. GAO study regarding impact of assets test for low-income beneficiaries. 

Sec. 608. Health care infrastructure improvement. 

Sec. 609. Capital infrastructure revolving loan program. 

Sec. 610. Federal reimbursement of emergency health services furnished to undocumented aliens. 

Sec. 611. Increase in appropriation to the health care fraud and abuse control 

account. 

Sec. 612. Increase in civil penalties under the False Claims Act. 

Sec. 613. Increase in civil monetary penalties under the Social Security Act. 

Sec. 614. Extension of customs user fees. 

TITLE VII—ACCESS TO AFFORDABLE PHARMACEUTICALS 

Sec. 701. Short title. 

Sec. 702. 30-month stay-of-effectiveness period. 

Sec. 703. Forfeiture of 180-day exclusivity period. 

Sec. 704. Bioavailability and bioequivalence. 

Sec. 705. Remedies for infringement. 

Sec. 706. Conforming amendments. 

TITLE VIII—IMPORTATION OF PRESCRIPTION DRUGS 

Sec. 801. Importation of prescription drugs.
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1 TITLE I—MEDICARE 

2 PRESCRIPTION DRUG BENEFIT 

3 Subtitle A—Medicare Voluntary 

4 Prescription Drug Delivery Pro5 gram 

6 SEC. 101. MEDICARE VOLUNTARY PRESCRIPTION DRUG DE7 LIVERY PROGRAM. 

8 (a) ESTABLISHMENT.—Title XVIII (42 U.S.C. 1395 

9 et seq.) is amended by redesignating part D as part E 

10 and by inserting after part C the following new part: 

11 ‘‘PART D—VOLUNTARY PRESCRIPTION DRUG DELIVERY

12 PROGRAM

13 ‘‘DEFINITIONS; TREATMENT OF REFERENCES TO

14 PROVISIONS IN MEDICAREADVANTAGE PROGRAM

15 ‘‘SEC. 1860D. (a) DEFINITIONS.—In this part: 

16 ‘‘(1) ADMINISTRATOR.—The term ‘Adminis17 trator’ means the Administrator of the Center for 

18 Medicare Choices as established under section 1808. 

19 ‘‘(2) COVERED DRUG.—

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

21 subparagraphs (B), (C), and (D), the term ‘cov22 ered drug’ means—

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

24 only upon a prescription and that is de-
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1 scribed in clause (i) or (ii) of subparagraph 

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

3 ‘‘(ii) a biological product described in 

4 clauses (i) through (iii) of subparagraph 

5 (B) of such section; or 

6 ‘‘(iii) insulin described in subpara7 graph (C) of such section; and such term 

8 includes a vaccine licensed under section 

9 351 of the Public Health Service Act and 

10 any use of a covered drug for a medically 

11 accepted indication (as defined in section 

12 1927(k)(6)). 

13 ‘‘(B) EXCLUSIONS.—

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

15 drug’ does not include drugs or classes of 

16 drugs, or their medical uses, which may be 

17 excluded from coverage or otherwise re18 stricted under section 1927(d)(2), other 

19 than subparagraph (E) thereof (relating to 

20 smoking cessation agents), or under sec21 tion 1927(d)(3). 

22 ‘‘(ii) AVOIDANCE OF DUPLICATE COV23 ERAGE.—A drug prescribed for an indi24 vidual that would otherwise be a covered 

25 drug under this part shall not be so con-
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1 sidered if payment for such drug is avail2 able under part A or B, but shall be so 

3 considered if such payment is not available 

4 under part A or B or because benefits 

5 under such parts have been exhausted. 

6 ‘‘(C) APPLICATION OF FORMULARY RE7 STRICTIONS.—A drug prescribed for an indi8 vidual that would otherwise be a covered drug 

9 under this part shall not be so considered under 

10 a plan if the plan excludes the drug under a 

11 formulary and such exclusion is not successfully 

12 resolved under subsection (d) or (e)(2) of sec13 tion 1860D–5. 

14 ‘‘(D) APPLICATION OF GENERAL EXCLU15 SION PROVISIONS.—A Medicare Prescription 

16 Drug plan or a MedicareAdvantage plan may 

17 exclude from qualified prescription drug cov18 erage any covered drug—

19 ‘‘(i) for which payment would not be 

20 made if section 1862(a) applied to part D; 

21 or 

22 ‘‘(ii) which are not prescribed in ac23 cordance with the plan or this part. 
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1 Such exclusions are determinations subject to 

2 reconsideration and appeal pursuant to section 

3 1860D–5(e).

4 ‘‘(3) ELIGIBLE BENEFICIARY.—The term ‘eligi5 ble beneficiary’ means an individual who is entitled 

6 to, or enrolled for, benefits under part A and en7 rolled under part B. 

8 ‘‘(4) ELIGIBLE ENTITY.—The term ‘eligible en9 tity’ means any risk-bearing entity that the Adminis10 trator determines to be appropriate to provide eligi11 ble beneficiaries with the benefits under a Medicare 

12 Prescription Drug plan, including—

13 ‘‘(A) a pharmaceutical benefit management 

14 company; 

15 ‘‘(B) a wholesale or retail pharmacist deliv16 ery system; 

17 ‘‘(C) an insurer (including an insurer that 

18 offers medicare supplemental policies under sec19 tion 1882); 

20 ‘‘(D) any other risk-bearing entity; or 

21 ‘‘(E) any combination of the entities de22 scribed in subparagraphs (A) through (D). 

23 ‘‘(5) INITIAL COVERAGE LIMIT.—The term ‘ini24 tial coverage limit’ means the limit as established 

25 under section 1860D–6(c)(3), or, in the case of cov-
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1 erage that is not standard prescription drug cov2 erage, the comparable limit (if any) established 

3 under the coverage. 

4 ‘‘(6) MEDICAREADVANTAGE ORGANIZATION; 

5 MEDICAREADVANTAGE PLAN.—The terms 

6 ‘MedicareAdvantage organization’ and 

7 ‘MedicareAdvantage plan’ have the meanings given 

8 such terms in subsections (a)(1) and (b)(1), respec9 tively, of section 1859 (relating to definitions relat10 ing to MedicareAdvantage organizations). 

11 ‘‘(7) MEDICARE PRESCRIPTION DRUG PLAN.—

12 The term ‘Medicare Prescription Drug plan’ means 

13 prescription drug coverage that is offered under a 

14 policy, contract, or plan—

15 ‘‘(A) that has been approved under section 

16 1860D–13; and 

17 ‘‘(B) by an eligible entity pursuant to, and 

18 in accordance with, a contract between the Ad19 ministrator and the entity under section 

20 1860D–7(b).

21 ‘‘(8) PRESCRIPTION DRUG ACCOUNT.—The 

22 term ‘Prescription Drug Account’ means the Pre23 scription Drug Account (as established under section 

24 1860D–25) in the Federal Supplementary Medical 

25 Insurance Trust Fund under section 1841. 
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1 ‘‘(9) QUALIFIED PRESCRIPTION DRUG COV2 ERAGE.—The term ‘qualified prescription drug cov3 erage’ means the coverage described in section 

4 1860D–6(a)(1). 

5 ‘‘(10) STANDARD PRESCRIPTION DRUG COV6 ERAGE.—The term ‘standard prescription drug cov7 erage’ means the coverage described in section 

8 1860D–6(c). 

9 ‘‘(b) APPLICATION OF MEDICAREADVANTAGE PROVI10 SIONS UNDER THIS PART.—For purposes of applying pro11 visions of part C under this part with respect to a Medi12 care Prescription Drug plan and an eligible entity, unless 

13 otherwise provided in this part such provisions shall be 

14 applied as if—

15 ‘‘(1) any reference to a MedicareAdvantage 

16 plan included a reference to a Medicare Prescription 

17 Drug plan; 

18 ‘‘(2) any reference to a provider-sponsored or19 ganization included a reference to an eligible entity; 

20 ‘‘(3) any reference to a contract under section 

21 1857 included a reference to a contract under sec22 tion 1860D–7(b); and 

23 ‘‘(4) any reference to part C included a ref24 erence to this part. 
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1 ‘‘Subpart 1—Establishment of Voluntary Prescription 

2 Drug Delivery Program 

3 ‘‘ESTABLISHMENT OF VOLUNTARY PRESCRIPTION DRUG

4 DELIVERY PROGRAM

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

6 ‘‘(1) IN GENERAL.—The Administrator shall 

7 provide for and administer a voluntary prescription 

8 drug delivery program under which each eligible ben9 eficiary enrolled under this part shall be provided 

10 with access to qualified prescription drug coverage 

11 as follows: 

12 ‘‘(A) MEDICAREADVANTAGE ENROLLEES

13 RECEIVE COVERAGE THROUGH

14 MEDICAREADVANTAGE PLAN.—

15 ‘‘(i) IN GENERAL.—Except as pro16 vided in clause (ii), an eligible beneficiary 

17 who is enrolled under this part and en18 rolled in a MedicareAdvantage plan offered 

19 by a MedicareAdvantage organization shall 

20 receive coverage of benefits under this part 

21 through such plan. 

22 ‘‘(ii) EXCEPTION FOR ENROLLEES IN

23 MEDICAREADVANTAGE MSA PLANS.—An el24 igible beneficiary who is enrolled under this 

25 part and enrolled in an MSA plan under 
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1 part C shall receive coverage of benefits 

2 under this part through enrollment in a 

3 Medicare Prescription Drug plan that is 

4 offered in the geographic area in which the 

5 beneficiary resides. For purposes of this 

6 part, the term ‘MSA plan’ has the meaning 

7 given such term in section 1859(b)(3). 

8 ‘‘(iii) EXCEPTION FOR ENROLLEES IN

9 MEDICAREADVANTAGE PRIVATE FEE-FOR10 SERVICE PLANS.—An eligible beneficiary 

11 who is enrolled under this part and en12 rolled in a private fee-for-service plan 

13 under part C shall—

14 ‘‘(I) receive benefits under this 

15 part through such plan if the plan 

16 provides qualified prescription drug 

17 coverage; and 

18 ‘‘(II) if the plan does not provide 

19 qualified prescription drug coverage, 

20 receive coverage of benefits under this 

21 part through enrollment in a Medicare 

22 Prescription Drug plan that is offered 

23 in the geographic area in which the 

24 beneficiary resides. For purposes of 

25 this part, the term ‘private fee-for-
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1 service plan’ has the meaning given 

2 such term in section 1859(b)(2). 

3 ‘‘(B) FEE-FOR-SERVICE ENROLLEES RE4 CEIVE COVERAGE THROUGH A MEDICARE PRE5 SCRIPTION DRUG PLAN.—An eligible beneficiary 

6 who is enrolled under this part but is not en7 rolled in a MedicareAdvantage plan (except for 

8 an MSA plan or a private fee-for-service plan 

9 that does not provide qualified prescription 

10 drug coverage) shall receive coverage of benefits 

11 under this part through enrollment in a Medi12 care Prescription Drug plan that is offered in 

13 the geographic area in which the beneficiary re14 sides. 

15 ‘‘(2) VOLUNTARY NATURE OF PROGRAM.—

16 Nothing in this part shall be construed as requiring 

17 an eligible beneficiary to enroll in the program under 

18 this part. 

19 ‘‘(3) SCOPE OF BENEFITS.—Pursuant to sec20 tion 1860D–6(b)(3)(C), the program established 

21 under this part shall provide for coverage of all 

22 therapeutic categories and classes of covered drugs 

23 (although not necessarily for all drugs within such 

24 categories and classes). 
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1 ‘‘(4) PROGRAM TO BEGIN IN 2006.—The Admin2 istrator shall establish the program under this part 

3 in a manner so that benefits are first provided be4 ginning on January 1, 2006. 

5 ‘‘(b) ACCESS TO ALTERNATIVE PRESCRIPTION DRUG

6 COVERAGE.—In the case of an eligible beneficiary who has 

7 creditable prescription drug coverage (as defined in section 

8 1860D–2(b)(1)(F)), such beneficiary—

9 ‘‘(1) may continue to receive such coverage and 

10 not enroll under this part; and 

11 ‘‘(2) pursuant to section 1860D–2(b)(1)(C), is 

12 permitted to subsequently enroll under this part 

13 without any penalty and obtain access to qualified 

14 prescription drug coverage in the manner described 

15 in subsection (a) if the beneficiary involuntarily loses 

16 such coverage. 

17 ‘‘(c) FINANCING.—The costs of providing benefits 

18 under this part shall be payable from the Prescription 

19 Drug Account. 

20 ‘‘ENROLLMENT UNDER PROGRAM

21 ‘‘SEC. 1860D–2. (a) ESTABLISHMENT OF ENROLL22 MENT PROCESS.—

23 ‘‘(1) PROCESS SIMILAR TO PART B ENROLL24 MENT.—The Administrator shall establish a process 

25 through which an eligible beneficiary (including an 

26 eligible beneficiary enrolled in a MedicareAdvantage 
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1 plan offered by a MedicareAdvantage organization) 

2 may make an election to enroll under this part. Such 

3 process shall be similar to the process for enrollment 

4 in part B under section 1837, including the deeming 

5 provisions of such section. 

6 ‘‘(2) CONDITION OF ENROLLMENT.—An eligible 

7 beneficiary must be enrolled under this part in order 

8 to be eligible to receive access to qualified prescrip9 tion drug coverage. 

10 ‘‘(b) SPECIAL ENROLLMENT PROCEDURES.—

11 ‘‘(1) LATE ENROLLMENT PENALTY.—

12 ‘‘(A) INCREASE IN MONTHLY BENEFICIARY

13 OBLIGATION.—Subject to the succeeding provi14 sions of this paragraph, in the case of an eligi15 ble beneficiary whose coverage period under this 

16 part began pursuant to an enrollment after the 

17 beneficiary’s initial enrollment period under 

18 part B (determined pursuant to section 

19 1837(d)) and not pursuant to the open enroll20 ment period described in paragraph (2), the Ad21 ministrator shall establish procedures for in22 creasing the amount of the monthly beneficiary 

23 obligation under section 1860D–17 applicable 

24 to such beneficiary by an amount that the Ad25 ministrator determines is actuarially sound for 
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1 each full 12-month period (in the same contin2 uous period of eligibility) in which the eligible 

3 beneficiary could have been enrolled under this 

4 part but was not so enrolled. 

5 ‘‘(B) PERIODS TAKEN INTO ACCOUNT.—

6 For purposes of calculating any 12-month pe7 riod under subparagraph (A), there shall be 

8 taken into account—

9 ‘‘(i) the months which elapsed be10 tween the close of the eligible beneficiary’s 

11 initial enrollment period and the close of 

12 the enrollment period in which the bene13 ficiary enrolled; and 

14 ‘‘(ii) in the case of an eligible bene15 ficiary who reenrolls under this part, the 

16 months which elapsed between the date of 

17 termination of a previous coverage period 

18 and the close of the enrollment period in 

19 which the beneficiary reenrolled.

20 ‘‘(C) PERIODS NOT TAKEN INTO AC21 COUNT.—

22 ‘‘(i) IN GENERAL.—For purposes of 

23 calculating any 12-month period under 

24 subparagraph (A), subject to clause (ii), 

25 there shall not be taken into account 
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1 months for which the eligible beneficiary 

2 can demonstrate that the beneficiary had 

3 creditable prescription drug coverage (as 

4 defined in subparagraph (F)). 

5 ‘‘(ii) BENEFICIARY MUST INVOLUN6 TARILY LOSE COVERAGE.—Clause (i) shall 

7 only apply with respect to coverage—

8 ‘‘(I) in the case of coverage de9 scribed in clause (ii) of subparagraph 

10 (F), if the plan terminates, ceases to 

11 provide, or reduces the value of the 

12 prescription drug coverage under such 

13 plan to below the actuarial value of 

14 standard prescription drug coverage 

15 (as determined under section 1860D–

16 6(f)); 

17 ‘‘(II) in the case of coverage de18 scribed in clause (i), (iii), or (iv) of 

19 subparagraph (F), if the beneficiary is 

20 involuntarily disenrolled or becomes 

21 ineligible for such coverage; or 

22 ‘‘(III) in the case of a beneficiary 

23 with coverage described in clause (v) 

24 of subparagraph (F), if the issuer of 
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1 the policy terminates coverage under 

2 the policy. 

3 ‘‘(D) PERIODS TREATED SEPARATELY.—

4 Any increase in an eligible beneficiary’s monthly 

5 beneficiary obligation under subparagraph (A) 

6 with respect to a particular continuous period 

7 of eligibility shall not be applicable with respect 

8 to any other continuous period of eligibility 

9 which the beneficiary may have. 

10 ‘‘(E) CONTINUOUS PERIOD OF ELIGI11 BILITY.—

12 ‘‘(i) IN GENERAL.—Subject to clause 

13 (ii), for purposes of this paragraph, an eli14 gible beneficiary’s ‘continuous period of eli15 gibility’ is the period that begins with the 

16 first day on which the beneficiary is eligi17 ble to enroll under section 1836 and ends 

18 with the beneficiary’s death. 

19 ‘‘(ii) SEPARATE PERIOD.—Any period 

20 during all of which an eligible beneficiary 

21 satisfied paragraph (1) of section 1836 

22 and which terminated in or before the 

23 month preceding the month in which the 

24 beneficiary attained age 65 shall be a sepa25 rate ‘continuous period of eligibility’ with 
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1 respect to the beneficiary (and each such 

2 period which terminates shall be deemed 

3 not to have existed for purposes of subse4 quently applying this paragraph). 

5 ‘‘(F) CREDITABLE PRESCRIPTION DRUG

6 COVERAGE DEFINED.—Subject to subparagraph 

7 (G), for purposes of this part, the term ‘cred8 itable prescription drug coverage’ means any of 

9 the following: 

10 ‘‘(i) DRUG-ONLY COVERAGE UNDER

11 MEDICAID.—Coverage of covered out12 patient drugs (as defined in section 1927) 

13 under title XIX through a waiver under 

14 1115 where covered outpatient drugs are 

15 the sole medical assistance benefit. 

16 ‘‘(ii) PRESCRIPTION DRUG COVERAGE

17 UNDER A GROUP HEALTH PLAN.—Any out18 patient prescription drug coverage under a 

19 group health plan, including a health bene20 fits plan under chapter 89 of title 5, 

21 United States Code (commonly known as 

22 the Federal employees health benefits pro23 gram), and a qualified retiree prescription 

24 drug plan (as defined in section 1860D–

25 20(e)(4)).
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1 ‘‘(iii) STATE PHARMACEUTICAL AS2 SISTANCE PROGRAM.—Coverage of pre3 scription drugs under a State pharma4 ceutical assistance program. 

5 ‘‘(iv) VETERANS’ COVERAGE OF PRE6 SCRIPTION DRUGS.—Coverage of prescrip7 tion drugs for veterans, and survivors and 

8 dependents of veterans, under chapter 17 

9 of title 38, United States Code. 

10 ‘‘(v) PRESCRIPTION DRUG COVERAGE

11 UNDER MEDIGAP POLICIES.—Coverage 

12 under a medicare supplemental policy 

13 under section 1882 that provides benefits 

14 for prescription drugs (whether or not such 

15 coverage conforms to the standards for 

16 packages of benefits under section 

17 1882(p)(1)). 

18 ‘‘(G) REQUIREMENT FOR CREDITABLE

19 COVERAGE.—Coverage described in clauses (i) 

20 through (v) of subparagraph (F) shall not be 

21 considered to be creditable coverage under this 

22 part unless the coverage provides coverage of 

23 the cost of prescription drugs the actuarial 

24 value of which (as defined by the Adminis25 trator) to the beneficiary equals or exceeds the 
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1 actuarial value of standard prescription drug 

2 coverage (as determined under section 1860D–

3 6(f)). 

4 ‘‘(H) DISCLOSURE.—

5 ‘‘(i) IN GENERAL.—Each entity that 

6 offers coverage of the type described in 

7 clause (ii) (iii), (iv), or (v) of subparagraph 

8 (F) shall provide for disclosure, consistent 

9 with standards established by the Adminis10 trator, of whether the coverage provides 

11 coverage of the cost of prescription drugs 

12 the actuarial value of which (as defined by 

13 the Administrator) to the beneficiary 

14 equals or exceeds the actuarial value of 

15 standard prescription drug coverage (as 

16 determined under section 1860D–6(f)). 

17 ‘‘(ii) WAIVER OF LIMITATIONS.—An 

18 individual may apply to the Administrator 

19 to waive the application of subparagraph 

20 (G) if the individual establishes that the 

21 individual was not adequately informed 

22 that the coverage the beneficiary was en23 rolled in did not provide the level of bene24 fits required in order for the coverage to be 
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•HR 2606 IH 

1 considered creditable coverage under sub2 paragraph (F). 

3 ‘‘(2) INITIAL ELECTION PERIODS.—

4 ‘‘(A) OPEN ENROLLMENT PERIOD FOR

5 CURRENT BENEFICIARIES IN WHICH LATE EN6 ROLLMENT PROCEDURES DO NOT APPLY.—In 

7 the case of an individual who is an eligible ben8 eficiary as of November 1, 2005, there shall be 

9 an open enrollment period of 6 months begin10 ning on that date under which such beneficiary 

11 may enroll under this part without the applica12 tion of the late enrollment procedures estab13 lished under paragraph (1)(A). 

14 ‘‘(B) INDIVIDUAL COVERED IN FUTURE.—

15 In the case of an individual who becomes an eli16 gible beneficiary after such date, there shall be 

17 an initial election period which is the same as 

18 the initial enrollment period under section 

19 1837(d). 

20 ‘‘(3) SPECIAL ENROLLMENT PERIOD FOR BENE21 FICIARIES WHO INVOLUNTARILY LOSE CREDITABLE

22 PRESCRIPTION DRUG COVERAGE.—

23 ‘‘(A) ESTABLISHMENT.—The Adminis24 trator shall establish a special open enrollment 

25 period (as described in subparagraph (B)) for 
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1 an eligible beneficiary that loses creditable pre2 scription drug coverage. 

3 ‘‘(B) SPECIAL OPEN ENROLLMENT PE4 RIOD.—The special open enrollment period de5 scribed in this subparagraph is the 63-day pe6 riod that begins on—

7 ‘‘(i) in the case of a beneficiary with 

8 coverage described in clause (ii) of para9 graph (1)(F), the later of the date on 

10 which the plan terminates, ceases to pro11 vide, or substantially reduces (as defined 

12 by the Administrator) the value of the pre13 scription drug coverage under such plan or 

14 the date the beneficiary is provided with 

15 notice of such termination or reduction; 

16 ‘‘(ii) in the case of a beneficiary with 

17 coverage described in clause (i), (iii), or 

18 (iv) of paragraph (1)(F), the later of the 

19 date on which the beneficiary is involun20 tarily disenrolled or becomes ineligible for 

21 such coverage or the date the beneficiary is 

22 provided with notice of such loss of eligi23 bility; or 

24 ‘‘(iii) in the case of a beneficiary with 

25 coverage described in clause (v) of para-
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•HR 2606 IH 

1 graph (1)(F), the latter of the date on 

2 which the issuer of the policy terminates 

3 coverage under the policy or the date the 

4 beneficiary is provided with notice of such 

5 termination. 

6 ‘‘(c) PERIOD OF COVERAGE.—

7 ‘‘(1) IN GENERAL.—Except as provided in para8 graph (2) and subject to paragraph (3), an eligible 

9 beneficiary’s coverage under the program under this 

10 part shall be effective for the period provided in sec11 tion 1838, as if that section applied to the program 

12 under this part. 

13 ‘‘(2) OPEN AND SPECIAL ENROLLMENT.—

14 ‘‘(A) OPEN ENROLLMENT.—An eligible 

15 beneficiary who enrolls under the program 

16 under this part pursuant to subsection (b)(2) 

17 shall be entitled to the benefits under this part 

18 beginning on January 1, 2006. 

19 ‘‘(B) SPECIAL ENROLLMENT.—Subject to 

20 paragraph (3), an eligible beneficiary who en21 rolls under the program under this part pursu22 ant to subsection (b)(3) shall be entitled to the 

23 benefits under this part beginning on the first 

24 day of the month following the month in which 

25 such enrollment occurs. 
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1 ‘‘(3) LIMITATION.—Coverage under this part 

2 shall not begin prior to January 1, 2006. 

3 ‘‘(d) TERMINATION.—

4 ‘‘(1) IN GENERAL.—The causes of termination 

5 specified in section 1838 shall apply to this part in 

6 the same manner as such causes apply to part B. 

7 ‘‘(2) COVERAGE TERMINATED BY TERMINATION

8 OF COVERAGE UNDER PART A OR B.—

9 ‘‘(A) IN GENERAL.—In addition to the 

10 causes of termination specified in paragraph 

11 (1), the Administrator shall terminate an indi12 vidual’s coverage under this part if the indi13 vidual is no longer enrolled in both parts A and 

14 B. 

15 ‘‘(B) EFFECTIVE DATE.—The termination 

16 described in subparagraph (A) shall be effective 

17 on the effective date of termination of coverage 

18 under part A or (if earlier) under part B.

19 ‘‘(3) PROCEDURES REGARDING TERMINATION

20 OF A BENEFICIARY UNDER A PLAN.—The Adminis21 trator shall establish procedures for determining the 

22 status of an eligible beneficiary’s enrollment under 

23 this part if the beneficiary’s enrollment in a Medi24 care Prescription Drug plan offered by an eligible 

25 entity under this part is terminated by the entity for 
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•HR 2606 IH 

1 cause (pursuant to procedures established by the 

2 Administrator under section 1860D–3(a)(1)). 

3 ‘‘ELECTION OF A MEDICARE PRESCRIPTION DRUG PLAN

4 ‘‘SEC. 1860D–3. (a) IN GENERAL.—

5 ‘‘(1) PROCESS.—

6 ‘‘(A) ELECTION.—

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

8 shall establish a process through which an 

9 eligible beneficiary who is enrolled under 

10 this part but not enrolled in a 

11 MedicareAdvantage plan (except for an 

12 MSA plan or a private fee-for-service plan 

13 that does not provide qualified prescription 

14 drug coverage) offered by a 

15 MedicareAdvantage organization—

16 ‘‘(I) shall make an election to en17 roll in any Medicare Prescription 

18 Drug plan that is offered by an eligi19 ble entity and that serves the geo20 graphic area in which the beneficiary 

21 resides; and 

22 ‘‘(II) may make an annual elec23 tion to change the election under this 

24 clause. 

25 ‘‘(ii) CLARIFICATION REGARDING EN26 ROLLMENT.—The process established 
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1 under clause (i) shall include, in the case 

2 of an eligible beneficiary who is enrolled 

3 under this part but who has failed to make 

4 an election of a Medicare Prescription 

5 Drug plan in an area, for the enrollment 

6 in any Medicare Prescription Drug plan 

7 that has been designated by the Adminis8 trator in the area. The Administrator shall 

9 establish a process for designating a plan 

10 or plans in order to carry out the pre11 ceding sentence. 

12 ‘‘(B) REQUIREMENTS FOR PROCESS.—In 

13 establishing the process under subparagraph 

14 (A), the Administrator shall—

15 ‘‘(i) use rules similar to the rules for 

16 enrollment, disenrollment, and termination 

17 of enrollment with a MedicareAdvantage 

18 plan under section 1851, including—

19 ‘‘(I) the establishment of special 

20 election periods under subsection 

21 (e)(4) of such section; and 

22 ‘‘(II) the application of the guar23 anteed issue and renewal provisions of 

24 section 1851(g) (other than clause (i) 

25 and the second sentence of clause (ii) 
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•HR 2606 IH 

1 of paragraph (3)(C), relating to de2 fault enrollment); and 

3 ‘‘(ii) coordinate enrollments, 

4 disenrollments, and terminations of enroll5 ment under part C with enrollments, 

6 disenrollments, and terminations of enroll7 ment under this part. 

8 ‘‘(2) FIRST ENROLLMENT PERIOD FOR PLAN

9 ENROLLMENT.—The process developed under para10 graph (1) shall ensure that eligible beneficiaries who 

11 enroll under this part during the open enrollment 

12 period under section 1860D–2(b)(2) are permitted 

13 to elect an eligible entity prior to January 1, 2006, 

14 in order to ensure that coverage under this part is 

15 effective as of such date. 

16 ‘‘(b) ENROLLMENT IN A MEDICAREADVANTAGE

17 PLAN.—

18 ‘‘(1) IN GENERAL.—An eligible beneficiary who 

19 is enrolled under this part and enrolled in a 

20 MedicareAdvantage plan (except for an MSA plan or 

21 a private fee-for-service plan that does not provide 

22 qualified prescription drug coverage) offered by a 

23 MedicareAdvantage organization shall receive access 

24 to such coverage under this part through such plan.
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1 ‘‘(2) RULES.—Enrollment in a 

2 MedicareAdvantage plan is subject to the rules for 

3 enrollment in such plan under section 1851. 

4 ‘‘(c) INFORMATION TO ENTITIES TO FACILITATE

5 ENROLLMENT.—Notwithstanding any other provision of 

6 law, the Administrator may provide to each eligible entity 

7 with a contract under this part such information about 

8 eligible beneficiaries as the Administrator determines to 

9 be necessary to facilitate efficient enrollment by such 

10 beneficiaries with such entities. The Administrator may 

11 provide such information only so long as and to the extent 

12 necessary to carry out such objective. 

13 ‘‘PROVIDING INFORMATION TO BENEFICIARIES

14 ‘‘SEC. 1860D–4. (a) ACTIVITIES.—

15 ‘‘(1) IN GENERAL.—The Administrator shall 

16 conduct activities that are designed to broadly dis17 seminate information to eligible beneficiaries (and 

18 prospective eligible beneficiaries) regarding the cov19 erage provided under this part. 

20 ‘‘(2) SPECIAL RULE FOR FIRST ENROLLMENT

21 UNDER THE PROGRAM.—The activities described in 

22 paragraph (1) shall ensure that eligible beneficiaries 

23 are provided with such information at least 30 days 

24 prior to the first enrollment period described in sec25 tion 1860D–3(a)(2). 

26 ‘‘(b) REQUIREMENTS.—
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•HR 2606 IH 

1 ‘‘(1) IN GENERAL.—The activities described in 

2 subsection (a) shall—

3 ‘‘(A) be similar to the activities performed 

4 by the Administrator under section 1851(d); 

5 ‘‘(B) be coordinated with the activities per6 formed by—

7 ‘‘(i) the Administrator under such sec8 tion; and 

9 ‘‘(ii) the Secretary under section 

10 1804; and 

11 ‘‘(C) provide for the dissemination of infor12 mation comparing the plans offered by eligible 

13 entities under this part that are available to eli14 gible beneficiaries residing in an area. 

15 ‘‘(2) COMPARATIVE INFORMATION.—The com16 parative information described in paragraph (1)(C) 

17 shall include a comparison of the following: 

18 ‘‘(A) BENEFITS.—The benefits provided 

19 under the plan and the formularies and griev20 ance and appeals processes under the plan. 

21 ‘‘(B) MONTHLY BENEFICIARY OBLIGA22 TION.—The monthly beneficiary obligation 

23 under the plan. 
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•HR 2606 IH 

1 ‘‘(C) QUALITY AND PERFORMANCE.—The 

2 quality and performance of the eligible entity 

3 offering the plan. 

4 ‘‘(D) BENEFICIARY COST-SHARING.—The 

5 cost-sharing required of eligible beneficiaries 

6 under the plan. 

7 ‘‘(E) CONSUMER SATISFACTION SUR8 VEYS.—The results of consumer satisfaction 

9 surveys regarding the plan and the eligible enti10 ty offering such plan (conducted pursuant to 

11 section 1860D–5(h). 

12 ‘‘(F) ADDITIONAL INFORMATION.—Such 

13 additional information as the Administrator 

14 may prescribe. 

15 ‘‘BENEFICIARY PROTECTIONS

16 ‘‘SEC. 1860D–5. (a) DISSEMINATION OF INFORMA17 TION.—

18 ‘‘(1) GENERAL INFORMATION.—An eligible enti19 ty offering a Medicare Prescription Drug plan shall 

20 disclose, in a clear, accurate, and standardized form 

21 to each enrollee at the time of enrollment, and at 

22 least annually thereafter, the information described 

23 in section 1852(c)(1) relating to such plan. Such in24 formation includes the following: 

25 ‘‘(A) Access to covered drugs, including ac26 cess through pharmacy networks. 
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•HR 2606 IH 

1 ‘‘(B) How any formulary used by the enti2 ty functions. 

3 ‘‘(C) Copayments, coinsurance, and de4 ductible requirements. 

5 ‘‘(D) Grievance and appeals processes. 

6 The information described in the preceding sentence 

7 shall also be made available on request to prospec8 tive enrollees during open enrollment periods.

9 ‘‘(2) DISCLOSURE UPON REQUEST OF GENERAL

10 COVERAGE, UTILIZATION, AND GRIEVANCE INFORMA11 TION.—Upon request of an individual eligible to en12 roll in a Medicare Prescription Drug plan, the eligi13 ble entity offering such plan shall provide informa14 tion similar (as determined by the Administrator) to 

15 the information described in subparagraphs (A), 

16 (B), and (C) of section 1852(c)(2) to such indi17 vidual.

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

19 An eligible entity offering a Medicare Prescription 

20 Drug plan shall have a mechanism for providing on 

21 a timely basis specific information to enrollees upon 

22 request, including information on the coverage of 

23 specific drugs and changes in its formulary. 

24 ‘‘(4) CLAIMS INFORMATION.—An eligible entity 

25 offering a Medicare Prescription Drug plan must 
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•HR 2606 IH 

1 furnish to enrolled individuals in a form easily un2 derstandable to such individuals—

3 ‘‘(A) an explanation of benefits (in accord4 ance with section 1806(a) or in a comparable 

5 manner); and 

6 ‘‘(B) when prescription drug benefits are 

7 provided under this part, a notice of the bene8 fits in relation to the initial coverage limit and 

9 annual out-of-pocket limit for the current year 

10 (except that such notice need not be provided 

11 more often than monthly). 

12 ‘‘(5) APPROVAL OF MARKETING MATERIAL AND

13 APPLICATION FORMS.—The provisions of section 

14 1851(h) shall apply to marketing material and appli15 cation forms under this part in the same manner as 

16 such provisions apply to marketing material and ap17 plication forms under part C. 

18 ‘‘(b) ACCESS TO COVERED DRUGS.—

19 ‘‘(1) ACCESS TO NEGOTIATED PRICES FOR PRE20 SCRIPTION DRUGS.—An eligible entity offering a 

21 Medicare Prescription Drug plan shall have in place 

22 procedures to ensure that beneficiaries are not 

23 charged more than the negotiated price of a covered 

24 drug. Such procedures shall include the issuance of 

25 a card (or other technology) that may be used by an 
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1 enrolled beneficiary for the purchase of prescription 

2 drugs for which coverage is not otherwise provided 

3 under the Medicare Prescription Drug plan. 

4 ‘‘(2) ASSURING PHARMACY ACCESS.—

5 ‘‘(A) IN GENERAL.—An eligible entity of6 fering a Medicare Prescription Drug plan shall 

7 secure the participation in its network of a suf8 ficient number of pharmacies that dispense 

9 (other than by mail order) drugs directly to pa10 tients to ensure convenient access (as deter11 mined by the Administrator and including ade12 quate emergency access) for enrolled bene13 ficiaries, in accordance with standards estab14 lished by the Administrator under section 

15 1860D–7(g) that ensure such convenient ac16 cess. Such standards shall take into account 

17 reasonable distances to pharmacy services in 

18 both urban and rural areas. 

19 ‘‘(B) USE OF POINT-OF-SERVICE SYS20 TEM.—An eligible entity offering a Medicare 

21 Prescription Drug plan shall establish an op22 tional point-of-service method of operation 

23 under which—
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1 ‘‘(i) the plan provides access to any or 

2 all pharmacies that are not participating 

3 pharmacies in its network; and 

4 ‘‘(ii) the plan may charge beneficiaries 

5 through adjustments in copayments any 

6 additional costs associated with the point7 of-service option. 

8 The additional copayments so charged shall not 

9 count toward the application of section 1860D–

10 6(c). 

11 ‘‘(3) REQUIREMENTS ON DEVELOPMENT AND

12 APPLICATION OF FORMULARIES.—If an eligible enti13 ty offering a Medicare Prescription Drug plan uses 

14 a formulary, the following requirements must be 

15 met: 

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

17 COMMITTEE.—

18 ‘‘(i) IN GENERAL.—The eligible entity 

19 must establish a pharmacy and therapeutic 

20 committee that develops and reviews the 

21 formulary.

22 ‘‘(ii) COMPOSITION.—A pharmacy and 

23 therapeutic committee shall include at least 

24 1 academic expert, at least 1 practicing 

25 physician, and at least 1 practicing phar-
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1 macist, all of whom have expertise in the 

2 care of elderly or disabled persons, and a 

3 majority of the members of such committee 

4 shall consist of individuals who are a prac5 ticing physician or a practicing pharmacist 

6 (or both). 

7 ‘‘(B) FORMULARY DEVELOPMENT.—In de8 veloping and reviewing the formulary, the com9 mittee shall base clinical decisions on the 

10 strength of scientific evidence and standards of 

11 practice, including assessing peer-reviewed med12 ical literature, such as randomized clinical 

13 trials, pharmacoeconomic studies, outcomes re14 search data, and on such other information as 

15 the committee determines to be appropriate. 

16 ‘‘(C) INCLUSION OF DRUGS IN ALL THERA17 PEUTIC CATEGORIES AND CLASSES.—

18 ‘‘(i) IN GENERAL.—The formulary 

19 must include drugs within each therapeutic 

20 category and class of covered drugs (as de21 fined by the Administrator), although not 

22 necessarily for all drugs within such cat23 egories and classes. 

24 ‘‘(ii) REQUIREMENT.—In defining 

25 therapeutic categories and classes of cov-
40

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1 ered drugs pursuant to clause (i), the Ad2 ministrator shall use—

3 ‘‘(I) the compendia referred to 

4 section 1927(g)(1)(B)(i); and 

5 ‘‘(II) other recognized sources of 

6 drug classifications and categoriza7 tions determined appropriate by the 

8 Administrator. 

9 ‘‘(D) PROVIDER EDUCATION.—The com10 mittee shall establish policies and procedures to 

11 educate and inform health care providers con12 cerning the formulary. 

13 ‘‘(E) NOTICE BEFORE REMOVING DRUGS

14 FROM FORMULARY.—Any removal of a drug 

15 from a formulary shall take effect only after ap16 propriate notice is made available to bene17 ficiaries, physicians, and pharmacists. 

18 ‘‘(F) APPEALS AND EXCEPTIONS TO APPLI19 CATION.—The eligible entity must have, as part 

20 of the appeals process under subsection (e), a 

21 process for timely appeals for denials of cov22 erage based on such application of the for23 mulary. 
41

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1 ‘‘(c) COST AND UTILIZATION MANAGEMENT; QUAL2 ITY ASSURANCE; MEDICATION THERAPY MANAGEMENT

3 PROGRAM.—

4 ‘‘(1) IN GENERAL.—An eligible entity shall have 

5 in place the following with respect to covered drugs: 

6 ‘‘(A) A cost-effective drug utilization man7 agement program, including incentives to re8 duce costs when appropriate. 

9 ‘‘(B) Quality assurance measures to reduce 

10 medical errors and adverse drug interactions 

11 and to improve medication use, which—

12 ‘‘(i) shall include a medication therapy 

13 management program described in para14 graph (2); and 

15 ‘‘(ii) may include beneficiary edu16 cation programs, counseling, medication 

17 refill reminders, and special packaging. 

18 ‘‘(C) A program to control fraud, abuse, 

19 and waste. 

20 Nothing in this section shall be construed as impair21 ing an eligible entity from applying cost manage22 ment tools (including differential payments) under 

23 all methods of operation.

24 ‘‘(2) MEDICATION THERAPY MANAGEMENT PRO25 GRAM.—
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1 ‘‘(A) IN GENERAL.—A medication therapy 

2 management program described in this para3 graph is a program of drug therapy manage4 ment and medication administration that is de5 signed to assure, with respect to beneficiaries 

6 with chronic diseases (such as diabetes, asthma, 

7 hypertension, hyperlipidemia, and congestive 

8 heart failure) or multiple prescriptions, that 

9 covered drugs under the Medicare Prescription 

10 Drug plan are appropriately used to optimize 

11 therapeutic outcomes through improved medica12 tion use and to achieve therapeutic goals and 

13 reduce the risk of adverse events, including ad14 verse drug interactions. 

15 ‘‘(B) ELEMENTS.—Such program may in16 clude—

17 ‘‘(i) enhanced beneficiary under18 standing of such appropriate use through 

19 beneficiary education, counseling, and 

20 other appropriate means; 

21 ‘‘(ii) increased beneficiary adherence 

22 with prescription medication regimens 

23 through medication refill reminders, special 

24 packaging, and other appropriate means; 

25 and 
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1 ‘‘(iii) detection of patterns of overuse 

2 and underuse of prescription drugs. 

3 ‘‘(C) DEVELOPMENT OF PROGRAM IN CO4 OPERATION WITH LICENSED PHARMACISTS.—

5 The program shall be developed in cooperation 

6 with licensed and practicing pharmacists and 

7 physicians. 

8 ‘‘(D) CONSIDERATIONS IN PHARMACY

9 FEES.—The eligible entity offering a Medicare 

10 Prescription Drug plan shall take into account, 

11 in establishing fees for pharmacists and others 

12 providing services under the medication therapy 

13 management program, the resources and time 

14 used in implementing the program. 

15 ‘‘(3) PUBLIC DISCLOSURE OF PHARMACEUTICAL

16 PRICES FOR EQUIVALENT DRUGS.—The eligible enti17 ty offering a Medicare Prescription Drug plan shall 

18 provide that each pharmacy or other dispenser that 

19 arranges for the dispensing of a covered drug shall 

20 inform the beneficiary at the time of purchase of the 

21 drug of any differential between the price of the pre22 scribed drug to the enrollee and the price of the low23 est cost generic drug covered under the plan that is 

24 therapeutically equivalent and bioequivalent. 
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1 ‘‘(d) GRIEVANCE MECHANISM, COVERAGE DETER2 MINATIONS, AND RECONSIDERATIONS.—

3 ‘‘(1) IN GENERAL.—An eligible entity shall pro4 vide meaningful procedures for hearing and resolving 

5 grievances between the eligible entity (including any 

6 entity or individual through which the eligible entity 

7 provides covered benefits) and enrollees with Medi8 care Prescription Drug plans of the eligible entity 

9 under this part in accordance with section 1852(f). 

10 ‘‘(2) APPLICATION OF COVERAGE DETERMINA11 TION AND RECONSIDERATION PROVISIONS.—The re12 quirements of paragraphs (1) through (3) of section 

13 1852(g) shall apply to an eligible entity with respect 

14 to covered benefits under the Medicare Prescription 

15 Drug plan it offers under this part in the same man16 ner as such requirements apply to a 

17 MedicareAdvantage organization with respect to ben18 efits it offers under a MedicareAdvantage plan 

19 under part C. 

20 ‘‘(3) REQUEST FOR REVIEW OF TIERED FOR21 MULARY DETERMINATIONS.—In the case of a Medi22 care Prescription Drug plan offered by an eligible 

23 entity that provides for tiered cost-sharing for drugs 

24 included within a formulary and provides lower cost25 sharing for preferred drugs included within the for-
45

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1 mulary, an individual who is enrolled in the plan 

2 may request coverage of a nonpreferred drug under 

3 the terms applicable for preferred drugs if the pre4 scribing physician determines that the preferred 

5 drug for treatment of the same condition is not as 

6 effective for the individual or has adverse effects for 

7 the individual. 

8 ‘‘(e) APPEALS.—

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

10 the requirements of paragraphs (4) and (5) of sec11 tion 1852(g) shall apply to an eligible entity with re12 spect to drugs not included on any formulary in a 

13 manner that is similar (as determined by the Admin14 istrator) to the manner that such requirements 

15 apply to a MedicareAdvantage organization with re16 spect to benefits it offers under a 

17 MedicareAdvantage plan under part C. 

18 ‘‘(2) FORMULARY DETERMINATIONS.—An indi19 vidual who is enrolled in a Medicare Prescription 

20 Drug plan offered by an eligible entity may appeal 

21 to obtain coverage for a covered drug that is not on 

22 a formulary of the entity under the terms applicable 

23 for a formulary drug if the prescribing physician de24 termines that the formulary drug for treatment of 
46

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1 the same condition is not as effective for the indi2 vidual or has adverse effects for the individual. 

3 ‘‘(f) PRIVACY, CONFIDENTIALITY, AND ACCURACY OF

4 ENROLLEE RECORDS.—Insofar as an eligible entity main5 tains individually identifiable medical records or other 

6 health information regarding eligible beneficiaries enrolled 

7 in the Medicare Prescription Drug plan offered by the en8 tity, the entity shall have in place procedures to—

9 ‘‘(1) safeguard the privacy of any individually 

10 identifiable beneficiary information in a manner con11 sistent with the Federal regulations (concerning the 

12 privacy of individually identifiable health informa13 tion) promulgated under section 264(c) of the 

14 Health Insurance Portability and Accountability Act 

15 of 1996; 

16 ‘‘(2) maintain such records and information in 

17 a manner that is accurate and timely; 

18 ‘‘(3) ensure timely access by such beneficiaries 

19 to such records and information; and 

20 ‘‘(4) otherwise comply with applicable laws re21 lating to patient privacy and confidentiality. 

22 ‘‘(g) UNIFORM MONTHLY PLAN PREMIUM.—An eligi23 ble entity shall ensure that the monthly plan premium for 

24 a Medicare Prescription Drug plan charged under this 
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1 part is the same for all eligible beneficiaries enrolled in 

2 the plan.

3 ‘‘(h) CONSUMER SATISFACTION SURVEYS.—An eligi4 ble entity shall conduct consumer satisfaction surveys with 

5 respect to the plan and the entity. The Administrator shall 

6 establish uniform requirements for such surveys. 

7 ‘‘PRESCRIPTION DRUG BENEFITS

8 ‘‘SEC. 1860D–6. (a) REQUIREMENTS.—

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

10 and part C, the term ‘qualified prescription drug 

11 coverage’ means either of the following: 

12 ‘‘(A) STANDARD PRESCRIPTION DRUG COV13 ERAGE WITH ACCESS TO NEGOTIATED

14 PRICES.—Standard prescription drug coverage 

15 (as defined in subsection (c)) and access to ne16 gotiated prices under subsection (e). 

17 ‘‘(B) ACTUARIALLY EQUIVALENT PRE18 SCRIPTION DRUG COVERAGE WITH ACCESS TO

19 NEGOTIATED PRICES.—Coverage of covered 

20 drugs which meets the alternative coverage re21 quirements of subsection (d) and access to ne22 gotiated prices under subsection (e), but only if 

23 it is approved by the Administrator as provided 

24 under subsection (d). 

25 ‘‘(2) PERMITTING ADDITIONAL PRESCRIPTION

26 DRUG COVERAGE.—
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1 ‘‘(A) IN GENERAL.—Subject to subpara2 graph (B) and section 1860D–13(c)(2), nothing 

3 in this part shall be construed as preventing 

4 qualified prescription drug coverage from in5 cluding coverage of covered drugs that exceeds 

6 the coverage required under paragraph (1). 

7 ‘‘(B) REQUIREMENT.—An eligible entity 

8 may not offer a Medicare Prescription Drug 

9 plan that provides additional benefits pursuant 

10 to subparagraph (A) in an area unless the eligi11 ble entity offering such plan also offers a Medi12 care Prescription Drug plan in the area that 

13 only provides the coverage of prescription drugs 

14 that is required under paragraph (1). 

15 ‘‘(3) COST CONTROL MECHANISMS.—In pro16 viding qualified prescription drug coverage, the enti17 ty offering the Medicare Prescription Drug plan or 

18 the MedicareAdvantage plan may use a variety of 

19 cost control mechanisms, including the use of 

20 formularies, tiered copayments, selective contracting 

21 with providers of prescription drugs, and mail order 

22 pharmacies. 

23 ‘‘(b) APPLICATION OF SECONDARY PAYOR PROVI24 SIONS.—The provisions of section 1852(a)(4) shall apply 
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1 under this part in the same manner as they apply under 

2 part C. 

3 ‘‘(c) STANDARD PRESCRIPTION DRUG COVERAGE.—

4 For purposes of this part and part C, the term ‘standard 

5 prescription drug coverage’ means coverage of covered 

6 drugs that meets the following requirements:

7 ‘‘(1) DEDUCTIBLE.—

8 ‘‘(A) IN GENERAL.—The coverage has an 

9 annual deductible—

10 ‘‘(i) for 2006, that is equal to $275; 

11 or 

12 ‘‘(ii) for a subsequent year, that is 

13 equal to the amount specified under this 

14 paragraph for the previous year increased 

15 by the percentage specified in paragraph 

16 (5) for the year involved. 

17 ‘‘(B) ROUNDING.—Any amount determined 

18 under subparagraph (A)(ii) that is not a mul19 tiple of $1 shall be rounded to the nearest mul20 tiple of $1. 

21 ‘‘(2) LIMITS ON COST-SHARING.—The coverage 

22 has cost-sharing (for costs above the annual deduct23 ible specified in paragraph (1) and up to the initial 

24 coverage limit under paragraph (3)) that is equal to 

25 50 percent or that is actuarially consistent (using 
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1 processes established under subsection (f)) with an 

2 average expected payment of 50 percent of such 

3 costs. 

4 ‘‘(3) INITIAL COVERAGE LIMIT.—

5 ‘‘(A) IN GENERAL.—Subject to paragraph 

6 (4), the coverage has an initial coverage limit 

7 on the maximum costs that may be recognized 

8 for payment purposes (including the annual de9 ductible)—

10 ‘‘(i) for 2006, that is equal to $4,500; 

11 or 

12 ‘‘(ii) for a subsequent year, that is 

13 equal to the amount specified in this para14 graph for the previous year, increased by 

15 the annual percentage increase described 

16 in paragraph (5) for the year involved. 

17 ‘‘(B) ROUNDING.—Any amount determined 

18 under subparagraph (A)(ii) that is not a mul19 tiple of $1 shall be rounded to the nearest mul20 tiple of $1. 

21 ‘‘(4) LIMITATION ON OUT-OF-POCKET EXPENDI22 TURES BY BENEFICIARY.—

23 ‘‘(A) IN GENERAL.—The coverage provides 

24 benefits with cost-sharing that is equal to 15 

25 percent after the individual has incurred costs 
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1 (as described in subparagraph (C)) for covered 

2 drugs in a year equal to the annual out-of-pock3 et limit specified in subparagraph (B). 

4 ‘‘(B) ANNUAL OUT-OF-POCKET LIMIT.—

5 ‘‘(i) IN GENERAL.—For purposes of 

6 this part, the ‘annual out-of-pocket limit’ 

7 specified in this subparagraph—

8 ‘‘(I) for 2006, is equal to $3,700; 

9 or 

10 ‘‘(II) for a subsequent year, is 

11 equal to the amount specified in this 

12 subparagraph for the previous year, 

13 increased by the annual percentage in14 crease described in paragraph (5) for 

15 the year involved. 

16 ‘‘(ii) ROUNDING.—Any amount deter17 mined under clause (i)(II) that is not a 

18 multiple of $1 shall be rounded to the 

19 nearest multiple of $1. 

20 ‘‘(C) APPLICATION.—In applying subpara21 graph (A)—

22 ‘‘(i) incurred costs shall only include 

23 costs incurred, with respect to covered 

24 drugs, for the annual deductible (described 

25 in paragraph (1)), cost-sharing (described 
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1 in paragraph (2)), and amounts for which 

2 benefits are not provided because of the 

3 application of the initial coverage limit de4 scribed in paragraph (3) (including costs 

5 incurred for covered drugs described in 

6 section 1860D(a)(2)(C)); and 

7 ‘‘(ii) such costs shall be treated as in8 curred without regard to whether the indi9 vidual or another person, including a State 

10 program or other third-party coverage, has 

11 paid for such costs, except that only the 

12 applicable percent (specified in subpara13 graph (D)) of the amount of portion of 

14 such costs that are paid or reimbursed 

15 through insurance, a group health plan, or 

16 other third-party payment arrangement for 

17 such costs shall not be counted. 

18 ‘‘(D) APPLICABLE PERCENT DEFINED.—

19 ‘‘(i) IN GENERAL.—For purposes of 

20 subparagraph (C)(ii), but subject to clause 

21 (ii), the applicable percent specified in this 

22 subparagraph is—

23 ‘‘(I) for years before 2010, 25 

24 percent; 
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1 ‘‘(II) for 2011, 2012, 2013, 

2 2014, and 2015, 50 percent; and 

3 ‘‘(III) for any year thereafter, 

4 100 percent. 

5 ‘‘(ii) SECRETARIAL LIMITATION ON

6 TOTAL EXPENDITURES.—The Secretary, in 

7 consultation with the Office of Manage8 ment and Budget, shall estimate at the 

9 time of enactment of this part, the aggre10 gate budget outlays that will result during 

11 the 10-fiscal-year period beginning with 

12 fiscal year 2004 from the enactment of the 

13 Prescription Drug and Medicare Improve14 ment Act of 2003. If such estimate exceeds 

15 $400,000,000,000, the Secretary shall pro16 vide for such proportional reductions in the 

17 percentages specified in clause (i) as the 

18 Secretary determines to be necessary to as19 sure that such aggregate budget outlays 

20 during such period do not exceed such 

21 amount. 

22 ‘‘(E) INFORMATION REGARDING THIRD23 PARTY REIMBURSEMENT.—In order to ensure 

24 compliance with the requirements of subpara25 graph (C)(ii), the Administrator is authorized 
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1 to establish procedures, in coordination with the 

2 Secretary of Treasury and the Secretary of 

3 Labor, for determining whether costs for indi4 viduals are being reimbursed through insurance 

5 or otherwise, a group health plan, or other 

6 third-party payment arrangement, and for 

7 alerting the entities in which such individuals 

8 are enrolled about such reimbursement arrange9 ments. An entity with a contract under this 

10 part may also periodically ask individuals en11 rolled in a plan offered by the entity whether 

12 the individuals have or expect to receive such 

13 third-party reimbursement. A material mis14 representation of the information described in 

15 the preceding sentence by an individual (as de16 fined in standards set by the Administrator and 

17 determined through a process established by the 

18 Administrator) shall constitute grounds for ter19 mination of enrollment under section 1860D–

20 2(d). 

21 ‘‘(5) ANNUAL PERCENTAGE INCREASE.—For 

22 purposes of this part, the annual percentage increase 

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

24 annual percentage increase in average per capita ag25 gregate expenditures for covered drugs in the United 
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•HR 2606 IH 

1 States for beneficiaries under this title, as deter2 mined by the Administrator for the 12-month period 

3 ending in July of the previous year. 

4 ‘‘(d) ALTERNATIVE COVERAGE REQUIREMENTS.—A 

5 Medicare Prescription Drug plan or MedicareAdvantage 

6 plan may provide a different prescription drug benefit de7 sign from the standard prescription drug coverage de8 scribed in subsection (c) so long as the Administrator de9 termines (based on an actuarial analysis by the Adminis10 trator) that the following requirements are met and the 

11 plan applies for, and receives, the approval of the Adminis12 trator for such benefit design: 

13 ‘‘(1) ASSURING AT LEAST ACTUARIALLY EQUIV14 ALENT PRESCRIPTION DRUG COVERAGE.—

15 ‘‘(A) ASSURING EQUIVALENT VALUE OF

16 TOTAL COVERAGE.—The actuarial value of the 

17 total coverage (as determined under subsection 

18 (f)) is at least equal to the actuarial value (as 

19 so determined) of standard prescription drug 

20 coverage. 

21 ‘‘(B) ASSURING EQUIVALENT UNSUB22 SIDIZED VALUE OF COVERAGE.—The unsub23 sidized value of the coverage is at least equal to 

24 the unsubsidized value of standard prescription 

25 drug coverage. For purposes of this subpara-
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1 graph, the unsubsidized value of coverage is the 

2 amount by which the actuarial value of the cov3 erage (as determined under subsection (f)) ex4 ceeds the actuarial value of the amounts associ5 ated with the application of section 1860D–

6 17(c) and reinsurance payments under section 

7 1860D–20 with respect to such coverage.

8 ‘‘(C) ASSURING STANDARD PAYMENT FOR

9 COSTS AT INITIAL COVERAGE LIMIT.—The cov10 erage is designed, based upon an actuarially 

11 representative pattern of utilization (as deter12 mined under subsection (f)), to provide for the 

13 payment, with respect to costs incurred that are 

14 equal to the initial coverage limit under sub15 section (c)(3), of an amount equal to at least 

16 the product of—

17 ‘‘(i) such initial coverage limit minus 

18 the deductible under subsection (c)(1); and 

19 ‘‘(ii) the percentage specified in sub20 section (c)(2). 

21 Benefits other than qualified prescription drug cov22 erage shall not be taken into account for purposes 

23 of this paragraph. 

24 ‘‘(2) DEDUCTIBLE AND LIMITATION ON OUT25 OF-POCKET EXPENDITURES BY BENEFICIARIES MAY
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1 NOT VARY.—The coverage may not vary the deduct2 ible under subsection (c)(1) for the year or the limi3 tation on out-of-pocket expenditures by beneficiaries 

4 described in subsection (c)(4) for the year. 

5 ‘‘(e) ACCESS TO NEGOTIATED PRICES.—

6 ‘‘(1) ACCESS.—

7 ‘‘(A) IN GENERAL.—Under qualified pre8 scription drug coverage offered by an eligible 

9 entity or a MedicareAdvantage organization, 

10 the entity or organization shall provide bene11 ficiaries with access to negotiated prices used 

12 for payment for covered drugs, regardless of the 

13 fact that no benefits may be payable under the 

14 coverage with respect to such drugs because of 

15 the application of the deductible, any cost-shar16 ing, or an initial coverage limit (described in 

17 subsection (c)(3)). For purposes of this part, 

18 the term ‘negotiated prices’ includes all dis19 counts, direct or indirect subsidies, rebates, or 

20 other price concessions or direct or indirect re21 munerations and shall reflect prices that are no 

22 higher than the prices negotiated by the Sec23 retary under subparagraph (B). 

24 ‘‘(B) SECRETARIAL NEGOTIATED PRICE.—

25 Notwithstanding any otherprovision of this 
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1 part, the Secretary shall, consistent with the re2 quirements of this part and the goals of pro3 viding quality care and containing costs under 

4 this part, negotiate contracts with manufactur5 ers of covered outpatient prescription drugs 

6 that provide for the maximum prices that may 

7 be charged to individuals enrolled under this 

8 part by participating pharmacies for dispensing 

9 such drugs to such individuals. 

10 ‘‘(C) MEDICAID RELATED PROVISIONS.—

11 Insofar as a State elects to provide medical as12 sistance under title XIX for a drug based on 

13 the prices negotiated under a Medicare Pre14 scription Drug plan under this part, the re15 quirements of section 1927 shall not apply to 

16 such drugs. The prices negotiated under a 

17 Medicare Prescription Drug plan with respect 

18 to covered drugs, under a MedicareAdvantage 

19 plan with respect to such drugs, or under a 

20 qualified retiree prescription drug plan (as de21 fined in section 1860D–20(e)(4)) with respect 

22 to such drugs, on behalf of eligible beneficiaries, 

23 shall (notwithstanding any other provision of 

24 law) not be taken into account for the purposes 
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1 of establishing the best price under section 

2 1927(c)(1)(C). 

3 ‘‘(2) CARDS OR OTHER TECHNOLOGY.—

4 ‘‘(A) IN GENERAL.—In providing the ac5 cess under paragraph (1), the eligible entity or 

6 MedicareAdvantage organization shall issue a 

7 card or use other technology pursuant to sec8 tion 1860D–5(b)(1). 

9 ‘‘(B) NATIONAL STANDARDS.—

10 ‘‘(i) DEVELOPMENT.—The Adminis11 trator shall provide for the development of 

12 national standards relating to a standard13 ized format for the card or other tech14 nology required under subparagraph (A). 

15 Such standards shall be compatible with 

16 parts C and D of title XI and may be 

17 based on standards developed by an appro18 priate standard setting organization. 

19 ‘‘(ii) CONSULTATION.—In developing 

20 the standards under clause (i), the Admin21 istrator shall consult with the National 

22 Council for Prescription Drug Programs 

23 and other standard-setting organizations 

24 determined appropriate by the Adminis25 trator. 
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1 ‘‘(iii) IMPLEMENTATION.—The Ad2 ministrator shall implement the standards 

3 developed under clause (i) by January 1, 

4 2008. 

5 ‘‘(3) DISCLOSURE.—The eligible entity offering 

6 a Medicare Prescription Drug plan and the 

7 MedicareAdvantage organization offering a 

8 MedicareAdvantage plan shall disclose to the Admin9 istrator (in a manner specified by the Administrator) 

10 the extent to which discounts, direct or indirect sub11 sidies, rebates, or other price concessions or direct or 

12 indirect remunerations made available to the entity 

13 or organization by a manufacturer are passed 

14 through to enrollees through pharmacies and other 

15 dispensers or otherwise. The provisions of section 

16 1927(b)(3)(D) shall apply to information disclosed 

17 to the Administrator under this paragraph in the 

18 same manner as such provisions apply to informa19 tion disclosed under such section. 

20 ‘‘(4) AUDITS AND REPORTS.—To protect 

21 against fraud and abuse and to ensure proper disclo22 sures and accounting under this part, in addition to 

23 any protections against fraud and abuse provided 

24 under section 1860D–7(f)(1), the Administrator may 

25 periodically audit the financial statements and 
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1 records of an eligible entity offering a Medicare Pre2 scription Drug plan and a MedicareAdvantage orga3 nization offering a MedicareAdvantage plan. 

4 ‘‘(f) ACTUARIAL VALUATION; DETERMINATION OF

5 ANNUAL PERCENTAGE INCREASES.—

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

7 the Administrator shall establish processes and 

8 methods—

9 ‘‘(A) for determining the actuarial valu10 ation of prescription drug coverage, including—

11 ‘‘(i) an actuarial valuation of standard 

12 prescription drug coverage and of the rein13 surance payments under section 1860D–

14 20; 

15 ‘‘(ii) the use of generally accepted ac16 tuarial principles and methodologies; and 

17 ‘‘(iii) applying the same methodology 

18 for determinations of alternative coverage 

19 under subsection (d) as is used with re20 spect to determinations of standard pre21 scription drug coverage under subsection 

22 (c); and 

23 ‘‘(B) for determining annual percentage in24 creases described in subsection (c)(5). 
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1 Such processes shall take into account any effect 

2 that providing actuarially equivalent prescription 

3 drug coverage rather than standard prescription 

4 drug coverage has on drug utilization. 

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

6 processes under paragraph (1)(A), eligible entities 

7 and MedicareAdvantage organizations may use actu8 arial opinions certified by independent, qualified ac9 tuaries to establish actuarial values, but the Admin10 istrator shall determine whether such actuarial val11 ues meet the requirements under subsection (c)(1). 

12 ‘‘REQUIREMENTS FOR ENTITIES OFFERING MEDICARE

13 PRESCRIPTION DRUG PLANS; ESTABLISHMENT OF

14 STANDARDS

15 ‘‘SEC. 1860D–7. (a) GENERAL REQUIREMENTS.—An 

16 eligible entity offering a Medicare Prescription Drug plan 

17 shall meet the following requirements: 

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

19 the entity is organized and licensed under State law 

20 as a risk-bearing entity eligible to offer health insur21 ance or health benefits coverage in each State in 

22 which it offers a Medicare Prescription Drug plan. 

23 ‘‘(2) ASSUMPTION OF FINANCIAL RISK.—

24 ‘‘(A) IN GENERAL.—Subject to subpara25 graph (B) and subsections (d)(2) and (e) of 

26 section 1860D–13, to the extent that the entity 
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1 is at risk pursuant to such section 1860D–16, 

2 the entity assumes financial risk on a prospec3 tive basis for the benefits that it offers under 

4 a Medicare Prescription Drug plan and that is 

5 not covered under section 1860D–20. 

6 ‘‘(B) REINSURANCE PERMITTED.—To the 

7 extent that the entity is at risk pursuant to sec8 tion 1860D–16, the entity may obtain insur9 ance or make other arrangements for the cost 

10 of coverage provided to any enrolled member 

11 under this part. 

12 ‘‘(3) SOLVENCY FOR UNLICENSED ENTITIES.—

13 In the case of an eligible entity that is not described 

14 in paragraph (1) and for which a waiver has been 

15 approved under subsection (c), such entity shall 

16 meet solvency standards established by the Adminis17 trator under subsection (d). 

18 ‘‘(b) CONTRACT REQUIREMENTS.—The Adminis19 trator shall not permit an eligible beneficiary to elect a 

20 Medicare Prescription Drug plan offered by an eligible en21 tity under this part, and the entity shall not be eligible 

22 for payments under section 1860D–16 or 1860D–20, un23 less the Administrator has entered into a contract under 

24 this subsection with the entity with respect to the offering 

25 of such plan. Such a contract with an entity may cover 
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1 more than 1 Medicare Prescription Drug plan. Such con2 tract shall provide that the entity agrees to comply with 

3 the applicable requirements and standards of this part and 

4 the terms and conditions of payment as provided for in 

5 this part.

6 ‘‘(c) WAIVER OF CERTAIN REQUIREMENTS IN ORDER

7 TO ENSURE BENEFICIARY CHOICE.—

8 ‘‘(1) IN GENERAL.—In the case of an eligible 

9 entity that seeks to offer a Medicare Prescription 

10 Drug plan in a State, the Administrator shall waive 

11 the requirement of subsection (a)(1) that the entity 

12 be licensed in that State if the Administrator deter13 mines, based on the application and other evidence 

14 presented to the Administrator, that any of the 

15 grounds for approval of the application described in 

16 paragraph (2) have been met. 

17 ‘‘(2) GROUNDS FOR APPROVAL.—The grounds 

18 for approval under this paragraph are the grounds 

19 for approval described in subparagraphs (B), (C), 

20 and (D) of section 1855(a)(2), and also include the 

21 application by a State of any grounds other than 

22 those required under Federal law. 

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

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

25 waiver granted) under this subsection, the provisions 
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1 of subparagraphs (E), (F), and (G) of section 

2 1855(a)(2) shall apply. 

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

4 For purposes of this subsection, in applying the pro5 visions of section 1855(a)(2) under this subsection 

6 to Medicare Prescription Drug plans and eligible en7 tities—

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

9 under section 1855 shall be treated as a ref10 erence to a waiver application under paragraph 

11 (1); and 

12 ‘‘(B) any reference to solvency standards 

13 were treated as a reference to solvency stand14 ards established under subsection (d). 

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

16 ENTITIES.—

17 ‘‘(1) ESTABLISHMENT AND PUBLICATION.—The 

18 Administrator, in consultation with the National As19 sociation of Insurance Commissioners, shall establish 

20 and publish, by not later than January 1, 2005, fi21 nancial solvency and capital adequacy standards for 

22 entities described in paragraph (2). 

23 ‘‘(2) COMPLIANCE WITH STANDARDS.—An eligi24 ble entity that is not licensed by a State under sub25 section (a)(1) and for which a waiver application has 
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1 been approved under subsection (c) shall meet sol2 vency and capital adequacy standards established 

3 under paragraph (1). The Administrator shall estab4 lish certification procedures for such eligible entities 

5 with respect to such solvency standards in the man6 ner described in section 1855(c)(2). 

7 ‘‘(e) LICENSURE DOES NOT SUBSTITUTE FOR OR

8 CONSTITUTE CERTIFICATION.—The fact that an entity is 

9 licensed in accordance with subsection (a)(1) or has a 

10 waiver application approved under subsection (c) does not 

11 deem the eligible entity to meet other requirements im12 posed under this part for an eligible entity. 

13 ‘‘(f) INCORPORATION OF CERTAIN

14 MEDICAREADVANTAGE CONTRACT REQUIREMENTS.—The 

15 following provisions of section 1857 shall apply, subject 

16 to subsection (c)(4), to contracts under this section in the 

17 same manner as they apply to contracts under section 

18 1857(a): 

19 ‘‘(1) PROTECTIONS AGAINST FRAUD AND BENE20 FICIARY PROTECTIONS.—Section 1857(d). 

21 ‘‘(2) INTERMEDIATE SANCTIONS.—Section 

22 1857(g), except that in applying such section—

23 ‘‘(A) the reference in section 

24 1857(g)(1)(B) to section 1854 is deemed a ref25 erence to this part; and 
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1 ‘‘(B) the reference in section 

2 1857(g)(1)(F) to section 1852(k)(2)(A)(ii) shall 

3 not be applied. 

4 ‘‘(3) PROCEDURES FOR TERMINATION.—Section 

5 1857(h). 

6 ‘‘(g) OTHER STANDARDS.—The Administrator shall 

7 establish by regulation other standards (not described in 

8 subsection (d)) for eligible entities and Medicare Prescrip9 tion Drug plans consistent with, and to carry out, this 

10 part. The Administrator shall publish such regulations by 

11 January 1, 2005. 

12 ‘‘(h) PERIODIC REVIEW AND REVISION OF STAND13 ARDS.—

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

15 the Administrator shall periodically review the 

16 standards established under this section and, based 

17 on such review, may revise such standards if the Ad18 ministrator determines such revision to be appro19 priate. 

20 ‘‘(2) PROHIBITION OF MIDYEAR IMPLEMENTA21 TION OF SIGNIFICANT NEW REGULATORY REQUIRE22 MENTS.—The Administrator may not implement, 

23 other than at the beginning of a calendar year, regu24 lations under this section that impose new, signifi-
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1 cant regulatory requirements on an eligible entity or 

2 a Medicare Prescription Drug plan. 

3 ‘‘(i) RELATION TO STATE LAWS.—

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

5 under this part shall supersede any State law or reg6 ulation (including standards described in paragraph 

7 (2)) with respect to Medicare Prescription Drug 

8 plans which are offered by eligible entities under this 

9 part—

10 ‘‘(A) to the extent such law or regulation 

11 is inconsistent with such standards; and 

12 ‘‘(B) in the same manner as such laws and 

13 regulations are superseded under section 

14 1856(b)(3). 

15 ‘‘(2) STANDARDS SPECIFICALLY SUPER16 SEDED.—State standards relating to the following 

17 are superseded under this section: 

18 ‘‘(A) Benefit requirements, including re19 quirements relating to cost-sharing and the 

20 structure of formularies. 

21 ‘‘(B) Premiums. 

22 ‘‘(C) Requirements relating to inclusion or 

23 treatment of providers. 

24 ‘‘(D) Coverage determinations (including 

25 related appeals and grievance processes). 
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1 ‘‘(E) Requirements relating to marketing 

2 materials and summaries and schedules of ben3 efits regarding a Medicare Prescription Drug 

4 plan. 

5 ‘‘(3) PROHIBITION OF STATE IMPOSITION OF

6 PREMIUM TAXES.—No State may impose a premium 

7 tax or similar tax with respect to—

8 ‘‘(A) monthly beneficiary obligations paid 

9 to the Administrator for Medicare Prescription 

10 Drug plans under this part; or 

11 ‘‘(B) any payments made by the Adminis12 trator under this part to an eligible entity offer13 ing such a plan.

14 ‘‘Subpart 2—Prescription Drug Delivery System 

15 ‘‘ESTABLISHMENT OF SERVICE AREAS

16 ‘‘SEC. 1860D–10. (a) ESTABLISHMENT.—

17 ‘‘(1) INITIAL ESTABLISHMENT.—Not later than 

18 April 15, 2005, the Administrator shall establish 

19 and publish the service areas in which Medicare Pre20 scription Drug plans may offer benefits under this 

21 part. 

22 ‘‘(2) PERIODIC REVIEW AND REVISION OF

23 SERVICE AREAS.—The Administrator shall periodi24 cally review the service areas applicable under this 

25 section and, based on such review, may revise such 
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1 service areas if the Administrator determines such 

2 revision to be appropriate. 

3 ‘‘(b) REQUIREMENTS FOR ESTABLISHMENT OF

4 SERVICE AREAS.—

5 ‘‘(1) IN GENERAL.—The Administrator shall es6 tablish the service areas under subsection (a) in a 

7 manner that—

8 ‘‘(A) maximizes the availability of Medi9 care Prescription Drug plans to eligible bene10 ficiaries; and 

11 ‘‘(B) minimizes the ability of eligible enti12 ties offering such plans to favorably select eligi13 ble beneficiaries. 

14 ‘‘(2) ADDITIONAL REQUIREMENTS.—The Ad15 ministrator shall establish the service areas under 

16 subsection (a) consistent with the following require17 ments: 

18 ‘‘(A) There shall be at least 10 service 

19 areas. 

20 ‘‘(B) Each service area must include at 

21 least 1 State. 

22 ‘‘(C) The Administrator may not divide 

23 States so that portions of the State are in dif24 ferent service areas. 
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1 ‘‘(D) To the extent possible, the Adminis2 trator shall include multistate metropolitan sta3 tistical areas in a single service area. The Ad4 ministrator may divide metropolitan statistical 

5 areas where it is necessary to establish service 

6 areas of such size and geography as to maxi7 mize the participation of Medicare Prescription 

8 Drug plans. 

9 ‘‘(3) MAY CONFORM TO MEDICAREADVANTAGE

10 PREFERRED PROVIDER REGIONS.—The Adminis11 trator may conform the service areas established 

12 under this section to the preferred provider regions 

13 established under section 1858(a)(3). 

14 ‘‘PUBLICATION OF RISK ADJUSTERS

15 ‘‘SEC. 1860D–11. (a) PUBLICATION.—Not later than 

16 April 15 of each year (beginning in 2005), the Adminis17 trator shall publish the risk adjusters established under 

18 subsection (b) to be used in computing—

19 ‘‘(1) the amount of payment to Medicare Pre20 scription Drug plans in the subsequent year under 

21 section 1860D–16(a), insofar as it is attributable to 

22 standard prescription drug coverage (or actuarially 

23 equivalent prescription drug coverage); and 

24 ‘‘(2) the amount of payment to 

25 MedicareAdvantage plans in the subsequent year 

26 under section 1858A(c), insofar as it is attributable 
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1 to standard prescription drug coverage (or actuari2 ally equivalent prescription drug coverage). 

3 ‘‘(b) ESTABLISHMENT OF RISK ADJUSTERS.—

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

5 the Administrator shall establish an appropriate 

6 methodology for adjusting the amount of payment to 

7 plans referred to in subsection (a) to take into ac8 count variation in costs based on the differences in 

9 actuarial risk of different enrollees being served. Any 

10 such risk adjustment shall be designed in a manner 

11 as to not result in a change in the aggregate pay12 ments described in paragraphs (1) and (2) of sub13 section (a). 

14 ‘‘(2) CONSIDERATIONS.—In establishing the 

15 methodology under paragraph (1), the Administrator 

16 may take into account the similar methodologies 

17 used under section 1853(a)(3) to adjust payments to 

18 MedicareAdvantage organizations. 

19 ‘‘(3) DATA COLLECTION.—In order to carry out 

20 this subsection, the Administrator shall require—

21 ‘‘(A) eligible entities to submit data re22 garding drug claims that can be linked at the 

23 beneficiary level to part A and part B data and 

24 such other information as the Administrator de25 termines necessary; and 
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1 ‘‘(B) MedicareAdvantage organizations 

2 (except MSA plans or a private fee-for-service 

3 plan that does not provide qualified prescription 

4 drug coverage) to submit data regarding drug 

5 claims that can be linked to other data that 

6 such organizations are required to submit to 

7 the Administrator and such other information 

8 as the Administrator determines necessary. 

9 ‘‘SUBMISSION OF BIDS FOR PROPOSED MEDICARE

10 PRESCRIPTION DRUG PLANS

11 ‘‘SEC. 1860D–12. (a) SUBMISSION.—

12 ‘‘(1) IN GENERAL.—Each eligible entity that in13 tends to offer a Medicare Prescription Drug plan in 

14 an area in a year (beginning with 2006) shall submit 

15 to the Administrator, at such time in the previous 

16 year and in such manner as the Administrator may 

17 specify, such information as the Administrator may 

18 require, including the information described in sub19 section (b). 

20 ‘‘(2) ANNUAL SUBMISSION.—An eligible entity 

21 shall submit the information required under para22 graph (1) with respect to a Medicare Prescription 

23 Drug plan that the entity intends to offer on an an24 nual basis. 
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1 ‘‘(b) INFORMATION DESCRIBED.—The information 

2 described in this subsection includes information on each 

3 of the following: 

4 ‘‘(1) The benefits under the plan (as required 

5 under section 1860D–6). 

6 ‘‘(2) The actuarial value of the qualified pre7 scription drug coverage. 

8 ‘‘(3) The amount of the monthly plan premium 

9 under the plan, including an actuarial certification 

10 of—

11 ‘‘(A) the actuarial basis for such monthly 

12 plan premium; 

13 ‘‘(B) the portion of such monthly plan pre14 mium attributable to standard prescription 

15 drug coverage or actuarially equivalent prescrip16 tion drug coverage and, if applicable, to benefits 

17 that are in addition to such coverage; and 

18 ‘‘(C) the reduction in such monthly plan 

19 premium resulting from the payments provided 

20 under section 1860D–20. 

21 ‘‘(4) The service area for the plan. 

22 ‘‘(5) Whether the entity plans to use any funds 

23 in the plan stabilization reserve fund in the Prescrip24 tion Drug Account that are available to the entity to 

25 stabilize or reduce the monthly plan premium sub-
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1 mitted under paragraph (3), and if so, the amount 

2 in such reserve fund that is to be used. 

3 ‘‘(6) Such other information as the Adminis4 trator may require to carry out this part. 

5 ‘‘(c) OPTIONS REGARDING SERVICE AREAS.—

6 ‘‘(1) IN GENERAL.—The service area of a Medi7 care Prescription Drug plan shall be either—

8 ‘‘(A) the entire area of 1 of the service 

9 areas established by the Administrator under 

10 section 1860D–10; or 

11 ‘‘(B) the entire area covered by the medi12 care program.

13 ‘‘(2) RULE OF CONSTRUCTION.—Nothing in 

14 this part shall be construed as prohibiting an eligible 

15 entity from submitting separate bids in multiple 

16 service areas as long as each bid is for a single serv17 ice area. 

18 ‘‘APPROVAL OF PROPOSED MEDICARE PRESCRIPTION

19 DRUG PLANS

20 ‘‘SEC. 1860D–13. (a) APPROVAL.—

21 ‘‘(1) IN GENERAL.—The Administrator shall re22 view the information filed under section 1860D–12 

23 and shall approve or disapprove the Medicare Pre24 scription Drug plan. 

25 ‘‘(2) REQUIREMENTS FOR APPROVAL.—The Ad26 ministrator may not approve a Medicare Prescrip-
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1 tion Drug plan unless the following requirements are 

2 met:

3 ‘‘(A) COMPLIANCE WITH REQUIRE4 MENTS.—The plan and the entity offering the 

5 plan comply with the requirements under this 

6 part. 

7 ‘‘(B) APPLICATION OF FEHBP STAND8 ARD.—(i) The portion of the monthly plan pre9 mium submitted under section 1860D–12(b) 

10 that is attributable to standard prescription 

11 drug coverage reasonably and equitably reflects 

12 the actuarial value of the standard prescription 

13 drug coverage less the actuarial value of the re14 insurance payments under section 1860D–20 

15 and the amount of any funds in the plan sta16 bilization reserve fund in the Prescription Drug 

17 Account used to stabilize or reduce the monthly 

18 plan premium. 

19 ‘‘(ii) If the plan provides additional pre20 scription drug coverage pursuant to section 

21 1860D–6(a)(2), the monthly plan premium rea22 sonably and equitably reflects the actuarial 

23 value of the coverage provided less the actuarial 

24 value of the reinsurance payments under section 

25 1860D–20 and the amount of any funds in the 
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1 plan stabilization reserve fund in the Prescrip2 tion Drug Account used to stabilize or reduce 

3 the monthly plan premium. 

4 ‘‘(b) NEGOTIATION.—In exercising the authority 

5 under subsection (a), the Administrator shall have the au6 thority to—

7 ‘‘(1) negotiate the terms and conditions of the 

8 proposed monthly plan premiums submitted and 

9 other terms and conditions of a proposed plan; and 

10 ‘‘(2) disapprove, or limit enrollment in, a pro11 posed plan based on—

12 ‘‘(A) the costs to beneficiaries under the 

13 plan; 

14 ‘‘(B) the quality of the coverage and bene15 fits under the plan; 

16 ‘‘(C) the adequacy of the network under 

17 the plan; or 

18 ‘‘(D) other factors determined appropriate 

19 by the Administrator. 

20 ‘‘(c) SPECIAL RULES FOR APPROVAL.—The Adminis21 trator may approve a Medicare Prescription Drug plan 

22 submitted under section 1860D–12 only if the benefits 

23 under such plan—

24 ‘‘(1) include the required benefits under section 

25 1860D–6(a)(1); and 
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1 ‘‘(2) are not designed in such a manner that 

2 the Administrator finds is likely to result in favor3 able selection of eligible beneficiaries. 

4 ‘‘(d) ACCESS TO COMPETITIVE COVERAGE.—

5 ‘‘(1) NUMBER OF CONTRACTS.—The Adminis6 trator, consistent with the requirements of this part 

7 and the goal of containing costs under this title, 

8 shall, with respect to a year, approve at least 2 con9 tracts to offer a Medicare Prescription Drug plan in 

10 each service area (established under section 1860D–

11 10) for the year. 

12 ‘‘(2) AUTHORITY TO REDUCE RISK TO ENSURE

13 ACCESS.—

14 ‘‘(A) IN GENERAL.—Subject to subpara15 graph (B), if the Administrator determines, 

16 with respect to an area, that the access re17 quired under paragraph (1) is not going to be 

18 provided in the area during the subsequent 

19 year, the Administrator shall— 

20 ‘‘(i) adjust the percents specified in 

21 paragraphs (2) and (4) of section 1860D–

22 16(b) in an area in a year; or 

23 ‘‘(ii) increase the percent specified in 

24 section 1860D–20(c)(1) in an area in a 

25 year. 
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1 The administrator shall exercise the authority 

2 under the preceding sentence only so long as 

3 (and to the extent) necessary to assure the ac4 cess guaranteed under paragraph (1). 

5 ‘‘(B) REQUIREMENTS FOR USE OF AU6 THORITY.—In exercising authority under sub7 paragraph (A), the Administrator—

8 ‘‘(i) shall not provide for the full un9 derwriting of financial risk for any eligible 

10 entity;

11 ‘‘(ii) shall not provide for any under12 writing of financial risk for a public eligi13 ble entity with respect to the offering of a 

14 nationwide Medicare Prescription Drug 

15 plan; and 

16 ‘‘(iii) shall seek to maximize the as17 sumption of financial risk by eligible enti18 ties to ensure fair competition among 

19 Medicare Prescription Drug plans. 

20 ‘‘(C) REQUIREMENT TO ACCEPT 2 FULL21 RISK QUALIFIED BIDS BEFORE EXERCISING AU22 THORITY.—The Administrator may not exercise 

23 the authority under subparagraph (A) with re24 spect to an area and year if 2 or more qualified 

25 bids are submitted by eligible entities to offer a 
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1 Medicare Prescription Drug plan in the area for 

2 the year under paragraph (1) before the appli3 cation of subparagraph (A). 

4 ‘‘(D) REPORTS.—The Administrator, in 

5 each annual report to Congress under section 

6 1808(c)(1)(D), shall include information on the 

7 exercise of authority under subparagraph (A). 

8 The Administrator also shall include such rec9 ommendations as may be appropriate to limit 

10 the exercise of such authority. 

11 ‘‘(e) GUARANTEED ACCESS.—

12 ‘‘(1) ACCESS.—In order to assure access to 

13 qualified prescription drug coverage in an area, the 

14 Administrator shall take the following steps:

15 ‘‘(A) DETERMINATION.—Not later than 

16 September 1 of each year (beginning in 2005) 

17 and for each area (established under section 

18 1860D–10), the Administrator shall make a de19 termination as to whether the access required 

20 under subsection (d)(1) is going to be provided 

21 in the area during the subsequent year. Such 

22 determination shall be made after the Adminis23 trator has exercised the authority under sub24 section (d)(2). 
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1 ‘‘(B) CONTRACT WITH AN ENTITY TO PRO2 VIDE COVERAGE IN AN AREA.—Subject to para3 graph (3), if the Administrator makes a deter4 mination under subparagraph (A) that the ac5 cess required under subsection (d)(1) is not 

6 going to be provided in an area during the sub7 sequent year, the Administrator shall enter into 

8 a contract with an entity to provide eligible 

9 beneficiaries enrolled under this part (and not, 

10 except for an MSA plan or a private fee-for11 service plan that does not provide qualified pre12 scription drug coverage enrolled in a 

13 MedicareAdvantage plan) and residing in the 

14 area with standard prescription drug coverage 

15 (including access to negotiated prices for such 

16 beneficiaries pursuant to section 1860D–6(e)) 

17 during the subsequent year. An entity may be 

18 awarded a contract for more than 1 of the 

19 areas for which the Administrator is required to 

20 enter into a contract under this paragraph but 

21 the Administrator may enter into only 1 such 

22 contract in each such area. An entity with a 

23 contract under this part shall meet the require24 ments described in section 1860D–5 and such 
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1 other requirements determined appropriate by 

2 the Administrator. 

3 ‘‘(C) REQUIREMENT TO ACCEPT 2 RE4 DUCED-RISK QUALIFIED BIDS BEFORE ENTER5 ING INTO CONTRACT.—The Administrator may 

6 not enter into a contract under subparagraph 

7 (B) with respect to an area and year if 2 or 

8 more qualified bids are submitted by eligible en9 tities to offer a Medicare Prescription Drug 

10 plan in the area for the year after the Adminis11 trator has exercised the authority under sub12 section (d)(2) in the area for the year. 

13 ‘‘(D) ENTITY REQUIRED TO MEET BENE14 FICIARY PROTECTION AND OTHER REQUIRE15 MENTS.—An entity with a contract under sub16 paragraph (B) shall meet the requirements de17 scribed in section 1860D–5 and such other re18 quirements determined appropriate by the Ad19 ministrator. 

20 ‘‘(E) COMPETITIVE PROCEDURES.—Com21 petitive procedures (as defined in section 4(5) 

22 of the Office of Federal Procurement Policy Act 

23 (41 U.S.C. 403(5))) shall be used to enter into 

24 a contract under subparagraph (B). 
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1 ‘‘(2) MONTHLY BENEFICIARY OBLIGATION FOR

2 ENROLLMENT.—

3 ‘‘(A) IN GENERAL.—In the case of an eligi4 ble beneficiary receiving access to qualified pre5 scription drug coverage through enrollment with 

6 an entity with a contract under paragraph 

7 (1)(B), the monthly beneficiary obligation of 

8 such beneficiary for such enrollment shall be an 

9 amount equal to the applicable percent (as de10 termined under section 1860D–17(c)) of the 

11 monthly national average premium (as com12 puted under section 1860D–15) for the area for 

13 the year, as adjusted using the geographic ad14 juster under subparagraph (B). 

15 ‘‘(B) ESTABLISHMENT OF GEOGRAPHIC

16 ADJUSTER.—The Administrator shall establish 

17 an appropriate methodology for adjusting the 

18 monthly beneficiary obligation (as computed 

19 under subparagraph (A)) for the year in an 

20 area to take into account differences in drug 

21 prices among areas. In establishing such meth22 odology, the Administrator may take into ac23 count differences in drug utilization between eli24 gible beneficiaries in an area and eligible bene25 ficiaries in other areas and the results of the 
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1 ongoing study required under section 106 of the 

2 Prescription Drug and Medicare Improvement 

3 Act of 2003. Any such adjustment shall be ap4 plied in a manner so as to not result in a 

5 change in the aggregate payments made under 

6 this part that would have been made if the Ad7 ministrator had not applied such adjustment. 

8 ‘‘(3) PAYMENTS UNDER THE CONTRACT.—

9 ‘‘(A) IN GENERAL.—A contract entered 

10 into under paragraph (1)(B) shall provide for—

11 ‘‘(i) payment for the negotiated costs 

12 of covered drugs provided to eligible bene13 ficiaries enrolled with the entity; and 

14 ‘‘(ii) payment of prescription manage15 ment fees that are tied to performance re16 quirements established by the Adminis17 trator for the management, administration, 

18 and delivery of the benefits under the con19 tract.

20 ‘‘(B) PERFORMANCE REQUIREMENTS.—

21 The performance requirements established by 

22 the Administrator pursuant to subparagraph 

23 (A)(ii) shall include the following: 

24 ‘‘(i) The entity contains costs to the 

25 Prescription Drug Account and to eligible 
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1 beneficiaries enrolled under this part and 

2 with the entity. 

3 ‘‘(ii) The entity provides such bene4 ficiaries with quality clinical care. 

5 ‘‘(iii) The entity provides such bene6 ficiaries with quality services. 

7 ‘‘(C) ENTITY ONLY AT RISK TO THE EX8 TENT OF THE FEES TIED TO PERFORMANCE

9 REQUIREMENTS.—An entity with a contract 

10 under paragraph (1)(B) shall only be at risk for 

11 the provision of benefits under the contract to 

12 the extent that the management fees paid to 

13 the entity are tied to performance requirements 

14 under subparagraph (A)(ii). 

15 ‘‘(4) ELIGIBLE ENTITY THAT SUBMITTED A BID

16 FOR THE AREA NOT ELIGIBLE TO BE AWARDED THE

17 CONTRACT.—An eligible entity that submitted a bid 

18 to offer a Medicare Prescription Drug plan for an 

19 area for a year under section 1860D–12, including 

20 a bid submitted after the Administrator has exer21 cised the authority under subsection (d)(2), may not 

22 be awarded a contract under paragraph (1)(B) for 

23 that area and year. The previous sentence shall 

24 apply to an entity that was awarded a contract 

25 under paragraph (1)(B) for the area in the previous 
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1 year and submitted such a bid under section 

2 1860D–12 for the year. 

3 ‘‘(5) CONTRACT TO BE AVAILABLE IN DES4 IGNATED AREA FOR 2 YEARS.—Notwithstanding 

5 paragraph (1), if the Administrator enters into a 

6 contract with an entity with respect to an area des7 ignated under subparagraph (B) of such paragraph 

8 for a year, the following rules shall apply: 

9 ‘‘(A) The contract shall be for a 2-year pe10 riod. 

11 ‘‘(B) The Secretary is not required to 

12 make the determination under paragraph 

13 (1)(A) with respect to the second year of the 

14 contract for the area. 

15 ‘‘(C) During the second year of the con16 tract, an eligible beneficiary residing in the area 

17 may continue to receive standard prescription 

18 drug coverage (including access to negotiated 

19 prices for such beneficiaries pursuant to section 

20 1860D-6(e)) under such contract or through 

21 any Medicare Prescription Drug plan that is 

22 available in the area. 

23 ‘‘(6) ENTITY NOT PERMITTED TO MARKET OR

24 BRAND THE CONTRACT.—An entity with a contract 
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1 under paragraph (1)(B) may not engage in any mar2 keting or branding of such contract. 

3 ‘‘(7) RULES FOR AREAS WHERE ONLY 1 COM4 PETITIVELY BID PLAN WAS APPROVED.—In the case 

5 of an area where (before the application of this sub6 section) only 1 Medicare Prescription Drug plan was 

7 approved for a year—

8 ‘‘(A) the plan may (at the option of the 

9 plan) be offered in the area for the year (under 

10 rules applicable to such plans under this part 

11 and not under this subsection); 

12 ‘‘(B) eligible beneficiaries described in 

13 paragraph (1)(B) may receive access to quali14 fied prescription drug coverage through enroll15 ment in the plan or with an entity with a con16 tract under paragraph (1)(B); and 

17 ‘‘(C) for purposes of applying section 

18 1860D–3(a)(1)(A)(ii), such plan shall be the 

19 plan designated in the area under such section. 

20 ‘‘(f) TWO-YEAR CONTRACTS.—Except for a contract 

21 entered into under subsection (e)(1)(B), a contract ap22 proved under this part (including a contract under) shall 

23 be for a 2-year period. 
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1 ‘‘COMPUTATION OF MONTHLY STANDARD PRESCRIPTION

2 DRUG COVERAGE PREMIUMS

3 ‘‘SEC. 1860D–14. (a) IN GENERAL.—For each year 

4 (beginning with 2006), the Administrator shall compute 

5 a monthly standard prescription drug coverage premium 

6 for each Medicare Prescription Drug plan approved under 

7 section 1860D–13 and for each MedicareAdvantage plan. 

8 ‘‘(b) REQUIREMENTS.—The monthly standard pre9 scription drug coverage premium for a plan for a year 

10 shall be equal to—

11 ‘‘(1) in the case of a plan offered by an eligible 

12 entity or MedicareAdvantage organization that pro13 vides standard prescription drug coverage or an ac14 tuarially equivalent prescription drug coverage and 

15 does not provide additional prescription drug cov16 erage pursuant to section 1860D–6(a)(2), the 

17 monthly plan premium approved for the plan under 

18 section 1860D–13 for the year; and 

19 ‘‘(2) in the case of a plan offered by an eligible 

20 entity or MedicareAdvantage organization that pro21 vides additional prescription drug coverage pursuant 

22 to section 1860D–6(a)(2)—

23 ‘‘(A) an amount that reflects only the actu24 arial value of the standard prescription drug 

25 coverage offered under the plan; or 
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1 ‘‘(B) if determined appropriate by the Ad2 ministrator, the monthly plan premium ap3 proved under section 1860D–13 for the year for 

4 the Medicare Prescription Drug plan (or, if ap5 plicable, the MedicareAdvantage plan) that, as 

6 required under section 1860D–6(a)(2)(B) for a 

7 Medicare Prescription Drug plan and a 

8 MedicareAdvantage plan—

9 ‘‘(i) is offered by such entity or orga10 nization in the same area as the plan; and 

11 ‘‘(ii) does not provide additional pre12 scription drug coverage pursuant to such 

13 section.

14 ‘‘COMPUTATION OF MONTHLY NATIONAL AVERAGE

15 PREMIUM

16 ‘‘SEC. 1860D–15. (a) COMPUTATION.—

17 ‘‘(1) IN GENERAL.—For each year (beginning 

18 with 2006) the Administrator shall compute a 

19 monthly national average premium equal to the aver20 age of the monthly standard prescription drug cov21 erage premium for each Medicare Prescription Drug 

22 plan and each MedicareAdvantage plan (as com23 puted under section 1860D–14). Such premium may 

24 be adjusted pursuant to any methodology deter25 mined under subsection (b), as determined appro26 priate by the Administrator. 
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1 ‘‘(2) WEIGHTED AVERAGE.—The monthly na2 tional average premium computed under paragraph 

3 (1) shall be a weighted average, with the weight for 

4 each plan being equal to the average number of 

5 beneficiaries enrolled under such plan in the pre6 vious year.

7 ‘‘(b) GEOGRAPHIC ADJUSTMENT.—The Adminis8 trator shall establish an appropriate methodology for ad9 justing the monthly national average premium (as com10 puted under subsection (a)) for the year in an area to take 

11 into account differences in prices for covered drugs among 

12 different areas. In establishing such methodology, the Ad13 ministrator may take into account differences in drug uti14 lization between eligible beneficiaries in that area and 

15 other eligible beneficiaries and the results of the ongoing 

16 study required under section 106 of the Prescription Drug 

17 and Medicare Improvement Act of 2003. Any such adjust18 ment shall be applied in a manner as to not result in a 

19 change in aggregate payments made under this part than 

20 would have been made if the Administrator had not ap21 plied such adjustment. 

22 ‘‘(c) SPECIAL RULE FOR 2006.—For purposes of ap23 plying this section for 2006, the Administrator shall estab24 lish procedures for determining the weighted average 

25 under subsection (a)(2) for 2005. 
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1 ‘‘PAYMENTS TO ELIGIBLE ENTITIES

2 ‘‘SEC. 1860D–16. (a) PAYMENT OF MONTHLY PLAN

3 PREMIUMS.—For each year (beginning with 2006), the 

4 Administrator shall pay to each entity offering a Medicare 

5 Prescription Drug plan in which an eligible beneficiary is 

6 enrolled an amount equal to the full amount of the month7 ly plan premium approved for the plan under section 

8 1860D–13 on behalf of each eligible beneficiary enrolled 

9 in such plan for the year, as adjusted using the risk ad10 justers that apply to the standard prescription drug cov11 erage published under section 1860D–11. 

12 ‘‘(b) PORTION OF TOTAL PAYMENTS OF MONTHLY

13 PLAN PREMIUMS SUBJECT TO RISK.—

14 ‘‘(1) NOTIFICATION OF SPENDING UNDER THE

15 PLAN.—

16 ‘‘(A) IN GENERAL.—For each year (begin17 ning in 2007), the eligible entity offering a 

18 Medicare Prescription Drug plan shall notify 

19 the Administrator of the following: 

20 ‘‘(i) TOTAL ACTUAL COSTS.—The 

21 total amount of costs that the entity in22 curred in providing standard prescription 

23 drug coverage (or prescription drug cov24 erage that is actuarially equivalent pursu25 ant to section 1860D–6(a)(1)(B)) for all 
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1 enrollees under the plan in the previous 

2 year. 

3 ‘‘(ii) ACTUAL COSTS FOR SPECIFIC

4 DRUGS.—With respect to the total amount 

5 under clause (i) for the year, a breakdown 

6 of— 

7 ‘‘(I) each covered drug that con8 stitutes a portion of such amount; 

9 ‘‘(II) the negotiated price for the 

10 eligible entity for each such drug; 

11 ‘‘(III) the number of prescrip12 tions; and 

13 ‘‘(IV) the average beneficiary co14 insurance rate for a each covered drug 

15 that constitutes a portion of such 

16 amount. 

17 ‘‘(B) CERTAIN EXPENSES NOT IN18 CLUDED.—The amounts under clauses (i) and 

19 (ii)(II) of subparagraph (A) may not include—

20 ‘‘(i) administrative expenses incurred 

21 in providing the coverage described in sub22 paragraph (A)(i); 

23 ‘‘(ii) amounts expended on providing 

24 additional prescription drug coverage pur25 suant to section 1860D–6(a)(2); or 
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1 ‘‘(iii) amounts expended for which the 

2 entity is subsequently provided with rein3 surance payments under section 1860D–

4 20. 

5 ‘‘(2) ADJUSTMENT OF PAYMENT.—

6 ‘‘(A) NO ADJUSTMENT IF ALLOWABLE

7 COSTS WITHIN RISK CORRIDOR.—If the allow8 able costs (specified in paragraph (3)) for the 

9 plan for the year are not more than the first 

10 threshold upper limit of the risk corridor (speci11 fied in paragraph (4)(A)(iii)) and are not less 

12 than the first threshold lower limit of the risk 

13 corridor (specified in paragraph (4)(A)(i)) for 

14 the plan for the year, then no additional pay15 ments shall be made by the Administrator and 

16 no payments shall be made by (or collected 

17 from) the eligible entity offering the plan. 

18 ‘‘(B) INCREASE IN PAYMENT IF ALLOW19 ABLE COSTS ABOVE UPPER LIMIT OF RISK COR20 RIDOR.—

21 ‘‘(i) IN GENERAL.—If the allowable 

22 costs for the plan for the year are more 

23 than the first threshold upper limit of the 

24 risk corridor for the plan for the year, then 

25 the Administrator shall increase the total 
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1 of the monthly payments made to the enti2 ty offering the plan for the year under sub3 section (a) by an amount equal to the sum 

4 of—

5 ‘‘(I) the applicable percent (as 

6 defined in subparagraph (D)) of such 

7 allowable costs which are more than 

8 such first threshold upper limit of the 

9 risk corridor and not more than the 

10 second threshold upper limit of the 

11 risk corridor for the plan for the year 

12 (as specified under paragraph 

13 (4)(A)(iv)); and

14 ‘‘(II) 90 percent of such allow15 able costs which are more than such 

16 second threshold upper limit of the 

17 risk corridor. 

18 ‘‘(ii) SPECIAL TRANSITIONAL COR19 RIDOR FOR 2006 AND 2007.—If the Admin20 istrator determines with respect to 2006 or 

21 2007 that at least 60 percent of Medicare 

22 Prescription Drug plans and 

23 MedicareAdvantage Plans (excluding MSA 

24 plans or private fee-for-service plans that 

25 do not provide qualified prescription drug 
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1 coverage) have allowable costs for the plan 

2 for the year that are more than the first 

3 threshold upper limit of the risk corridor 

4 for the plan for the year and that such 

5 plans represent at least 60 percent of eligi6 ble beneficiaries enrolled under this part, 

7 clause (i)(I) shall be applied by sub8 stituting ‘90 percent’ for ‘applicable per9 cent’. 

10 ‘‘(C) PLAN PAYMENT IF ALLOWABLE

11 COSTS BELOW LOWER LIMIT OF RISK COR12 RIDOR.—If the allowable costs for the plan for 

13 the year are less than the first threshold lower 

14 limit of the risk corridor for the plan for the 

15 year, then the entity offering the plan shall 

16 make a payment to the Administrator of an 

17 amount (or the Administrator shall otherwise 

18 recover from the plan an amount) equal to—

19 ‘‘(i) the applicable percent (as so de20 fined) of such allowable costs which are 

21 less than such first threshold lower limit of 

22 the risk corridor and not less than the sec23 ond threshold lower limit of the risk cor24 ridor for the plan for the year (as specified 

25 under paragraph (4)(A)(ii)); and 
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1 ‘‘(ii) 90 percent of such allowable 

2 costs which are less than such second 

3 threshold lower limit of the risk corridor. 

4 ‘‘(D) APPLICABLE PERCENT DEFINED.—

5 For purposes of this paragraph, the term ‘ap6 plicable percent’ means—

7 ‘‘(i) for 2006 and 2007, 75 percent; 

8 and 

9 ‘‘(ii) for 2008 and subsequent years, 

10 50 percent. 

11 ‘‘(3) ESTABLISHMENT OF ALLOWABLE

12 COSTS.—

13 ‘‘(A) IN GENERAL.—For each year, the 

14 Administrator shall establish the allowable costs 

15 for each Medicare Prescription Drug plan for 

16 the year. The allowable costs for a plan for a 

17 year shall be equal to the amount described in 

18 paragraph (1)(A)(i) for the plan for the year, 

19 adjusted under subparagraph (B)(ii). 

20 ‘‘(B) REPRICING OF COSTS.—

21 ‘‘(i) CALCULATION OF AVERAGE PLAN

22 COST.—Utilizing the information obtained 

23 under paragraph (1)(A)(ii) and section 

24 1860D–20(b)(1)(B), for each year (begin25 ning with 2006), the Administrator shall 
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1 establish an average negotiated price with 

2 respect to all Medicare Prescription Drug 

3 plans for each covered drug. 

4 ‘‘(ii) ADJUSTMENT IF ACTUAL COSTS

5 EXCEED AVERAGE COSTS.—With respect to 

6 a Medicare Prescription Drug plan for a 

7 year, the Administrator shall reduce the 

8 amount described in paragraph (1)(A)(i) 

9 for the plan for the year to the extent such 

10 amount is based on costs of specific cov11 ered drugs furnished under the plan in the 

12 year (as specified under paragraph 

13 (1)(A)(ii)) for which the negotiated prices 

14 are greater than the average negotiated 

15 price for the covered drug for the year (as 

16 determined under clause (i)). 

17 ‘‘(4) ESTABLISHMENT OF RISK CORRIDORS.—

18 ‘‘(A) IN GENERAL.—For each year (begin19 ning with 2006), the Administrator shall estab20 lish a risk corridor for each Medicare Prescrip21 tion Drug plan. The risk corridor for a plan for 

22 a year shall be equal to a range as follows: 

23 ‘‘(i) FIRST THRESHOLD LOWER

24 LIMIT.—The first threshold lower limit of 

25 such corridor shall be equal to—
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1 ‘‘(I) the target amount described 

2 in subparagraph (B) for the plan; 

3 minus 

4 ‘‘(II) an amount equal to the 

5 first threshold risk percentage for the 

6 plan (as determined under subpara7 graph (C)(i)) of such target amount. 

8 ‘‘(ii) SECOND THRESHOLD LOWER

9 LIMIT.—The second threshold lower limit 

10 of such corridor shall be equal to—

11 ‘‘(I) the target amount described 

12 in subparagraph (B) for the plan; 

13 minus 

14 ‘‘(II) an amount equal to the sec15 ond threshold risk percentage for the 

16 plan (as determined under subpara17 graph (C)(ii)) of such target amount. 

18 ‘‘(iii) FIRST THRESHOLD UPPER

19 LIMIT.—The first threshold upper limit of 

20 such corridor shall be equal to the sum 

21 of—

22 ‘‘(I) such target amount; and 

23 ‘‘(II) the amount described in 

24 clause (i)(II). 
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1 ‘‘(iv) SECOND THRESHOLD UPPER

2 LIMIT.—The second threshold upper limit 

3 of such corridor shall be equal to the sum 

4 of—

5 ‘‘(I) such target amount; and 

6 ‘‘(II) the amount described in 

7 clause (ii)(II). 

8 ‘‘(B) TARGET AMOUNT DESCRIBED.—The 

9 target amount described in this paragraph is, 

10 with respect to a Medicare Prescription Drug 

11 plan offered by an eligible entity in a year—

12 ‘‘(i) in the case of a plan offered by 

13 an eligible entity that provides standard 

14 prescription drug coverage or actuarially 

15 equivalent prescription drug coverage and 

16 does not provide additional prescription 

17 drug coverage pursuant to section 1860D–

18 6(a)(2), an amount equal to the total of 

19 the monthly plan premiums paid to such 

20 entity for such plan for the year pursuant 

21 to subsection (a), reduced by the percent22 age specified in subparagraph (D); and 

23 ‘‘(ii) in the case of a plan offered by 

24 an eligible entity that provides additional 

25 prescription drug coverage pursuant to sec-
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1 tion 1860D–6(a)(2), an amount equal to 

2 the total of the monthly plan premiums 

3 paid to such entity for such plan for the 

4 year pursuant to subsection (a) that are 

5 related to standard prescription drug cov6 erage (determined using the rules under 

7 section 1860D–14(b)), reduced by the per8 centage specified in subparagraph (D). 

9 ‘‘(C) FIRST AND SECOND THRESHOLD

10 RISK PERCENTAGE DEFINED.—

11 ‘‘(i) FIRST THRESHOLD RISK PER12 CENTAGE.—Subject to clause (iii), for pur13 poses of this section, the first threshold 

14 risk percentage is—

15 ‘‘(I) for 2006 and 2007, 2.5 per16 cent;

17 ‘‘(II) for 2008 through 2011, 5 

18 percent; and 

19 ‘‘(III) for 2012 and subsequent 

20 years, a percentage established by the 

21 Administrator, but in no case less 

22 than 5 percent. 

23 ‘‘(ii) SECOND THRESHOLD RISK PER24 CENTAGE.—Subject to clause (iii), for pur-
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1 poses of this section, the second threshold 

2 risk percentage is—

3 ‘‘(I) for 2006 and 2007, 5.0 per4 cent; 

5 ‘‘(II) for 2008 through 2011, 10 

6 percent 

7 ‘‘(III) for 2012 and subsequent 

8 years, a percentage established by the 

9 Administrator that is greater than the 

10 percent established for the year under 

11 clause (i)(III), but in no case less 

12 than 10 percent. 

13 ‘‘(iii) REDUCTION OF RISK PERCENT14 AGE TO ENSURE 2 PLANS IN AN AREA.—

15 Pursuant to paragraph (2) of section 

16 1860D–13(d), the Administrator may re17 duce the applicable first or second thresh18 old risk percentage in an area in a year in 

19 order to ensure the access to plans re20 quired under paragraph (1) of such sec21 tion. 

22 ‘‘(D) TARGET AMOUNT NOT TO INCLUDE

23 ADMINISTRATIVE EXPENSES NEGOTIATED BE24 TWEEN THE ADMINISTRATOR AND THE ENTITY

25 OFFERING THE PLAN.—For each year (begin-
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1 ning in 2006), the Administrator and the entity 

2 offering a Medicare Prescription Drug plan 

3 shall negotiate, as part of the negotiation proc4 ess described in section 1860D–13(b) during 

5 the previous year, the percentage of the pay6 ments to the entity under subsection (a) with 

7 respect to the plan that are attributable and 

8 reasonably incurred for administrative expenses 

9 for providing standard prescription drug cov10 erage or actuarially equivalent prescription drug 

11 coverage in the year. 

12 ‘‘(5) PLANS AT RISK FOR ENTIRE AMOUNT OF

13 ADDITIONAL PRESCRIPTION DRUG COVERAGE.—An 

14 eligible entity that offers a Medicare Prescription 

15 Drug plan that provides additional prescription drug 

16 coverage pursuant to section 1860D–6(a)(2) shall be 

17 at full financial risk for the provision of such addi18 tional coverage. 

19 ‘‘(6) NO EFFECT ON ELIGIBLE BENE20 FICIARIES.—No change in payments made by reason 

21 of this subsection shall affect the beneficiary obliga22 tion under section 1860D–17 for the year in which 

23 such change in payments is made. 

24 ‘‘(7) DISCLOSURE OF INFORMATION.—
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1 ‘‘(A) IN GENERAL.—Each contract under 

2 this part shall provide that—

3 ‘‘(i) the entity offering a Medicare 

4 Prescription Drug plan shall provide the 

5 Administrator with such information as the 

6 Administrator determines is necessary to 

7 carry out this section; and

8 ‘‘(ii) the Administrator shall have the 

9 right to inspect and audit any books and 

10 records of the eligible entity that pertain to 

11 the information regarding costs provided to 

12 the Administrator under paragraph (1). 

13 ‘‘(B) RESTRICTION ON USE OF INFORMA14 TION.—Information disclosed or obtained pur15 suant to the provisions of this section may be 

16 used by officers and employees of the Depart17 ment of Health and Human Services only for 

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

19 carrying out this section. 

20 ‘‘(c) STABILIZATION RESERVE FUND.—

21 ‘‘(1) ESTABLISHMENT.—

22 ‘‘(A) IN GENERAL.—There is established, 

23 within the Prescription Drug Account, a sta24 bilization reserve fund in which the Adminis25 trator shall deposit amounts on behalf of eligi-
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1 ble entities in accordance with paragraph (2) 

2 and such amounts shall be made available by 

3 the Secretary for the use of eligible entities in 

4 contract year 2008 and subsequent contract 

5 years in accordance with paragraph (3). 

6 ‘‘(B) REVERSION OF UNUSED AMOUNTS.—

7 Any amount in the stabilization reserve fund es8 tablished under subparagraph (A) that is not 

9 expended by an eligible entity in accordance 

10 with paragraph (3) or that was deposited for 

11 the use of an eligible entity that no longer has 

12 a contract under this part shall revert for the 

13 use of the Prescription Drug Account. 

14 ‘‘(2) DEPOSIT OF AMOUNTS FOR 5 YEARS.—

15 ‘‘(A) IN GENERAL.—If the target amount 

16 for a Medicare Prescription Drug plan for 

17 2006, 2007, 2008, 2009, or 2010 (as deter18 mined under subsection (b)(4)(B)) exceeds the 

19 applicable costs for the plan for the year by 

20 more than 3 percent, then—

21 ‘‘(i) the entity offering the plan shall 

22 make a payment to the Administrator of 

23 an amount (or the Administrator shall oth24 erwise recover from the plan an amount) 

25 equal to the portion of such excess that is 
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1 in excess of 3 percent of the target 

2 amount; and 

3 ‘‘(ii) the Administrator shall deposit 

4 an amount equal to the amount collected 

5 or otherwise recovered under clause (i) in 

6 the stabilization reserve fund on behalf of 

7 the eligible entity offering such plan. 

8 ‘‘(B) APPLICABLE COSTS.—For purposes 

9 of subparagraph (A), the term ‘applicable costs’ 

10 means, with respect to a Medicare Prescription 

11 Drug plan and year, an amount equal the sum 

12 of—

13 ‘‘(i) the allowable costs for the plan 

14 and year (as determined under subsection 

15 (b)(3)(A); and 

16 ‘‘(ii) the total amount by which 

17 monthly payments to the plan were re18 duced (or otherwise recovered from the 

19 plan) for the year under subsection 

20 (b)(2)(C). 

21 ‘‘(3) USE OF RESERVE FUND TO STABILIZE OR

22 REDUCE MONTHLY PLAN PREMIUMS.—

23 ‘‘(A) IN GENERAL.—For any contract year 

24 beginning after 2007, an eligible entity offering 

25 a Medicare Prescription Drug plan may use 
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1 funds in the stabilization reserve fund in the 

2 Prescription Drug Account that were deposited 

3 in such fund on behalf of the entity to stabilize 

4 or reduce monthly plan premiums submitted 

5 under section 1860D–12(b)(3). 

6 ‘‘(B) PROCEDURES.—The Administrator 

7 shall establish procedures for— 

8 ‘‘(i) reducing monthly plan premiums 

9 submitted under section 1860D–12(b)(3) 

10 pursuant to subparagraph (A); and 

11 ‘‘(ii) making payments from the plan 

12 stabilization reserve fund in the Prescrip13 tion Drug Account to eligible entities that 

14 inform the Secretary under section 

15 1860D–12(b)(5) of the entity’s intent to 

16 use funds in such reserve fund to reduce 

17 such premiums.

18 ‘‘(d) PORTION OF PAYMENTS OF MONTHLY PLAN

19 PREMIUMS ATTRIBUTABLE TO ADMINISTRATIVE EX20 PENSES TIED TO PERFORMANCE REQUIREMENTS.—

21 ‘‘(1) IN GENERAL.—The Administrator shall es22 tablish procedures to adjust the portion of the pay23 ments made to an entity under subsection (a) that 

24 are attributable to administrative expenses (as deter25 mined pursuant to subsection (b)(4)(D)) to ensure 
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1 that the entity meets the performance requirements 

2 described in clauses (ii) and (iii) of section 1860D–

3 13(e)(4)(B). 

4 ‘‘(2) NO EFFECT ON ELIGIBLE BENE5 FICIARIES.—No change in payments made by reason 

6 of this subsection shall affect the beneficiary obliga7 tion under section 1860D–17 for the year in which 

8 such change in payments is made. 

9 ‘‘(e) PAYMENT TERMS.—

10 ‘‘(1) ADMINISTRATOR PAYMENTS.—Payments 

11 to an entity offering a Medicare Prescription Drug 

12 plan under this section shall be made in a manner 

13 determined by the Administrator and based upon the 

14 manner in which payments are made under section 

15 1853(a) (relating to payments to MedicareAdvantage 

16 organizations). 

17 ‘‘(2) PLAN PAYMENTS.—The Administrator 

18 shall establish a process for collecting (or otherwise 

19 recovering) amounts that an entity offering a Medi20 care Prescription Drug plan is required to make to 

21 the Administrator under this section. 

22 ‘‘(f) PAYMENTS TO MEDICAREADVANTAGE PLANS.—

23 For provisions related to payments to MedicareAdvantage 

24 organizations offering MedicareAdvantage plans for quali-
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1 fied prescription drug coverage made available under the 

2 plan, see section 1858A(c). 

3 ‘‘(g) SECONDARY PAYER PROVISIONS.—The provi4 sions of section 1862(b) shall apply to the benefits pro5 vided under this part. 

6 ‘‘COMPUTATION OF MONTHLY BENEFICIARY OBLIGATION

7 ‘‘SEC. 1860D–17. (a) BENEFICIARIES ENROLLED IN

8 A MEDICARE PRESCRIPTION DRUG PLAN.—In the case of 

9 an eligible beneficiary enrolled under this part and in a 

10 Medicare Prescription Drug plan, the monthly beneficiary 

11 obligation for enrollment in such plan in a year shall be 

12 determined as follows: 

13 ‘‘(1) MONTHLY PLAN PREMIUM EQUALS

14 MONTHLY NATIONAL AVERAGE PREMIUM.—If the 

15 amount of the monthly plan premium approved by 

16 the Administrator under section 1860D–13 for a 

17 Medicare Prescription Drug plan for the year is 

18 equal to the monthly national average premium (as 

19 computed under section 1860D–15) for the area for 

20 the year, the monthly beneficiary obligation of the 

21 eligible beneficiary in that year shall be an amount 

22 equal to the applicable percent (as determined in 

23 subsection (c)) of the amount of such monthly na24 tional average premium. 

25 ‘‘(2) MONTHLY PLAN PREMIUM LESS THAN

26 MONTHLY NATIONAL AVERAGE PREMIUM.—If the 
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1 amount of the monthly plan premium approved by 

2 the Administrator under section 1860D–13 for the 

3 Medicare Prescription Drug plan for the year is less 

4 than the monthly national average premium (as 

5 computed under section 1860D–15) for the area for 

6 the year, the monthly beneficiary obligation of the 

7 eligible beneficiary in that year shall be an amount 

8 equal to—

9 ‘‘(A) the applicable percent of the amount 

10 of such monthly national average premium; 

11 minus 

12 ‘‘(B) the amount by which such monthly 

13 national average premium exceeds the amount 

14 of the monthly plan premium approved by the 

15 Administrator for the plan. 

16 ‘‘(3) MONTHLY PLAN PREMIUM EXCEEDS

17 MONTHLY NATIONAL AVERAGE PREMIUM.—If the 

18 amount of the monthly plan premium approved by 

19 the Administrator under section 1860D–13 for a 

20 Medicare Prescription Drug plan for the year ex21 ceeds the monthly national average premium (as 

22 computed under section 1860D–15) for the area for 

23 the year, the monthly beneficiary obligation of the 

24 eligible beneficiary in that year shall be an amount 

25 equal to the sum of—
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1 ‘‘(A) the applicable percent of the amount 

2 of such monthly national average premium; plus 

3 ‘‘(B) the amount by which the monthly 

4 plan premium approved by the Administrator 

5 for the plan exceeds the amount of such month6 ly national average premium. 

7 ‘‘(b) BENEFICIARIES ENROLLED IN A

8 MEDICAREADVANTAGE PLAN.—In the case of an eligible 

9 beneficiary that is enrolled in a MedicareAdvantage plan 

10 (except for an MSA plan or a private fee-for-service plan 

11 that does not provide qualified prescription drug cov12 erage), the Medicare monthly beneficiary obligation for 

13 qualified prescription drug coverage shall be determined 

14 pursuant to section 1858A(d). 

15 ‘‘(c) APPLICABLE PERCENT.—For purposes of this 

16 section, except as provided in section 1860D–19 (relating 

17 to premium subsidies for low-income individuals), the ap18 plicable percent for any year is the percentage equal to 

19 a fraction—

20 ‘‘(1) the numerator of which is 27.5 percent; 

21 and 

22 ‘‘(2) the denominator of which is 100 percent 

23 minus a percentage equal to—

24 ‘‘(A) the total reinsurance payments which 

25 the Administrator estimates will be made under 
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1 section 1860D–20 to qualifying entities de2 scribed in subsection (e)(3) of such section dur3 ing the year; divided by 

4 ‘‘(B) the sum of—

5 ‘‘(i) the amount estimated under sub6 paragraph (A) for the year; and 

7 ‘‘(ii) the total payments which the Ad8 ministrator estimates will be made under 

9 sections 1860D–16 and 1858A(c) during 

10 the year that relate to standard prescrip11 tion drug coverage (or actuarially equiva12 lent prescription drug coverage). 

13 ‘‘COLLECTION OF MONTHLY BENEFICIARY OBLIGATION

14 ‘‘SEC. 1860D–18. (a) COLLECTION OF AMOUNT IN

15 SAME MANNER AS PART B PREMIUM.—

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

17 the amount of the monthly beneficiary obligation 

18 (determined under section 1860D–17) applicable to 

19 an eligible beneficiary under this part (after applica20 tion of any increase under section 1860D–

21 2(b)(1)(A)) shall be collected and credited to the 

22 Prescription Drug Account in the same manner as 

23 the monthly premium determined under section 

24 1839 is collected and credited to the Federal Supple25 mentary Medical Insurance Trust Fund under sec26 tion 1840.
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1 ‘‘(2) PROCEDURES FOR SPONSOR TO PAY OBLI2 GATION ON BEHALF OF RETIREE.—The Adminis3 trator shall establish procedures under which an eli4 gible beneficiary enrolled in a Medicare Prescription 

5 Drug plan may elect to have the sponsor (as defined 

6 in paragraph (5) of section 1860D–20(e)) of employ7 ment-based retiree health coverage (as defined in 

8 paragraph (4)(B) of such section) in which the bene9 ficiary is enrolled pay the amount of the monthly 

10 beneficiary obligation applicable to the beneficiary 

11 under this part directly to the Administrator. 

12 ‘‘(b) INFORMATION NECESSARY FOR COLLECTION.—

13 In order to carry out subsection (a), the Administrator 

14 shall transmit to the Commissioner of Social Security—

15 ‘‘(1) by the beginning of each year, the name, 

16 social security account number, monthly beneficiary 

17 obligation owed by each individual enrolled in a 

18 Medicare Prescription Drug plan for each month 

19 during the year, and other information determined 

20 appropriate by the Administrator; and 

21 ‘‘(2) periodically throughout the year, informa22 tion to update the information previously trans23 mitted under this paragraph for the year. 

24 ‘‘(c) COLLECTION FOR BENEFICIARIES ENROLLED IN

25 A MEDICAREADVANTAGE PLAN.—For provisions related 
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1 to the collection of the monthly beneficiary obligation for 

2 qualified prescription drug coverage under a 

3 MedicareAdvantage plan, see section 1858A(e). 

4 ‘‘PREMIUM AND COST-SHARING SUBSIDIES FOR LOW5 INCOME INDIVIDUALS

6 ‘‘SEC. 1860D–19. (a) AMOUNT OF SUBSIDIES.—

7 ‘‘(1) FULL PREMIUM SUBSIDY AND REDUCTION

8 OF COST-SHARING FOR QUALIFIED MEDICARE BENE9 FICIARIES.—In the case of a qualified medicare ben10 eficiary (as defined in paragraph (4)(A))—

11 ‘‘(A) section 1860D–17 shall be applied—

12 ‘‘(i) in subsection (c), by substituting 

13 ‘0 percent’ for the applicable percent that 

14 would otherwise apply under such sub15 section; and 

16 ‘‘(ii) in subsection (a)(3)(B), by sub17 stituting ‘the amount of the monthly plan 

18 premium for the Medicare Prescription 

19 Drug plan with the lowest monthly plan 

20 premium in the area that the beneficiary 

21 resides’ for ‘the amount of such monthly 

22 national average premium’, but only if 

23 there is no Medicare Prescription Drug 

24 plan offered in the area in which the indi25 vidual resides that has a monthly plan pre26 mium for the year that is equal to or less 
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1 than the monthly national average pre2 mium (as computed under section 1860D–

3 15) for the area for the year; 

4 ‘‘(B) the annual deductible applicable 

5 under section 1860D–6(c)(1) in a year shall be 

6 reduced to $0; 

7 ‘‘(C) section 1860D–6(c)(2) shall be ap8 plied by substituting ‘2.5 percent’ for ‘50 per9 cent’ each place it appears; 

10 ‘‘(D) such individual shall be responsible 

11 for cost-sharing for the cost of any covered 

12 drug provided in the year (after the individual 

13 has reached the initial coverage limit described 

14 in section 1860D–6(c)(3) and before the indi15 vidual has reached the annual out-of-pocket 

16 limit under section 1860D–6(c)(4)(A)), that is 

17 equal to 5.0 percent; and 

18 ‘‘(E) section 1860D–6(c)(4)(A) shall be 

19 applied by substituting ‘2.5 percent’ for ‘10 

20 percent’. 

21 In no case may the application of subparagraph (A) 

22 result in a monthly beneficiary obligation that is 

23 below 0. 

24 ‘‘(2) FULL PREMIUM SUBSIDY AND REDUCTION

25 OF COST-SHARING FOR SPECIFIED LOW INCOME
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1 MEDICARE BENEFICIARIES AND QUALIFYING INDI2 VIDUALS.—In the case of a specified low income 

3 medicare beneficiary (as defined in paragraph 

4 (4)(B)) or a qualifying individual (as defined in 

5 paragraph (4)(C))—

6 ‘‘(A) section 1860D–17 shall be applied—

7 ‘‘(i) in subsection (c), by substituting 

8 ‘0 percent’ for the applicable percent that 

9 would otherwise apply under such sub10 section; and 

11 ‘‘(ii) in subsection (a)(3)(B), by sub12 stituting ‘the amount of the monthly plan 

13 premium for the Medicare Prescription 

14 Drug plan with the lowest monthly plan 

15 premium in the area that the beneficiary 

16 resides’ for ‘the amount of such monthly 

17 national average premium’, but only if 

18 there is no Medicare Prescription Drug 

19 plan offered in the area in which the indi20 vidual resides that has a monthly plan pre21 mium for the year that is equal to or less 

22 than the monthly national average pre23 mium (as computed under section 1860D–

24 15) for the area for the year; 
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1 ‘‘(B) the annual deductible applicable 

2 under section 1860D–6(c)(1) in a year shall be 

3 reduced to $0; 

4 ‘‘(C) section 1860D–6(c)(2) shall be ap5 plied by substituting ‘5.0 percent’ for ‘50 per6 cent’ each place it appears; 

7 ‘‘(D) such individual shall be responsible 

8 for cost-sharing for the cost of any covered 

9 drug provided in the year (after the individual 

10 has reached the initial coverage limit described 

11 in section 1860D–6(c)(3) and before the indi12 vidual has reached the annual out-of-pocket 

13 limit under section 1860D–6(c)(4)(A)), that is 

14 equal to 10.0 percent; and

15 ‘‘(E) section 1860D–6(c)(4)(A) shall be 

16 applied by substituting ‘2.5 percent’ for ‘10 

17 percent’. 

18 In no case may the application of subparagraph (A) 

19 result in a monthly beneficiary obligation that is 

20 below 0. 

21 ‘‘(3) SLIDING SCALE PREMIUM SUBSIDY AND

22 REDUCTION OF COST-SHARING FOR SUBSIDY-ELIGI23 BLE INDIVIDUALS.—
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1 ‘‘(A) IN GENERAL.—In the case of a sub2 sidy-eligible individual (as defined in paragraph 

3 (4)(D))—

4 ‘‘(i) section 1860D–17 shall be ap5 plied—

6 ‘‘(I) in subsection (c), by sub7 stituting ‘subsidy percent’ for the ap8 plicable percentage that would other9 wise apply under such subsection; and 

10 ‘‘(II) in subparagraphs (A) and 

11 (B) of subsection (a)(3), by sub12 stituting ‘the amount of the monthly 

13 plan premium for the Medicare Pre14 scription Drug plan with the lowest 

15 monthly plan premium in the area 

16 that the beneficiary resides’ for ‘the 

17 amount of such monthly national av18 erage premium’, but only if there is 

19 no Medicare Prescription Drug plan 

20 offered in the area in which the indi21 vidual resides that has a monthly plan 

22 premium for the year that is equal to 

23 or less than the monthly national av24 erage premium (as computed under 
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1 section 1860D–15) for the area for 

2 the year; 

3 ‘‘(ii) the annual deductible applicable 

4 under section 1860D–6(c)(1)—

5 ‘‘(I) for 2006, shall be reduced to 

6 $50; and 

7 ‘‘(II) for a subsequent year, shall 

8 be reduced to the amount specified 

9 under this clause for the previous year 

10 increased by the percentage specified 

11 in section 1860D–6(c)(5) for the year 

12 involved; 

13 ‘‘(iii) section 1860D–6(c)(2) shall be 

14 applied by substituting ‘10.0 percent’ for 

15 ‘50 percent’ each place it appears; 

16 ‘‘(iv) such individual shall be respon17 sible for cost-sharing for the cost of any 

18 covered drug provided in the year (after 

19 the individual has reached the initial cov20 erage limit described in section 1860D–

21 6(c)(3) and before the individual has 

22 reached the annual out-of-pocket limit 

23 under section 1860D–6(c)(4)(A)), that is 

24 equal to 20.0 percent; and 
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1 ‘‘(v) such individual shall be respon2 sible for the cost-sharing described in sec3 tion 1860D–6(c)(4)(A). 

4 In no case may the application of clause (i) re5 sult in a monthly beneficiary obligation that is 

6 below 0. 

7 ‘‘(B) SUBSIDY PERCENT DEFINED.—For 

8 purposes of subparagraph (A)(i), the term ‘sub9 sidy percent’ means, with respect to a State, a 

10 percent determined on a linear sliding scale 

11 ranging from—

12 ‘‘(i) 0 percent with respect to a sub13 sidy-eligible individual residing in the State 

14 whose income does not exceed 135 percent 

15 of the poverty line; to 

16 ‘‘(ii) the highest percentage that 

17 would otherwise apply under section 

18 1860D–17 in the service area in which the 

19 subsidy-eligible individual resides, in the 

20 case of a subsidy-eligible individual resid21 ing in the State whose income equals 160 

22 percent of the poverty line. 

23 ‘‘(4) DEFINITIONS.—In this part: 

24 ‘‘(A) QUALIFIED MEDICARE BENE25 FICIARY.—Subject to subparagraph (H), the 
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1 term ‘qualified medicare beneficiary’ means an 

2 individual who—

3 ‘‘(i) is enrolled under this part, in4 cluding an individual who is enrolled under 

5 a MedicareAdvantage plan; and 

6 ‘‘(ii) is described in section 

7 1905(p)(1).

8 ‘‘(B) SPECIFIED LOW INCOME MEDICARE

9 BENEFICIARY.—Subject to subparagraph (H), 

10 the term ‘specified low income medicare bene11 ficiary’ means an individual who—

12 ‘‘(i) is enrolled under this part, in13 cluding an individual who is enrolled under 

14 a MedicareAdvantage plan; and 

15 ‘‘(ii) is described in section 

16 1902(a)(10)(E)(iii). 

17 ‘‘(C) QUALIFYING INDIVIDUAL.—Subject 

18 to subparagraph (H), the term ‘qualifying indi19 vidual’ means an individual who—

20 ‘‘(i) is enrolled under this part, in21 cluding an individual who is enrolled under 

22 a MedicareAdvantage plan; and 

23 ‘‘(ii) is described in section 

24 1902(a)(10)(E)(iv) (without regard to any 
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1 termination of the application of such sec2 tion under title XIX). 

3 ‘‘(D) SUBSIDY-ELIGIBLE INDIVIDUAL.—

4 Subject to subparagraph (H), the term ‘sub5 sidy-eligible individual’ means an individual—

6 ‘‘(i) who is enrolled under this part, 

7 including an individual who is enrolled 

8 under a MedicareAdvantage plan 

9 ‘‘(ii) whose income is less than 160 

10 percent of the poverty line; and 

11 ‘‘(iii) who is not—

12 ‘‘(I) a qualified medicare bene13 ficiary; 

14 ‘‘(II) a specified low-income 

15 medicare beneficiary; or 

16 ‘‘(III) a qualifying individual.

17 ‘‘(E) POVERTY LINE.—The term ‘poverty 

18 line’ has the meaning given such term in sec19 tion 673(2) of the Community Services Block 

20 Grant Act (42 U.S.C. 9902(2)), including any 

21 revision required by such section. 

22 ‘‘(F) ELIGIBILITY DETERMINATIONS.—Be23 ginning on November 1, 2005, the determina24 tion of whether an individual residing in a State 

25 is an individual described in subparagraph (A), 
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1 (B), (C), or (D) and, for purposes of paragraph 

2 (3), the amount of an individual’s income, shall 

3 be determined under the State medicaid plan 

4 for the State under section 1935(a). In the case 

5 of a State that does not operate such a med6 icaid plan (either under title XIX or under a 

7 statewide waiver granted under section 1115), 

8 such determination shall be made under ar9 rangements made by the Administrator. 

10 ‘‘(G) NONAPPLICATION TO DUAL ELIGIBLE

11 INDIVIDUALS AND TERRITORIAL RESIDENTS.—

12 In the case of an individual who is not a resi13 dent of the 50 States or the District of Colum14 bia—

15 ‘‘(i) the subsidies provided under this 

16 section shall not apply; and 

17 ‘‘(ii) such individuals may be provided 

18 with medical assistance for covered out19 patient drugs (as such term is defined for 

20 purposes of section 1927) in accordance 

21 with section 1935 under the State med22 icaid program under title XIX. 

23 ‘‘(b) RULES IN APPLYING COST-SHARING SUB24 SIDIES.—Nothing in this section shall be construed as pre25 venting an eligible entity offering a Medicare Prescription 
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1 Drug plan or a MedicareAdvantage organization offering 

2 a MedicareAdvantage plan from waiving or reducing the 

3 amount of the deductible or other cost-sharing otherwise 

4 applicable pursuant to section 1860D–6(a)(2). 

5 ‘‘(c) ADMINISTRATION OF SUBSIDY PROGRAM.—The 

6 Administrator shall establish a process whereby, in the 

7 case of an individual eligible for a cost-sharing subsidy 

8 under subsection (a) who is enrolled in a Medicare Pre9 scription Drug plan or a MedicareAdvantage plan—

10 ‘‘(1) the Administrator provides for a notifica11 tion of the eligible entity or MedicareAdvantage or12 ganization involved that the individual is eligible for 

13 a cost-sharing subsidy and the amount of the sub14 sidy under such subsection; 

15 ‘‘(2) the entity or organization involved reduces 

16 the cost-sharing otherwise imposed by the amount of 

17 the applicable subsidy and submits to the Adminis18 trator information on the amount of such reduction; 

19 and 

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

21 timely basis reimburses the entity or organization 

22 for the amount of such reductions. 

23 The reimbursement under paragraph (3) may be com24 puted on a capitated basis, taking into account the actu-
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1 arial value of the subsidies and with appropriate adjust2 ments to reflect differences in the risks actually involved. 

3 ‘‘(d) RELATION TO MEDICAID PROGRAM.—For provi4 sions providing for eligibility determinations and addi5 tional Federal payments for expenditures related to pro6 viding prescription drug coverage for territorial residents 

7 under the medicaid program, see section 1935. 

8 ‘‘REINSURANCE PAYMENTS FOR EXPENSES INCURRED IN

9 PROVIDING PRESCRIPTION DRUG COVERAGE ABOVE

10 THE ANNUAL OUT-OF-POCKET THRESHOLD

11 ‘‘SEC. 1860D–20. (a) REINSURANCE PAYMENTS.—

12 ‘‘(1) IN GENERAL.—Subject to section 1860D–

13 21(b), the Administrator shall provide in accordance 

14 with this section for payment to a qualifying entity 

15 of the reinsurance payment amount (as specified in 

16 subsection (c)(1)) for costs incurred by the entity in 

17 providing prescription drug coverage for a qualifying 

18 covered individual after the individual has reached 

19 the annual out-of-pocket threshold specified in sec20 tion 1860D–6(c)(4)(B) for the year. 

21 ‘‘(2) BUDGET AUTHORITY.—This section con22 stitutes budget authority in advance of appropria23 tions Acts and represents the obligation of the Ad24 ministrator to provide for the payment of amounts 

25 provided under this section. 
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1 ‘‘(b) NOTIFICATION OF SPENDING UNDER THE PLAN

2 FOR COSTS INCURRED IN PROVIDING PRESCRIPTION

3 DRUG COVERAGE ABOVE THE ANNUAL OUT-OF-POCKET

4 THRESHOLD.—

5 ‘‘(1) IN GENERAL.—Each qualifying entity shall 

6 notify the Administrator of the following with re7 spect to a qualifying covered individual for a cov8 erage year: 

9 ‘‘(A) TOTAL ACTUAL COSTS.—The total 

10 amount (if any) of costs that the qualifying en11 tity incurred in providing prescription drug cov12 erage for the individual in the year after the in13 dividual had reached the annual out-of-pocket 

14 threshold specified in section 1860D–6(c)(4)(B) 

15 for the year. 

16 ‘‘(B) ACTUAL COSTS FOR SPECIFIC

17 DRUGS.—With respect to the total amount 

18 under subparagraph (A) for the year, a break19 down of— 

20 ‘‘(i) each covered drug that con21 stitutes a portion of such amount; 

22 ‘‘(ii) the negotiated price for the 

23 qualifying entity for each such drug; 

24 ‘‘(iii) the number of prescriptions; and 
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1 ‘‘(iv) the average beneficiary coinsur2 ance rate for a each covered drug that con3 stitutes a portion of such amount. 

4 ‘‘(2) CERTAIN EXPENSES NOT INCLUDED.—The 

5 amounts under subparagraphs (A) and (B)(ii) of 

6 paragraph (1) may not include—

7 ‘‘(A) administrative expenses incurred in 

8 providing the coverage described in paragraph 

9 (1)(A); or 

10 ‘‘(B) amounts expended on providing addi11 tional prescription drug coverage pursuant to 

12 section 1860D–6(a)(2). 

13 ‘‘(3) RESTRICTION ON USE OF INFORMATION.—

14 The restriction specified in section 1860D–

15 16(b)(7)(B) shall apply to information disclosed or 

16 obtained pursuant to the provisions of this section. 

17 ‘‘(c) REINSURANCE PAYMENT AMOUNT.—

18 ‘‘(1) IN GENERAL.—The reinsurance payment 

19 amount under this subsection for a qualifying cov20 ered individual for a coverage year is an amount 

21 equal to 80 percent of the allowable costs (as speci22 fied in paragraph (2)) incurred by the qualifying en23 tity with respect to the individual and year. 

24 ‘‘(2) ALLOWABLE COSTS.—
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1 ‘‘(A) IN GENERAL.—In the case of a quali2 fying entity that has incurred costs described in 

3 subsection (b)(1)(A) with respect to a quali4 fying covered individual for a coverage year, the 

5 Administrator shall establish the allowable costs 

6 for the individual and year. Such allowable 

7 costs shall be equal to the amount described in 

8 such subsection for the individual and year, ad9 justed under subparagraph (B). 

10 ‘‘(B) REPRICING OF COSTS IF ACTUAL

11 COSTS EXCEED AVERAGE COSTS.—The Admin12 istrator shall reduce the amount described in 

13 subsection (b)(1)(A) with respect to a quali14 fying covered individual for a coverage year to 

15 the extent such amount is based on costs of 

16 specific covered drugs furnished under the plan 

17 in the year (as specified under subsection 

18 (b)(1)(B)) that are greater than the average 

19 cost for the covered drug for the year (as deter20 mined under section 1860D–16(b)(3)(A)). 

21 ‘‘(d) PAYMENT METHODS.—

22 ‘‘(1) IN GENERAL.—Payments under this sec23 tion shall be based on such a method as the Admin24 istrator determines. The Administrator may estab25 lish a payment method by which interim payments 
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1 of amounts under this section are made during a 

2 year based on the Administrator’s best estimate of 

3 amounts that will be payable after obtaining all of 

4 the information. 

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

6 this section shall be made from the Prescription 

7 Drug Account. 

8 ‘‘(e) DEFINITIONS.—In this section: 

9 ‘‘(1) COVERAGE YEAR.—The term ‘coverage 

10 year’ means a calendar year in which covered drugs 

11 are dispensed if a claim for payment is made under 

12 the plan for such drugs, regardless of when the 

13 claim is paid.

14 ‘‘(2) QUALIFYING COVERED INDIVIDUAL.—The 

15 term ‘qualifying covered individual’ means an indi16 vidual who—

17 ‘‘(A) is enrolled in this part and in a Medi18 care Prescription Drug plan; 

19 ‘‘(B) is enrolled in this part and in a 

20 MedicareAdvantage plan (except for an MSA 

21 plan or a private fee-for-service plan that does 

22 not provide qualified prescription drug cov23 erage); or 
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1 ‘‘(C) is eligible for, but not enrolled in, the 

2 program under this part, and is covered under 

3 a qualified retiree prescription drug plan. 

4 ‘‘(3) QUALIFYING ENTITY.—The term ‘quali5 fying entity’ means any of the following that has en6 tered into an agreement with the Administrator to 

7 provide the Administrator with such information as 

8 may be required to carry out this section: 

9 ‘‘(A) An eligible entity offering a Medicare 

10 Prescription Drug plan under this part. 

11 ‘‘(B) A MedicareAdvantage organization 

12 offering a MedicareAdvantage plan under part 

13 C (except for an MSA plan or a private fee-for14 service plan that does not provide qualified pre15 scription drug coverage). 

16 ‘‘(C) The sponsor of a qualified retiree pre17 scription drug plan. 

18 ‘‘(4) QUALIFIED RETIREE PRESCRIPTION DRUG

19 PLAN.—

20 ‘‘(A) IN GENERAL.—The term ‘qualified 

21 retiree prescription drug plan’ means employ22 ment-based retiree health coverage if, with re23 spect to a qualifying covered individual who is 

24 covered under the plan, the following require25 ments are met: 
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1 ‘‘(i) ASSURANCE.—The sponsor of the 

2 plan shall annually attest, and provide 

3 such assurances as the Administrator may 

4 require, that the coverage meets or exceeds 

5 the requirements for qualified prescription 

6 drug coverage. 

7 ‘‘(ii) DISCLOSURE OF INFORMA8 TION.—The sponsor complies with the re9 quirements described in clauses (i) and (ii) 

10 of section 1860D–16(b)(7)(A). 

11 ‘‘(B) EMPLOYMENT-BASED RETIREE

12 HEALTH COVERAGE.—The term ‘employment13 based retiree health coverage’ means health in14 surance or other coverage, whether provided by 

15 voluntary insurance coverage or pursuant to 

16 statutory or contractual obligation, of health 

17 care costs for retired individuals (or for such in18 dividuals and their spouses and dependents) 

19 based on their status as former employees or 

20 labor union members. 

21 ‘‘(5) SPONSOR.—The term ‘sponsor’ means a 

22 plan sponsor, as defined in section 3(16)(B) of the 

23 Employee Retirement Income Security Act of 1974. 
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1 ‘‘DIRECT SUBSIDY FOR SPONSOR OF A QUALIFIED RE2 TIREE PRESCRIPTION DRUG PLAN FOR PLAN EN3 ROLLEES ELIGIBLE FOR, BUT NOT ENROLLED IN, 

4 THIS PART

5 ‘‘SEC. 1860D–21. (a) DIRECT SUBSIDY.—

6 ‘‘(1) IN GENERAL.—The Administrator shall 

7 provide for the payment to a sponsor of a qualified 

8 retiree prescription drug plan (as defined in section 

9 1860D–20(e)(4)) for each qualifying covered indi10 vidual (described in subparagraph (C) of section 

11 1860D–20(e)(2)) enrolled in the plan for each 

12 month for which such individual is so enrolled. 

13 ‘‘(2) AMOUNT OF PAYMENT.—

14 ‘‘(A) IN GENERAL.—The amount of the 

15 payment under paragraph (1) shall be an 

16 amount equal to the direct subsidy percent de17 termined for the year of the monthly national 

18 average premium for the area for the year (de19 termined under section 1860D–15), as adjusted 

20 using the risk adjusters that apply to the stand21 ard prescription drug coverage published under 

22 section 1860D–11.

23 ‘‘(B) DIRECT SUBSIDY PERCENT.—For 

24 purposes of subparagraph (A), the term ‘direct 
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1 subsidy percent’ means the percentage equal 

2 to—

3 ‘‘(i) 100 percent; minus 

4 ‘‘(ii) the applicable percent for the 

5 year (as determined under section 1860D–

6 17(c). 

7 ‘‘(b) PAYMENT METHODS.—

8 ‘‘(1) IN GENERAL.—Payments under this sec9 tion shall be based on such a method as the Admin10 istrator determines. The Administrator may estab11 lish a payment method by which interim payments 

12 of amounts under this section are made during a 

13 year based on the Administrator’s best estimate of 

14 amounts that will be payable after obtaining all of 

15 the information. 

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

17 this section shall be made from the Prescription 

18 Drug Account. 

19 ‘‘Subpart 3—Miscellaneous Provisions 

20 ‘‘PRESCRIPTION DRUG ACCOUNT IN THE FEDERAL

21 SUPPLEMENTARY MEDICAL INSURANCE TRUST FUND

22 ‘‘SEC. 1860D–25. (a) ESTABLISHMENT.—

23 ‘‘(1) IN GENERAL.—There is created within the 

24 Federal Supplementary Medical Insurance Trust 

25 Fund established by section 1841 an account to be 
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1 known as the ‘Prescription Drug Account’ (in this 

2 section referred to as the ‘Account’). 

3 ‘‘(2) FUNDS.—The Account shall consist of 

4 such gifts and bequests as may be made as provided 

5 in section 201(i)(1), and such amounts as may be 

6 deposited in, or appropriated to, the Account as pro7 vided in this part. 

8 ‘‘(3) SEPARATE FROM REST OF TRUST FUND.—

9 Funds provided under this part to the Account shall 

10 be kept separate from all other funds within the 

11 Federal Supplementary Medical Insurance Trust 

12 Fund. 

13 ‘‘(b) PAYMENTS FROM ACCOUNT.—

14 ‘‘(1) IN GENERAL.—The Managing Trustee 

15 shall pay from time to time from the Account such 

16 amounts as the Secretary certifies are necessary to 

17 make payments to operate the program under this 

18 part, including—

19 ‘‘(A) payments to eligible entities under 

20 section 1860D–16; 

21 ‘‘(B) payments under 1860D–19 for low22 income subsidy payments for cost-sharing; 

23 ‘‘(C) reinsurance payments under section 

24 1860D–20; 
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1 ‘‘(D) payments to sponsors of qualified re2 tiree prescription drug plans under section 

3 1860D–21; 

4 ‘‘(E) payments to MedicareAdvantage or5 ganizations for the provision of qualified pre6 scription drug coverage under section 1858A(c); 

7 and 

8 ‘‘(F) payments with respect to administra9 tive expenses under this part in accordance with 

10 section 201(g). 

11 ‘‘(2) TREATMENT IN RELATION TO PART B PRE12 MIUM.—Amounts payable from the Account shall not 

13 be taken into account in computing actuarial rates 

14 or premium amounts under section 1839. 

15 ‘‘(c) APPROPRIATIONS TO COVER BENEFITS AND

16 ADMINISTRATIVE COSTS.—There are appropriated to the 

17 Account in a fiscal year, out of any moneys in the Treas18 ury not otherwise appropriated, an amount equal to the 

19 payments and transfers made from the Account in the 

20 year. 

21 ‘‘OTHER RELATED PROVISIONS

22 ‘‘SEC. 1860D–26. (a) RESTRICTION ON ENROLL23 MENT IN A MEDICARE PRESCRIPTION DRUG PLAN OF24 FERED BY A SPONSOR OF EMPLOYMENT-BASED RETIREE

25 HEALTH COVERAGE.—
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1 ‘‘(1) IN GENERAL.—In the case of a Medicare 

2 Prescription Drug plan offered by an eligible entity 

3 that is a sponsor (as defined in paragraph (5) of 

4 section 1860D–20(e)) of employment-based retiree 

5 health coverage (as defined in paragraph (4)(B) of 

6 such section), notwithstanding any other provision of 

7 this part and in accordance with regulations of the 

8 Administrator, the entity offering the plan may re9 strict the enrollment of eligible beneficiaries enrolled 

10 under this part to eligible beneficiaries who are en11 rolled in such coverage. 

12 ‘‘(2) LIMITATION.—The sponsor of the employ13 ment-based retiree health coverage described in 

14 paragraph (1) may not offer enrollment in the Medi15 care Prescription Drug plan described in such para16 graph based on the health status of eligible bene17 ficiaries enrolled for such coverage. 

18 ‘‘(b) COORDINATION WITH STATE PHARMACEUTICAL

19 ASSISTANCE PROGRAMS.—

20 ‘‘(1) IN GENERAL.—An eligible entity offering a 

21 Medicare Prescription Drug plan, or a 

22 MedicareAdvantage organization offering a 

23 MedicareAdvantage plan (other than an MSA plan 

24 or a private fee-for-service plan that does not pro25 vide qualified prescription drug coverage), may enter 
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1 into an agreement with a State pharmaceutical as2 sistance program described in paragraph (2) to co3 ordinate the coverage provided under the plan with 

4 the assistance provided under the State pharma5 ceutical assistance program. 

6 ‘‘(2) STATE PHARMACEUTICAL ASSISTANCE

7 PROGRAM DESCRIBED.—For purposes of paragraph 

8 (1), a State pharmaceutical assistance program de9 scribed in this paragraph is a program that has been 

10 established pursuant to a waiver under section 1115 

11 or otherwise. 

12 ‘‘(c) REGULATIONS TO CARRY OUT THIS PART.—

13 ‘‘(1) AUTHORITY FOR INTERIM FINAL REGULA14 TIONS.—The Secretary may promulgate initial regu15 lations implementing this part in interim final form 

16 without prior opportunity for public comment. 

17 ‘‘(2) FINAL REGULATIONS.—A final regulation 

18 reflecting public comments must be published within 

19 1 year of the interim final regulation promulgated 

20 under paragraph (1).’’. 

21 (b) CONFORMING AMENDMENTS TO FEDERAL SUP22 PLEMENTARY MEDICAL INSURANCE TRUST FUND.—Sec23 tion 1841 (42 U.S.C. 1395t) is amended—

24 (1) in the last sentence of subsection (a)—
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1 (A) by striking ‘‘and’’ before ‘‘such 

2 amounts’’; and 

3 (B) by inserting before the period the fol4 lowing: ‘‘, and such amounts as may be depos5 ited in, or appropriated to, the Prescription 

6 Drug Account established by section 1860D–

7 25’’; 

8 (2) in subsection (g), by inserting after ‘‘by this 

9 part,’’ the following: ‘‘the payments provided for 

10 under part D (in which case the payments shall be 

11 made from the Prescription Drug Account in the 

12 Trust Fund),’’; 

13 (3) in subsection (h), by inserting after 

14 ‘‘1840(d)’’ the following: ‘‘and sections 1860D–18 

15 and 1858A(e) (in which case the payments shall be 

16 made from the Prescription Drug Account in the 

17 Trust Fund)’’; and 

18 (4) in subsection (i), by inserting after ‘‘section 

19 1840(b)(1)’’ the following: ‘‘, sections 1860D–18 

20 and 1858A(e) (in which case the payments shall be 

21 made from the Prescription Drug Account in the 

22 Trust Fund),’’. 

23 (c) CONFORMING REFERENCES TO PREVIOUS PART

24 D.—Any reference in law (in effect before the date of en25 actment of this Act) to part D of title XVIII of the Social 
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1 Security Act is deemed a reference to part F of such title 

2 (as in effect after such date). 

3 (d) SUBMISSION OF LEGISLATIVE PROPOSAL.—Not 

4 later than 6 months after the date of the enactment of 

5 this Act, the Secretary shall submit to the appropriate 

6 committees of Congress a legislative proposal providing for 

7 such technical and conforming amendments in the law as 

8 are required by the provisions of this Act. 

9 SEC. 102. STUDY AND REPORT ON PERMITTING PART B 

10 ONLY INDIVIDUALS TO ENROLL IN MEDICARE 

11 VOLUNTARY PRESCRIPTION DRUG DELIVERY 

12 PROGRAM. 

13 (a) STUDY.—The Administrator of the Center for 

14 Medicare Choices (as established under section 1808 of 

15 the Social Security Act, as added by section 301(a)) shall 

16 conduct a study on the need for rules relating to permit17 ting individuals who are enrolled under part B of title 

18 XVIII of the Social Security Act but are not entitled to 

19 benefits under part A of such title to buy into the medicare 

20 voluntary prescription drug delivery program under part 

21 D of such title (as so added). 

22 (b) REPORT.—Not later than January 1, 2005, the 

23 Administrator of the Center for Medicare Choices shall 

24 submit a report to Congress on the study conducted under 

25 subsection (a), together with any recommendations for leg-
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1 islation that the Administrator determines to be appro2 priate as a result of such study. 

3 SEC. 103. RULES RELATING TO MEDIGAP POLICIES THAT 

4 PROVIDE PRESCRIPTION DRUG COVERAGE. 

5 (a) RULES RELATING TO MEDIGAP POLICIES THAT

6 PROVIDE PRESCRIPTION DRUG COVERAGE.—Section 

7 1882 (42 U.S.C. 1395ss) is amended by adding at the end 

8 the following new subsection: 

9 ‘‘(v) RULES RELATING TO MEDIGAP POLICIES THAT

10 PROVIDE PRESCRIPTION DRUG COVERAGE.—

11 ‘‘(1) PROHIBITION ON SALE, ISSUANCE, AND

12 RENEWAL OF POLICIES THAT PROVIDE PRESCRIP13 TION DRUG COVERAGE TO PART D ENROLLEES.—

14 ‘‘(A) IN GENERAL.—Notwithstanding any 

15 other provision of law, on or after January 1, 

16 2006, no medicare supplemental policy that 

17 provides coverage of expenses for prescription 

18 drugs may be sold, issued, or renewed under 

19 this section to an individual who is enrolled 

20 under part D. 

21 ‘‘(B) PENALTIES.—The penalties described 

22 in subsection (d)(3)(A)(ii) shall apply with re23 spect to a violation of subparagraph (A). 
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1 ‘‘(2) ISSUANCE OF SUBSTITUTE POLICIES IF

2 THE POLICYHOLDER OBTAINS PRESCRIPTION DRUG

3 COVERAGE UNDER PART D.—

4 ‘‘(A) IN GENERAL.—The issuer of a medi5 care supplemental policy—

6 ‘‘(i) may not deny or condition the 

7 issuance or effectiveness of a medicare 

8 supplemental policy that has a benefit 

9 package classified as ‘A’, ‘B’, ‘C’, ‘D’, ‘E’, 

10 ‘F’ (including the benefit package classi11 fied as ‘F’ with a high deductible feature, 

12 as described in subsection (p)(11)), or ‘G’ 

13 (under the standards established under 

14 subsection (p)(2)) and that is offered and 

15 is available for issuance to new enrollees by 

16 such issuer; 

17 ‘‘(ii) may not discriminate in the pric18 ing of such policy, because of health sta19 tus, claims experience, receipt of health 

20 care, or medical condition; and 

21 ‘‘(iii) may not impose an exclusion of 

22 benefits based on a pre-existing condition 

23 under such policy, 

24 in the case of an individual described in sub25 paragraph (B) who seeks to enroll under the 
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1 policy during the open enrollment period estab2 lished under section 1860D–2(b)(2) and who 

3 submits evidence that they meet the require4 ments under subparagraph (B) along with the 

5 application for such medicare supplemental pol6 icy. 

7 ‘‘(B) INDIVIDUAL DESCRIBED.—An indi8 vidual described in this subparagraph is an in9 dividual who—

10 ‘‘(i) enrolls in the medicare prescrip11 tion drug delivery program under part D; 

12 and 

13 ‘‘(ii) at the time of such enrollment 

14 was enrolled and terminates enrollment in 

15 a medicare supplemental policy which has 

16 a benefit package classified as ‘H’, ‘I’, or 

17 ‘J’ (including the benefit package classified 

18 as ‘J’ with a high deductible feature, as 

19 described in section 1882(p)(11)) under 

20 the standards referred to in subparagraph 

21 (A)(i) or terminates enrollment in a policy 

22 to which such standards do not apply but 

23 which provides benefits for prescription 

24 drugs. 
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1 ‘‘(C) ENFORCEMENT.—The provisions of 

2 subparagraph (A) shall be enforced as though 

3 they were included in subsection (s).

4 ‘‘(3) NOTICE REQUIRED TO BE PROVIDED TO

5 CURRENT POLICYHOLDERS WITH PRESCRIPTION

6 DRUG COVERAGE.—No medicare supplemental policy 

7 of an issuer shall be deemed to meet the standards 

8 in subsection (c) unless the issuer provides written 

9 notice during the 60-day period immediately pre10 ceding the period established for the open enrollment 

11 period established under section 1860D–2(b)(2), to 

12 each individual who is a policyholder or certificate 

13 holder of a medicare supplemental policy issued by 

14 that issuer that provides some coverage of expenses 

15 for prescription drugs (at the most recent available 

16 address of that individual) of—

17 ‘‘(A) the ability to enroll in a new medicare 

18 supplemental policy pursuant to paragraph (2); 

19 and

20 ‘‘(B) the fact that, so long as such indi21 vidual retains coverage under such policy, the 

22 individual shall be ineligible for coverage of pre23 scription drugs under part D.’’. 

24 (b) RULE OF CONSTRUCTION.—
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1 (1) IN GENERAL.—Nothing in this Act shall be 

2 construed to require an issuer of a medicare supple3 mental policy under section 1882 of the Social Secu4 rity Act (42 U.S.C. 1395rr) to participate as an eli5 gible entity under part D of such Act, as added by 

6 section 101, as a condition for issuing such policy. 

7 (2) PROHIBITION ON STATE REQUIREMENT.—A 

8 State may not require an issuer of a medicare sup9 plemental policy under section 1882 of the Social 

10 Security Act (42 U.S.C. 1395rr) to participate as an 

11 eligible entity under part D of such Act, as added 

12 by section 101, as a condition for issuing such pol13 icy. 

14 SEC. 104. MEDICAID AND OTHER AMENDMENTS RELATED 

15 TO LOW-INCOME BENEFICIARIES. 

16 (a) DETERMINATIONS OF ELIGIBILITY FOR LOW-IN17 COME SUBSIDIES.—Section 1902(a) (42 U.S.C. 1396a(a)) 

18 is amended—

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

20 (64); 

21 (2) by striking the period at the end of para22 graph (65) and inserting ‘‘; and’’; and 

23 (3) by inserting after paragraph (65) the fol24 lowing new paragraph: 
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1 ‘‘(66) provide for making eligibility determina2 tions under section 1935(a).’’. 

3 (b) NEW SECTION.—

4 (1) IN GENERAL.—Title XIX (42 U.S.C. 1396 

5 et seq.) is amended—

6 (A) by redesignating section 1935 as sec7 tion 1936; and 

8 (B) by inserting after section 1934 the fol9 lowing new section: 

10 ‘‘SPECIAL PROVISIONS RELATING TO MEDICARE

11 PRESCRIPTION DRUG BENEFIT

12 ‘‘SEC. 1935. (a) REQUIREMENT FOR MAKING ELIGI13 BILITY DETERMINATIONS FOR LOW-INCOME SUB14 SIDIES.—As a condition of its State plan under this title 

15 under section 1902(a)(66) and receipt of any Federal fi16 nancial assistance under section 1903(a), a State shall 

17 satisfy the following: 

18 ‘‘(1) DETERMINATION OF ELIGIBILITY FOR

19 TRANSITIONAL PRESCRIPTION DRUG ASSISTANCE

20 CARD PROGRAM FOR ELIGIBLE LOW-INCOME BENE21 FICIARIES.—For purposes of section 1807A, submit 

22 to the Secretary an eligibility plan under which the 

23 State—

24 ‘‘(A) establishes eligibility standards con25 sistent with the provisions of that section; 
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1 ‘‘(B) establishes procedures for providing 

2 presumptive eligibility for eligible low-income 

3 beneficiaries (as defined in section 1807A(i)(2)) 

4 under that section in a manner that is similar 

5 to the manner in which presumptive eligibility 

6 is provided to children and pregnant women 

7 under this title; 

8 ‘‘(C) makes determinations of eligibility 

9 and income for purposes of identifying eligible 

10 low-income beneficiaries (as so defined) under 

11 that section; and

12 ‘‘(D) communicates to the Secretary deter13 minations of eligibility or discontinuation of eli14 gibility under that section for purposes of noti15 fying prescription drug card sponsors under 

16 that section of the identity of eligible medicare 

17 low-income beneficiaries. 

18 ‘‘(2) DETERMINATION OF ELIGIBILITY FOR

19 PREMIUM AND COST-SHARING SUBSIDIES UNDER

20 PART D OF TITLE XVIII FOR LOW-INCOME INDIVID21 UALS.—Beginning November 1, 2005, for purposes 

22 of section 1860D–19—

23 ‘‘(A) make determinations of eligibility for 

24 premium and cost-sharing subsidies under and 

25 in accordance with such section; 
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1 ‘‘(B) establish procedures for providing 

2 presumptive eligibility for individuals eligible for 

3 subsidies under that section in a manner that 

4 is similar to the manner in which presumptive 

5 eligibility is provided to children and pregnant 

6 women under this title; 

7 ‘‘(C) inform the Administrator of the Cen8 ter for Medicare Choices of such determinations 

9 in cases in which such eligibility is established; 

10 and 

11 ‘‘(D) otherwise provide such Administrator 

12 with such information as may be required to 

13 carry out part D of title XVIII (including sec14 tion 1860D–19). 

15 ‘‘(3) AGREEMENT TO ESTABLISH INFORMATION

16 AND ENROLLMENT SITES AT SOCIAL SECURITY

17 FIELD OFFICES.—Enter into an agreement with the 

18 Commissioner of Social Security to use all Social Se19 curity field offices located in the State as informa20 tion and enrollment sites for making the eligibility 

21 determinations required under paragraphs (1) and 

22 (2).

23 ‘‘(b) FEDERAL SUBSIDY OF ADMINISTRATIVE

24 COSTS.—
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1 ‘‘(1) ENHANCED MATCH FOR ELIGIBILITY DE2 TERMINATIONS.—Subject to paragraphs (2) and (4), 

3 with respect to calendar quarters beginning on or 

4 after January 1, 2004, the amounts expended by a 

5 State in carrying out subsection (a) are expenditures 

6 reimbursable under section 1903(a)(7) except that, 

7 in applying such section with respect to such ex8 penditures incurred for—

9 ‘‘(A) such calendar quarters occurring in 

10 fiscal year 2004 or 2005, ‘75 percent’ shall be 

11 substituted for ‘50 per centum’; 

12 ‘‘(B) calendar quarters occurring in fiscal 

13 year 2006, ‘70 percent’ shall be substituted for 

14 ‘50 per centum’; 

15 ‘‘(C) calendar quarters occurring in fiscal 

16 year 2007, ‘65 percent’ shall be substituted for 

17 ‘50 per centum’; and 

18 ‘‘(D) calendar quarters occurring in fiscal 

19 year 2008 or any fiscal year thereafter, ‘60 per20 cent’ shall be substituted for ‘50 per centum’. 

21 ‘‘(2) 100 PERCENT MATCH FOR ELIGIBILITY

22 DETERMINATIONS FOR SUBSIDY-ELIGIBLE INDIVID23 UALS.—In the case of amounts expended by a State 

24 on or after November 1, 2005, to determine whether 

25 an individual is a subsidy-eligible individual for pur-
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1 poses of section 1860D–19, such expenditures shall 

2 be reimbursed under section 1903(a)(7) by sub3 stituting ‘100 percent’ for ‘50 per centum’. 

4 ‘‘(3) ENHANCED MATCH FOR UPDATES OR IM5 PROVEMENTS TO ELIGIBILITY DETERMINATION SYS6 TEMS.—With respect to calendar quarters occurring 

7 in fiscal year 2004, 2005, or 2006, the Secretary, in 

8 addition to amounts otherwise paid under section 

9 1903(a), shall pay to each State which has a plan 

10 approved under this title, for each such quarter an 

11 amount equal to 90 percent of so much of the sums 

12 expended during such quarter as are attributable to 

13 the design, development, acquisition, or installation 

14 of improved eligibility determination systems (includ15 ing hardware and software for such systems) in 

16 order to carry out the requirements of subsection (a) 

17 and section 1807A(h)(1) and to the design, develop18 ment, acquisition or installation of improved data 

19 systems necessary to track prescription drug spend20 ing for purposes of implementing section 1935(c). 

21 No payment shall be made to a State under the pre22 ceding sentence unless the State’s improved eligi23 bility determination system—

24 ‘‘(A) satisfies such standards for improve25 ment as the Secretary may establish; and 
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1 ‘‘(B) complies, and is compatible, with the 

2 standards established under part C of title XI 

3 and any regulations promulgated under section 

4 264(c) of the Health Insurance Portability and 

5 Accountability Act of 1996 (42 U.S.C. 1320d–

6 2 note). 

7 ‘‘(4) COORDINATION.—The State shall provide 

8 the Secretary with such information as may be nec9 essary to properly allocate expenditures described in 

10 paragraph (1), (2), or (3) that may otherwise be 

11 made for similar eligibility determinations or expend12 itures. 

13 ‘‘(c) FEDERAL ASSUMPTION OF MEDICAID PRE14 SCRIPTION DRUG COSTS FOR DUALLY ELIGIBLE BENE15 FICIARIES.—

16 ‘‘(1) IN GENERAL.—For purpose of section 

17 1903(a)(1) for a State for a calendar quarter in a 

18 year (beginning with 2006) the amount computed 

19 under this subsection is equal to the product of the 

20 following: 

21 ‘‘(A) STANDARD PRESCRIPTION DRUG COV22 ERAGE UNDER MEDICARE.—With respect to in23 dividuals who are residents of the State, who 

24 are entitled to, or enrolled for, benefits under 

25 part A of title XVIII, or are enrolled under part 
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1 B of title XVIII and are receiving medical as2 sistance under subparagraph (A)(i), (A)(ii), or 

3 (C) of section 1902(a)(10) (or as the result of 

4 the application of section 1902(f)) that includes 

5 covered outpatient drugs (as defined for pur6 poses of section 1927) under the State plan 

7 under this title (including such a plan operated 

8 under a waiver under section 1115)—

9 ‘‘(i) the total amounts attributable to 

10 such individuals in the quarter under sec11 tion 1860D–19 (relating to premium and 

12 cost-sharing subsidies for low-income medi13 care beneficiaries); and 

14 ‘‘(ii) the actuarial value of standard 

15 prescription drug coverage (as determined 

16 under section 1860D–6(f)) provided to 

17 such individuals in the quarter. 

18 ‘‘(B) STATE MATCHING RATE.—A propor19 tion computed by subtracting from 100 percent 

20 the Federal medical assistance percentage (as 

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

22 State and the quarter. 

23 ‘‘(C) PHASE-OUT PROPORTION.—Subject 

24 to subparagraph (D), the phase-out proportion 

25 for a quarter in—
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1 ‘‘(i) 2006 is 100 percent; 

2 ‘‘(ii) 2007 is 95 percent; 

3 ‘‘(iii) 2008 or 2009, is 90 percent; 

4 ‘‘(iv) 2010 is 85 percent; or 

5 ‘‘(v) 2011, 2012, or 2013 is 80 per6 cent. 

7 ‘‘(d) MEDICAID AS SECONDARY PAYOR.—In the case 

8 of an individual who is entitled to a Medicare Prescription 

9 Drug plan under part D or drug coverage under a 

10 MedicareAdvantage plan, and medical assistance including 

11 covered outpatient drugs under this title, medical assist12 ance shall continue to be provided under this title for cov13 ered outpatient drugs to the extent payment is not made 

14 under the Medicare Prescription Drug plan or a 

15 MedicareAdvantage plan. 

16 ‘‘(e) TREATMENT OF TERRITORIES.—

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

18 other than the 50 States and the District of Colum19 bia—

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

21 shall not apply to residents of such State; and 

22 ‘‘(B) if the State establishes a plan de23 scribed in paragraph (2), the amount otherwise 

24 determined under section 1108(f) (as increased 

25 under section 1108(g)) for the State shall be 
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1 further increased by the amount specified in 

2 paragraph (3). 

3 ‘‘(2) PLAN.—The plan described in this para4 graph is a plan that—

5 ‘‘(A) provides medical assistance with re6 spect to the provision of covered drugs (as de7 fined in section 1860D(a)(2)) to individuals de8 scribed in subparagraph (A), (B), (C), or (D) 

9 of section 1860D–19(a)(3); and 

10 ‘‘(B) ensures that additional amounts re11 ceived by the State that are attributable to the 

12 operation of this subsection are used only for 

13 such assistance. 

14 ‘‘(3) INCREASED AMOUNT.—

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

16 in this paragraph for a State for a fiscal year 

17 is equal to the product of—

18 ‘‘(i) the aggregate amount specified in 

19 subparagraph (B); and 

20 ‘‘(ii) the amount specified in section 

21 1108(g)(1) for that State, divided by the 

22 sum of the amounts specified in such sec23 tion for all such States. 
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1 ‘‘(B) AGGREGATE AMOUNT.—The aggre2 gate amount specified in this subparagraph 

3 for—

4 ‘‘(i) the last 3 quarters of fiscal year 

5 2006, is equal to $22,500,000; 

6 ‘‘(ii) fiscal year 2007, is equal to 

7 $30,000,000; and 

8 ‘‘(iii) any subsequent fiscal year, is 

9 equal to the aggregate amount specified in 

10 this subparagraph for the previous fiscal 

11 year increased by the annual percentage 

12 increase specified in section 1860D–6(c)(5) 

13 for the calendar year beginning in such fis14 cal year. 

15 ‘‘(4) NONAPPLICATION.—Section 1927(d)(2)(E) 

16 shall not apply to a State described in paragraph (1) 

17 for purposes of providing medical assistance de18 scribed in paragraph (2)(A). 

19 ‘‘(5) REPORT.—The Secretary shall submit to 

20 Congress a report on the application of this sub21 section and may include in the report such rec22 ommendations as the Secretary deems appropriate. 

23 ‘‘(f) DEFINITION.—For purposes of this section, the 

24 term ‘subsidy-eligible individual’ has the meaning given 
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1 that term in subparagraph (D) of section 1860D–

2 19(a)(4).’’. 

3 (2) CONFORMING AMENDMENTS.—

4 (A) Section 1903(a)(1) (42 U.S.C. 

5 1396a(a)(1)) is amended by inserting before the 

6 semicolon the following: ‘‘, reduced by the 

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

8 the State and the quarter’’. 

9 (B) Section 1108(f) (42 U.S.C. 1308(f)) is 

10 amended by inserting ‘‘and section 

11 1935(e)(1)(B)’’ after ‘‘Subject to subsection 

12 (g)’’. 

13 (3) AMENDMENT TO BEST PRICE.—Section 

14 1927(c)(1)(C)(i) (42 U.S.C. 1396r–8(c)(1)(C)(i)), as 

15 amended by section 111(b), is amended—

16 (A) by striking ‘‘and’’ at the end of sub17 clause (IV); 

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

19 subclause (V) and inserting ‘‘; and’’; and 

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

21 subclause: 

22 ‘‘(VI) any prices charged which 

23 are negotiated under a Medicare Pre24 scription Drug plan under part D of 

25 title XVIII with respect to covered 
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1 drugs, under a MedicareAdvantage 

2 plan under part C of such title with 

3 respect to such drugs, or under a 

4 qualified retiree prescription drug 

5 plan (as defined in section 1860D–

6 20(f)(1)) with respect to such drugs, 

7 on behalf of eligible beneficiaries (as 

8 defined in section 1860D(a)(3).’’. 

9 (c) EXTENSION OF MEDICARE COST-SHARING FOR

10 PART B PREMIUM FOR QUALIFYING INDIVIDUALS

11 THROUGH 2008.—

12 (1) IN GENERAL.—Section 1902(a)(10)(E)(iv) 

13 (42 U.S.C. 1396a(a)(10)(E)(iv)) is amended to read 

14 as follows: 

15 ‘‘(iv) subject to sections 1933 and 

16 1905(p)(4), for making medical assistance 

17 available (but only for premiums payable with 

18 respect to months during the period beginning 

19 with January 1998, and ending with December 

20 2008) for medicare cost-sharing described in 

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

22 would be qualified medicare beneficiaries de23 scribed in section 1905(p)(1) but for the fact 

24 that their income exceeds the income level es25 tablished by the State under section 1905(p)(2) 
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1 and is at least 120 percent, but less than 135 

2 percent, of the official poverty line (referred to 

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

4 and who are not otherwise eligible for medical 

5 assistance under the State plan;’’. 

6 (2) TOTAL AMOUNT AVAILABLE FOR ALLOCA7 TION.—Section 1933(c) (42 U.S.C. 1396u–3(c)) is 

8 amended—

9 (A) in paragraph (1)—

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

11 ‘‘and’’ at the end; 

12 (ii) in subparagraph (E)—

13 (I) by striking ‘‘fiscal year 2002’’ 

14 and inserting ‘‘each of fiscal years 

15 2002 through 2008’’; and 

16 (II) by striking the period and 

17 inserting ‘‘; and’’; and 

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

20 ‘‘(F) the first quarter of fiscal year 2009, 

21 $100,000,000.’’; and 

22 (B) in paragraph (2)(A), by striking ‘‘the 

23 sum of’’ and all that follows through 

24 ‘‘1902(a)(10)(E)(iv)(II) in the State; to’’ and 

25 inserting ‘‘twice the total number of individuals 
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1 described in section 1902(a)(10)(E)(iv) in the 

2 State; to’’. 

3 (d) OUTREACH BY THE COMMISSIONER OF SOCIAL

4 SECURITY.—Section 1144 (42 U.S.C. 1320b–14) is 

5 amended—

6 (1) in the section heading, by inserting ‘‘AND

7 SUBSIDIES FOR LOW-INCOME INDIVIDUALS UNDER

8 TITLE XVIII’’ after ‘‘COST-SHARING’’; 

9 (2) in subsection (a)—

10 (A) in paragraph (1)—

11 (i) in subparagraph (A), by inserting 

12 ‘‘for the transitional prescription drug as13 sistance card program under section 

14 1807A, or for premium and cost-sharing 

15 subsidies under section 1860D–19’’ before 

16 the semicolon; and 

17 (ii) in subparagraph (B), by inserting 

18 ‘‘, program, and subsidies’’ after ‘‘medical 

19 assistance’’; and 

20 (B) in paragraph (2)—

21 (i) in the matter preceding subpara22 graph (A), by inserting ‘‘, the transitional 

23 prescription drug assistance card program 

24 under section 1807A, or premium and 
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1 cost-sharing subsidies under section 

2 1860D–19’’ after ‘‘assistance’’; and 

3 (ii) in subparagraph (A), by striking 

4 ‘‘such eligibility’’ and inserting ‘‘eligibility 

5 for medicare cost-sharing under the med6 icaid program’’; and 

7 (3) in subsection (b)—

8 (A) in paragraph (1)(A), by inserting ‘‘, 

9 for the transitional prescription drug assistance 

10 card program under section 1807A, or for pre11 mium and cost-sharing subsidies for low-income 

12 individuals under section 1860D–19’’ after 

13 ‘‘1933’’; and 

14 (B) in paragraph (2), by inserting ‘‘, pro15 gram, and subsidies’’ after ‘‘medical assist16 ance’’. 

17 SEC. 105. EXPANSION OF MEMBERSHIP AND DUTIES OF 

18 MEDICARE PAYMENT ADVISORY COMMISSION 

19 (MEDPAC). 

20 (a) EXPANSION OF MEMBERSHIP.—

21 (1) IN GENERAL.—Section 1805(c) (42 U.S.C. 

22 1395b–6(c)) is amended—

23 (A) in paragraph (1), by striking ‘‘17’’ and 

24 inserting ‘‘19’’; and 
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1 (B) in paragraph (2)(B), by inserting ‘‘ex2 perts in the area of pharmacology and prescrip3 tion drug benefit programs,’’ after ‘‘other 

4 health professionals,’’. 

5 (2) INITIAL TERMS OF ADDITIONAL MEM6 BERS.—

7 (A) IN GENERAL.—For purposes of stag8 gering the initial terms of members of the 

9 Medicare Payment Advisory Commission under 

10 section 1805(c)(3) of the Social Security Act 

11 (42 U.S.C. 1395b–6(c)(3)), the initial terms of 

12 the 2 additional members of the Commission 

13 provided for by the amendment under para14 graph (1)(A) are as follows: 

15 (i) One member shall be appointed for 

16 1 year. 

17 (ii) One member shall be appointed 

18 for 2 years. 

19 (B) COMMENCEMENT OF TERMS.—Such 

20 terms shall begin on January 1, 2005. 

21 (b) EXPANSION OF DUTIES.—Section 1805(b)(2) (42 

22 U.S.C. 1395b–6(b)(2)) is amended by adding at the end 

23 the following new subparagraph: 

24 ‘‘(D) VOLUNTARY PRESCRIPTION DRUG

25 DELIVERY PROGRAM.—Specifically, the Com-
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1 mission shall review, with respect to the vol2 untary prescription drug delivery program 

3 under part D, competition among eligible enti4 ties offering Medicare Prescription Drug plans 

5 and beneficiary access to such plans and cov6 ered drugs, particularly in rural areas.’’. 

7 SEC. 106. STUDY REGARDING VARIATIONS IN SPENDING 

8 AND DRUG UTILIZATION. 

9 (a) STUDY.—The Secretary shall study on an ongo10 ing basis variations in spending and drug utilization under 

11 part D of title XVIII of the Social Security Act for covered 

12 drugs to determine the impact of such variations on pre13 miums imposed by eligible entities offering Medicare Pre14 scription Drug plans under that part. In conducting such 

15 study, the Secretary shall examine the impact of geo16 graphic adjustments of the monthly national average pre17 mium under section 1860D–15 of such Act on—

18 (1) maximization of competition under part D 

19 of title XVIII of such Act; and

20 (2) the ability of eligible entities offering Medi21 care Prescription Drug plans to contain costs for 

22 covered drugs. 

23 (b) REPORT.—Beginning with 2007, the Secretary 

24 shall submit annual reports to Congress on the study re25 quired under subsection (a).
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1 Subtitle B—Medicare Prescription 

2 Drug Discount Card and Transi3 tional Assistance for Low-In4 come Beneficiaries 

5 SEC. 111. MEDICARE PRESCRIPTION DRUG DISCOUNT 

6 CARD AND TRANSITIONAL ASSISTANCE FOR 

7 LOW-INCOME BENEFICIARIES. 

8 (a) IN GENERAL.—Title XVIII is amended by insert9 ing after section 1806 the following new sections: 

10 ‘‘MEDICARE PRESCRIPTION DRUG DISCOUNT CARD

11 ENDORSEMENT PROGRAM

12 ‘‘SEC. 1807. (a) ESTABLISHMENT.—There is estab13 lished a medicare prescription drug discount card endorse14 ment program under which the Secretary shall—

15 ‘‘(1) endorse prescription drug discount card 

16 programs offered by prescription drug card sponsors 

17 that meet the requirements of this section; and 

18 ‘‘(2) make available to eligible beneficiaries in19 formation regarding such endorsed programs. 

20 ‘‘(b) ELIGIBILITY, ELECTION OF PROGRAM, AND EN21 ROLLMENT FEES.—

22 ‘‘(1) ELIGIBILITY AND ELECTION OF PRO23 GRAM.—
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1 ‘‘(A) IN GENERAL.—Subject to subpara2 graph (B), the Secretary shall establish proce3 dures—

4 ‘‘(i) for identifying eligible bene5 ficiaries; and 

6 ‘‘(ii) under which such beneficiaries 

7 may make an election to enroll in any pre8 scription drug discount card program en9 dorsed under this section and disenroll 

10 from such a program. 

11 ‘‘(B) LIMITATION.—An eligible beneficiary 

12 may not be enrolled in more than 1 prescription 

13 drug discount card program at any time. 

14 ‘‘(2) ENROLLMENT FEES.—

15 ‘‘(A) IN GENERAL.—A prescription drug 

16 card sponsor may charge an annual enrollment 

17 fee to each eligible beneficiary enrolled in a pre18 scription drug discount card program offered by 

19 such sponsor. 

20 ‘‘(B) AMOUNT.—No enrollment fee 

21 charged under subparagraph (A) may exceed 

22 $25. 

23 ‘‘(C) UNIFORM ENROLLMENT FEE.—A 

24 prescription drug card sponsor shall ensure that 

25 the enrollment fee for a prescription drug dis-
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1 count card program endorsed under this section 

2 is the same for all eligible medicare bene3 ficiaries enrolled in the program. 

4 ‘‘(D) COLLECTION.—Any enrollment fee 

5 shall be collected by the prescription drug card 

6 sponsor. 

7 ‘‘(c) PROVIDING INFORMATION TO ELIGIBLE BENE8 FICIARIES.—

9 ‘‘(1) PROMOTION OF INFORMED CHOICE.—

10 ‘‘(A) BY THE SECRETARY.—In order to 

11 promote informed choice among endorsed pre12 scription drug discount card programs, the Sec13 retary shall provide for the dissemination of in14 formation which compares the costs and bene15 fits of such programs. Such dissemination shall 

16 be coordinated with the dissemination of edu17 cational information on other medicare options. 

18 ‘‘(B) BY PRESCRIPTION DRUG CARD SPON19 SORS.—Each prescription drug card sponsor 

20 shall make available to each eligible beneficiary 

21 (through the Internet and otherwise) informa22 tion—

23 ‘‘(i) that the Secretary identifies as 

24 being necessary to promote informed 

25 choice among endorsed prescription drug 
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1 discount card programs by eligible bene2 ficiaries, including information on enroll3 ment fees, negotiated prices for prescrip4 tion drugs charged to beneficiaries, and 

5 services relating to prescription drugs of6 fered under the program; and 

7 ‘‘(ii) on how any formulary used by 

8 such sponsor functions.

9 ‘‘(2) USE OF MEDICARE TOLL-FREE NUMBER.—

10 The Secretary shall provide through the 1–800–

11 MEDICARE toll free telephone number for the re12 ceipt and response to inquiries and complaints con13 cerning the medicare prescription drug discount card 

14 endorsement program established under this section 

15 and prescription drug discount card programs en16 dorsed under such program. 

17 ‘‘(d) BENEFICIARY PROTECTIONS.—

18 ‘‘(1) IN GENERAL.—Each prescription drug dis19 count card program endorsed under this section 

20 shall meet such requirements as the Secretary iden21 tifies to protect and promote the interest of eligible 

22 beneficiaries, including requirements that—

23 ‘‘(A) relate to appeals by eligible bene24 ficiaries and marketing practices; and 
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1 ‘‘(B) ensure that beneficiaries are not 

2 charged more than the lower of the negotiated 

3 retail price or the usual and customary price.

4 ‘‘(2) ENSURING PHARMACY ACCESS.—Each pre5 scription drug card sponsor offering a prescription 

6 drug discount card program endorsed under this sec7 tion shall secure the participation in its network of 

8 a sufficient number of pharmacies that dispense 

9 (other than by mail order) drugs directly to patients 

10 to ensure convenient access (as determined by the 

11 Secretary and including adequate emergency access) 

12 for enrolled beneficiaries. Such standards shall take 

13 into account reasonable distances to pharmacy serv14 ices in both urban and rural areas. 

15 ‘‘(3) QUALITY ASSURANCE.—Each prescription 

16 drug card sponsor offering a prescription drug dis17 count card program endorsed under this section 

18 shall have in place adequate procedures for assuring 

19 that quality service is provided to eligible bene20 ficiaries enrolled in a prescription drug discount 

21 card program offered by such sponsor. 

22 ‘‘(4) CONFIDENTIALITY OF ENROLLEE

23 RECORDS.—Insofar as a prescription drug card 

24 sponsor maintains individually identifiable medical 

25 records or other health information regarding eligi-
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1 ble beneficiaries enrolled in a prescription drug dis2 count card program endorsed under this section, the 

3 prescription drug card sponsor shall have in place 

4 procedures to safeguard the privacy of any individ5 ually identifiable beneficiary information in a man6 ner that the Secretary determines is consistent with 

7 the Federal regulations (concerning the privacy of 

8 individually identifiable health information) promul9 gated under section 264(c) of the Health Insurance 

10 Portability and Accountability Act of 1996. 

11 ‘‘(5) NO OTHER FEES.—A prescription drug 

12 card sponsor may not charge any fee to an eligible 

13 beneficiary under a prescription drug discount card 

14 program endorsed under this section other than an 

15 enrollment fee charged under subsection (b)(2)(A). 

16 ‘‘(6) PRICES.—

17 ‘‘(A) AVOIDANCE OF HIGH PRICED

18 DRUGS.—A prescription drug card sponsor may 

19 not recommend switching an eligible beneficiary 

20 to a drug with a higher negotiated price absent 

21 a recommendation by a licensed health profes22 sional that there is a clinical indication with re23 spect to the patient for such a switch. 

24 ‘‘(B) PRICE STABILITY.—Negotiated prices 

25 charged for prescription drugs covered under a 
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1 prescription drug discount card program en2 dorsed under this section may not change more 

3 frequently than once every 60 days. 

4 ‘‘(e) PRESCRIPTION DRUG BENEFITS.—

5 ‘‘(1) IN GENERAL.—Each prescription drug 

6 card sponsor may only provide benefits that relate to 

7 prescription drugs (as defined in subsection (i)(2)) 

8 under a prescription drug discount card program en9 dorsed under this section. 

10 ‘‘(2) SAVINGS TO ELIGIBLE BENEFICIARIES.—

11 ‘‘(A) IN GENERAL.—Subject to subpara12 graph (D), each prescription drug card sponsor 

13 shall provide eligible beneficiaries who enroll in 

14 a prescription drug discount card program of15 fered by such sponsor that is endorsed under 

16 this section with access to negotiated prices 

17 used by the sponsor with respect to prescription 

18 drugs dispensed to eligible beneficiaries. 

19 ‘‘(B) INAPPLICABILITY OF MEDICAID BEST

20 PRICE RULES.—The requirements of section 

21 1927 relating to manufacturer best price shall 

22 not apply to the negotiated prices for prescrip23 tion drugs made available under a prescription 

24 drug discount card program endorsed under 

25 this section. 
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1 ‘‘(C) GUARANTEED ACCESS TO NEGO2 TIATED PRICES.—The Secretary, in consulta3 tion with the Inspector General of the Depart4 ment of Health and Human Services, shall es5 tablish procedures to ensure that eligible bene6 ficiaries have access to the negotiated prices for 

7 prescription drugs provided under subparagraph 

8 (A). 

9 ‘‘(D) APPLICATION OF FORMULARY RE10 STRICTIONS.—A drug prescribed for an eligible 

11 beneficiary that would otherwise be a covered 

12 drug under this section shall not be so consid13 ered under a prescription drug discount card 

14 program if the program excludes the drug 

15 under a formulary. 

16 ‘‘(3) BENEFICIARY SERVICES.—Each prescrip17 tion drug discount card program endorsed under 

18 this section shall provide pharmaceutical support 

19 services, such as education, counseling, and services 

20 to prevent adverse drug interactions. 

21 ‘‘(4) DISCOUNT CARDS.—Each prescription 

22 drug card sponsor shall issue a card to eligible bene23 ficiaries enrolled in a prescription drug discount 

24 card program offered by such sponsor that the bene-
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1 ficiary may use to obtain benefits under the pro2 gram. 

3 ‘‘(f) SUBMISSION OF APPLICATIONS FOR ENDORSE4 MENT AND APPROVAL.—

5 ‘‘(1) SUBMISSION OF APPLICATIONS FOR EN6 DORSEMENT.—Each prescription drug card sponsor

7 that seeks endorsement of a prescription drug dis8 count card program under this section shall submit 

9 to the Secretary, at such time and in such manner 

10 as the Secretary may specify, such information as 

11 the Secretary may require. 

12 ‘‘(2) APPROVAL.—The Secretary shall review 

13 the information submitted under paragraph (1) and 

14 shall determine whether to endorse the prescription 

15 drug discount card program to which such informa16 tion relates. The Secretary may not approve a pro17 gram unless the program and prescription drug card 

18 sponsor offering the program comply with the re19 quirements under this section. 

20 ‘‘(g) REQUIREMENTS ON DEVELOPMENT AND APPLI21 CATION OF FORMULARIES.—If a prescription drug card 

22 sponsor offering a prescription drug discount card pro23 gram uses a formulary, the following requirements must 

24 be met: 
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1 ‘‘(1) PHARMACY AND THERAPEUTIC (P&T) COM2 MITTEE.—

3 ‘‘(A) IN GENERAL.—The eligible entity 

4 must establish a pharmacy and therapeutic 

5 committee that develops and reviews the for6 mulary. 

7 ‘‘(B) COMPOSITION.—A pharmacy and 

8 therapeutic committee shall include at least 1 

9 academic expert, at least 1 practicing physician, 

10 and at least 1 practicing pharmacist, all of 

11 whom have expertise in the care of elderly or 

12 disabled persons, and a majority of the mem13 bers of such committee shall consist of individ14 uals who are a practicing physician or a prac15 ticing pharmacist (or both). 

16 ‘‘(2) FORMULARY DEVELOPMENT.—In devel17 oping and reviewing the formulary, the committee 

18 shall base clinical decisions on the strength of sci19 entific evidence and standards of practice, including 

20 assessing peer-reviewed medical literature, such as 

21 randomized clinical trials, pharmacoeconomic stud22 ies, outcomes research data, and such other informa23 tion as the committee determines to be appropriate. 

24 ‘‘(3) INCLUSION OF DRUGS IN ALL THERA25 PEUTIC CATEGORIES AND CLASSES.—
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1 ‘‘(A) IN GENERAL.—The formulary must 

2 include drugs within each therapeutic category 

3 and class of covered outpatient drugs (as de4 fined by the Secretary), although not nec5 essarily for all drugs within such categories and 

6 classes. 

7 ‘‘(B) REQUIREMENT.—In defining thera8 peutic categories and classes of covered out9 patient drugs pursuant to subparagraph (A), 

10 the Secretary shall use the compendia referred 

11 to section 1927(g)(1)(B)(i) or other recognized 

12 sources for categorizing drug therapeutic cat13 egories and classes. 

14 ‘‘(4) PROVIDER EDUCATION.—The committee 

15 shall establish policies and procedures to educate 

16 and inform health care providers concerning the for17 mulary. 

18 ‘‘(5) NOTICE BEFORE REMOVING DRUGS FROM

19 FORMULARY.—Any removal of a drug from a for20 mulary shall take effect only after appropriate notice 

21 is made available to beneficiaries and pharmacies. 

22 ‘‘(h) FRAUD AND ABUSE PREVENTION.—

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

24 appropriate oversight to ensure compliance of en25 dorsed programs with the requirements of this sec-
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1 tion, including verification of the negotiated prices 

2 and services provided. 

3 ‘‘(2) DISQUALIFICATION FOR ABUSIVE PRAC4 TICES.—The Secretary may implement intermediate 

5 sanctions and may revoke the endorsement of a pro6 gram that the Secretary determines no longer meets 

7 the requirements of this section or that has engaged 

8 in false or misleading marketing practices. 

9 ‘‘(3) AUTHORITY WITH RESPECT TO CIVIL

10 MONEY PENALTIES.—The Secretary may impose a 

11 civil money penalty in an amount not to exceed 

12 $10,000 for any violation of this section. The provi13 sions of section 1128A (other than subsections (a) 

14 and (b)) shall apply to a civil money penalty under 

15 the previous sentence in the same manner as such 

16 provisions apply to a penalty or proceeding under 

17 section 1128A(a).

18 ‘‘(4) REPORTING TO SECRETARY.—Each pre19 scription drug card sponsor offering a prescription 

20 drug discount card program endorsed under this sec21 tion shall report information relating to program 

22 performance, use of prescription drugs by eligible 

23 beneficiaries enrolled in the program, financial infor24 mation of the sponsor, and such other information 

25 as the Secretary may specify. The Secretary may not 
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1 disclose any proprietary data reported under this 

2 paragraph. 

3 ‘‘(5) DRUG UTILIZATION REVIEW.—The Sec4 retary may use claims data from parts A and B for 

5 purposes of conducting a drug utilization review pro6 gram. 

7 ‘‘(i) DEFINITIONS.—In this section: 

8 ‘‘(1) ELIGIBLE BENEFICIARY.—

9 ‘‘(A) IN GENERAL.—The term ‘eligible 

10 beneficiary’ means an individual who—

11 ‘‘(i) is entitled to, or enrolled for, ben12 efits under part A and enrolled under part 

13 B; and 

14 ‘‘(ii) is not a dual eligible individual 

15 (as defined in subparagraph (B)). 

16 ‘‘(B) DUAL ELIGIBLE INDIVIDUAL.—

17 ‘‘(i) IN GENERAL.—The term ‘dual el18 igible individual’ means an individual who 

19 is—

20 ‘‘(I) enrolled under title XIX or 

21 under a waiver under section 1115 of 

22 the requirements of such title for 

23 medical assistance that includes but is 

24 limited solely to covered outpatient 
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1 drugs (as such term is defined for 

2 purposes of section 1927); and 

3 ‘‘(II) entitled to benefits under 

4 part A and enrolled under part B. 

5 ‘‘(ii) INCLUSION OF MEDICALLY

6 NEEDY.—Such term includes an individual 

7 described in section 1902(a)(10)(C). 

8 ‘‘(2) PRESCRIPTION DRUG.—

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

10 subparagraph (B), the term ‘prescription drug’ 

11 means—

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

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

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

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

18 section, 

19 and such term includes a vaccine licensed under 

20 section 351 of the Public Health Service Act 

21 and any use of a covered outpatient drug for a 

22 medically accepted indication (as defined in sec23 tion 1927(k)(6)). 

24 ‘‘(B) EXCLUSIONS.—The term ‘prescrip25 tion drug’ does not include drugs or classes of 
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1 drugs, or their medical uses, which may be ex2 cluded from coverage or otherwise restricted 

3 under section 1927(d)(2), other than subpara4 graph (E) thereof (relating to smoking ces5 sation agents), or under section 1927(d)(3). 

6 ‘‘(3) NEGOTIATED PRICE.—The term ‘nego7 tiated price’ includes all discounts, direct or indirect 

8 subsidies, rebates, price concessions, and direct or 

9 indirect remunerations. 

10 ‘‘(4) PRESCRIPTION DRUG CARD SPONSOR.—

11 The term ‘prescription drug card sponsor’ means 

12 any entity with demonstrated experience and exper13 tise in operating a prescription drug discount card 

14 program, an insurance program that provides cov15 erage for prescription drugs, or a similar program 

16 that the Secretary determines to be appropriate to 

17 provide eligible beneficiaries with the benefits under 

18 a prescription drug discount card program endorsed 

19 by the Secretary under this section, including—

20 ‘‘(A) a pharmaceutical benefit management 

21 company; 

22 ‘‘(B) a wholesale or retail pharmacist deliv23 ery system; 
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1 ‘‘(C) an insurer (including an insurer that 

2 offers medicare supplemental policies under sec3 tion 1882); 

4 ‘‘(D) any other entity; or 

5 ‘‘(E) any combination of the entities de6 scribed in subparagraphs (A) through (D).

7 ‘‘TRANSITIONAL PRESCRIPTION DRUG ASSISTANCE CARD

8 PROGRAM FOR ELIGIBLE LOW-INCOME BENEFICIARIES

9 ‘‘SEC. 1807A. (a) ESTABLISHMENT.—

10 ‘‘(1) IN GENERAL.—There is established a pro11 gram under which the Secretary shall award con12 tracts to prescription drug card sponsors offering a 

13 prescription drug discount card that has been en14 dorsed by the Secretary under section 1807 under 

15 which such sponsors shall offer a prescription drug 

16 assistance card program to eligible low-income bene17 ficiaries in accordance with the requirements of this 

18 section. 

19 ‘‘(2) APPLICATION OF DISCOUNT CARD PROVI20 SIONS.—Except as otherwise provided in this sec21 tion, the provisions of section 1807 shall apply to 

22 the program established under this section. 

23 ‘‘(b) ELIGIBILITY, ELECTION OF PROGRAM, AND EN24 ROLLMENT FEES.—

25 ‘‘(1) ELIGIBILITY AND ELECTION OF PRO26 GRAM.—
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1 ‘‘(A) IN GENERAL.—Subject to the suc2 ceeding provisions of this paragraph, the enroll3 ment procedures established under section 

4 1807(b)(1)(A)(ii) shall apply for purposes of 

5 this section. 

6 ‘‘(B) ENROLLMENT OF ANY ELIGIBLE

7 LOW-INCOME BENEFICIARY.—Each prescription 

8 drug card sponsor offering a prescription drug 

9 assistance card program under this section shall 

10 permit any eligible low-income beneficiary to en11 roll in such program if it serves the geographic 

12 area in which the beneficiary resides. 

13 ‘‘(C) SIMULTANEOUS ENROLLMENT IN

14 PRESCRIPTION DRUG DISCOUNT CARD PRO15 GRAM.—An eligible low-income beneficiary who 

16 enrolls in a prescription drug assistance card 

17 program offered by a prescription drug card 

18 sponsor under this section shall be simulta19 neously enrolled in a prescription drug discount 

20 card program offered by such sponsor. 

21 ‘‘(2) WAIVER OF ENROLLMENT FEES.—

22 ‘‘(A) IN GENERAL.—A prescription drug 

23 card sponsor may not charge an enrollment fee 

24 to any eligible low-income beneficiary enrolled 
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1 in a prescription drug discount card program 

2 offered by such sponsor. 

3 ‘‘(B) PAYMENT BY SECRETARY.—Under a 

4 contract awarded under subsection (f)(2), the 

5 Secretary shall pay to each prescription drug 

6 card sponsor an amount equal to any enroll7 ment fee charged under section 1807(b)(2)(A) 

8 on behalf of each eligible low-income beneficiary 

9 enrolled in a prescription drug discount card 

10 program under paragraph (1)(C) offered by 

11 such sponsor.

12 ‘‘(c) ADDITIONAL BENEFICIARY PROTECTIONS.—

13 ‘‘(1) PROVIDING INFORMATION TO ELIGIBLE

14 LOW-INCOME BENEFICIARIES.—In addition to the in15 formation provided to eligible beneficiaries under 

16 section 1807(c), the prescription drug card sponsor 

17 shall—

18 ‘‘(A) periodically notify each eligible low-in19 come beneficiary enrolled in a prescription drug 

20 assistance card program offered by such spon21 sor of the amount of coverage for prescription 

22 drugs remaining under subsection (d)(2)(A); 

23 and 

24 ‘‘(B) notify each eligible low-income bene25 ficiary enrolled in a prescription drug assistance 
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1 card program offered by such sponsor of the 

2 grievance and appeals processes under the pro3 gram. 

4 ‘‘(2) CONVENIENT ACCESS IN LONG-TERM CARE

5 FACILITIES.—For purposes of determining whether 

6 convenient access has been provided under section 

7 1807(d)(2) with respect to eligible low-income bene8 ficiaries enrolled in a prescription drug assistance 

9 card program, the Secretary may only make a deter10 mination that such access has been provided if an 

11 appropriate arrangement is in place for eligible low12 income beneficiaries who are in a long-term care fa13 cility (as defined by the Secretary) to receive pre14 scription drug benefits under the program. 

15 ‘‘(3) COORDINATION OF BENEFITS.—

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

17 establish procedures under which eligible low-in18 come beneficiaries who are enrolled for coverage 

19 described in subparagraph (B) and enrolled in 

20 a prescription drug assistance card program 

21 have access to the prescription drug benefits 

22 available under such program. 

23 ‘‘(B) COVERAGE DESCRIBED.—Coverage 

24 described in this subparagraph is as follows: 
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1 ‘‘(i) Coverage of prescription drugs 

2 under a State pharmaceutical assistance 

3 program. 

4 ‘‘(ii) Enrollment in a 

5 Medicare+Choice plan under part C. 

6 ‘‘(4) GRIEVANCE MECHANISM.—Each prescrip7 tion drug card sponsor with a contract under this 

8 section shall provide in accordance with section 

9 1852(f) meaningful procedures for hearing and re10 solving grievances between the prescription drug 

11 card sponsor (including any entity or individual 

12 through which the prescription drug card sponsor 

13 provides covered benefits) and enrollees in a pre14 scription drug assistance card program offered by 

15 such sponsor. 

16 ‘‘(5) APPLICATION OF COVERAGE DETERMINA17 TION AND RECONSIDERATION PROVISIONS.—

18 ‘‘(A) IN GENERAL.—The requirements of 

19 paragraphs (1) through (3) of section 1852(g) 

20 shall apply with respect to covered benefits 

21 under a prescription drug assistance card pro22 gram under this section in the same manner as 

23 such requirements apply to a Medicare+Choice 

24 organization with respect to benefits it offers 

25 under a Medicare+Choice plan under part C. 
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1 ‘‘(B) REQUEST FOR REVIEW OF TIERED

2 FORMULARY DETERMINATIONS.—In the case of 

3 a prescription drug assistance card program of4 fered by a prescription drug card sponsor that 

5 provides for tiered pricing for drugs included 

6 within a formulary and provides lower prices for 

7 preferred drugs included within the formulary, 

8 an eligible low-income beneficiary who is en9 rolled in the program may request coverage of 

10 a nonpreferred drug under the terms applicable 

11 for preferred drugs if the prescribing physician 

12 determines that the preferred drug for treat13 ment of the same condition is not as effective 

14 for the eligible low-income beneficiary or has 

15 adverse effects for the eligible low-income bene16 ficiary. 

17 ‘‘(C) FORMULARY DETERMINATIONS.—An 

18 eligible low-income beneficiary who is enrolled 

19 in a prescription drug assistance card program 

20 offered by a prescription drug card sponsor may 

21 appeal to obtain coverage for a covered drug 

22 that is not on a formulary of the entity if the 

23 prescribing physician determines that the for24 mulary drug for treatment of the same condi25 tion is not as effective for the eligible low-in-
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1 come beneficiary or has adverse effects for the 

2 eligible low-income beneficiary. 

3 ‘‘(6) APPEALS.—

4 ‘‘(A) IN GENERAL.—Subject to subpara5 graph (B), a prescription drug card sponsor 

6 shall meet the requirements of paragraphs (4) 

7 and (5) of section 1852(g) with respect to 

8 drugs not included on any formulary in a simi9 lar manner (as determined by the Secretary) as 

10 such requirements apply to a Medicare+Choice 

11 organization with respect to benefits it offers 

12 under a Medicare+Choice plan under part C. 

13 ‘‘(B) FORMULARY DETERMINATIONS.—An 

14 eligible low-income beneficiary who is enrolled 

15 in a prescription drug assistance card program 

16 offered by a prescription drug card sponsor may 

17 appeal to obtain coverage for a covered drug 

18 that is not on a formulary of the entity if the 

19 prescribing physician determines that the for20 mulary drug for treatment of the same condi21 tion is not as effective for the eligible low-in22 come beneficiary or has adverse effects for the 

23 eligible low-income beneficiary. 

24 ‘‘(C) APPEALS AND EXCEPTIONS TO APPLI25 CATION.—The prescription drug card sponsor 
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1 must have, as part of the appeals process under 

2 this paragraph, a process for timely appeals for 

3 denials of coverage based on the application of 

4 the formulary. 

5 ‘‘(d) PRESCRIPTION DRUG BENEFITS.—

6 ‘‘(1) IN GENERAL.—Subject to paragraph (5), 

7 all the benefits available under a prescription drug 

8 discount card program offered by a prescription 

9 drug card sponsor and endorsed under section 1807 

10 shall be available to eligible low-income beneficiaries 

11 enrolled in a prescription drug assistance card pro12 gram offered by such sponsor. 

13 ‘‘(2) ASSISTANCE FOR ELIGIBLE LOW-INCOME

14 BENEFICIARIES.—

15 ‘‘(A) $600 ANNUAL ASSISTANCE.—Subject 

16 to subparagraphs (B) and (C) and paragraph 

17 (5), each prescription drug card sponsor with a 

18 contract under this section shall provide cov19 erage for the first $600 of expenses for pre20 scription drugs incurred during each calendar 

21 year by an eligible low-income beneficiary en22 rolled in a prescription drug assistance card 

23 program offered by such sponsor. 

24 ‘‘(B) COINSURANCE.—
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1 ‘‘(i) IN GENERAL.—The prescription 

2 drug card sponsor shall determine an 

3 amount of coinsurance to collect from each 

4 eligible low-income beneficiary enrolled in a 

5 prescription drug assistance card program 

6 offered by such sponsor for which coverage 

7 is available under subparagraph (A). 

8 ‘‘(ii) AMOUNT.—The amount of coin9 surance collected under clause (i) shall be 

10 at least 10 percent of the negotiated price 

11 of each prescription drug dispensed to an 

12 eligible low-income beneficiary. 

13 ‘‘(iii) CONSTRUCTION.—Amounts col14 lected under clause (i) shall not be counted 

15 against the total amount of coverage avail16 able under subparagraph (A). 

17 ‘‘(C) REDUCTION FOR LATE ENROLL18 MENT.—For each month during a calendar 

19 quarter in which an eligible low-income bene20 ficiary is not enrolled in a prescription drug as21 sistance card program offered by a prescription 

22 drug card sponsor with a contract under this 

23 section, the amount of assistance available 

24 under subparagraph (A) shall be reduced by 

25 $50. 
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1 ‘‘(D) CREDITING OF UNUSED BENEFITS

2 TOWARD FUTURE YEARS.—The dollar amount 

3 of coverage described in subparagraph (A) shall 

4 be increased by any amount of coverage de5 scribed in such subparagraph that was not used 

6 during the previous calendar year. 

7 ‘‘(E) WAIVER TO ENSURE PROVISION OF

8 BENEFIT.—The Secretary may waive such re9 quirements of this section and section 1807 as 

10 may be necessary to ensure that each eligible 

11 low-income beneficiaries has access to the as12 sistance described in subparagraph (A). 

13 ‘‘(3) ADDITIONAL DISCOUNTS.—A prescription 

14 drug card sponsor with a contract under this section 

15 shall provide each eligible low-income beneficiary en16 rolled in a prescription drug assistance program of17 fered by the sponsor with access to negotiated prices 

18 that reflect a minimum average discount of at least 

19 20 percent of the average wholesale price for pre20 scription drugs covered under that program. 

21 ‘‘(4) ASSISTANCE CARDS.—Each prescription 

22 drug card sponsor shall permit eligible low-income 

23 beneficiaries enrolled in a prescription drug assist24 ance card program offered by such sponsor to use 
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1 the discount card issued under section 1807(e)(4) to 

2 obtain benefits under the program. 

3 ‘‘(5) APPLICATION OF FORMULARY RESTRIC4 TIONS.—A drug prescribed for an eligible low-income 

5 beneficiary that would otherwise be a covered drug 

6 under this section shall not be so considered under 

7 a prescription drug assistance card program if the 

8 program excludes the drug under a formulary and 

9 such exclusion is not successfully resolved under 

10 paragraph (4), (5), or (6) of subsection (c).

11 ‘‘(e) REQUIREMENTS FOR PRESCRIPTION DRUG

12 CARD SPONSORS THAT OFFER PRESCRIPTION DRUG AS13 SISTANCE CARD PROGRAMS.—

14 ‘‘(1) IN GENERAL.—Each prescription drug 

15 card sponsor shall—

16 ‘‘(A) process claims made by eligible low17 income beneficiaries; 

18 ‘‘(B) negotiate with brand name and ge19 neric prescription drug manufacturers and oth20 ers for low prices on prescription drugs; 

21 ‘‘(C) track individual beneficiary expendi22 tures in a format and periodicity specified by 

23 the Secretary; and 

24 ‘‘(D) perform such other functions as the 

25 Secretary may assign. 
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1 ‘‘(2) DATA EXCHANGES.—Each prescription 

2 drug card sponsor shall receive data exchanges in a 

3 format specified by the Secretary and shall maintain 

4 real-time beneficiary files. 

5 ‘‘(3) PUBLIC DISCLOSURE OF PHARMACEUTICAL

6 PRICES FOR EQUIVALENT DRUGS.—The prescription 

7 drug card sponsor offering the prescription drug as8 sistance card program shall provide that each phar9 macy or other dispenser that arranges for the dis10 pensing of a covered drug shall inform the eligible 

11 low-income beneficiary at the time of purchase of the 

12 drug of any differential between the price of the pre13 scribed drug to the enrollee and the price of the low14 est priced generic drug covered under the plan that 

15 is therapeutically equivalent and bioequivalent and 

16 available at such pharmacy or other dispenser. 

17 ‘‘(f) SUBMISSION OF BIDS AND AWARDING OF CON18 TRACTS.—

19 ‘‘(1) SUBMISSION OF BIDS.—Each prescription 

20 drug card sponsor that seeks to offer a prescription 

21 drug assistance card program under this section 

22 shall submit to the Secretary, at such time and in 

23 such manner as the Secretary may specify, such in24 formation as the Secretary may require. 
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1 ‘‘(2) AWARDING OF CONTRACTS.—The Sec2 retary shall review the information submitted under 

3 paragraph (1) and shall determine whether to award 

4 a contract to the prescription drug card sponsor of5 fering the program to which such information re6 lates. The Secretary may not approve a program un7 less the program and prescription drug card sponsor 

8 offering the program comply with the requirements 

9 under this section. 

10 ‘‘(3) NUMBER OF CONTRACTS.—There shall be 

11 no limit on the number of prescription drug card 

12 sponsors that may be awarded contracts under para13 graph (2). 

14 ‘‘(4) CONTRACT PROVISIONS.—

15 ‘‘(A) DURATION.—A contract awarded 

16 under paragraph (2) shall be for the lifetime of 

17 the program under this section. 

18 ‘‘(B) WITHDRAWAL.—A prescription drug 

19 card sponsor that desires to terminate the con20 tract awarded under paragraph (2) may termi21 nate such contract without penalty if such spon22 sor gives notice—

23 ‘‘(i) to the Secretary 90 days prior to 

24 the termination of such contract; and 
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1 ‘‘(ii) to each eligible low-income bene2 ficiary that is enrolled in a prescription 

3 drug assistance card program offered by 

4 such sponsor 60 days prior to such termi5 nation. 

6 ‘‘(C) SERVICE AREA.—The service area 

7 under the contract shall be the same as the 

8 area served by the prescription drug card spon9 sor under section 1807. 

10 ‘‘(5) SIMULTANEOUS APPROVAL OF DISCOUNT

11 CARD AND ASSISTANCE PROGRAMS.—A prescription 

12 drug card sponsor may submit an application for en13 dorsement under section 1807 as part of the bid 

14 submitted under paragraph (1) and the Secretary 

15 may approve such application at the same time as 

16 the Secretary awards a contract under this section. 

17 ‘‘(g) PAYMENTS TO PRESCRIPTION DRUG CARD

18 SPONSORS.—

19 ‘‘(1) IN GENERAL.—The Secretary shall pay to 

20 each prescription drug card sponsor offering a pre21 scription drug assistance card program in which an 

22 eligible low-income beneficiary is enrolled an amount 

23 equal to the amount agreed to by the Secretary and 

24 the sponsor in the contract awarded under sub25 section (f)(2). 
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1 ‘‘(2) PAYMENT FROM PART B TRUST FUND.—

2 The costs of providing benefits under this section 

3 shall be payable from the Federal Supplementary 

4 Medical Insurance Trust Fund established under 

5 section 1841. 

6 ‘‘(h) ELIGIBILITY DETERMINATIONS MADE BY

7 STATES; PRESUMPTIVE ELIGIBILITY.—States shall per8 form the functions described in section 1935(a)(1). 

9 ‘‘(i) APPROPRIATIONS.—There are appropriated from 

10 the Federal Supplementary Medical Insurance Trust 

11 Fund established under section 1841 such sums as may 

12 be necessary to carry out the program under this section. 

13 ‘‘(j) DEFINITIONS.—In this section: 

14 ‘‘(1) ELIGIBLE BENEFICIARY; NEGOTIATED

15 PRICE; PRESCRIPTION DRUG.—The terms ‘eligible 

16 beneficiary’, ‘negotiated price’, and ‘prescription 

17 drug’ have the meanings given those terms in section 

18 1807(i). 

19 ‘‘(2) ELIGIBLE LOW-INCOME BENEFICIARY.—

20 The term ‘eligible low-income beneficiary’ means an 

21 individual who—

22 ‘‘(A) is an eligible beneficiary (as defined 

23 in section 1807(i)); 

24 ‘‘(B) is not a dual eligible beneficiary as 

25 defined under section 1807(i)(1)(B); and 
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1 ‘‘(C) is described in clause (iii) or (iv) of 

2 section 1902(a)(10)(E) or in section 

3 1905(p)(1). 

4 ‘‘(3) PRESCRIPTION DRUG CARD SPONSOR.—

5 The term ‘prescription drug card sponsor’ has the 

6 meaning given that term in section 1807(i), except 

7 that such sponsor shall also be an entity that the 

8 Secretary determines—

9 ‘‘(A) is appropriate to provide eligible low10 income beneficiaries with the benefits under a 

11 prescription drug assistance card program 

12 under this section; 

13 ‘‘(B) is able to manage the monetary as14 sistance made available under subsection (d)(2); 

15 ‘‘(C) agrees to submit to audits by the Sec16 retary; and 

17 ‘‘(D) provides such other assurances as the 

18 Secretary may require. 

19 ‘‘(4) STATE.—The term ‘State’ has the mean20 ing given such term for purposes of title XIX.’’. 

21 (b) EXCLUSION OF PRICES FROM DETERMINATION

22 OF BEST PRICE.—Section 1927(c)(1)(C)(i) (42 U.S.C. 

23 1396r–8(c)(1)(C)(i)) is amended—

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

25 (III); 
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1 (2) by striking the period at the end of sub2 clause (IV) and inserting ‘‘; and’’; and 

3 (3) by adding at the end the following new sub4 clause: 

5 ‘‘(V) any negotiated prices 

6 charged under the medicare prescrip7 tion drug discount card endorsement 

8 program under section 1807 or under 

9 the transitional prescription drug as10 sistance card program for eligible low11 income beneficiaries under section 

12 1807A.’’. 

13 (c) EXCLUSION OF PRESCRIPTION DRUG ASSIST14 ANCE CARD COSTS FROM DETERMINATION OF PART B 

15 MONTHLY PREMIUM.—Section 1839(g) of the Social Se16 curity Act (42 U.S.C. 1395r(g)) is amended—

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

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

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

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

21 and’’; and 

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

23 paragraph: 

24 ‘‘(2) the prescription drug assistance card pro25 gram under section 1807A.’’. 
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1 (d) REGULATIONS.—

2 (1) AUTHORITY FOR INTERIM FINAL REGULA3 TIONS.—The Secretary may promulgate initial regu4 lations implementing sections 1807 and 1807A of 

5 the Social Security Act (as added by this section) 

6 in interim final form without prior opportunity for 

7 public comment. 

8 (2) FINAL REGULATIONS.—A final regulation 

9 reflecting public comments must be published within 

10 1 year of the interim final regulation promulgated 

11 under paragraph (1). 

12 (3) EXEMPTION FROM THE PAPERWORK RE13 DUCTION ACT.—The promulgation of the regulations 

14 under this subsection and the administration the 

15 programs established by sections 1807 and 1807A of 

16 the Social Security Act (as added by this section) 

17 shall be made without regard to chapter 35 of title 

18 44, United States Code (commonly known as the 

19 ‘‘Paperwork Reduction Act’’). 

20 (e) IMPLEMENTATION; TRANSITION.—

21 (1) IMPLEMENTATION.—The Secretary shall 

22 implement the amendments made by this section in 

23 a manner that discounts are available to eligible 

24 beneficiaries under section 1807 of the Social Secu25 rity Act and assistance is available to eligible low-in-
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1 come beneficiaries under section 1807A of such Act 

2 not later than January 1, 2004. 

3 (2) TRANSITION.—The Secretary shall provide 

4 for an appropriate transition and discontinuation of 

5 the programs under section 1807 and 1807A of the 

6 Social Security Act. Such transition and discontinu7 ation shall ensure that such programs continue to 

8 operate until the date on which the first enrollment 

9 period under part D ends. 

10 Subtitle C—Standards for 

11 Electronic Prescribing 

12 SEC. 121. STANDARDS FOR ELECTRONIC PRESCRIBING. 

13 Title XI (42 U.S.C. 1301 et seq.) is amended by add14 ing at the end the following new part: 

15 ‘‘PART D—ELECTRONIC PRESCRIBING

16 ‘‘STANDARDS FOR ELECTRONIC PRESCRIBING

17 ‘‘SEC. 1180. (a) STANDARDS.—

18 ‘‘(1) DEVELOPMENT AND ADOPTION.—

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

20 develop or adopt standards for transactions and 

21 data elements for such transactions (in this sec22 tion referred to as ‘standards’) to enable the 

23 electronic transmission of medication history, 

24 eligibility, benefit, and other prescription infor25 mation. 
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1 ‘‘(B) CONSULTATION.—In developing and 

2 adopting the standards under subparagraph 

3 (A), the Secretary shall consult with representa4 tives of physicians, hospitals, pharmacists, 

5 standard setting organizations, pharmacy ben6 efit managers, beneficiary information exchange 

7 networks, technology experts, and representa8 tives of the Departments of Veterans Affairs 

9 and Defense and other interested parties. 

10 ‘‘(2) OBJECTIVE.—Any standards developed or 

11 adopted under this part shall be consistent with the 

12 objectives of improving—

13 ‘‘(A) patient safety; and 

14 ‘‘(B) the quality of care provided to pa15 tients. 

16 ‘‘(3) REQUIREMENTS.—Any standards devel17 oped or adopted under this part shall comply with 

18 the following: 

19 ‘‘(A) ELECTRONIC TRANSMITTAL OF PRE20 SCRIPTIONS.—

21 ‘‘(i) IN GENERAL.—Except as pro22 vided in clause (ii), the standards require 

23 that prescriptions be written and trans24 mitted electronically. 
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1 ‘‘(ii) EXCEPTIONS.—The standards 

2 shall not require a prescription to be writ3 ten and transmitted electronically—

4 ‘‘(I) in emergency cases and 

5 other exceptional circumstances recog6 nized by the Administrator; or 

7 ‘‘(II) if the patient requests that 

8 the prescription not be transmitted 

9 electronically. 

10 If a patient makes a request under sub11 clause (II), no additional charges may be 

12 imposed on the patient for making such re13 quest.

14 ‘‘(B) PATIENT-SPECIFIC MEDICATION HIS15 TORY, ELIGIBILITY, BENEFIT, AND OTHER PRE16 SCRIPTION INFORMATION.—

17 ‘‘(i) IN GENERAL.—The standards 

18 shall accommodate electronic transmittal of 

19 patient-specific medication history, eligi20 bility, benefit, and other prescription infor21 mation among prescribing and dispensing 

22 professionals at the point of care. 

23 ‘‘(ii) REQUIRED INFORMATION.—The 

24 information described in clause (i) shall in25 clude the following: 
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1 ‘‘(I) Information (to the extent 

2 available and feasible) on the drugs 

3 being prescribed for that patient and 

4 other information relating to the 

5 medication history of the patient that 

6 may be relevant to the appropriate 

7 prescription for that patient. 

8 ‘‘(II) Cost-effective alternatives 

9 (if any) to the drug prescribed. 

10 ‘‘(III) Information on eligibility 

11 and benefits, including the drugs in12 cluded in the applicable formulary and 

13 any requirements for prior authoriza14 tion. 

15 ‘‘(IV) Information on potential 

16 interactions with drugs listed on the 

17 medication history, graded by severity 

18 of the potential interaction. 

19 ‘‘(V) Other information to im20 prove the quality of patient care and 

21 to reduce medical errors. 

22 ‘‘(C) UNDUE BURDEN.—The standards 

23 shall be designed so that, to the extent prac24 ticable, the standards do not impose an undue 
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1 administrative burden on the practice of medi2 cine, pharmacy, or other health professions. 

3 ‘‘(D) COMPATIBILITY WITH ADMINISTRA4 TIVE SIMPLIFICATION AND PRIVACY LAWS.—

5 The standards shall be—

6 ‘‘(i) consistent with the Federal regu7 lations (concerning the privacy of individ8 ually identifiable health information) pro9 mulgated under section 264(c) of the 

10 Health Insurance Portability and Account11 ability Act of 1996; and 

12 ‘‘(ii) compatible with the standards 

13 adopted under part C. 

14 ‘‘(4) TRANSFER OF INFORMATION.—The Sec15 retary shall develop and adopt standards for trans16 ferring among prescribing and insurance entities and 

17 other necessary entities appropriate standard data 

18 elements needed for the electronic exchange of medi19 cation history, eligibility, benefit, and other prescrip20 tion drug information and other health information 

21 determined appropriate in compliance with the 

22 standards adopted or modified under this part. 

23 ‘‘(b) TIMETABLE FOR ADOPTION OF STANDARDS.—

24 ‘‘(1) IN GENERAL.—The Secretary shall adopt 

25 the standards under this part by January 1, 2006. 
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1 ‘‘(2) ADDITIONS AND MODIFICATIONS TO

2 STANDARDS.—The Secretary shall, in consultation 

3 with appropriate representatives of interested par4 ties, review the standards developed or adopted 

5 under this part and adopt modifications to the 

6 standards (including additions to the standards), as 

7 determined appropriate. Any addition or modifica8 tion to such standards shall be completed in a man9 ner which minimizes the disruption and cost of com10 pliance. 

11 ‘‘(c) COMPLIANCE WITH STANDARDS.—

12 ‘‘(1) REQUIREMENT FOR ALL INDIVIDUALS AND

13 ENTITIES THAT TRANSMIT OR RECEIVE PRESCRIP14 TIONS ELECTRONICALLY.—

15 ‘‘(A) IN GENERAL.—Individuals or entities 

16 that transmit or receive electronic medication 

17 history, eligibility, benefit and prescription in18 formation, shall comply with the standards 

19 adopted or modified under this part. 

20 ‘‘(B) RELATION TO STATE LAWS.—The 

21 standards adopted or modified under this part 

22 shall supersede any State law or regulations 

23 pertaining to the electronic transmission of 

24 medication history, eligibility, benefit and pre25 scription information. 
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1 ‘‘(2) TIMETABLE FOR COMPLIANCE.—

2 ‘‘(A) INITIAL COMPLIANCE.—

3 ‘‘(i) IN GENERAL.—Not later than 24 

4 months after the date on which an initial 

5 standard is adopted under this part, each 

6 individual or entity to whom the standard 

7 applies shall comply with the standard. 

8 ‘‘(ii) SPECIAL RULE FOR SMALL

9 HEALTH PLANS.—In the case of a small 

10 health plan, as defined by the Secretary for 

11 purposes of section 1175(b)(1)(B), clause 

12 (i) shall be applied by substituting ‘36 

13 months’ for ‘24 months’. 

14 ‘‘(d) CONSULTATION WITH ATTORNEY GENERAL.—

15 The Secretary shall consult with the Attorney General be16 fore developing, adopting, or modifying a standard under 

17 this part to ensure that the standard accommodates secure 

18 electronic transmission of prescriptions for controlled sub19 stances in a manner that minimizes the possibility of viola20 tions under the Comprehensive Drug Abuse Prevention 

21 and Control Act of 1970 and related Federal laws. 

22 ‘‘GRANTS TO HEALTH CARE PROVIDERS TO IMPLEMENT

23 ELECTRONIC PRESCRIPTION PROGRAMS

24 ‘‘SEC. 1180A. (a) IN GENERAL.—The Secretary is 

25 authorized to make grants to health care providers for the 

26 purpose of assisting such entities to implement electronic 
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1 prescription programs that comply with the standards 

2 adopted or modified under this part. 

3 ‘‘(b) APPLICATION.—No grant may be made under 

4 this section except pursuant to a grant application that 

5 is submitted in a time, manner, and form approved by the 

6 Secretary.

7 ‘‘(c) AUTHORIZATION OF APPROPRIATIONS.—There 

8 are authorized to be appropriated for each of fiscal years 

9 2006, 2007, and 2008, such sums as may be necessary 

10 to carry out this section.’’.

11 Subtitle D—Other Provisions 

12 SEC. 131. ADDITIONAL REQUIREMENTS FOR ANNUAL FI13 NANCIAL REPORT AND OVERSIGHT ON MEDI14 CARE PROGRAM. 

15 (a) IN GENERAL.—Section 1817 (42 U.S.C. 1395i) 

16 is amended by adding at the end the following new sub17 section: 

18 ‘‘(l) COMBINED REPORT ON OPERATION AND STATUS

19 OF THE TRUST FUND AND THE FEDERAL SUPPLE20 MENTARY MEDICAL INSURANCE TRUST FUND (INCLUD21 ING THE PRESCRIPTION DRUG ACCOUNT).—In addition 

22 to the duty of the Board of Trustees to report to Congress 

23 under subsection (b), on the date the Board submits the 

24 report required under subsection (b)(2), the Board shall 

25 submit to Congress a report on the operation and status 
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1 of the Trust Fund and the Federal Supplementary Med2 ical Insurance Trust Fund established under section 1841 

3 (including the Prescription Drug Account within such 

4 Trust Fund), in this subsection referred to as the ‘Trust 

5 Funds’. Such report shall include the following informa6 tion: 

7 ‘‘(1) OVERALL SPENDING FROM THE GENERAL

8 FUND OF THE TREASURY.—A statement of total 

9 amounts obligated during the preceding fiscal year 

10 from the General Revenues of the Treasury to the 

11 Trust Funds, separately stated in terms of the total 

12 amount and in terms of the percentage such amount 

13 bears to all other amounts obligated from such Gen14 eral Revenues during such fiscal year, for each of 

15 the following amounts: 

16 ‘‘(A) MEDICARE BENEFITS.—The amount 

17 expended for payment of benefits covered under 

18 this title. 

19 ‘‘(B) ADMINISTRATIVE AND OTHER EX20 PENSES.—The amount expended for payments 

21 not related to the benefits described in subpara22 graph (A). 

23 ‘‘(2) HISTORICAL OVERVIEW OF SPENDING.—

24 From the date of the inception of the program of in25 surance under this title through the fiscal year in-
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1 volved, a statement of the total amounts referred to 

2 in paragraph (1), separately stated for the amounts 

3 described in subparagraphs (A) and (B) of such 

4 paragraph. 

5 ‘‘(3) 10-YEAR AND 50-YEAR PROJECTIONS.—An 

6 estimate of total amounts referred to in paragraph 

7 (1), separately stated for the amounts described in 

8 subparagraphs (A) and (B) of such paragraph, re9 quired to be obligated for payment for benefits cov10 ered under this title for each of the 10 fiscal years 

11 succeeding the fiscal year involved and for the 50-

12 year period beginning with the succeeding fiscal 

13 year. 

14 ‘‘(4) RELATION TO OTHER MEASURES OF

15 GROWTH.—A comparison of the rate of growth of 

16 the total amounts referred to in paragraph (1), sepa17 rately stated for the amounts described in subpara18 graphs (A) and (B) of such paragraph, to the rate 

19 of growth for the same period in—

20 ‘‘(A) the gross domestic product; 

21 ‘‘(B) health insurance costs in the private 

22 sector; 

23 ‘‘(C) employment-based health insurance 

24 costs in the public and private sectors; and 
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1 ‘‘(D) other areas as determined appro2 priate by the Board of Trustees.’’. 

3 (b) EFFECTIVE DATE.—The amendment made by 

4 subsection (a) shall apply with respect to fiscal years be5 ginning on or after the date of enactment of this Act. 

6 (c) CONGRESSIONAL HEARINGS.—It is the sense of 

7 Congress that the committees of jurisdiction of Congress 

8 shall hold hearings on the reports submitted under section 

9 1817(l) of the Social Security Act (as added by subsection 

10 (a)). 

11 SEC. 132. TRUSTEES’ REPORT ON MEDICARE’S UNFUNDED 

12 OBLIGATIONS. 

13 (a) REPORT.—The report submitted under sections 

14 1817(b)(2) and 1841(b)(2) of the Social Security Act (42 

15 U.S.C. 1395i(b)(2) and 1395t(b)(2)) during 2004 shall in16 clude an analysis of the total amount of the unfunded obli17 gations of the Medicare program under title XVIII of the 

18 Social Security Act. 

19 (b) MATTERS ANALYZED.—The analysis described in 

20 subsection (A) shall compare the long-term obligations of 

21 the Medicare program to the dedicated funding sources 

22 for that program (other than general revenue transfers), 

23 including the combined obligations of the Federal Hospital 

24 Insurance Trust Fund established under section 1817 of 

25 such Act (42 U.S.C. 1395i) and the Federal Supple-
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1 mentary Medical Insurance Trust Fund established under 

2 section 1841 of such Act (42 U.S.C. 1395t).

3 TITLE II—

4 MEDICAREADVANTAGE 

5 Subtitle A—MedicareAdvantage 

6 Competition 

7 SEC. 201. ELIGIBILITY, ELECTION, AND ENROLLMENT. 

8 Section 1851 (42 U.S.C. 1395w–21) is amended to 

9 read as follows: 

10 ‘‘ELIGIBILITY, ELECTION, AND ENROLLMENT

11 ‘‘SEC. 1851. (a) CHOICE OF MEDICARE BENEFITS

12 THROUGH MEDICAREADVANTAGE PLANS.—

13 ‘‘(1) IN GENERAL.—Subject to the provisions of 

14 this section, each MedicareAdvantage eligible indi15 vidual (as defined in paragraph (3)) is entitled to 

16 elect to receive benefits under this title—

17 ‘‘(A) through—

18 ‘‘(i) the original Medicare fee-for-serv19 ice program under parts A and B; and 

20 ‘‘(ii) the voluntary prescription drug 

21 delivery program under part D; or 

22 ‘‘(B) through enrollment in a 

23 MedicareAdvantage plan under this part. 

24 ‘‘(2) TYPES OF MEDICAREADVANTAGE PLANS

25 THAT MAY BE AVAILABLE.—A MedicareAdvantage 
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1 plan may be any of the following types of plans of 

2 health insurance: 

3 ‘‘(A) COORDINATED CARE PLANS.—Coordi4 nated care plans which provide health care serv5 ices, including health maintenance organization 

6 plans (with or without point of service options) 

7 and plans offered by provider-sponsored organi8 zations (as defined in section 1855(d)). 

9 ‘‘(B) COMBINATION OF MSA PLAN AND

10 CONTRIBUTIONS TO MEDICAREADVANTAGE

11 MSA.—An MSA plan, as defined in section 

12 1859(b)(3), and a contribution into a 

13 MedicareAdvantage medical savings account 

14 (MSA). 

15 ‘‘(C) PRIVATE FEE-FOR-SERVICE PLANS.—

16 A MedicareAdvantage private fee-for-service 

17 plan, as defined in section 1859(b)(2).

18 ‘‘(3) MEDICAREADVANTAGE ELIGIBLE INDI19 VIDUAL.—

20 ‘‘(A) IN GENERAL.—Subject to subpara21 graph (B), in this title, the term 

22 ‘MedicareAdvantage eligible individual’ means 

23 an individual who is entitled to (or enrolled for) 

24 benefits under part A, enrolled under part B, 

25 and enrolled under part D. 
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1 ‘‘(B) SPECIAL RULE FOR END-STAGE

2 RENAL DISEASE.—Such term shall not include 

3 an individual medically determined to have end4 stage renal disease, except that—

5 ‘‘(i) an individual who develops end6 stage renal disease while enrolled in a 

7 Medicare+Choice or a MedicareAdvantage 

8 plan may continue to be enrolled in that 

9 plan; and 

10 ‘‘(ii) in the case of such an individual 

11 who is enrolled in a Medicare+Choice plan 

12 or a MedicareAdvantage plan under clause 

13 (i) (or subsequently under this clause), if 

14 the enrollment is discontinued under cir15 cumstances described in section 

16 1851(e)(4)(A), then the individual will be 

17 treated as a ‘MedicareAdvantage eligible 

18 individual’ for purposes of electing to con19 tinue enrollment in another 

20 MedicareAdvantage plan. 

21 ‘‘(b) SPECIAL RULES.—

22 ‘‘(1) RESIDENCE REQUIREMENT.—

23 ‘‘(A) IN GENERAL.—Except as the Sec24 retary may otherwise provide and except as pro25 vided in subparagraph (C), an individual is eli-
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1 gible to elect a MedicareAdvantage plan offered 

2 by a MedicareAdvantage organization only if 

3 the plan serves the geographic area in which 

4 the individual resides. 

5 ‘‘(B) CONTINUATION OF ENROLLMENT

6 PERMITTED.—Pursuant to rules specified by 

7 the Secretary, the Secretary shall provide that 

8 a plan may offer to all individuals residing in 

9 a geographic area the option to continue enroll10 ment in the plan, notwithstanding that the indi11 vidual no longer resides in the service area of 

12 the plan, so long as the plan provides that indi13 viduals exercising this option have, as part of 

14 the basic benefits described in section 

15 1852(a)(1)(A), reasonable access within that 

16 geographic area to the full range of basic bene17 fits, subject to reasonable cost-sharing liability 

18 in obtaining such benefits. 

19 ‘‘(C) CONTINUATION OF ENROLLMENT

20 PERMITTED WHERE SERVICE CHANGED.—Not21 withstanding subparagraph (A) and in addition 

22 to subparagraph (B), if a MedicareAdvantage 

23 organization eliminates from its service area a 

24 MedicareAdvantage payment area that was pre25 viously within its service area, the organization 
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1 may elect to offer individuals residing in all or 

2 portions of the affected area who would other3 wise be ineligible to continue enrollment the op4 tion to continue enrollment in a 

5 MedicareAdvantage plan it offers so long as—

6 ‘‘(i) the enrollee agrees to receive the 

7 full range of basic benefits (excluding 

8 emergency and urgently needed care) ex9 clusively at facilities designated by the or10 ganization within the plan service area; 

11 and 

12 ‘‘(ii) there is no other 

13 MedicareAdvantage plan offered in the 

14 area in which the enrollee resides at the 

15 time of the organization’s election. 

16 ‘‘(2) SPECIAL RULE FOR CERTAIN INDIVIDUALS

17 COVERED UNDER FEHBP OR ELIGIBLE FOR VET18 ERANS OR MILITARY HEALTH BENEFITS.—

19 ‘‘(A) FEHBP.—An individual who is en20 rolled in a health benefit plan under chapter 89 

21 of title 5, United States Code, is not eligible to 

22 enroll in an MSA plan until such time as the 

23 Director of the Office of Management and 

24 Budget certifies to the Secretary that the Office 

25 of Personnel Management has adopted policies 
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1 which will ensure that the enrollment of such 

2 individuals in such plans will not result in in3 creased expenditures for the Federal Govern4 ment for health benefit plans under such chap5 ter. 

6 ‘‘(B) VA AND DOD.—The Secretary may 

7 apply rules similar to the rules described in 

8 subparagraph (A) in the case of individuals who 

9 are eligible for health care benefits under chap10 ter 55 of title 10, United States Code, or under 

11 chapter 17 of title 38 of such Code. 

12 ‘‘(3) LIMITATION ON ELIGIBILITY OF QUALI13 FIED MEDICARE BENEFICIARIES AND OTHER MED14 ICAID BENEFICIARIES TO ENROLL IN AN MSA

15 PLAN.—An individual who is a qualified medicare 

16 beneficiary (as defined in section 1905(p)(1)), a 

17 qualified disabled and working individual (described 

18 in section 1905(s)), an individual described in sec19 tion 1902(a)(10)(E)(iii), or otherwise entitled to 

20 medicare cost-sharing under a State plan under title 

21 XIX is not eligible to enroll in an MSA plan. 

22 ‘‘(4) COVERAGE UNDER MSA PLANS ON A DEM23 ONSTRATION BASIS.—
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1 ‘‘(A) IN GENERAL.—An individual is not 

2 eligible to enroll in an MSA plan under this 

3 part—

4 ‘‘(i) on or after January 1, 2004, un5 less the enrollment is the continuation of 

6 such an enrollment in effect as of such 

7 date; or

8 ‘‘(ii) as of any date if the number of 

9 such individuals so enrolled as of such date 

10 has reached 390,000. 

11 Under rules established by the Secretary, an in12 dividual is not eligible to enroll (or continue en13 rollment) in an MSA plan for a year unless the 

14 individual provides assurances satisfactory to 

15 the Secretary that the individual will reside in 

16 the United States for at least 183 days during 

17 the year. 

18 ‘‘(B) EVALUATION.—The Secretary shall 

19 regularly evaluate the impact of permitting en20 rollment in MSA plans under this part on selec21 tion (including adverse selection), use of preven22 tive care, access to care, and the financial sta23 tus of the Trust Funds under this title. 

24 ‘‘(C) REPORTS.—The Secretary shall sub25 mit to Congress periodic reports on the num-
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1 bers of individuals enrolled in such plans and 

2 on the evaluation being conducted under sub3 paragraph (B). 

4 ‘‘(c) PROCESS FOR EXERCISING CHOICE.—

5 ‘‘(1) IN GENERAL.—The Secretary shall estab6 lish a process through which elections described in 

7 subsection (a) are made and changed, including the 

8 form and manner in which such elections are made 

9 and changed. Such elections shall be made or 

10 changed only during coverage election periods speci11 fied under subsection (e) and shall become effective 

12 as provided in subsection (f). 

13 ‘‘(2) COORDINATION THROUGH

14 MEDICAREADVANTAGE ORGANIZATIONS.—

15 ‘‘(A) ENROLLMENT.—Such process shall 

16 permit an individual who wishes to elect a 

17 MedicareAdvantage plan offered by a 

18 MedicareAdvantage organization to make such 

19 election through the filing of an appropriate 

20 election form with the organization.

21 ‘‘(B) DISENROLLMENT.—Such process 

22 shall permit an individual, who has elected a 

23 MedicareAdvantage plan offered by a 

24 MedicareAdvantage organization and who wish25 es to terminate such election, to terminate such 
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1 election through the filing of an appropriate 

2 election form with the organization. 

3 ‘‘(3) DEFAULT.—

4 ‘‘(A) INITIAL ELECTION.—

5 ‘‘(i) IN GENERAL.—Subject to clause 

6 (ii), an individual who fails to make an 

7 election during an initial election period 

8 under subsection (e)(1) is deemed to have 

9 chosen the original medicare fee-for-service 

10 program option. 

11 ‘‘(ii) SEAMLESS CONTINUATION OF

12 COVERAGE.—The Secretary may establish 

13 procedures under which an individual who 

14 is enrolled in a Medicare+Choice plan or 

15 another health plan (other than a 

16 MedicareAdvantage plan) offered by a 

17 MedicareAdvantage organization at the 

18 time of the initial election period and who 

19 fails to elect to receive coverage other than 

20 through the organization is deemed to have 

21 elected the MedicareAdvantage plan of22 fered by the organization (or, if the organi23 zation offers more than 1 such plan, such 

24 plan or plans as the Secretary identifies 

25 under such procedures). 
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1 ‘‘(B) CONTINUING PERIODS.—An indi2 vidual who has made (or is deemed to have 

3 made) an election under this section is consid4 ered to have continued to make such election 

5 until such time as—

6 ‘‘(i) the individual changes the elec7 tion under this section; or 

8 ‘‘(ii) the MedicareAdvantage plan with 

9 respect to which such election is in effect 

10 is discontinued or, subject to subsection 

11 (b)(1)(B), no longer serves the area in 

12 which the individual resides. 

13 ‘‘(d) PROVIDING INFORMATION TO PROMOTE IN14 FORMED CHOICE.—

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

16 for activities under this subsection to broadly dis17 seminate information to medicare beneficiaries (and 

18 prospective medicare beneficiaries) on the coverage 

19 options provided under this section in order to pro20 mote an active, informed selection among such op21 tions. 

22 ‘‘(2) PROVISION OF NOTICE.—

23 ‘‘(A) OPEN SEASON NOTIFICATION.—At 

24 least 15 days before the beginning of each an25 nual, coordinated election period (as defined in 
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1 subsection (e)(3)(B)), the Secretary shall mail 

2 to each MedicareAdvantage eligible individual 

3 residing in an area the following: 

4 ‘‘(i) GENERAL INFORMATION.—The 

5 general information described in paragraph 

6 (3). 

7 ‘‘(ii) LIST OF PLANS AND COMPARI8 SON OF PLAN OPTIONS.—A list identifying 

9 the MedicareAdvantage plans that are (or 

10 will be) available to residents of the area 

11 and information described in paragraph 

12 (4) concerning such plans. Such informa13 tion shall be presented in a comparative 

14 form. 

15 ‘‘(iii) ADDITIONAL INFORMATION.—

16 Any other information that the Secretary 

17 determines will assist the individual in 

18 making the election under this section. 

19 The mailing of such information shall be coordi20 nated, to the extent practicable, with the mail21 ing of any annual notice under section 1804. 

22 ‘‘(B) NOTIFICATION TO NEWLY ELIGIBLE

23 MEDICAREADVANTAGE ELIGIBLE INDIVID24 UALS.—To the extent practicable, the Secretary 

25 shall, not later than 30 days before the begin-
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1 ning of the initial MedicareAdvantage enroll2 ment period for an individual described in sub3 section (e)(1), mail to the individual the infor4 mation described in subparagraph (A). 

5 ‘‘(C) FORM.—The information dissemi6 nated under this paragraph shall be written and 

7 formatted using language that is easily under8 standable by medicare beneficiaries.

9 ‘‘(D) PERIODIC UPDATING.—The informa10 tion described in subparagraph (A) shall be up11 dated on at least an annual basis to reflect 

12 changes in the availability of 

13 MedicareAdvantage plans, the benefits under 

14 such plans, and the MedicareAdvantage month15 ly basic beneficiary premium, 

16 MedicareAdvantage monthly beneficiary pre17 mium for enhanced medical benefits, and 

18 MedicareAdvantage monthly beneficiary obliga19 tion for qualified prescription drug coverage for 

20 such plans. 

21 ‘‘(3) GENERAL INFORMATION.—General infor22 mation under this paragraph, with respect to cov23 erage under this part during a year, shall include 

24 the following: 
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1 ‘‘(A) BENEFITS UNDER THE ORIGINAL

2 MEDICARE FEE-FOR-SERVICE PROGRAM OP3 TION.—A general description of the benefits 

4 covered under parts A and B of the original 

5 medicare fee-for-service program, including—

6 ‘‘(i) covered items and services; 

7 ‘‘(ii) beneficiary cost-sharing, such as 

8 deductibles, coinsurance, and copayment 

9 amounts; and 

10 ‘‘(iii) any beneficiary liability for bal11 ance billing. 

12 ‘‘(B) CATASTROPHIC COVERAGE AND COM13 BINED DEDUCTIBLE.—A description of the cat14 astrophic coverage and unified deductible appli15 cable under the plan. 

16 ‘‘(C) OUTPATIENT PRESCRIPTION DRUG

17 COVERAGE BENEFITS.—The information re18 quired under section 1860D–4 with respect to 

19 coverage for prescription drugs under the plan. 

20 ‘‘(D) ELECTION PROCEDURES.—Informa21 tion and instructions on how to exercise election 

22 options under this section.

23 ‘‘(E) RIGHTS.—A general description of 

24 procedural rights (including grievance and ap25 peals procedures) of beneficiaries under the 
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1 original medicare fee-for-service program (in2 cluding such rights under part D) and the 

3 MedicareAdvantage program and the right to 

4 be protected against discrimination based on 

5 health status-related factors under section 

6 1852(b). 

7 ‘‘(F) INFORMATION ON MEDIGAP AND

8 MEDICARE SELECT.—A general description of 

9 the benefits, enrollment rights, and other re10 quirements applicable to medicare supplemental 

11 policies under section 1882 and provisions relat12 ing to medicare select policies described in sec13 tion 1882(t). 

14 ‘‘(G) POTENTIAL FOR CONTRACT TERMI15 NATION.—The fact that a MedicareAdvantage 

16 organization may terminate its contract, refuse 

17 to renew its contract, or reduce the service area 

18 included in its contract, under this part, and 

19 the effect of such a termination, nonrenewal, or 

20 service area reduction may have on individuals 

21 enrolled with the MedicareAdvantage plan 

22 under this part. 

23 ‘‘(4) INFORMATION COMPARING PLAN OP24 TIONS.—Information under this paragraph, with re-
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1 spect to a MedicareAdvantage plan for a year, shall 

2 include the following: 

3 ‘‘(A) BENEFITS.—The benefits covered 

4 under the plan, including the following: 

5 ‘‘(i) Covered items and services be6 yond those provided under the original 

7 medicare fee-for-service program option. 

8 ‘‘(ii) Beneficiary cost-sharing for any 

9 items and services described in clause (i) 

10 and paragraph (3)(A)(i), including infor11 mation on the unified deductible under sec12 tion 1852(a)(1)(C). 

13 ‘‘(iii) The maximum limitations on 

14 out-of-pocket expenses under section 

15 1852(a)(1)(C). 

16 ‘‘(iv) In the case of an MSA plan, dif17 ferences in cost-sharing, premiums, and 

18 balance billing under such a plan compared 

19 to under other MedicareAdvantage plans.

20 ‘‘(v) In the case of a 

21 MedicareAdvantage private fee-for-service 

22 plan, differences in cost-sharing, pre23 miums, and balance billing under such a 

24 plan compared to under other 

25 MedicareAdvantage plans. 
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1 ‘‘(vi) The extent to which an enrollee 

2 may obtain benefits through out-of-net3 work health care providers. 

4 ‘‘(vii) The extent to which an enrollee 

5 may select among in-network providers and 

6 the types of providers participating in the 

7 plan’s network. 

8 ‘‘(viii) The organization’s coverage of 

9 emergency and urgently needed care. 

10 ‘‘(ix) The comparative information de11 scribed in section 1860D–4(b)(2) relating 

12 to prescription drug coverage under the 

13 plan. 

14 ‘‘(B) PREMIUMS.—

15 ‘‘(i) IN GENERAL.—The 

16 MedicareAdvantage monthly basic bene17 ficiary premium and MedicareAdvantage 

18 monthly beneficiary premium for enhanced 

19 medical benefits, if any, for the plan or, in 

20 the case of an MSA plan, the 

21 MedicareAdvantage monthly MSA pre22 mium. 

23 ‘‘(ii) REDUCTIONS.—The reduction in 

24 part B premiums, if any. 
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1 ‘‘(iii) NATURE OF THE PREMIUM FOR

2 ENHANCED MEDICAL BENEFITS.—Whether 

3 the MedicareAdvantage monthly premium 

4 for enhanced benefits is optional or manda5 tory. 

6 ‘‘(C) SERVICE AREA.—The service area of 

7 the plan. 

8 ‘‘(D) QUALITY AND PERFORMANCE.—Plan 

9 quality and performance indicators for the ben10 efits under the plan (and how such indicators 

11 compare to quality and performance indicators 

12 under the original medicare fee-for-service pro13 gram under parts A and B and under the vol14 untary prescription drug delivery program 

15 under part D in the area involved), including—

16 ‘‘(i) disenrollment rates for medicare 

17 enrollees electing to receive benefits 

18 through the plan for the previous 2 years 

19 (excluding disenrollment due to death or 

20 moving outside the plan’s service area); 

21 ‘‘(ii) information on medicare enrollee 

22 satisfaction; 

23 ‘‘(iii) information on health outcomes; 

24 and
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1 ‘‘(iv) the recent record regarding com2 pliance of the plan with requirements of 

3 this part (as determined by the Secretary). 

4 ‘‘(5) MAINTAINING A TOLL-FREE NUMBER AND

5 INTERNET SITE.—The Secretary shall maintain a 

6 toll-free number for inquiries regarding 

7 MedicareAdvantage options and the operation of this 

8 part in all areas in which MedicareAdvantage plans 

9 are offered and an Internet site through which indi10 viduals may electronically obtain information on 

11 such options and MedicareAdvantage plans. 

12 ‘‘(6) USE OF NON-FEDERAL ENTITIES.—The 

13 Secretary may enter into contracts with non-Federal 

14 entities to carry out activities under this subsection. 

15 ‘‘(7) PROVISION OF INFORMATION.—A 

16 MedicareAdvantage organization shall provide the 

17 Secretary with such information on the organization 

18 and each MedicareAdvantage plan it offers as may 

19 be required for the preparation of the information 

20 referred to in paragraph (2)(A). 

21 ‘‘(e) COVERAGE ELECTION PERIODS.—

22 ‘‘(1) INITIAL CHOICE UPON ELIGIBILITY TO

23 MAKE ELECTION IF MEDICAREADVANTAGE PLANS

24 AVAILABLE TO INDIVIDUAL.—If, at the time an indi25 vidual first becomes eligible to elect to receive bene-
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1 fits under part B or D (whichever is later), there is 

2 1 or more MedicareAdvantage plans offered in the 

3 area in which the individual resides, the individual 

4 shall make the election under this section during a 

5 period specified by the Secretary such that if the in6 dividual elects a MedicareAdvantage plan during the 

7 period, coverage under the plan becomes effective as 

8 of the first date on which the individual may receive 

9 such coverage. 

10 ‘‘(2) OPEN ENROLLMENT AND DISENROLLMENT

11 OPPORTUNITIES.—Subject to paragraph (5), the fol12 lowing rules shall apply: 

13 ‘‘(A) CONTINUOUS OPEN ENROLLMENT

14 AND DISENROLLMENT THROUGH 2005.—At any 

15 time during the period beginning January 1, 

16 1998, and ending on December 31, 2005, a 

17 Medicare+Choice eligible individual may change 

18 the election under subsection (a)(1). 

19 ‘‘(B) CONTINUOUS OPEN ENROLLMENT

20 AND DISENROLLMENT FOR FIRST 6 MONTHS

21 DURING 2006.—

22 ‘‘(i) IN GENERAL.—Subject to clause 

23 (ii) and subparagraph (D), at any time 

24 during the first 6 months of 2006, or, if 

25 the individual first becomes a 
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1 MedicareAdvantage eligible individual dur2 ing 2006, during the first 6 months during 

3 2006 in which the individual is a 

4 MedicareAdvantage eligible individual, a 

5 MedicareAdvantage eligible individual may 

6 change the election under subsection 

7 (a)(1). 

8 ‘‘(ii) LIMITATION OF 1 CHANGE.—An 

9 individual may exercise the right under 

10 clause (i) only once. The limitation under 

11 this clause shall not apply to changes in 

12 elections effected during an annual, coordi13 nated election period under paragraph (3) 

14 or during a special enrollment period under 

15 the first sentence of paragraph (4). 

16 ‘‘(C) CONTINUOUS OPEN ENROLLMENT

17 AND DISENROLLMENT FOR FIRST 3 MONTHS IN

18 SUBSEQUENT YEARS.—

19 ‘‘(i) IN GENERAL.—Subject to clause 

20 (ii) and subparagraph (D), at any time 

21 during the first 3 months of 2007 and 

22 each subsequent year, or, if the individual 

23 first becomes a MedicareAdvantage eligible 

24 individual during 2007 or any subsequent 

25 year, during the first 3 months of such 
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1 year in which the individual is a 

2 MedicareAdvantage eligible individual, a 

3 MedicareAdvantage eligible individual may 

4 change the election under subsection 

5 (a)(1). 

6 ‘‘(ii) LIMITATION OF 1 CHANGE DUR7 ING OPEN ENROLLMENT PERIOD EACH

8 YEAR.—An individual may exercise the 

9 right under clause (i) only once during the 

10 applicable 3-month period described in 

11 such clause in each year. The limitation 

12 under this clause shall not apply to 

13 changes in elections effected during an an14 nual, coordinated election period under 

15 paragraph (3) or during a special enroll16 ment period under paragraph (4). 

17 ‘‘(D) CONTINUOUS OPEN ENROLLMENT

18 FOR INSTITUTIONALIZED INDIVIDUALS.—At 

19 any time during 2006 or any subsequent year, 

20 in the case of a MedicareAdvantage eligible in21 dividual who is institutionalized (as defined by 

22 the Secretary), the individual may elect under 

23 subsection (a)(1)—

24 ‘‘(i) to enroll in a MedicareAdvantage 

25 plan; or 
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1 ‘‘(ii) to change the 

2 MedicareAdvantage plan in which the indi3 vidual is enrolled. 

4 ‘‘(3) ANNUAL, COORDINATED ELECTION PE5 RIOD.—

6 ‘‘(A) IN GENERAL.—Subject to paragraph 

7 (5), each individual who is eligible to make an 

8 election under this section may change such 

9 election during an annual, coordinated election 

10 period. 

11 ‘‘(B) ANNUAL, COORDINATED ELECTION

12 PERIOD.—For purposes of this section, the 

13 term ‘annual, coordinated election period’ 

14 means, with respect to a year before 2003 and 

15 after 2006, the month of November before such 

16 year and with respect to 2003, 2004, 2005, and 

17 2006, the period beginning on November 15 

18 and ending on December 31 of the year before 

19 such year. 

20 ‘‘(C) MEDICAREADVANTAGE HEALTH IN21 FORMATION FAIRS.—During the fall season of 

22 each year (beginning with 2006), in conjunction 

23 with the annual coordinated election period de24 fined in subparagraph (B), the Secretary shall 

25 provide for a nationally coordinated educational 
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1 and publicity campaign to inform 

2 MedicareAdvantage eligible individuals about 

3 MedicareAdvantage plans and the election proc4 ess provided under this section.

5 ‘‘(D) SPECIAL INFORMATION CAMPAIGN IN

6 2005.—During the period beginning on Novem7 ber 15, 2005, and ending on December 31, 

8 2005, the Secretary shall provide for an edu9 cational and publicity campaign to inform 

10 MedicareAdvantage eligible individuals about 

11 the availability of MedicareAdvantage plans, 

12 and eligible organizations with risk-sharing con13 tracts under section 1876, offered in different 

14 areas and the election process provided under 

15 this section. 

16 ‘‘(4) SPECIAL ELECTION PERIODS.—Effective 

17 on and after January 1, 2006, an individual may 

18 discontinue an election of a MedicareAdvantage plan 

19 offered by a MedicareAdvantage organization other 

20 than during an annual, coordinated election period 

21 and make a new election under this section if—

22 ‘‘(A)(i) the certification of the organization 

23 or plan under this part has been terminated, or 

24 the organization or plan has notified the indi-
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1 vidual of an impending termination of such cer2 tification; or 

3 ‘‘(ii) the organization has terminated or 

4 otherwise discontinued providing the plan in the 

5 area in which the individual resides, or has no6 tified the individual of an impending termi7 nation or discontinuation of such plan; 

8 ‘‘(B) the individual is no longer eligible to 

9 elect the plan because of a change in the indi10 vidual’s place of residence or other change in 

11 circumstances (specified by the Secretary, but 

12 not including termination of the individual’s en13 rollment on the basis described in clause (i) or 

14 (ii) of subsection (g)(3)(B));

15 ‘‘(C) the individual demonstrates (in ac16 cordance with guidelines established by the Sec17 retary) that—

18 ‘‘(i) the organization offering the plan 

19 substantially violated a material provision 

20 of the organization’s contract under this 

21 part in relation to the individual (including 

22 the failure to provide an enrollee on a 

23 timely basis medically necessary care for 

24 which benefits are available under the plan 

25 or the failure to provide such covered care 
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1 in accordance with applicable quality 

2 standards); or 

3 ‘‘(ii) the organization (or an agent or 

4 other entity acting on the organization’s 

5 behalf) materially misrepresented the 

6 plan’s provisions in marketing the plan to 

7 the individual; or 

8 ‘‘(D) the individual meets such other ex9 ceptional conditions as the Secretary may pro10 vide. 

11 Effective on and after January 1, 2006, an indi12 vidual who, upon first becoming eligible for benefits 

13 under part A at age 65, enrolls in a 

14 MedicareAdvantage plan under this part, the indi15 vidual may discontinue the election of such plan, and 

16 elect coverage under the original fee-for-service plan, 

17 at any time during the 12-month period beginning 

18 on the effective date of such enrollment. 

19 ‘‘(5) SPECIAL RULES FOR MSA PLANS.—Not20 withstanding the preceding provisions of this sub21 section, an individual—

22 ‘‘(A) may elect an MSA plan only during—

23 ‘‘(i) an initial open enrollment period 

24 described in paragraph (1); 
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1 ‘‘(ii) an annual, coordinated election 

2 period described in paragraph (3)(B); or 

3 ‘‘(iii) the month of November 1998; 

4 ‘‘(B) subject to subparagraph (C), may not 

5 discontinue an election of an MSA plan except 

6 during the periods described in clause (ii) or 

7 (iii) of subparagraph (A) and under the first 

8 sentence of paragraph (4); and 

9 ‘‘(C) who elects an MSA plan during an 

10 annual, coordinated election period, and who 

11 never previously had elected such a plan, may 

12 revoke such election, in a manner determined 

13 by the Secretary, by not later than December 

14 15 following the date of the election. 

15 ‘‘(6) OPEN ENROLLMENT PERIODS.—Subject to 

16 paragraph (5), a MedicareAdvantage organization—

17 ‘‘(A) shall accept elections or changes to 

18 elections during the initial enrollment periods 

19 described in paragraph (1), during the period 

20 beginning on November 15, 2005, and ending 

21 on December 31, 2005, and during the annual, 

22 coordinated election period under paragraph (3) 

23 for each subsequent year, and during special 

24 election periods described in the first sentence 

25 of paragraph (4); and 
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1 ‘‘(B) may accept other changes to elections 

2 at such other times as the organization pro3 vides. 

4 ‘‘(f) EFFECTIVENESS OF ELECTIONS AND CHANGES

5 OF ELECTIONS.—

6 ‘‘(1) DURING INITIAL COVERAGE ELECTION PE7 RIOD.—An election of coverage made during the ini8 tial coverage election period under subsection 

9 (e)(1)(A) shall take effect upon the date the indi10 vidual becomes entitled to (or enrolled for) benefits 

11 under part A, enrolled under part B, and enrolled 

12 under part D, except as the Secretary may provide 

13 (consistent with sections 1838 and 1860D–2)) in 

14 order to prevent retroactive coverage. 

15 ‘‘(2) DURING CONTINUOUS OPEN ENROLLMENT

16 PERIODS.—An election or change of coverage made 

17 under subsection (e)(2) shall take effect with the 

18 first day of the first calendar month following the 

19 date on which the election or change is made. 

20 ‘‘(3) ANNUAL, COORDINATED ELECTION PE21 RIOD.—An election or change of coverage made dur22 ing an annual, coordinated election period (as de23 fined in subsection (e)(3)(B)) in a year shall take ef24 fect as of the first day of the following year.
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•HR 2606 IH 

1 ‘‘(4) OTHER PERIODS.—An election or change 

2 of coverage made during any other period under 

3 subsection (e)(4) shall take effect in such manner as 

4 the Secretary provides in a manner consistent (to 

5 the extent practicable) with protecting continuity of 

6 health benefit coverage. 

7 ‘‘(g) GUARANTEED ISSUE AND RENEWAL.—

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

9 subsection, a MedicareAdvantage organization shall 

10 provide that at any time during which elections are 

11 accepted under this section with respect to a 

12 MedicareAdvantage plan offered by the organization, 

13 the organization will accept without restrictions indi14 viduals who are eligible to make such election. 

15 ‘‘(2) PRIORITY.—If the Secretary determines 

16 that a MedicareAdvantage organization, in relation 

17 to a MedicareAdvantage plan it offers, has a capac18 ity limit and the number of MedicareAdvantage eli19 gible individuals who elect the plan under this sec20 tion exceeds the capacity limit, the organization may 

21 limit the election of individuals of the plan under 

22 this section but only if priority in election is pro23 vided—
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•HR 2606 IH 

1 ‘‘(A) first to such individuals as have elect2 ed the plan at the time of the determination; 

3 and 

4 ‘‘(B) then to other such individuals in such 

5 a manner that does not discriminate, on a basis 

6 described in section 1852(b), among the individ7 uals (who seek to elect the plan). 

8 The preceding sentence shall not apply if it would 

9 result in the enrollment of enrollees substantially 

10 nonrepresentative, as determined in accordance with 

11 regulations of the Secretary, of the medicare popu12 lation in the service area of the plan. 

13 ‘‘(3) LIMITATION ON TERMINATION OF ELEC14 TION.—

15 ‘‘(A) IN GENERAL.—Subject to subpara16 graph (B), a MedicareAdvantage organization 

17 may not for any reason terminate the election 

18 of any individual under this section for a 

19 MedicareAdvantage plan it offers. 

20 ‘‘(B) BASIS FOR TERMINATION OF ELEC21 TION.—A MedicareAdvantage organization may 

22 terminate an individual’s election under this 

23 section with respect to a MedicareAdvantage 

24 plan it offers if—
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•HR 2606 IH 

1 ‘‘(i) any MedicareAdvantage monthly 

2 basic beneficiary premium, 

3 MedicareAdvantage monthly beneficiary 

4 obligation for qualified prescription drug 

5 coverage, or MedicareAdvantage monthly 

6 beneficiary premium for required or op7 tional enhanced medical benefits required 

8 with respect to such plan are not paid on 

9 a timely basis (consistent with standards 

10 under section 1856 that provide for a 

11 grace period for late payment of such pre12 miums); 

13 ‘‘(ii) the individual has engaged in 

14 disruptive behavior (as specified in such 

15 standards); or 

16 ‘‘(iii) the plan is terminated with re17 spect to all individuals under this part in 

18 the area in which the individual resides. 

19 ‘‘(C) CONSEQUENCE OF TERMINATION.—

20 ‘‘(i) TERMINATIONS FOR CAUSE.—

21 Any individual whose election is terminated 

22 under clause (i) or (ii) of subparagraph 

23 (B) is deemed to have elected to receive 

24 benefits under the original medicare fee25 for-service program option. 
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•HR 2606 IH 

1 ‘‘(ii) TERMINATION BASED ON PLAN

2 TERMINATION OR SERVICE AREA REDUC3 TION.—Any individual whose election is 

4 terminated under subparagraph (B)(iii) 

5 shall have a special election period under 

6 subsection (e)(4)(A) in which to change 

7 coverage to coverage under another 

8 MedicareAdvantage plan. Such an indi9 vidual who fails to make an election during 

10 such period is deemed to have chosen to 

11 change coverage to the original medicare 

12 fee-for-service program option.

13 ‘‘(D) ORGANIZATION OBLIGATION WITH

14 RESPECT TO ELECTION FORMS.—Pursuant to a 

15 contract under section 1857858, each 

16 MedicareAdvantage organization receiving an 

17 election form under subsection (c)(2) shall 

18 transmit to the Secretary (at such time and in 

19 such manner as the Secretary may specify) a 

20 copy of such form or such other information re21 specting the election as the Secretary may 

22 specify. 

23 ‘‘(h) APPROVAL OF MARKETING MATERIAL AND AP24 PLICATION FORMS.—
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•HR 2606 IH 

1 ‘‘(1) SUBMISSION.—No marketing material or 

2 application form may be distributed by a 

3 MedicareAdvantage organization to (or for the use 

4 of) MedicareAdvantage eligible individuals unless—

5 ‘‘(A) at least 45 days (or 10 days in the 

6 case described in paragraph (5)) before the date 

7 of distribution the organization has submitted 

8 the material or form to the Secretary for re9 view; and 

10 ‘‘(B) the Secretary has not disapproved the 

11 distribution of such material or form. 

12 ‘‘(2) REVIEW.—The standards established 

13 under section 1856 shall include guidelines for the 

14 review of any material or form submitted and under 

15 such guidelines the Secretary shall disapprove (or 

16 later require the correction of) such material or form 

17 if the material or form is materially inaccurate or 

18 misleading or otherwise makes a material misrepre19 sentation. 

20 ‘‘(3) DEEMED APPROVAL (1-STOP SHOPPING).—

21 In the case of material or form that is submitted 

22 under paragraph (1)(A) to the Secretary or a re23 gional office of the Department of Health and 

24 Human Services and the Secretary or the office has 

25 not disapproved the distribution of marketing mate-
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•HR 2606 IH 

1 rial or form under paragraph (1)(B) with respect to 

2 a MedicareAdvantage plan in an area, the Secretary 

3 is deemed not to have disapproved such distribution 

4 in all other areas covered by the plan and organiza5 tion except with regard to that portion of such mate6 rial or form that is specific only to an area involved. 

7 ‘‘(4) PROHIBITION OF CERTAIN MARKETING

8 PRACTICES.—Each MedicareAdvantage organization 

9 shall conform to fair marketing standards, in rela10 tion to MedicareAdvantage plans offered under this 

11 part, included in the standards established under 

12 section 1856. Such standards—

13 ‘‘(A) shall not permit a MedicareAdvantage 

14 organization to provide for cash or other mone15 tary rebates as an inducement for enrollment or 

16 otherwise (other than as an additional benefit 

17 described in section 1854(g)(1)(C)(i)); and 

18 ‘‘(B) may include a prohibition against a 

19 MedicareAdvantage organization (or agent of 

20 such an organization) completing any portion of 

21 any election form used to carry out elections 

22 under this section on behalf of any individual. 

23 ‘‘(5) SPECIAL TREATMENT OF MARKETING MA24 TERIAL FOLLOWING MODEL MARKETING LAN25 GUAGE.—In the case of marketing material of an or-
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•HR 2606 IH 

1 ganization that uses, without modification, proposed 

2 model language specified by the Secretary, the pe3 riod specified in paragraph (1)(A) shall be reduced 

4 from 45 days to 10 days. 

5 ‘‘(i) EFFECT OF ELECTION OF

6 MEDICAREADVANTAGE PLAN OPTION.—

7 ‘‘(1) PAYMENTS TO ORGANIZATIONS.—Subject 

8 to sections 1852(a)(5), 1853(h), 1853(i), 

9 1886(d)(11), and 1886(h)(3)(D), payments under a 

10 contract with a MedicareAdvantage organization 

11 under section 1853(a) with respect to an individual 

12 electing a MedicareAdvantage plan offered by the or13 ganization shall be instead of the amounts which (in 

14 the absence of the contract) would otherwise be pay15 able under parts A, B, and D for items and services 

16 furnished to the individual. 

17 ‘‘(2) ONLY ORGANIZATION ENTITLED TO PAY18 MENT.—Subject to sections 1853(f), 1853(h), 

19 1853(i), 1857(f)(2), 1886(d)(11), and 

20 1886(h)(3)(D), only the MedicareAdvantage organi21 zation shall be entitled to receive payments from the 

22 Secretary under this title for services furnished to 

23 the individual.’’.
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1 SEC. 202. BENEFITS AND BENEFICIARY PROTECTIONS. 

2 Section 1852 (42 U.S.C. 1395w–22) is amended to 

3 read as follows: 

4 ‘‘BENEFITS AND BENEFICIARY PROTECTIONS

5 ‘‘SEC. 1852. (a) BASIC BENEFITS.—

6 ‘‘(1) IN GENERAL.—Except as provided in sec7 tion 1859(b)(3) for MSA plans, each 

8 MedicareAdvantage plan shall provide to members 

9 enrolled under this part, through providers and 

10 other persons that meet the applicable requirements 

11 of this title and part A of title XI—

12 ‘‘(A) those items and services (other than 

13 hospice care) for which benefits are available 

14 under parts A and B to individuals residing in 

15 the area served by the plan; 

16 ‘‘(B) except as provided in paragraph 

17 (2)(D), qualified prescription drug coverage 

18 under part D to individuals residing in the area 

19 served by the plan; 

20 ‘‘(C) a maximum limitation on out-of-pock21 et expenses and a unified deductible; and 

22 ‘‘(D) additional benefits required under 

23 section 1854(d)(1). 

24 ‘‘(2) SATISFACTION OF REQUIREMENT.—

25 ‘‘(A) IN GENERAL.—A MedicareAdvantage 

26 plan (other than an MSA plan) offered by a 
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•HR 2606 IH 

1 MedicareAdvantage organization satisfies para2 graph (1)(A), with respect to benefits for items 

3 and services furnished other than through a 

4 provider or other person that has a contract 

5 with the organization offering the plan, if the 

6 plan provides payment in an amount so that—

7 ‘‘(i) the sum of such payment amount 

8 and any cost-sharing provided for under 

9 the plan; is equal to at least 

10 ‘‘(ii) the total dollar amount of pay11 ment for such items and services as would 

12 otherwise be authorized under parts A and 

13 B (including any balance billing permitted 

14 under such parts). 

15 ‘‘(B) REFERENCE TO RELATED PROVI16 SIONS.—For provisions relating to—

17 ‘‘(i) limitations on balance billing 

18 against MedicareAdvantage organizations 

19 for noncontract providers, see sections 

20 1852(k) and 1866(a)(1)(O); and 

21 ‘‘(ii) limiting actuarial value of en22 rollee liability for covered benefits, see sec23 tion 1854(f). 

24 ‘‘(C) ELECTION OF UNIFORM COVERAGE

25 POLICY.—In the case of a MedicareAdvantage 
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•HR 2606 IH 

1 organization that offers a MedicareAdvantage 

2 plan in an area in which more than 1 local cov3 erage policy is applied with respect to different 

4 parts of the area, the organization may elect to 

5 have the local coverage policy for the part of 

6 the area that is most beneficial to 

7 MedicareAdvantage enrollees (as identified by 

8 the Secretary) apply with respect to all 

9 MedicareAdvantage enrollees enrolled in the 

10 plan. 

11 ‘‘(D) SPECIAL RULE FOR PRIVATE FEE12 FOR-SERVICE PLANS.—

13 ‘‘(i) IN GENERAL.—A private fee-for14 service plan may elect not to provide quali15 fied prescription drug coverage under part 

16 D to individuals residing in the area served 

17 by the plan. 

18 ‘‘(ii) AVAILABILITY OF DRUG COV19 ERAGE FOR ENROLLEES.—If a beneficiary 

20 enrolls in a plan making the election de21 scribed in clause (i), the beneficiary may 

22 enroll for drug coverage under part D with 

23 an eligible entity under such part. 

24 ‘‘(3) ENHANCED MEDICAL BENEFITS.—
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•HR 2606 IH 

1 ‘‘(A) BENEFITS INCLUDED SUBJECT TO

2 SECRETARY’S APPROVAL.—Each 

3 MedicareAdvantage organization may provide to 

4 individuals enrolled under this part, other than 

5 under an MSA plan (without affording those in6 dividuals an option to decline the coverage), en7 hanced medical benefits that the Secretary may 

8 approve. The Secretary shall approve any such 

9 enhanced medical benefits unless the Secretary 

10 determines that including such enhanced med11 ical benefits would substantially discourage en12 rollment by MedicareAdvantage eligible individ13 uals with the organization. 

14 ‘‘(B) AT ENROLLEES’ OPTION.—A 

15 MedicareAdvantage organization may not pro16 vide, under an MSA plan, enhanced medical 

17 benefits that cover the deductible described in 

18 section 1859(b)(2)(B). In applying the previous 

19 sentence, health benefits described in section 

20 1882(u)(2)(B) shall not be treated as covering 

21 such deductible. 

22 ‘‘(C) APPLICATION TO

23 MEDICAREADVANTAGE PRIVATE FEE-FOR-SERV24 ICE PLANS.—Nothing in this paragraph shall be 

25 construed as preventing a MedicareAdvantage 
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•HR 2606 IH 

1 private fee-for-service plan from offering en2 hanced medical benefits that include payment 

3 for some or all of the balance billing amounts 

4 permitted consistent with section 1852(k) and 

5 coverage of additional services that the plan 

6 finds to be medically necessary. 

7 ‘‘(D) RULE FOR APPROVAL OF MEDICAL

8 AND PRESCRIPTION DRUG BENEFITS.—Notwith9 standing the preceding provisions of this para10 graph, the Secretary may not approve any en11 hanced medical benefit that provides for the 

12 coverage of any prescription drug (other than 

13 that relating to prescription drugs covered 

14 under the original medicare fee-for-service pro15 gram option). 

16 ‘‘(4) ORGANIZATION AS SECONDARY PAYER.—

17 Notwithstanding any other provision of law, a 

18 MedicareAdvantage organization may (in the case of 

19 the provision of items and services to an individual 

20 under a MedicareAdvantage plan under cir21 cumstances in which payment under this title is 

22 made secondary pursuant to section 1862(b)(2)) 

23 charge or authorize the provider of such services to 

24 charge, in accordance with the charges allowed 
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•HR 2606 IH 

1 under a law, plan, or policy described in such sec2 tion—

3 ‘‘(A) the insurance carrier, employer, or 

4 other entity which under such law, plan, or pol5 icy is to pay for the provision of such services; 

6 or 

7 ‘‘(B) such individual to the extent that the 

8 individual has been paid under such law, plan, 

9 or policy for such services. 

10 ‘‘(5) NATIONAL COVERAGE DETERMINATIONS

11 AND LEGISLATIVE CHANGES IN BENEFITS.—If there 

12 is a national coverage determination or legislative 

13 change in benefits required to be provided under this 

14 part made in the period beginning on the date of an 

15 announcement under section 1853(b) and ending on 

16 the date of the next announcement under such sec17 tion and the Secretary projects that the determina18 tion will result in a significant change in the costs 

19 to a MedicareAdvantage organization of providing 

20 the benefits that are the subject of such national 

21 coverage determination and that such change in 

22 costs was not incorporated in the determination of 

23 the benchmark amount announced under section 

24 1853(b)(1)(A) at the beginning of such period, then, 

25 unless otherwise required by law—
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•HR 2606 IH 

1 ‘‘(A) such determination or legislative 

2 change in benefits shall not apply to contracts 

3 under this part until the first contract year that 

4 begins after the end of such period; and 

5 ‘‘(B) if such coverage determination or leg6 islative change provides for coverage of addi7 tional benefits or coverage under additional cir8 cumstances, section 1851(i)(1) shall not apply 

9 to payment for such additional benefits or bene10 fits provided under such additional cir11 cumstances until the first contract year that be12 gins after the end of such period. 

13 The projection under the previous sentence shall be 

14 based on an analysis by the Secretary of the actu15 arial costs associated with the coverage determina16 tion or legislative change in benefits. 

17 ‘‘(6) AUTHORITY TO PROHIBIT RISK SELEC18 TION.—The Secretary shall have the authority to 

19 disapprove any MedicareAdvantage plan that the 

20 Secretary determines is designed to attract a popu21 lation that is healthier than the average population 

22 residing in the service area of the plan. 

23 ‘‘(7) UNIFIED DEDUCTIBLE DEFINED.—In this 

24 part, the term ‘unified deductible’ means an annual 

25 deductible amount that is applied in lieu of the inpa-
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•HR 2606 IH 

1 tient hospital deductible under section 1813(b)(1) 

2 and the deductible under section 1833(b). Nothing 

3 in this part shall be construed as preventing a 

4 MedicareAdvantage organization from requiring co5 insurance or a copayment for inpatient hospital serv6 ices after the unified deductible is satisfied, subject 

7 to the limitation on enrollee liability under section 

8 1854(f). 

9 ‘‘(b) ANTIDISCRIMINATION.—

10 ‘‘(1) BENEFICIARIES.—

11 ‘‘(A) IN GENERAL.—A MedicareAdvantage 

12 organization may not deny, limit, or condition 

13 the coverage or provision of benefits under this 

14 part, for individuals permitted to be enrolled 

15 with the organization under this part, based on 

16 any health status-related factor described in 

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

18 Act. 

19 ‘‘(B) CONSTRUCTION.—Except as provided 

20 under section 1851(a)(3)(B), subparagraph (A) 

21 shall not be construed as requiring a 

22 MedicareAdvantage organization to enroll indi23 viduals who are determined to have end-stage 

24 renal disease. 
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•HR 2606 IH 

1 ‘‘(2) PROVIDERS.—A MedicareAdvantage orga2 nization shall not discriminate with respect to par3 ticipation, reimbursement, or indemnification as to 

4 any provider who is acting within the scope of the 

5 provider’s license or certification under applicable 

6 State law, solely on the basis of such license or cer7 tification. This paragraph shall not be construed to 

8 prohibit a plan from including providers only to the 

9 extent necessary to meet the needs of the plan’s en10 rollees or from establishing any measure designed to 

11 maintain quality and control costs consistent with 

12 the responsibilities of the plan. 

13 ‘‘(c) DISCLOSURE REQUIREMENTS.—

14 ‘‘(1) DETAILED DESCRIPTION OF PLAN PROVI15 SIONS.—A MedicareAdvantage organization shall 

16 disclose, in clear, accurate, and standardized form to 

17 each enrollee with a MedicareAdvantage plan offered 

18 by the organization under this part at the time of 

19 enrollment and at least annually thereafter, the fol20 lowing information regarding such plan: 

21 ‘‘(A) SERVICE AREA.—The plan’s service 

22 area. 

23 ‘‘(B) BENEFITS.—Benefits offered under 

24 the plan, including information described sec25 tion 1852(a)(1) (relating to benefits under the 
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1 original medicare fee-for-service program op2 tion, the maximum limitation in out-of-pocket 

3 expenses and the unified deductible, and quali4 fied prescription drug coverage under part D, 

5 respectively) and exclusions from coverage and, 

6 if it is an MSA plan, a comparison of benefits 

7 under such a plan with benefits under other 

8 MedicareAdvantage plans. 

9 ‘‘(C) ACCESS.—The number, mix, and dis10 tribution of plan providers, out-of-network cov11 erage (if any) provided by the plan, and any 

12 point-of-service option (including the 

13 MedicareAdvantage monthly beneficiary pre14 mium for enhanced medical benefits for such 

15 option). 

16 ‘‘(D) OUT-OF-AREA COVERAGE.—Out-of17 area coverage provided by the plan. 

18 ‘‘(E) EMERGENCY COVERAGE.—Coverage 

19 of emergency services, including—

20 ‘‘(i) the appropriate use of emergency 

21 services, including use of the 911 telephone 

22 system or its local equivalent in emergency 

23 situations and an explanation of what con24 stitutes an emergency situation; 
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•HR 2606 IH 

1 ‘‘(ii) the process and procedures of the 

2 plan for obtaining emergency services; and 

3 ‘‘(iii) the locations of—

4 ‘‘(I) emergency departments; and

5 ‘‘(II) other settings, in which 

6 plan physicians and hospitals provide 

7 emergency services and post-stabiliza8 tion care. 

9 ‘‘(F) ENHANCED MEDICAL BENEFITS.—

10 Enhanced medical benefits available from the 

11 organization offering the plan, including—

12 ‘‘(i) whether the enhanced medical 

13 benefits are optional; 

14 ‘‘(ii) the enhanced medical benefits 

15 covered; and 

16 ‘‘(iii) the MedicareAdvantage monthly 

17 beneficiary premium for enhanced medical 

18 benefits. 

19 ‘‘(G) PRIOR AUTHORIZATION RULES.—

20 Rules regarding prior authorization or other re21 view requirements that could result in non22 payment.

23 ‘‘(H) PLAN GRIEVANCE AND APPEALS PRO24 CEDURES.—All plan appeal or grievance rights 

25 and procedures. 
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•HR 2606 IH 

1 ‘‘(I) QUALITY ASSURANCE PROGRAM.—A 

2 description of the organization’s quality assur3 ance program under subsection (e). 

4 ‘‘(2) DISCLOSURE UPON REQUEST.—Upon re5 quest of a MedicareAdvantage eligible individual, a 

6 MedicareAdvantage organization must provide the 

7 following information to such individual: 

8 ‘‘(A) The general coverage information and 

9 general comparative plan information made 

10 available under clauses (i) and (ii) of section 

11 1851(d)(2)(A). 

12 ‘‘(B) Information on procedures used by 

13 the organization to control utilization of serv14 ices and expenditures. 

15 ‘‘(C) Information on the number of griev16 ances, reconsiderations, and appeals and on the 

17 disposition in the aggregate of such matters. 

18 ‘‘(D) An overall summary description as to 

19 the method of compensation of participating 

20 physicians. 

21 ‘‘(E) The information described in sub22 paragraphs (A) through (C) in relation to the 

23 qualified prescription drug coverage provided by 

24 the organization. 

25 ‘‘(d) ACCESS TO SERVICES.—
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•HR 2606 IH 

1 ‘‘(1) IN GENERAL.—A MedicareAdvantage or2 ganization offering a MedicareAdvantage plan may 

3 select the providers from whom the benefits under 

4 the plan are provided so long as—

5 ‘‘(A) the organization makes such benefits 

6 available and accessible to each individual elect7 ing the plan within the plan service area with 

8 reasonable promptness and in a manner which 

9 assures continuity in the provision of benefits; 

10 ‘‘(B) when medically necessary the organi11 zation makes such benefits available and acces12 sible 24 hours a day and 7 days a week; 

13 ‘‘(C) the plan provides for reimbursement 

14 with respect to services which are covered under 

15 subparagraphs (A) and (B) and which are pro16 vided to such an individual other than through 

17 the organization, if—

18 ‘‘(i) the services were not emergency 

19 services (as defined in paragraph (3)), 

20 but—

21 ‘‘(I) the services were medically 

22 necessary and immediately required 

23 because of an unforeseen illness, in24 jury, or condition; and 
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•HR 2606 IH 

1 ‘‘(II) it was not reasonable given 

2 the circumstances to obtain the serv3 ices through the organization; 

4 ‘‘(ii) the services were renal dialysis 

5 services and were provided other than 

6 through the organization because the indi7 vidual was temporarily out of the plan’s 

8 service area; or 

9 ‘‘(iii) the services are maintenance 

10 care or post-stabilization care covered 

11 under the guidelines established under 

12 paragraph (2);

13 ‘‘(D) the organization provides access to 

14 appropriate providers, including credentialed 

15 specialists, for medically necessary treatment 

16 and services; and 

17 ‘‘(E) coverage is provided for emergency 

18 services (as defined in paragraph (3)) without 

19 regard to prior authorization or the emergency 

20 care provider’s contractual relationship with the 

21 organization. 

22 ‘‘(2) GUIDELINES RESPECTING COORDINATION

23 OF POST-STABILIZATION CARE.—A 

24 MedicareAdvantage plan shall comply with such 

25 guidelines as the Secretary may prescribe relating to 
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1 promoting efficient and timely coordination of appro2 priate maintenance and post-stabilization care of an 

3 enrollee after the enrollee has been determined to be 

4 stable under section 1867. 

5 ‘‘(3) DEFINITION OF EMERGENCY SERVICES.—

6 In this subsection—

7 ‘‘(A) IN GENERAL.—The term ‘emergency 

8 services’ means, with respect to an individual 

9 enrolled with an organization, covered inpatient 

10 and outpatient services that—

11 ‘‘(i) are furnished by a provider that 

12 is qualified to furnish such services under 

13 this title; and 

14 ‘‘(ii) are needed to evaluate or sta15 bilize an emergency medical condition (as 

16 defined in subparagraph (B)). 

17 ‘‘(B) EMERGENCY MEDICAL CONDITION

18 BASED ON PRUDENT LAYPERSON.—The term 

19 ‘emergency medical condition’ means a medical 

20 condition manifesting itself by acute symptoms 

21 of sufficient severity (including severe pain) 

22 such that a prudent layperson, who possesses 

23 an average knowledge of health and medicine, 

24 could reasonably expect the absence of imme25 diate medical attention to result in—
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•HR 2606 IH 

1 ‘‘(i) placing the health of the indi2 vidual (or, with respect to a pregnant 

3 woman, the health of the woman or her 

4 unborn child) in serious jeopardy; 

5 ‘‘(ii) serious impairment to bodily 

6 functions; or 

7 ‘‘(iii) serious dysfunction of any bodily 

8 organ or part. 

9 ‘‘(4) ASSURING ACCESS TO SERVICES IN

10 MEDICAREADVANTAGE PRIVATE FEE-FOR-SERV11 ICE PLANS.—In addition to any other require12 ments under this part, in the case of a 

13 MedicareAdvantage private fee-for-service plan, 

14 the organization offering the plan must dem15 onstrate to the Secretary that the organization 

16 has sufficient number and range of health care 

17 professionals and providers willing to provide 

18 services under the terms of the plan. The Sec19 retary shall find that an organization has met 

20 such requirement with respect to any category 

21 of health care professional or provider if, with 

22 respect to that category of provider—

23 ‘‘(A) the plan has established payment 

24 rates for covered services furnished by that 

25 category of provider that are not less than 
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1 the payment rates provided for under part 

2 A, B, or D for such services; or 

3 ‘‘(B) the plan has contracts or agree4 ments with a sufficient number and range 

5 of providers within such category to pro6 vide covered services under the terms of 

7 the plan, 

8 or a combination of both. The previous sentence 

9 shall not be construed as restricting the persons 

10 from whom enrollees under such a plan may ob11 tain covered benefits. 

12 ‘‘(e) QUALITY ASSURANCE PROGRAM.—

13 ‘‘(1) IN GENERAL.—Each MedicareAdvantage 

14 organization must have arrangements, consistent 

15 with any regulation, for an ongoing quality assur16 ance program for health care services it provides to 

17 individuals enrolled with MedicareAdvantage plans 

18 of the organization. 

19 ‘‘(2) ELEMENTS OF PROGRAM.—

20 ‘‘(A) IN GENERAL.—The quality assurance 

21 program of an organization with respect to a

22 MedicareAdvantage plan (other than a 

23 MedicareAdvantage private fee-for-service plan 

24 or a nonnetwork MSA plan) it offers shall—
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1 ‘‘(i) stress health outcomes and pro2 vide for the collection, analysis, and report3 ing of data (in accordance with a quality 

4 measurement system that the Secretary 

5 recognizes) that will permit measurement 

6 of outcomes and other indices of the qual7 ity of MedicareAdvantage plans and orga8 nizations; 

9 ‘‘(ii) monitor and evaluate high vol10 ume and high risk services and the care of 

11 acute and chronic conditions; 

12 ‘‘(iii) provide access to disease man13 agement and chronic care services; 

14 ‘‘(iv) provide access to preventive ben15 efits and information for enrollees on such 

16 benefits; 

17 ‘‘(v) evaluate the continuity and co18 ordination of care that enrollees receive; 

19 ‘‘(vi) be evaluated on an ongoing basis 

20 as to its effectiveness; 

21 ‘‘(vii) include measures of consumer 

22 satisfaction; 

23 ‘‘(viii) provide the Secretary with such 

24 access to information collected as may be 
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1 appropriate to monitor and ensure the 

2 quality of care provided under this part; 

3 ‘‘(ix) provide review by physicians and 

4 other health care professionals of the proc5 ess followed in the provision of such health 

6 care services; 

7 ‘‘(x) provide for the establishment of 

8 written protocols for utilization review, 

9 based on current standards of medical 

10 practice; 

11 ‘‘(xi) have mechanisms to detect both 

12 underutilization and overutilization of serv13 ices; 

14 ‘‘(xii) after identifying areas for im15 provement, establish or alter practice pa16 rameters; 

17 ‘‘(xiii) take action to improve quality 

18 and assesses the effectiveness of such ac19 tion through systematic followup; and 

20 ‘‘(xiv) make available information on 

21 quality and outcomes measures to facilitate 

22 beneficiary comparison and choice of 

23 health coverage options (in such form and 

24 on such quality and outcomes measures as 
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1 the Secretary determines to be appro2 priate). 

3 Such program shall include a separate focus 

4 (with respect to all the elements described in 

5 this subparagraph) on racial and ethnic minori6 ties. 

7 ‘‘(B) ELEMENTS OF PROGRAM FOR ORGA8 NIZATIONS OFFERING MEDICAREADVANTAGE

9 PRIVATE FEE-FOR-SERVICE PLANS, AND NON10 NETWORK MSA PLANS.—The quality assurance 

11 program of an organization with respect to a 

12 MedicareAdvantage private fee-for-service plan 

13 or a nonnetwork MSA plan it offers shall—

14 ‘‘(i) meet the requirements of clauses 

15 (i) through (viii) of subparagraph (A); 

16 ‘‘(ii) insofar as it provides for the es17 tablishment of written protocols for utiliza18 tion review, base such protocols on current 

19 standards of medical practice; and 

20 ‘‘(iii) have mechanisms to evaluate 

21 utilization of services and inform providers 

22 and enrollees of the results of such evalua23 tion. 

24 Such program shall include a separate focus 

25 (with respect to all the elements described in 
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1 this subparagraph) on racial and ethnic minori2 ties.

3 ‘‘(C) DEFINITION OF NONNETWORK MSA

4 PLAN.—In this subsection, the term ‘nonnet5 work MSA plan’ means an MSA plan offered by 

6 a MedicareAdvantage organization that does 

7 not provide benefits required to be provided by 

8 this part, in whole or in part, through a defined 

9 set of providers under contract, or under an10 other arrangement, with the organization.

11 ‘‘(3) EXTERNAL REVIEW.—

12 ‘‘(A) IN GENERAL.—Each MedicareAdvan13 tage organization shall, for each 

14 MedicareAdvantage plan it operates, have an 

15 agreement with an independent quality review 

16 and improvement organization approved by the 

17 Secretary to perform functions of the type de18 scribed in paragraphs (4)(B) and (14) of sec19 tion 1154(a) with respect to services furnished 

20 by MedicareAdvantage plans for which payment 

21 is made under this title. The previous sentence 

22 shall not apply to a MedicareAdvantage private 

23 fee-for-service plan or a nonnetwork MSA plan 

24 that does not employ utilization review. 
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1 ‘‘(B) NONDUPLICATION OF ACCREDITA2 TION.—Except in the case of the review of qual3 ity complaints, and consistent with subpara4 graph (C), the Secretary shall ensure that the 

5 external review activities conducted under sub6 paragraph (A) are not duplicative of review ac7 tivities conducted as part of the accreditation 

8 process. 

9 ‘‘(C) WAIVER AUTHORITY.—The Secretary 

10 may waive the requirement described in sub11 paragraph (A) in the case of an organization if 

12 the Secretary determines that the organization 

13 has consistently maintained an excellent record 

14 of quality assurance and compliance with other 

15 requirements under this part. 

16 ‘‘(4) TREATMENT OF ACCREDITATION.—

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

18 provide that a MedicareAdvantage organization 

19 is deemed to meet all the requirements de20 scribed in any specific clause of subparagraph 

21 (B) if the organization is accredited (and peri22 odically reaccredited) by a private accrediting 

23 organization under a process that the Secretary 

24 has determined assures that the accrediting or25 ganization applies and enforces standards that 
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1 meet or exceed the standards established under 

2 section 1856 to carry out the requirements in 

3 such clause. 

4 ‘‘(B) REQUIREMENTS DESCRIBED.—The 

5 provisions described in this subparagraph are 

6 the following: 

7 ‘‘(i) Paragraphs (1) and (2) of this 

8 subsection (relating to quality assurance 

9 programs). 

10 ‘‘(ii) Subsection (b) (relating to anti11 discrimination). 

12 ‘‘(iii) Subsection (d) (relating to ac13 cess to services). 

14 ‘‘(iv) Subsection (h) (relating to con15 fidentiality and accuracy of enrollee 

16 records). 

17 ‘‘(v) Subsection (i) (relating to infor18 mation on advance directives). 

19 ‘‘(vi) Subsection (j) (relating to pro20 vider participation rules). 

21 ‘‘(C) TIMELY ACTION ON APPLICATIONS.—

22 The Secretary shall determine, within 210 days 

23 after the date the Secretary receives an applica24 tion by a private accrediting organization and 

25 using the criteria specified in section 
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1 1865(b)(2), whether the process of the private 

2 accrediting organization meets the requirements 

3 with respect to any specific clause in subpara4 graph (B) with respect to which the application 

5 is made. The Secretary may not deny such an 

6 application on the basis that it seeks to meet 

7 the requirements with respect to only one, or 

8 more than one, such specific clause. 

9 ‘‘(D) CONSTRUCTION.—Nothing in this 

10 paragraph shall be construed as limiting the au11 thority of the Secretary under section 1857, in12 cluding the authority to terminate contracts 

13 with MedicareAdvantage organizations under 

14 subsection (c)(2) of such section. 

15 ‘‘(5) REPORT TO CONGRESS.—

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

17 submit to Congress a biennial report regarding 

18 how quality assurance programs conducted 

19 under this subsection focus on racial and ethnic 

20 minorities. 

21 ‘‘(B) CONTENTS OF REPORT.—Each such 

22 report shall include the following:

23 ‘‘(i) A description of the means by 

24 which such programs focus on such racial 

25 and ethnic minorities. 
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1 ‘‘(ii) An evaluation of the impact of 

2 such programs on eliminating health dis3 parities and on improving health outcomes, 

4 continuity and coordination of care, man5 agement of chronic conditions, and con6 sumer satisfaction. 

7 ‘‘(iii) Recommendations on ways to re8 duce clinical outcome disparities among ra9 cial and ethnic minorities. 

10 ‘‘(f) GRIEVANCE MECHANISM.—Each 

11 MedicareAdvantage organization must provide meaningful 

12 procedures for hearing and resolving grievances between 

13 the organization (including any entity or individual 

14 through which the organization provides health care serv15 ices) and enrollees with MedicareAdvantage plans of the 

16 organization under this part. 

17 ‘‘(g) COVERAGE DETERMINATIONS, RECONSIDER18 ATIONS, AND APPEALS.—

19 ‘‘(1) DETERMINATIONS BY ORGANIZATION.—

20 ‘‘(A) IN GENERAL.—A MedicareAdvantage 

21 organization shall have a procedure for making 

22 determinations regarding whether an individual 

23 enrolled with the plan of the organization under 

24 this part is entitled to receive a health service 

25 under this section and the amount (if any) that 
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1 the individual is required to pay with respect to 

2 such service. Subject to paragraph (3), such 

3 procedures shall provide for such determination 

4 to be made on a timely basis. 

5 ‘‘(B) EXPLANATION OF DETERMINA6 TION.—Such a determination that denies cov7 erage, in whole or in part, shall be in writing 

8 and shall include a statement in understandable 

9 language of the reasons for the denial and a de10 scription of the reconsideration and appeals 

11 processes. 

12 ‘‘(2) RECONSIDERATIONS.—

13 ‘‘(A) IN GENERAL.—The organization shall 

14 provide for reconsideration of a determination 

15 described in paragraph (1)(B) upon request by 

16 the enrollee involved. The reconsideration shall 

17 be within a time period specified by the Sec18 retary, but shall be made, subject to paragraph 

19 (3), not later than 60 days after the date of the 

20 receipt of the request for reconsideration. 

21 ‘‘(B) PHYSICIAN DECISION ON CERTAIN

22 RECONSIDERATIONS.—A reconsideration relat23 ing to a determination to deny coverage based 

24 on a lack of medical necessity shall be made 

25 only by a physician with appropriate expertise 
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1 in the field of medicine which necessitates treat2 ment who is other than a physician involved in 

3 the initial determination.

4 ‘‘(3) EXPEDITED DETERMINATIONS AND RE5 CONSIDERATIONS.—

6 ‘‘(A) RECEIPT OF REQUESTS.—

7 ‘‘(i) ENROLLEE REQUESTS.—An en8 rollee in a MedicareAdvantage plan may 

9 request, either in writing or orally, an ex10 pedited determination under paragraph (1) 

11 or an expedited reconsideration under 

12 paragraph (2) by the MedicareAdvantage 

13 organization. 

14 ‘‘(ii) PHYSICIAN REQUESTS.—A physi15 cian, regardless whether the physician is 

16 affiliated with the organization or not, may 

17 request, either in writing or orally, such an 

18 expedited determination or reconsideration. 

19 ‘‘(B) ORGANIZATION PROCEDURES.—

20 ‘‘(i) IN GENERAL.—The 

21 MedicareAdvantage organization shall 

22 maintain procedures for expediting organi23 zation determinations and reconsiderations 

24 when, upon request of an enrollee, the or25 ganization determines that the application 
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1 of the normal timeframe for making a de2 termination (or a reconsideration involving 

3 a determination) could seriously jeopardize 

4 the life or health of the enrollee or the en5 rollee’s ability to regain maximum func6 tion. 

7 ‘‘(ii) EXPEDITION REQUIRED FOR

8 PHYSICIAN REQUESTS.—In the case of a 

9 request for an expedited determination or 

10 reconsideration made under subparagraph 

11 (A)(ii), the organization shall expedite the 

12 determination or reconsideration if the re13 quest indicates that the application of the 

14 normal timeframe for making a determina15 tion (or a reconsideration involving a de16 termination) could seriously jeopardize the 

17 life or health of the enrollee or the enroll18 ee’s ability to regain maximum function. 

19 ‘‘(iii) TIMELY RESPONSE.—In cases 

20 described in clauses (i) and (ii), the organi21 zation shall notify the enrollee (and the 

22 physician involved, as appropriate) of the 

23 determination or reconsideration under 

24 time limitations established by the Sec25 retary, but not later than 72 hours of the 
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1 time of receipt of the request for the deter2 mination or reconsideration (or receipt of 

3 the information necessary to make the de4 termination or reconsideration), or such 

5 longer period as the Secretary may permit 

6 in specified cases. 

7 ‘‘(4) INDEPENDENT REVIEW OF CERTAIN COV8 ERAGE DENIALS.—The Secretary shall contract with 

9 an independent, outside entity to review and resolve 

10 in a timely manner reconsiderations that affirm de11 nial of coverage, in whole or in part. The provisions 

12 of section 1869(c)(5) shall apply to independent out13 side entities under contract with the Secretary under 

14 this paragraph. 

15 ‘‘(5) APPEALS.—An enrollee with a 

16 MedicareAdvantage plan of a MedicareAdvantage or17 ganization under this part who is dissatisfied by rea18 son of the enrollee’s failure to receive any health 

19 service to which the enrollee believes the enrollee is 

20 entitled and at no greater charge than the enrollee 

21 believes the enrollee is required to pay is entitled, if 

22 the amount in controversy is $100 or more, to a 

23 hearing before the Secretary to the same extent as 

24 is provided in section 205(b), and in any such hear25 ing the Secretary shall make the organization a 
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1 party. If the amount in controversy is $1,000 or 

2 more, the individual or organization shall, upon noti3 fying the other party, be entitled to judicial review 

4 of the Secretary’s final decision as provided in sec5 tion 205(g), and both the individual and the organi6 zation shall be entitled to be parties to that judicial 

7 review. In applying subsections (b) and (g) of section 

8 205 as provided in this paragraph, and in applying 

9 section 205(l) thereto, any reference therein to the 

10 Commissioner of Social Security or the Social Secu11 rity Administration shall be considered a reference 

12 to the Secretary or the Department of Health and 

13 Human Services, respectively. 

14 ‘‘(h) CONFIDENTIALITY AND ACCURACY OF EN15 ROLLEE RECORDS.—Insofar as a MedicareAdvantage or16 ganization maintains medical records or other health in17 formation regarding enrollees under this part, the 

18 MedicareAdvantage organization shall establish proce19 dures—

20 ‘‘(1) to safeguard the privacy of any individ21 ually identifiable enrollee information; 

22 ‘‘(2) to maintain such records and information 

23 in a manner that is accurate and timely; and 

24 ‘‘(3) to assure timely access of enrollees to such 

25 records and information. 
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1 ‘‘(i) INFORMATION ON ADVANCE DIRECTIVES.—Each 

2 MedicareAdvantage organization shall meet the require3 ment of section 1866(f) (relating to maintaining written 

4 policies and procedures respecting advance directives). 

5 ‘‘(j) RULES REGARDING PROVIDER PARTICIPA6 TION.—

7 ‘‘(1) PROCEDURES.—Insofar as a 

8 MedicareAdvantage organization offers benefits 

9 under a MedicareAdvantage plan through agree10 ments with physicians, the organization shall estab11 lish reasonable procedures relating to the participa12 tion (under an agreement between a physician and 

13 the organization) of physicians under such a plan. 

14 Such procedures shall include—

15 ‘‘(A) providing notice of the rules regard16 ing participation; 

17 ‘‘(B) providing written notice of participa18 tion decisions that are adverse to physicians; 

19 and 

20 ‘‘(C) providing a process within the organi21 zation for appealing such adverse decisions, in22 cluding the presentation of information and 

23 views of the physician regarding such decision. 

24 ‘‘(2) CONSULTATION IN MEDICAL POLICIES.—A 

25 MedicareAdvantage organization shall consult with 
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1 physicians who have entered into participation 

2 agreements with the organization regarding the or3 ganization’s medical policy, quality, and medical 

4 management procedures. 

5 ‘‘(3) PROHIBITING INTERFERENCE WITH PRO6 VIDER ADVICE TO ENROLLEES.—

7 ‘‘(A) IN GENERAL.—Subject to subpara8 graphs (B) and (C), a MedicareAdvantage orga9 nization (in relation to an individual enrolled 

10 under a MedicareAdvantage plan offered by the 

11 organization under this part) shall not prohibit 

12 or otherwise restrict a covered health care pro13 fessional (as defined in subparagraph (D)) from 

14 advising such an individual who is a patient of 

15 the professional about the health status of the 

16 individual or medical care or treatment for the 

17 individual’s condition or disease, regardless of 

18 whether benefits for such care or treatment are 

19 provided under the plan, if the professional is 

20 acting within the lawful scope of practice. 

21 ‘‘(B) CONSCIENCE PROTECTION.—Sub22 paragraph (A) shall not be construed as requir23 ing a MedicareAdvantage plan to provide, reim24 burse for, or provide coverage of a counseling or 
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1 referral service if the MedicareAdvantage orga2 nization offering the plan—

3 ‘‘(i) objects to the provision of such 

4 service on moral or religious grounds; and 

5 ‘‘(ii) in the manner and through the 

6 written instrumentalities such 

7 MedicareAdvantage organization deems ap8 propriate, makes available information on 

9 its policies regarding such service to pro10 spective enrollees before or during enroll11 ment and to enrollees within 90 days after 

12 the date that the organization or plan 

13 adopts a change in policy regarding such a 

14 counseling or referral service. 

15 ‘‘(C) CONSTRUCTION.—Nothing in sub16 paragraph (B) shall be construed to affect dis17 closure requirements under State law or under 

18 the Employee Retirement Income Security Act 

19 of 1974. 

20 ‘‘(D) HEALTH CARE PROFESSIONAL DE21 FINED.—For purposes of this paragraph, the 

22 term ‘health care professional’ means a physi23 cian (as defined in section 1861(r)) or other 

24 health care professional if coverage for the pro25 fessional’s services is provided under the 
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1 MedicareAdvantage plan for the services of the 

2 professional. Such term includes a podiatrist, 

3 optometrist, chiropractor, psychologist, dentist, 

4 licensed pharmacist, physician assistant, phys5 ical or occupational therapist and therapy as6 sistant, speech-language pathologist, audiol7 ogist, registered or licensed practical nurse (in8 cluding nurse practitioner, clinical nurse spe9 cialist, certified registered nurse anesthetist, 

10 and certified nurse-midwife), licensed certified 

11 social worker, registered respiratory therapist, 

12 and certified respiratory therapy technician. 

13 ‘‘(4) LIMITATIONS ON PHYSICIAN INCENTIVE

14 PLANS.—

15 ‘‘(A) IN GENERAL.—No MedicareAdvan16 tage organization may operate any physician in17 centive plan (as defined in subparagraph (B)) 

18 unless the following requirements are met: 

19 ‘‘(i) No specific payment is made di20 rectly or indirectly under the plan to a 

21 physician or physician group as an induce22 ment to reduce or limit medically necessary 

23 services provided with respect to a specific 

24 individual enrolled with the organization.
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1 ‘‘(ii) If the plan places a physician or 

2 physician group at substantial financial 

3 risk (as determined by the Secretary) for 

4 services not provided by the physician or 

5 physician group, the organization—

6 ‘‘(I) provides stop-loss protection 

7 for the physician or group that is ade8 quate and appropriate, based on 

9 standards developed by the Secretary 

10 that take into account the number of 

11 physicians placed at such substantial 

12 financial risk in the group or under 

13 the plan and the number of individ14 uals enrolled with the organization 

15 who receive services from the physi16 cian or group; and 

17 ‘‘(II) conducts periodic surveys of 

18 both individuals enrolled and individ19 uals previously enrolled with the orga20 nization to determine the degree of 

21 access of such individuals to services 

22 provided by the organization and sat23 isfaction with the quality of such serv24 ices. 
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1 ‘‘(iii) The organization provides the 

2 Secretary with descriptive information re3 garding the plan, sufficient to permit the 

4 Secretary to determine whether the plan is 

5 in compliance with the requirements of this 

6 subparagraph. 

7 ‘‘(B) PHYSICIAN INCENTIVE PLAN DE8 FINED.—In this paragraph, the term ‘physician 

9 incentive plan’ means any compensation ar10 rangement between a MedicareAdvantage orga11 nization and a physician or physician group 

12 that may directly or indirectly have the effect of 

13 reducing or limiting services provided with re14 spect to individuals enrolled with the organiza15 tion under this part. 

16 ‘‘(5) LIMITATION ON PROVIDER INDEMNIFICA17 TION.—A MedicareAdvantage organization may not 

18 provide (directly or indirectly) for a health care pro19 fessional, provider of services, or other entity pro20 viding health care services (or group of such profes21 sionals, providers, or entities) to indemnify the orga22 nization against any liability resulting from a civil 

23 action brought for any damage caused to an enrollee 

24 with a MedicareAdvantage plan of the organization 
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1 under this part by the organization’s denial of medi2 cally necessary care. 

3 ‘‘(6) SPECIAL RULES FOR MEDICAREADVAN4 TAGE PRIVATE FEE-FOR-SERVICE PLANS.—For pur5 poses of applying this part (including subsection 

6 (k)(1)) and section 1866(a)(1)(O), a hospital (or 

7 other provider of services), a physician or other 

8 health care professional, or other entity furnishing 

9 health care services is treated as having an agree10 ment or contract in effect with a MedicareAdvantage 

11 organization (with respect to an individual enrolled 

12 in a MedicareAdvantage private fee-for-service plan 

13 it offers), if—

14 ‘‘(A) the provider, professional, or other 

15 entity furnishes services that are covered under 

16 the plan to such an enrollee; and 

17 ‘‘(B) before providing such services, the 

18 provider, professional, or other entity—

19 ‘‘(i) has been informed of the individ20 ual’s enrollment under the plan; and 

21 ‘‘(ii) either—

22 ‘‘(I) has been informed of the 

23 terms and conditions of payment for 

24 such services under the plan; or 
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1 ‘‘(II) is given a reasonable oppor2 tunity to obtain information con3 cerning such terms and conditions, 

4 in a manner reasonably designed to effect 

5 informed agreement by a provider. 

6 The previous sentence shall only apply in the ab7 sence of an explicit agreement between such a pro8 vider, professional, or other entity and the 

9 MedicareAdvantage organization. 

10 ‘‘(k) TREATMENT OF SERVICES FURNISHED BY CER11 TAIN PROVIDERS.—

12 ‘‘(1) IN GENERAL.—Except as provided in para13 graph (2), a physician or other entity (other than a 

14 provider of services) that does not have a contract 

15 establishing payment amounts for services furnished 

16 to an individual enrolled under this part with a 

17 MedicareAdvantage organization described in section 

18 1851(a)(2)(A) shall accept as payment in full for 

19 covered services under this title that are furnished to 

20 such an individual the amounts that the physician or 

21 other entity could collect if the individual were not 

22 so enrolled. Any penalty or other provision of law 

23 that applies to such a payment with respect to an 

24 individual entitled to benefits under this title (but 

25 not enrolled with a MedicareAdvantage organization 
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1 under this part) also applies with respect to an indi2 vidual so enrolled. 

3 ‘‘(2) APPLICATION TO MEDICAREADVANTAGE

4 PRIVATE FEE-FOR-SERVICE PLANS.—

5 ‘‘(A) BALANCE BILLING LIMITS UNDER

6 MEDICAREADVANTAGE PRIVATE FEE-FOR-SERV7 ICE PLANS IN CASE OF CONTRACT PRO8 VIDERS.—

9 ‘‘(i) IN GENERAL.—In the case of an 

10 individual enrolled in a MedicareAdvantage 

11 private fee-for-service plan under this part, 

12 a physician, provider of services, or other 

13 entity that has a contract (including 

14 through the operation of subsection (j)(6)) 

15 establishing a payment rate for services 

16 furnished to the enrollee shall accept as 

17 payment in full for covered services under 

18 this title that are furnished to such an in19 dividual an amount not to exceed (includ20 ing any deductibles, coinsurance, copay21 ments, or balance billing otherwise per22 mitted under the plan) an amount equal to 

23 115 percent of such payment rate. 

24 ‘‘(ii) PROCEDURES TO ENFORCE LIM25 ITS.—The MedicareAdvantage organization 
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1 that offers such a plan shall establish pro2 cedures, similar to the procedures de3 scribed in section 1848(g)(1)(A), in order 

4 to carry out clause (i). 

5 ‘‘(iii) ASSURING ENFORCEMENT.—If 

6 the MedicareAdvantage organization fails 

7 to establish and enforce procedures re8 quired under clause (ii), the organization is 

9 subject to intermediate sanctions under 

10 section 1857(g). 

11 ‘‘(B) ENROLLEE LIABILITY FOR NONCON12 TRACT PROVIDERS.—For provisions—

13 ‘‘(i) establishing a minimum payment 

14 rate in the case of noncontract providers 

15 under a MedicareAdvantage private fee16 for-service plan, see section 1852(a)(2); or 

17 ‘‘(ii) limiting enrollee liability in the 

18 case of covered services furnished by such 

19 providers, see paragraph (1) and section 

20 1866(a)(1)(O). 

21 ‘‘(C) INFORMATION ON BENEFICIARY LI22 ABILITY.—

23 ‘‘(i) IN GENERAL.—Each 

24 MedicareAdvantage organization that of25 fers a MedicareAdvantage private fee-for-
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1 service plan shall provide that enrollees 

2 under the plan who are furnished services 

3 for which payment is sought under the 

4 plan are provided an appropriate expla5 nation of benefits (consistent with that 

6 provided under parts A, B, and D, and, if 

7 applicable, under medicare supplemental 

8 policies) that includes a clear statement of 

9 the amount of the enrollee’s liability (in10 cluding any liability for balance billing con11 sistent with this subsection) with respect to 

12 payments for such services. 

13 ‘‘(ii) ADVANCE NOTICE BEFORE RE14 CEIPT OF INPATIENT HOSPITAL SERVICES

15 AND CERTAIN OTHER SERVICES.—In addi16 tion, such organization shall, in its terms 

17 and conditions of payments to hospitals for 

18 inpatient hospital services and for other 

19 services identified by the Secretary for 

20 which the amount of the balance billing 

21 under subparagraph (A) could be substan22 tial, require the hospital to provide to the 

23 enrollee, before furnishing such services 

24 and if the hospital imposes balance billing 

25 under subparagraph (A)—
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1 ‘‘(I) notice of the fact that bal2 ance billing is permitted under such 

3 subparagraph for such services; and 

4 ‘‘(II) a good faith estimate of the 

5 likely amount of such balance billing 

6 (if any), with respect to such services, 

7 based upon the presenting condition 

8 of the enrollee. 

9 ‘‘(l) RETURN TO HOME SKILLED NURSING FACILI10 TIES FOR COVERED POST-HOSPITAL EXTENDED CARE

11 SERVICES.—

12 ‘‘(1) ENSURING RETURN TO HOME SNF.—

13 ‘‘(A) IN GENERAL.—In providing coverage 

14 of post-hospital extended care services, a

15 MedicareAdvantage plan shall provide for such 

16 coverage through a home skilled nursing facility 

17 if the following conditions are met: 

18 ‘‘(i) ENROLLEE ELECTION.—The en19 rollee elects to receive such coverage 

20 through such facility. 

21 ‘‘(ii) SNF AGREEMENT.—The facility 

22 has a contract with the MedicareAdvantage 

23 organization for the provision of such serv24 ices, or the facility agrees to accept sub25 stantially similar payment under the same 
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1 terms and conditions that apply to simi2 larly situated skilled nursing facilities that 

3 are under contract with the 

4 MedicareAdvantage organization for the 

5 provision of such services and through 

6 which the enrollee would otherwise receive 

7 such services. 

8 ‘‘(B) MANNER OF PAYMENT TO HOME

9 SNF.—The organization shall provide payment 

10 to the home skilled nursing facility consistent 

11 with the contract or the agreement described in 

12 subparagraph (A)(ii), as the case may be. 

13 ‘‘(2) NO LESS FAVORABLE COVERAGE.—The 

14 coverage provided under paragraph (1) (including 

15 scope of services, cost-sharing, and other criteria of 

16 coverage) shall be no less favorable to the enrollee 

17 than the coverage that would be provided to the en18 rollee with respect to a skilled nursing facility the 

19 post-hospital extended care services of which are 

20 otherwise covered under the MedicareAdvantage 

21 plan. 

22 ‘‘(3) RULE OF CONSTRUCTION.—Nothing in 

23 this subsection shall be construed to do the fol24 lowing: 
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1 ‘‘(A) To require coverage through a skilled 

2 nursing facility that is not otherwise qualified 

3 to provide benefits under part A for medicare 

4 beneficiaries not enrolled in a 

5 MedicareAdvantage plan. 

6 ‘‘(B) To prevent a skilled nursing facility 

7 from refusing to accept, or imposing conditions 

8 upon the acceptance of, an enrollee for the re9 ceipt of post-hospital extended care services. 

10 ‘‘(4) DEFINITIONS.—In this subsection: 

11 ‘‘(A) HOME SKILLED NURSING FACIL12 ITY.—The term ‘home skilled nursing facility’ 

13 means, with respect to an enrollee who is enti14 tled to receive post-hospital extended care serv15 ices under a MedicareAdvantage plan, any of 

16 the following skilled nursing facilities: 

17 ‘‘(i) SNF RESIDENCE AT TIME OF AD18 MISSION.—The skilled nursing facility in 

19 which the enrollee resided at the time of 

20 admission to the hospital preceding the re21 ceipt of such post-hospital extended care 

22 services. 

23 ‘‘(ii) SNF IN CONTINUING CARE RE24 TIREMENT COMMUNITY.—A skilled nursing 

25 facility that is providing such services 
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1 through a continuing care retirement com2 munity (as defined in subparagraph (B)) 

3 which provided residence to the enrollee at 

4 the time of such admission. 

5 ‘‘(iii) SNF RESIDENCE OF SPOUSE AT

6 TIME OF DISCHARGE.—The skilled nursing 

7 facility in which the spouse of the enrollee 

8 is residing at the time of discharge from 

9 such hospital. 

10 ‘‘(B) CONTINUING CARE RETIREMENT

11 COMMUNITY.—The term ‘continuing care retire12 ment community’ means, with respect to an en13 rollee in a MedicareAdvantage plan, an arrange14 ment under which housing and health-related 

15 services are provided (or arranged) through an 

16 organization for the enrollee under an agree17 ment that is effective for the life of the enrollee 

18 or for a specified period.’’. 

19 SEC. 203. PAYMENTS TO MEDICAREADVANTAGE ORGANIZA20 TIONS. 

21 Section 1853 (42 U.S.C. 1395w–23) is amended to 

22 read as follows: 

23 ‘‘PAYMENTS TO MEDICAREADVANTAGE ORGANIZATIONS

24 ‘‘SEC. 1853. (a) PAYMENTS TO ORGANIZATIONS.—

25 ‘‘(1) MONTHLY PAYMENTS.—
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1 ‘‘(A) IN GENERAL.—Under a contract 

2 under section 1857 and subject to subsections 

3 (f), (h), and (j) and section 1859(e)(4), the Sec4 retary shall make, to each MedicareAdvantage 

5 organization, with respect to coverage of an in6 dividual for a month under this part in a 

7 MedicareAdvantage payment area, separate 

8 monthly payments with respect to— 

9 ‘‘(i) benefits under the original medi10 care fee-for-service program under parts A 

11 and B in accordance with subsection (d); 

12 and 

13 ‘‘(ii) benefits under the voluntary pre14 scription drug program under part D in 

15 accordance with section 1858A and the 

16 other provisions of this part.

17 ‘‘(B) SPECIAL RULE FOR END-STAGE

18 RENAL DISEASE.—The Secretary shall establish 

19 separate rates of payment to a 

20 MedicareAdvantage organization with respect to 

21 classes of individuals determined to have end22 stage renal disease and enrolled in a 

23 MedicareAdvantage plan of the organization. 

24 Such rates of payment shall be actuarially 

25 equivalent to rates paid to other enrollees in the 
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1 MedicareAdvantage payment area (or such 

2 other area as specified by the Secretary). In ac3 cordance with regulations, the Secretary shall 

4 provide for the application of the seventh sen5 tence of section 1881(b)(7) to payments under 

6 this section covering the provision of renal di7 alysis treatment in the same manner as such 

8 sentence applies to composite rate payments de9 scribed in such sentence. In establishing such 

10 rates, the Secretary shall provide for appro11 priate adjustments to increase each rate to re12 flect the demonstration rate (including the risk 

13 adjustment methodology associated with such 

14 rate) of the social health maintenance organiza15 tion end-stage renal disease capitation dem16 onstrations (established by section 2355 of the 

17 Deficit Reduction Act of 1984, as amended by 

18 section 13567(b) of the Omnibus Budget Rec19 onciliation Act of 1993), and shall compute 

20 such rates by taking into account such factors 

21 as renal treatment modality, age, and the un22 derlying cause of the end-stage renal disease. 

23 ‘‘(2) ADJUSTMENT TO REFLECT NUMBER OF

24 ENROLLEES.—
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1 ‘‘(A) IN GENERAL.—The amount of pay2 ment under this subsection may be retroactively 

3 adjusted to take into account any difference be4 tween the actual number of individuals enrolled 

5 with an organization under this part and the 

6 number of such individuals estimated to be so 

7 enrolled in determining the amount of the ad8 vance payment. 

9 ‘‘(B) SPECIAL RULE FOR CERTAIN EN10 ROLLEES.—

11 ‘‘(i) IN GENERAL.—Subject to clause 

12 (ii), the Secretary may make retroactive 

13 adjustments under subparagraph (A) to 

14 take into account individuals enrolled dur15 ing the period beginning on the date on 

16 which the individual enrolls with a 

17 MedicareAdvantage organization under a 

18 plan operated, sponsored, or contributed to 

19 by the individual’s employer or former em20 ployer (or the employer or former employer 

21 of the individual’s spouse) and ending on 

22 the date on which the individual is enrolled 

23 in the organization under this part, except 

24 that for purposes of making such retro25 active adjustments under this subpara-
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1 graph, such period may not exceed 90 

2 days. 

3 ‘‘(ii) EXCEPTION.—No adjustment 

4 may be made under clause (i) with respect 

5 to any individual who does not certify that 

6 the organization provided the individual 

7 with the disclosure statement described in 

8 section 1852(c) at the time the individual 

9 enrolled with the organization. 

10 ‘‘(C) EQUALIZATION OF FEDERAL CON11 TRIBUTION.—In applying subparagraph (A), 

12 the Secretary shall ensure that the payment to 

13 the MedicareAdvantage organization for each 

14 individual enrolled with the organization shall 

15 equal the MedicareAdvantage benchmark 

16 amount for the payment area in which that in17 dividual resides (as determined under para18 graph (4)), as adjusted—

19 ‘‘(i) by multiplying the benchmark 

20 amount for that payment area by the ratio 

21 of—

22 ‘‘(I) the payment amount deter23 mined under subsection (d)(4); to 
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1 ‘‘(II) the weighted service area 

2 benchmark amount determined under 

3 subsection (d)(2); and 

4 ‘‘(ii) using such risk adjustment fac5 tor as specified by the Secretary under 

6 subsection (b)(1)(B). 

7 ‘‘(3) COMPREHENSIVE RISK ADJUSTMENT

8 METHODOLOGY.—

9 ‘‘(A) APPLICATION OF METHODOLOGY.—

10 The Secretary shall apply the comprehensive 

11 risk adjustment methodology described in sub12 paragraph (B) to 100 percent of the amount of 

13 payments to plans under subsection (d)(4)(B). 

14 ‘‘(B) COMPREHENSIVE RISK ADJUSTMENT

15 METHODOLOGY DESCRIBED.—The comprehen16 sive risk adjustment methodology described in 

17 this subparagraph is the risk adjustment meth18 odology that would apply with respect to 

19 MedicareAdvantage plans offered by 

20 MedicareAdvantage organizations in 2005, ex21 cept that if such methodology does not apply 

22 to groups of beneficiaries who are aged or dis23 abled and groups of beneficiaries who have end24 stage renal disease, the Secretary shall revise 

25 such methodology to apply to such groups. 
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1 ‘‘(C) UNIFORM APPLICATION TO ALL

2 TYPES OF PLANS.—Subject to section 

3 1859(e)(4), the comprehensive risk adjustment 

4 methodology established under this paragraph 

5 shall be applied uniformly without regard to the 

6 type of plan. 

7 ‘‘(D) DATA COLLECTION.—In order to 

8 carry out this paragraph, the Secretary shall re9 quire MedicareAdvantage organizations to sub10 mit such data and other information as the Sec11 retary deems necessary. 

12 ‘‘(E) IMPROVEMENT OF PAYMENT ACCU13 RACY.—Notwithstanding any other provision of 

14 this paragraph, the Secretary may revise the 

15 comprehensive risk adjustment methodology de16 scribed in subparagraph (B) from time to time 

17 to improve payment accuracy. 

18 ‘‘(4) ANNUAL CALCULATION OF BENCHMARK

19 AMOUNTS.—For each year, the Secretary shall cal20 culate a benchmark amount for each 

21 MedicareAdvantage payment area for each month 

22 for such year with respect to coverage of the benefits 

23 available under the original medicare fee-for-service 

24 program option equal to the greater of the following 

25 amounts (adjusted as appropriate for the application 
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1 of the risk adjustment methodology under paragraph 

2 (3)): 

‘‘(A) MINIMUM AMOUNT.—1 3 ⁄12 of the an4 nual Medicare+Choice capitation rate deter5 mined under subsection (c)(1)(B) for the pay6 ment area for the year. 

7 ‘‘(B) LOCAL FEE-FOR-SERVICE RATE.—

8 The local fee-for-service rate for such area for 

9 the year (as calculated under paragraph (5)). 

10 ‘‘(5) ANNUAL CALCULATION OF LOCAL FEE11 FOR-SERVICE RATES.—

12 ‘‘(A) IN GENERAL.—Subject to subpara13 graph (B), the term ‘local fee-for-service rate’ 

14 means the amount of payment for a month in 

15 a MedicareAdvantage payment area for benefits 

16 under this title and associated claims processing 

17 costs for an individual who has elected to re18 ceive benefits under the original medicare fee19 for-service program option and not enrolled in 

20 a MedicareAdvantage plan under this part. The 

21 Secretary shall annually calculate such amount 

22 in a manner similar to the manner in which the 

23 Secretary calculated the adjusted average per 

24 capita cost under section 1876. 
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1 ‘‘(B) REMOVAL OF MEDICAL EDUCATION

2 COSTS FROM CALCULATION OF LOCAL FEE-FOR3 SERVICE RATE.—

4 ‘‘(i) IN GENERAL.—In calculating the 

5 local fee-for-service rate under subpara6 graph (A) for a year, the amount of pay7 ment described in such subparagraph shall 

8 be adjusted to exclude from such payment 

9 the payment adjustments described in 

10 clause (ii). 

11 ‘‘(ii) PAYMENT ADJUSTMENTS DE12 SCRIBED.—

13 ‘‘(I) IN GENERAL.—Subject to 

14 subclause (II), the payment adjust15 ments described in this subparagraph 

16 are payment adjustments which the 

17 Secretary estimates are payable dur18 ing the year—

19 ‘‘(aa) for the indirect costs 

20 of medical education under sec21 tion 1886(d)(5)(B); and 

22 ‘‘(bb) for direct graduate 

23 medical education costs under 

24 section 1886(h). 
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1 ‘‘(II) TREATMENT OF PAYMENTS

2 COVERED UNDER STATE HOSPITAL

3 REIMBURSEMENT SYSTEM.—To the 

4 extent that the Secretary estimates 

5 that the amount of the local fee-for6 service rates reflects payments to hos7 pitals reimbursed under section 

8 1814(b)(3), the Secretary shall esti9 mate a payment adjustment that is 

10 comparable to the payment adjust11 ment that would have been made 

12 under clause (i) if the hospitals had 

13 not been reimbursed under such sec14 tion. 

15 ‘‘(b) ANNUAL ANNOUNCEMENT OF PAYMENT FAC16 TORS.—

17 ‘‘(1) ANNUAL ANNOUNCEMENT.—Beginning in 

18 2005, at the same time as the Secretary publishes 

19 the risk adjusters under section 1860D–11, the Sec20 retary shall annually announce (in a manner in21 tended to provide notice to interested parties) the 

22 following payment factors: 

23 ‘‘(A) The benchmark amount for each 

24 MedicareAdvantage payment area (as calculated 

25 under subsection (a)(4)) for the year. 
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1 ‘‘(B) The factors to be used for adjusting 

2 payments under the comprehensive risk adjust3 ment methodology described in subsection 

4 (a)(3)(B) with respect to each 

5 MedicareAdvantage payment area for the year. 

6 ‘‘(2) ADVANCE NOTICE OF METHODOLOGICAL

7 CHANGES.—At least 45 days before making the an8 nouncement under paragraph (1) for a year, the 

9 Secretary shall—

10 ‘‘(A) provide for notice to 

11 MedicareAdvantage organizations of proposed 

12 changes to be made in the methodology from 

13 the methodology and assumptions used in the 

14 previous announcement; and 

15 ‘‘(B) provide such organizations with an 

16 opportunity to comment on such proposed 

17 changes. 

18 ‘‘(3) EXPLANATION OF ASSUMPTIONS.—In each 

19 announcement made under paragraph (1), the Sec20 retary shall include an explanation of the assump21 tions and changes in methodology used in the an22 nouncement in sufficient detail so that 

23 MedicareAdvantage organizations can compute each 

24 payment factor described in paragraph (1). 
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1 ‘‘(c) CALCULATION OF ANNUAL MEDICARE+CHOICE

2 CAPITATION RATES.—

3 ‘‘(1) IN GENERAL.—For purposes of making 

4 payments under this part for years before 2006 and 

5 for purposes of calculating the annual 

6 Medicare+Choice capitation rates under paragraph 

7 (7) beginning with such year, subject to paragraph 

8 (6)(C), each annual Medicare+Choice capitation 

9 rate, for a Medicare+Choice payment area before 

10 2006 or a MedicareAdvantage payment area begin11 ning with such year for a contract year consisting of 

12 a calendar year, is equal to the largest of the 

13 amounts specified in the following subparagraph (A), 

14 (B), or (C): 

15 ‘‘(A) BLENDED CAPITATION RATE.—The 

16 sum of—

17 ‘‘(i) the area-specific percentage (as 

18 specified under paragraph (2) for the year) 

19 of the annual area-specific 

20 Medicare+Choice capitation rate for the 

21 MedicareAdvantage payment area, as de22 termined under paragraph (3) for the year; 

23 and

24 ‘‘(ii) the national percentage (as speci25 fied under paragraph (2) for the year) of 
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1 the input-price-adjusted annual national 

2 Medicare+Choice capitation rate, as deter3 mined under paragraph (4) for the year, 

4 multiplied by the budget neutrality adjustment 

5 factor determined under paragraph (5). 

6 ‘‘(B) MINIMUM AMOUNT.—12 multiplied 

7 by the following amount: 

8 ‘‘(i) For 1998, $367 (but not to ex9 ceed, in the case of an area outside the 50 

10 States and the District of Columbia, 150 

11 percent of the annual per capita rate of 

12 payment for 1997 determined under sec13 tion 1876(a)(1)(C) for the area). 

14 ‘‘(ii) For 1999 and 2000, the min15 imum amount determined under clause (i) 

16 or this clause, respectively, for the pre17 ceding year, increased by the national per 

18 capita Medicare+Choice growth percentage 

19 described in paragraph (6)(A) applicable to 

20 1999 or 2000, respectively. 

21 ‘‘(iii)(I) Subject to subclause (II), for 

22 2001, for any area in a Metropolitan Sta23 tistical Area with a population of more 

24 than 250,000, $525, and for any other 

25 area $475. 
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1 ‘‘(II) In the case of an area outside 

2 the 50 States and the District of Colum3 bia, the amount specified in this clause 

4 shall not exceed 120 percent of the amount 

5 determined under clause (ii) for such area 

6 for 2000. 

7 ‘‘(iv) For 2002 through 2013, the 

8 minimum amount specified in this clause 

9 (or clause (iii)) for the preceding year in10 creased by the national per capita 

11 Medicare+Choice growth percentage, de12 scribed in paragraph (6)(A) for that suc13 ceeding year. 

14 ‘‘(v) For 2014 and each succeeding 

15 year, the minimum amount specified in 

16 this clause (or clause (iv)) for the pre17 ceding year increased by the percentage in18 crease in the Consumer Price Index for all 

19 urban consumers (U.S. urban average) for 

20 the 12-month period ending with June of 

21 the previous year. 

22 ‘‘(C) MINIMUM PERCENTAGE INCREASE.—

23 ‘‘(i) For 1998, 102 percent of the an24 nual per capita rate of payment for 1997 
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1 determined under section 1876(a)(1)(C) 

2 for the Medicare+Choice payment area. 

3 ‘‘(ii) For 1999 and 2000, 102 percent 

4 of the annual Medicare+Choice capitation 

5 rate under this paragraph for the area for 

6 the previous year. 

7 ‘‘(iii) For 2001, 103 percent of the 

8 annual Medicare+Choice capitation rate 

9 under this paragraph for the area for 

10 2000. 

11 ‘‘(iv) For 2002 and each succeeding 

12 year, 102 percent of the annual 

13 Medicare+Choice capitation rate under 

14 this paragraph for the area for the pre15 vious year.

16 ‘‘(2) AREA-SPECIFIC AND NATIONAL PERCENT17 AGES.—For purposes of paragraph (1)(A)—

18 ‘‘(A) for 1998, the ‘area-specific percent19 age’ is 90 percent and the ‘national percentage’ 

20 is 10 percent; 

21 ‘‘(B) for 1999, the ‘area-specific percent22 age’ is 82 percent and the ‘national percentage’ 

23 is 18 percent; 
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1 ‘‘(C) for 2000, the ‘area-specific percent2 age’ is 74 percent and the ‘national percentage’ 

3 is 26 percent; 

4 ‘‘(D) for 2001, the ‘area-specific percent5 age’ is 66 percent and the ‘national percentage’ 

6 is 34 percent; 

7 ‘‘(E) for 2002, the ‘area-specific percent8 age’ is 58 percent and the ‘national percentage’ 

9 is 42 percent; and 

10 ‘‘(F) for a year after 2002, the ‘area-spe11 cific percentage’ is 50 percent and the ‘national 

12 percentage’ is 50 percent. 

13 ‘‘(3) ANNUAL AREA-SPECIFIC MEDICARE+ 

14 CHOICE CAPITATION RATE.—

15 ‘‘(A) IN GENERAL.—For purposes of para16 graph (1)(A), subject to subparagraph (B), the 

17 annual area-specific Medicare+Choice capita18 tion rate for a Medicare+Choice payment 

19 area—

20 ‘‘(i) for 1998 is, subject to subpara21 graph (D), the annual per capita rate of 

22 payment for 1997 determined under sec23 tion 1876(a)(1)(C) for the area, increased 

24 by the national per capita 
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1 Medicare+Choice growth percentage for 

2 1998 (described in paragraph (6)(A)); or 

3 ‘‘(ii) for a subsequent year is the an4 nual area-specific Medicare+Choice capita5 tion rate for the previous year determined 

6 under this paragraph for the area, in7 creased by the national per capita 

8 Medicare+Choice growth percentage for 

9 such subsequent year. 

10 ‘‘(B) REMOVAL OF MEDICAL EDUCATION

11 FROM CALCULATION OF ADJUSTED AVERAGE

12 PER CAPITA COST.—

13 ‘‘(i) IN GENERAL.—In determining 

14 the area-specific Medicare+Choice capita15 tion rate under subparagraph (A) for a 

16 year (beginning with 1998), the annual per 

17 capita rate of payment for 1997 deter18 mined under section 1876(a)(1)(C) shall be 

19 adjusted to exclude from the rate the ap20 plicable percent (specified in clause (ii)) of 

21 the payment adjustments described in sub22 paragraph (C). 

23 ‘‘(ii) APPLICABLE PERCENT.—For 

24 purposes of clause (i), the applicable per25 cent for—
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1 ‘‘(I) 1998 is 20 percent; 

2 ‘‘(II) 1999 is 40 percent; 

3 ‘‘(III) 2000 is 60 percent; 

4 ‘‘(IV) 2001 is 80 percent; and 

5 ‘‘(V) a succeeding year is 100 

6 percent. 

7 ‘‘(C) PAYMENT ADJUSTMENT.—

8 ‘‘(i) IN GENERAL.—Subject to clause 

9 (ii), the payment adjustments described in 

10 this subparagraph are payment adjust11 ments which the Secretary estimates were 

12 payable during 1997—

13 ‘‘(I) for the indirect costs of med14 ical education under section 

15 1886(d)(5)(B); and 

16 ‘‘(II) for direct graduate medical 

17 education costs under section 

18 1886(h). 

19 ‘‘(ii) TREATMENT OF PAYMENTS COV20 ERED UNDER STATE HOSPITAL REIM21 BURSEMENT SYSTEM.—To the extent that 

22 the Secretary estimates that an annual per 

23 capita rate of payment for 1997 described 

24 in clause (i) reflects payments to hospitals 

25 reimbursed under section 1814(b)(3), the 
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1 Secretary shall estimate a payment adjust2 ment that is comparable to the payment 

3 adjustment that would have been made 

4 under clause (i) if the hospitals had not 

5 been reimbursed under such section. 

6 ‘‘(D) TREATMENT OF AREAS WITH HIGHLY

7 VARIABLE PAYMENT RATES.—In the case of a 

8 Medicare+Choice payment area for which the 

9 annual per capita rate of payment determined 

10 under section 1876(a)(1)(C) for 1997 varies by 

11 more than 20 percent from such rate for 1996, 

12 for purposes of this subsection the Secretary 

13 may substitute for such rate for 1997 a rate 

14 that is more representative of the costs of the 

15 enrollees in the area. 

16 ‘‘(4) INPUT-PRICE-ADJUSTED ANNUAL NA17 TIONAL MEDICARE+CHOICE CAPITATION RATE.—

18 ‘‘(A) IN GENERAL.—For purposes of para19 graph (1)(A), the input-price-adjusted annual 

20 national Medicare+Choice capitation rate for a 

21 Medicare+Choice payment area for a year is 

22 equal to the sum, for all the types of medicare 

23 services (as classified by the Secretary), of the 

24 product (for each such type of service) of—
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1 ‘‘(i) the national standardized annual 

2 Medicare+Choice capitation rate (deter3 mined under subparagraph (B)) for the 

4 year; 

5 ‘‘(ii) the proportion of such rate for 

6 the year which is attributable to such type 

7 of services; and 

8 ‘‘(iii) an index that reflects (for that 

9 year and that type of services) the relative 

10 input price of such services in the area 

11 compared to the national average input 

12 price of such services. 

13 In applying clause (iii), the Secretary may, sub14 ject to subparagraph (C), apply those indices 

15 under this title that are used in applying (or 

16 updating) national payment rates for specific 

17 areas and localities. 

18 ‘‘(B) NATIONAL STANDARDIZED ANNUAL

19 MEDICARE+CHOICE CAPITATION RATE.—In 

20 subparagraph (A)(i), the ‘national standardized 

21 annual Medicare+Choice capitation rate’ for a 

22 year is equal to—

23 ‘‘(i) the sum (for all Medicare+Choice 

24 payment areas) of the product of—
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1 ‘‘(I) the annual area-specific 

2 Medicare+Choice capitation rate for 

3 that year for the area under para4 graph (3); and 

5 ‘‘(II) the average number of 

6 medicare beneficiaries residing in that 

7 area in the year, multiplied by the av8 erage of the risk factor weights used 

9 to adjust payments under subsection 

10 (a)(1)(A) for such beneficiaries in 

11 such area; divided by 

12 ‘‘(ii) the sum of the products de13 scribed in clause (i)(II) for all areas for 

14 that year. 

15 ‘‘(5) PAYMENT ADJUSTMENT BUDGET NEU16 TRALITY FACTOR.—For purposes of paragraph 

17 (1)(A), for each year, the Secretary shall determine 

18 a budget neutrality adjustment factor so that the 

19 aggregate of the payments under this part (other 

20 than those attributable to subsections (a)(3)(C)(iii) 

21 and (i)) shall equal the aggregate payments that 

22 would have been made under this part if payment 

23 were based entirely on area-specific capitation rates. 

24 ‘‘(6) NATIONAL PER CAPITA MEDICARE+ 

25 CHOICE GROWTH PERCENTAGE DEFINED.—
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1 ‘‘(A) IN GENERAL.—In this part, the ‘na2 tional per capita Medicare+Choice growth per3 centage’ for a year is the percentage determined 

4 by the Secretary, by March 1st before the be5 ginning of the year involved, to reflect the Sec6 retary’s estimate of the projected per capita 

7 rate of growth in expenditures under this title 

8 for an individual entitled to (or enrolled for) 

9 benefits under part A and enrolled under part 

10 B, reduced by the number of percentage points 

11 specified in subparagraph (B) for the year. Sep12 arate determinations may be made for aged en13 rollees, disabled enrollees, and enrollees with 

14 end-stage renal disease. 

15 ‘‘(B) ADJUSTMENT.—The number of per16 centage points specified in this subparagraph 

17 is—

18 ‘‘(i) for 1998, 0.8 percentage points; 

19 ‘‘(ii) for 1999, 0.5 percentage points;

20 ‘‘(iii) for 2000, 0.5 percentage points; 

21 ‘‘(iv) for 2001, 0.5 percentage points; 

22 ‘‘(v) for 2002, 0.3 percentage points; 

23 and 

24 ‘‘(vi) for a year after 2002, 0 percent25 age points. 
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1 ‘‘(C) ADJUSTMENT FOR OVER OR UNDER

2 PROJECTION OF NATIONAL PER CAPITA

3 MEDICARE+CHOICE GROWTH PERCENTAGE.—

4 Beginning with rates calculated for 1999, be5 fore computing rates for a year as described in 

6 paragraph (1), the Secretary shall adjust all 

7 area-specific and national Medicare+Choice 

8 capitation rates (and beginning in 2000, the 

9 minimum amount) for the previous year for the 

10 differences between the projections of the na11 tional per capita Medicare+Choice growth per12 centage for that year and previous years and 

13 the current estimate of such percentage for 

14 such years. 

15 ‘‘(7) TRANSITION TO MEDICAREADVANTAGE

16 COMPETITION.—

17 ‘‘(A) IN GENERAL.—For each year (begin18 ning with 2006) payments to 

19 MedicareAdvantage plans shall not be computed 

20 under this subsection, but instead shall be 

21 based on the payment amount determined 

22 under subsection (d). 

23 ‘‘(B) CONTINUED CALCULATION OF CAPI24 TATION RATES.—For each year (beginning with 

25 2006) the Secretary shall calculate and publish 
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1 the annual Medicare+Choice capitation rates 

2 under this subsection and shall use the annual 

3 Medicare+Choice capitation rate determined 

4 under subsection (c)(1) for purposes of deter5 mining the benchmark amount under subsection 

6 (a)(4).

7 ‘‘(d) SECRETARY’S DETERMINATION OF PAYMENT

8 AMOUNT.—

9 ‘‘(1) REVIEW OF PLAN BIDS.—The Secretary 

10 shall review each plan bid submitted under section 

11 1854(a) for the coverage of benefits under the origi12 nal medicare fee-for-service program option to en13 sure that such bids are consistent with the require14 ments under this part an are based on the assump15 tions described in section 1854(a)(2)(A)(iii). 

16 ‘‘(2) DETERMINATION OF WEIGHTED SERVICE

17 AREA BENCHMARK AMOUNTS.—The Secretary shall 

18 calculate a weighted service area benchmark amount 

19 for the benefits under the original medicare fee-for20 service program option for each plan equal to the 

21 weighted average of the benchmark amounts for 

22 benefits under such original medicare fee-for-service 

23 program option for the payment areas included in 

24 the service area of the plan using the assumptions 

25 described in section 1854(a)(2)(A)(iii). 
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1 ‘‘(3) COMPARISON TO BENCHMARK.—The Sec2 retary shall determine the difference between each 

3 plan bid (as adjusted under paragraph (1)) and the 

4 weighted service area benchmark amount (as deter5 mined under paragraph (2)) for purposes of deter6 mining—

7 ‘‘(A) the payment amount under para8 graph (4); and 

9 ‘‘(B) the additional benefits required and 

10 MedicareAdvantage monthly basic beneficiary 

11 premiums. 

12 ‘‘(4) DETERMINATION OF PAYMENT AMOUNT

13 FOR ORIGINAL MEDICARE FEE-FOR-SERVICE BENE14 FITS.—

15 ‘‘(A) IN GENERAL.—Subject to subpara16 graph (B), the Secretary shall determine the 

17 payment amount for MedicareAdvantage plans 

18 for the benefits under the original medicare fee19 for-service program option as follows: 

20 ‘‘(i) BIDS THAT EQUAL OR EXCEED

21 THE BENCHMARK.—In the case of a plan 

22 bid that equals or exceeds the weighted 

23 service area benchmark amount, the 

24 amount of each monthly payment to a 

25 MedicareAdvantage organization with re-
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1 spect to each individual enrolled in a plan 

2 shall be the weighted service area bench3 mark amount.

4 ‘‘(ii) BIDS BELOW THE BENCH5 MARK.—In the case of a plan bid that is 

6 less than the weighted service area bench7 mark amount, the amount of each monthly 

8 payment to a MedicareAdvantage organiza9 tion with respect to each individual en10 rolled in a plan shall be the weighted serv11 ice area benchmark amount reduced by the 

12 amount of any premium reduction elected 

13 by the plan under section 1854(d)(1)(A)(i). 

14 ‘‘(B) APPLICATION OF COMPREHENSIVE

15 RISK ADJUSTMENT METHODOLOGY.—The Sec16 retary shall adjust the amounts determined 

17 under subparagraph (A) using the comprehen18 sive risk adjustment methodology applicable 

19 under subsection (a)(3). 

20 ‘‘(6) ADJUSTMENT FOR NATIONAL COVERAGE

21 DETERMINATIONS AND LEGISLATIVE CHANGES IN

22 BENEFITS.—If the Secretary makes a determination 

23 with respect to coverage under this title or there is 

24 a change in benefits required to be provided under 

25 this part that the Secretary projects will result in a 
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1 significant increase in the costs to 

2 MedicareAdvantage organizations of providing bene3 fits under contracts under this part (for periods 

4 after any period described in section 1852(a)(5)), 

5 the Secretary shall appropriately adjust the bench6 mark amounts or payment amounts (as determined 

7 by the Secretary). Such projection and adjustment 

8 shall be based on an analysis by the Secretary of the 

9 actuarial costs associated with the new benefits. 

10 ‘‘(7) BENEFITS UNDER THE ORIGINAL MEDI11 CARE FEE-FOR-SERVICE PROGRAM OPTION DE12 FINED.—For purposes of this part, the term ‘bene13 fits under the original medicare fee-for-service pro14 gram option’ means those items and services (other 

15 than hospice care) for which benefits are available 

16 under parts A and B to individuals entitled to, or 

17 enrolled for, benefits under part A and enrolled 

18 under part B, with cost-sharing for those services as 

19 required under parts A and B or an actuarially 

20 equivalent level of cost-sharing as determined in this 

21 part. 

22 ‘‘(e) MEDICAREADVANTAGE PAYMENT AREA DE23 FINED.—

24 ‘‘(1) IN GENERAL.—In this part, except as pro25 vided in paragraph (3), the term 
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1 ‘MedicareAdvantage payment area’ means a county, 

2 or equivalent area specified by the Secretary. 

3 ‘‘(2) RULE FOR ESRD BENEFICIARIES.—In the 

4 case of individuals who are determined to have end 

5 stage renal disease, the MedicareAdvantage payment 

6 area shall be a State or such other payment area as 

7 the Secretary specifies. 

8 ‘‘(3) GEOGRAPHIC ADJUSTMENT.—

9 ‘‘(A) IN GENERAL.—Upon written request 

10 of the chief executive officer of a State for a 

11 contract year (beginning after 2005) made by 

12 not later than February 1 of the previous year, 

13 the Secretary shall make a geographic adjust14 ment to a MedicareAdvantage payment area in 

15 the State otherwise determined under para16 graph (1)—

17 ‘‘(i) to a single statewide 

18 MedicareAdvantage payment area; 

19 ‘‘(ii) to the metropolitan based system 

20 described in subparagraph (C); or 

21 ‘‘(iii) to consolidating into a single 

22 MedicareAdvantage payment area non23 contiguous counties (or equivalent areas 

24 described in paragraph (1)) within a State. 
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1 Such adjustment shall be effective for payments 

2 for months beginning with January of the year 

3 following the year in which the request is re4 ceived. 

5 ‘‘(B) BUDGET NEUTRALITY ADJUST6 MENT.—In the case of a State requesting an 

7 adjustment under this paragraph, the Secretary 

8 shall initially (and annually thereafter) adjust 

9 the payment rates otherwise established under 

10 this section for MedicareAdvantage payment 

11 areas in the State in a manner so that the ag12 gregate of the payments under this section in 

13 the State shall not exceed the aggregate pay14 ments that would have been made under this 

15 section for MedicareAdvantage payment areas 

16 in the State in the absence of the adjustment 

17 under this paragraph. 

18 ‘‘(C) METROPOLITAN BASED SYSTEM.—

19 The metropolitan based system described in this 

20 subparagraph is one in which—

21 ‘‘(i) all the portions of each metropoli22 tan statistical area in the State or in the 

23 case of a consolidated metropolitan statis24 tical area, all of the portions of each pri25 mary metropolitan statistical area within 
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1 the consolidated area within the State, are 

2 treated as a single MedicareAdvantage 

3 payment area; and 

4 ‘‘(ii) all areas in the State that do not 

5 fall within a metropolitan statistical area 

6 are treated as a single MedicareAdvantage 

7 payment area. 

8 ‘‘(D) AREAS.—In subparagraph (C), the 

9 terms ‘metropolitan statistical area’, ‘consoli10 dated metropolitan statistical area’, and ‘pri11 mary metropolitan statistical area’ mean any 

12 area designated as such by the Secretary of 

13 Commerce. 

14 ‘‘(f) SPECIAL RULES FOR INDIVIDUALS ELECTING

15 MSA PLANS.—

16 ‘‘(1) IN GENERAL.—If the amount of the 

17 MedicareAdvantage monthly MSA premium (as de18 fined in section 1854(b)(2)(D)) for an MSA plan for 

a year is less than 1 19 ⁄12 of the annual 

20 Medicare+Choice capitation rate applied under this 

21 section for the area and year involved, the Secretary 

22 shall deposit an amount equal to 100 percent of 

23 such difference in a MedicareAdvantage MSA estab24 lished (and, if applicable, designated) by the indi25 vidual under paragraph (2). 
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1 ‘‘(2) ESTABLISHMENT AND DESIGNATION OF

2 MEDICAREADVANTAGE MEDICAL SAVINGS ACCOUNT

3 AS REQUIREMENT FOR PAYMENT OF CONTRIBU4 TION.—In the case of an individual who has elected 

5 coverage under an MSA plan, no payment shall be 

6 made under paragraph (1) on behalf of an individual 

7 for a month unless the individual—

8 ‘‘(A) has established before the beginning 

9 of the month (or by such other deadline as the 

10 Secretary may specify) a MedicareAdvantage 

11 MSA (as defined in section 138(b)(2) of the In12 ternal Revenue Code of 1986); and 

13 ‘‘(B) if the individual has established more 

14 than 1 such MedicareAdvantage MSA, has des15 ignated 1 of such accounts as the individual’s 

16 MedicareAdvantage MSA for purposes of this 

17 part. 

18 Under rules under this section, such an individual 

19 may change the designation of such account under 

20 subparagraph (B) for purposes of this part. 

21 ‘‘(3) LUMP-SUM DEPOSIT OF MEDICAL SAVINGS

22 ACCOUNT CONTRIBUTION.—In the case of an indi23 vidual electing an MSA plan effective beginning with 

24 a month in a year, the amount of the contribution 

25 to the MedicareAdvantage MSA on behalf of the in-
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1 dividual for that month and all successive months in 

2 the year shall be deposited during that first month. 

3 In the case of a termination of such an election as 

4 of a month before the end of a year, the Secretary 

5 shall provide for a procedure for the recovery of de6 posits attributable to the remaining months in the 

7 year. 

8 ‘‘(g) PAYMENTS FROM TRUST FUNDS.—Except as 

9 provided in section 1858A(c) (relating to payments for 

10 qualified prescription drug coverage), the payment to a 

11 MedicareAdvantage organization under this section for in12 dividuals enrolled under this part with the organization 

13 and payments to a MedicareAdvantage MSA under sub14 section (e)(1) shall be made from the Federal Hospital In15 surance Trust Fund and the Federal Supplementary Med16 ical Insurance Trust Fund in such proportion as the Sec17 retary determines reflects the relative weight that benefits 

18 under part A and under part B represents of the actuarial 

19 value of the total benefits under this title. Monthly pay20 ments otherwise payable under this section for October 

21 2000 shall be paid on the first business day of such month. 

22 Monthly payments otherwise payable under this section 

23 for October 2001 shall be paid on the last business day 

24 of September 2001. Monthly payments otherwise payable 
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1 under this section for October 2006 shall be paid on the 

2 first business day of October 2006. 

3 ‘‘(h) SPECIAL RULE FOR CERTAIN INPATIENT HOS4 PITAL STAYS.—In the case of an individual who is receiv5 ing inpatient hospital services from a subsection (d) hos6 pital (as defined in section 1886(d)(1)(B)) as of the effec7 tive date of the individual’s—

8 ‘‘(1) election under this part of a 

9 MedicareAdvantage plan offered by a 

10 MedicareAdvantage organization—

11 ‘‘(A) payment for such services until the 

12 date of the individual’s discharge shall be made 

13 under this title through the MedicareAdvantage 

14 plan or the original medicare fee-for-service 

15 program option (as the case may be) elected be16 fore the election with such organization, 

17 ‘‘(B) the elected organization shall not be 

18 financially responsible for payment for such 

19 services until the date after the date of the indi20 vidual’s discharge; and 

21 ‘‘(C) the organization shall nonetheless be 

22 paid the full amount otherwise payable to the 

23 organization under this part; or 

24 ‘‘(2) termination of election with respect to a 

25 MedicareAdvantage organization under this part—
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1 ‘‘(A) the organization shall be financially 

2 responsible for payment for such services after 

3 such date and until the date of the individual’s 

4 discharge; 

5 ‘‘(B) payment for such services during the 

6 stay shall not be made under section 1886(d) or 

7 by any succeeding MedicareAdvantage organiza8 tion; and 

9 ‘‘(C) the terminated organization shall not 

10 receive any payment with respect to the indi11 vidual under this part during the period the in12 dividual is not enrolled.

13 ‘‘(i) SPECIAL RULE FOR HOSPICE CARE.—

14 ‘‘(1) INFORMATION.—A contract under this 

15 part shall require the MedicareAdvantage organiza16 tion to inform each individual enrolled under this 

17 part with a MedicareAdvantage plan offered by the 

18 organization about the availability of hospice care 

19 if—

20 ‘‘(A) a hospice program participating 

21 under this title is located within the organiza22 tion’s service area; or 

23 ‘‘(B) it is common practice to refer pa24 tients to hospice programs outside such service 

25 area. 
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1 ‘‘(2) PAYMENT.—If an individual who is en2 rolled with a MedicareAdvantage organization under 

3 this part makes an election under section 1812(d)(1) 

4 to receive hospice care from a particular hospice pro5 gram—

6 ‘‘(A) payment for the hospice care fur7 nished to the individual shall be made to the 

8 hospice program elected by the individual by 

9 the Secretary; 

10 ‘‘(B) payment for other services for which 

11 the individual is eligible notwithstanding the in12 dividual’s election of hospice care under section 

13 1812(d)(1), including services not related to the 

14 individual’s terminal illness, shall be made by 

15 the Secretary to the MedicareAdvantage organi16 zation or the provider or supplier of the service 

17 instead of payments calculated under subsection 

18 (a); and 

19 ‘‘(C) the Secretary shall continue to make 

20 monthly payments to the MedicareAdvantage 

21 organization in an amount equal to the value of 

22 the additional benefits required under section 

23 1854(f)(1)(A).’’. 
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1 SEC. 204. SUBMISSION OF BIDS; PREMIUMS. 

2 Section 1854 (42 U.S.C. 1395w–24) is amended to 

3 read as follows:

4 ‘‘SUBMISSION OF BIDS; PREMIUMS

5 ‘‘SEC. 1854. (a) SUBMISSION OF BIDS BY

6 MEDICAREADVANTAGE ORGANIZATIONS.—

7 ‘‘(1) IN GENERAL.—Not later than the second 

8 Monday in September and except as provided in 

9 paragraph (3), each MedicareAdvantage organiza10 tion shall submit to the Secretary, in such form and 

11 manner as the Secretary may specify, for each 

12 MedicareAdvantage plan that the organization in13 tends to offer in a service area in the following 

14 year—

15 ‘‘(A) notice of such intent and information 

16 on the service area of the plan; 

17 ‘‘(B) the plan type for each plan; 

18 ‘‘(C) if the MedicareAdvantage plan is a 

19 coordinated care plan (as described in section 

20 1851(a)(2)(A)) or a private fee-for-service plan 

21 (as described in section 1851(a)(2)(C)), the in22 formation described in paragraph (2) with re23 spect to each payment area; 

24 ‘‘(D) the enrollment capacity (if any) in re25 lation to the plan and each payment area; 
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•HR 2606 IH 

1 ‘‘(E) the expected mix, by health status, of 

2 enrolled individuals; and 

3 ‘‘(F) such other information as the Sec4 retary may specify. 

5 ‘‘(2) INFORMATION REQUIRED FOR COORDI6 NATED CARE PLANS AND PRIVATE FEE-FOR-SERVICE

7 PLANS.—For a MedicareAdvantage plan that is a 

8 coordinated care plan (as described in section 

9 1851(a)(2)(A)) or a private fee-for-service plan (as 

10 described in section 1851(a)(2)(C)), the information 

11 described in this paragraph is as follows: 

12 ‘‘(A) INFORMATION REQUIRED WITH RE13 SPECT TO BENEFITS UNDER THE ORIGINAL

14 MEDICARE FEE-FOR-SERVICE PROGRAM OP15 TION.—Information relating to the coverage of 

16 benefits under the original medicare fee-for17 service program option as follows: 

18 ‘‘(i) The plan bid, which shall consist 

19 of a dollar amount that represents the 

20 total amount that the plan is willing to ac21 cept (not taking into account the applica22 tion of the comprehensive risk adjustment 

23 methodology under section 1853(a)(3)) for 

24 providing coverage of the benefits under 

25 the original medicare fee-for-service pro-
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1 gram option to an individual enrolled in 

2 the plan that resides in the service area of 

3 the plan for a month. 

4 ‘‘(ii) For the enhanced medical bene5 fits package offered—

6 ‘‘(I) the adjusted community rate 

7 (as defined in subsection (g)(3)) of 

8 the package; 

9 ‘‘(II) the portion of the actuarial 

10 value of such benefits package (if any) 

11 that will be applied toward satisfying 

12 the requirement for additional benefits 

13 under subsection (g); 

14 ‘‘(III) the MedicareAdvantage 

15 monthly beneficiary premium for en16 hanced medical benefits (as defined in 

17 subsection (b)(2)(C));

18 ‘‘(IV) a description of any cost19 sharing; 

20 ‘‘(V) a description of whether the 

21 amount of the unified deductible has 

22 been lowered or the maximum limita23 tions on out-of-pocket expenses have 

24 been decreased (relative to the levels 

25 used in calculating the plan bid); and 
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1 ‘‘(VI) such other information as 

2 the Secretary considers necessary. 

3 ‘‘(iii) The assumptions that the 

4 MedicareAdvantage organization used in 

5 preparing the plan bid with respect to 

6 numbers, in each payment area, of enrolled 

7 individuals and the mix, by health status, 

8 of such individuals. 

9 ‘‘(B) INFORMATION REQUIRED WITH RE10 SPECT TO PART D.—The information required 

11 to be submitted by an eligible entity under sec12 tion 1860D–12, including the monthly pre13 miums for standard coverage and any other 

14 qualified prescription drug coverage available to 

15 individuals enrolled under part D.

16 ‘‘(C) DETERMINING PLAN COSTS IN17 CLUDED IN PLAN BID.—For purposes of sub18 mitting its plan bid under subparagraph (A)(i) 

19 a MedicareAdvantage plan offered by a 

20 MedicareAdvantage organization satisfies sub21 paragraphs (A) and (C) of section 1852(a)(1) if 

22 the actuarial value of the deductibles, coinsur23 ance, and copayments applicable on average to 

24 individuals enrolled in such plan under this part 

25 with respect to benefits under the original medi-
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1 care fee-for-service program option on which 

2 that bid is based (ignoring any reduction in 

3 cost-sharing offered by such plan as enhanced 

4 medical benefits under paragraph (2)(A)(ii) or 

5 required under clause (ii) or (iii) of subsection 

6 (g)(1)(C)) equals the amount specified in sub7 section (f)(1)(B). 

8 ‘‘(3) REQUIREMENTS FOR MSA PLANS.—For an 

9 MSA plan described in section 1851(a)(2)(B), the 

10 information described in this paragraph is the infor11 mation that such a plan would have been required 

12 to submit under this part if the Prescription Drug 

13 and Medicare Improvements Act of 2003 had not 

14 been enacted. 

15 ‘‘(4) REVIEW.—

16 ‘‘(A) IN GENERAL.—Subject to subpara17 graph (B), the Secretary shall review the ad18 justed community rates (as defined in section 

19 1854(g)(3)), the amounts of the 

20 MedicareAdvantage monthly basic premium and 

21 the MedicareAdvantage monthly beneficiary 

22 premium for enhanced medical benefits filed 

23 under this subsection and shall approve or dis24 approve such rates and amounts so submitted. 

25 The Secretary shall review the actuarial as-
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1 sumptions and data used by the 

2 MedicareAdvantage organization with respect to 

3 such rates and amounts so submitted to deter4 mine the appropriateness of such assumptions 

5 and data. 

6 ‘‘(B) MSA EXCEPTION.—The Secretary 

7 shall not review, approve, or disapprove the 

8 amounts submitted under paragraph (3). 

9 ‘‘(C) CLARIFICATION OF AUTHORITY RE10 GARDING DISAPPROVAL OF UNREASONABLE

11 BENEFICIARY COST-SHARING.—Under the au12 thority under subparagraph (A), the Secretary 

13 may disapprove the bid if the Secretary deter14 mines that the deductibles, coinsurance, or co15 payments applicable under the plan discourage 

16 access to covered services or are likely to result 

17 in favorable selection of MedicareAdvantage eli18 gible individuals. 

19 ‘‘(5) APPLICATION OF FEHBP STANDARD; PRO20 HIBITION ON PRICE GOUGING.—Each bid amount 

21 submitted under paragraph (1) for a 

22 MedicareAdvantage plan must reasonably and equi23 tably reflect the cost of benefits provided under that 

24 plan. 

25 ‘‘(b) MONTHLY PREMIUMS CHARGED.—
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1 ‘‘(1) IN GENERAL.—

2 ‘‘(A) COORDINATED CARE AND PRIVATE

3 FEE-FOR-SERVICE PLANS.—The monthly 

4 amount of the premium charged to an indi5 vidual enrolled in a MedicareAdvantage plan 

6 (other than an MSA plan) offered by a 

7 MedicareAdvantage organization shall be equal 

8 to the sum of the following: 

9 ‘‘(i) The MedicareAdvantage monthly 

10 basic beneficiary premium (if any). 

11 ‘‘(ii) The MedicareAdvantage monthly 

12 beneficiary premium for enhanced medical 

13 benefits (if any). 

14 ‘‘(iii) The MedicareAdvantage monthly 

15 obligation for qualified prescription drug 

16 coverage (if any). 

17 ‘‘(B) MSA PLANS.—The rules under this 

18 section that would have applied with respect to 

19 an MSA plan if the Prescription Drug and 

20 Medicare Improvements Act of 2003 had not 

21 been enacted shall continue to apply to MSA 

22 plans after the date of enactment of such Act. 

23 ‘‘(2) PREMIUM TERMINOLOGY.—For purposes 

24 of this part:
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1 ‘‘(A) MEDICAREADVANTAGE MONTHLY

2 BASIC BENEFICIARY PREMIUM.—The term 

3 ‘MedicareAdvantage monthly basic beneficiary 

4 premium’ means, with respect to a 

5 MedicareAdvantage plan, the amount required 

6 to be charged under subsection (d)(2) for the 

7 plan. 

8 ‘‘(B) MEDICAREADVANTAGE MONTHLY

9 BENEFICIARY OBLIGATION FOR QUALIFIED PRE10 SCRIPTION DRUG COVERAGE.—The term 

11 ‘MedicareAdvantage monthly beneficiary obliga12 tion for qualified prescription drug coverage’ 

13 means, with respect to a MedicareAdvantage 

14 plan, the amount determined under section 

15 1858A(d). 

16 ‘‘(C) MEDICAREADVANTAGE MONTHLY

17 BENEFICIARY PREMIUM FOR ENHANCED MED18 ICAL BENEFITS.—The term ‘MedicareAdvan19 tage monthly beneficiary premium for enhanced 

20 medical benefits’ means, with respect to a 

21 MedicareAdvantage plan, the amount required 

22 to be charged under subsection (f)(2) for the 

23 plan, or, in the case of an MSA plan, the 

24 amount filed under subsection (a)(3). 
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1 ‘‘(D) MEDICAREADVANTAGE MONTHLY

2 MSA PREMIUM.—The term ‘MedicareAdvantage 

3 monthly MSA premium’ means, with respect to 

4 a MedicareAdvantage plan, the amount of such 

5 premium filed under subsection (a)(3) for the 

6 plan. 

7 ‘‘(c) UNIFORM PREMIUM.—The MedicareAdvantage 

8 monthly basic beneficiary premium, the 

9 MedicareAdvantage monthly beneficiary obligation for 

10 qualified prescription drug coverage, the 

11 MedicareAdvantage monthly beneficiary premium for en12 hanced medical benefits, and the MedicareAdvantage 

13 monthly MSA premium charged under subsection (b) of 

14 a MedicareAdvantage organization under this part may 

15 not vary among individuals enrolled in the plan. 

16 ‘‘(d) DETERMINATION OF PREMIUM REDUCTIONS, 

17 REDUCED COST-SHARING, ADDITIONAL BENEFITS, AND

18 BENEFICIARY PREMIUMS.—

19 ‘‘(1) BIDS BELOW THE BENCHMARK.—If the 

20 Secretary determines under section 1853(d)(3) that 

21 the weighted service area benchmark amount ex22 ceeds the plan bid, the Secretary shall require the 

23 plan to provide additional benefits in accordance 

24 with subsection (g). 
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1 ‘‘(2) BIDS ABOVE THE BENCHMARK.—If the 

2 Secretary determines under section 1853(d)(3) that 

3 the plan bid exceeds the weighted service area 

4 benchmark amount (determined under section 

5 1853(d)(2)), the amount of such excess shall be the 

6 MedicareAdvantage monthly basic beneficiary pre7 mium (as defined in section 1854(b)(2)(A)). 

8 ‘‘(e) TERMS AND CONDITIONS OF IMPOSING PRE9 MIUMS.—Each MedicareAdvantage organization shall per10 mit the payment of any MedicareAdvantage monthly basic 

11 premium, the MedicareAdvantage monthly beneficiary ob12 ligation for qualified prescription drug coverage, and the 

13 MedicareAdvantage monthly beneficiary premium for en14 hanced medical benefits on a monthly basis, may termi15 nate election of individuals for a MedicareAdvantage plan 

16 for failure to make premium payments only in accordance 

17 with section 1851(g)(3)(B)(i), and may not provide for 

18 cash or other monetary rebates as an inducement for en19 rollment or otherwise (other than as an additional benefit 

20 described in subsection (g)(1)(C)(i)). 

21 ‘‘(f) LIMITATION ON ENROLLEE LIABILITY.—

22 ‘‘(1) FOR BENEFITS UNDER THE ORIGINAL

23 MEDICARE FEE-FOR-SERVICE PROGRAM OPTION.—

24 The sum of—
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1 ‘‘(A) the MedicareAdvantage monthly basic 

2 beneficiary premium (multiplied by 12) and the 

3 actuarial value of the deductibles, coinsurance, 

4 and copayments (determined on the same basis 

5 as used in determining the plan’s bid under 

6 paragraph (2)(C)) applicable on average to indi7 viduals enrolled under this part with a 

8 MedicareAdvantage plan described in subpara9 graph (A) or (C) of section 1851(a)(2) of an or10 ganization with respect to required benefits de11 scribed in section 1852(a)(1)(A); must equal

12 ‘‘(B) the actuarial value of the deductibles, 

13 coinsurance, and copayments that would be ap14 plicable on average to individuals who have 

15 elected to receive benefits under the original 

16 medicare fee-for-service program option if such 

17 individuals were not members of a 

18 MedicareAdvantage organization for the year 

19 (adjusted as determined appropriate by the Sec20 retary to account for geographic differences and 

21 for plan cost and utilization differences). 

22 ‘‘(2) FOR ENHANCED MEDICAL BENEFITS.—If 

23 the MedicareAdvantage organization provides to its 

24 members enrolled under this part in a 

25 MedicareAdvantage plan described in subparagraph 
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1 (A) or (C) of section 1851(a)(2) with respect to en2 hanced medical benefits relating to benefits under 

3 the original medicare fee-for-service program option, 

4 the sum of the MedicareAdvantage monthly bene5 ficiary premium for enhanced medical benefits (mul6 tiplied by 12) charged and the actuarial value of its 

7 deductibles, coinsurance, and copayments charged 

8 with respect to such benefits for a year must equal 

9 the adjusted community rate (as defined in sub10 section (g)(3)) for such benefits for the year minus 

11 the actuarial value of any additional benefits pursu12 ant to clause (ii), (iii), or (iv) of subsection (g)(2)(C) 

13 that the plan specified under subsection (a)(2)(i)(II). 

14 ‘‘(3) DETERMINATION ON OTHER BASIS.—If the 

15 Secretary determines that adequate data are not 

16 available to determine the actuarial value under 

17 paragraph (1)(A) or (2), the Secretary may deter18 mine such amount with respect to all individuals in 

19 the same geographic area, the State, or in the 

20 United States, eligible to enroll in the 

21 MedicareAdvantage plan involved under this part or 

22 on the basis of other appropriate data. 

23 ‘‘(4) SPECIAL RULE FOR PRIVATE FEE-FOR24 SERVICE PLANS.—With respect to a 

25 MedicareAdvantage private fee-for-service plan 
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1 (other than a plan that is an MSA plan), in no event 

2 may—

3 ‘‘(A) the actuarial value of the deductibles, 

4 coinsurance, and copayments applicable on av5 erage to individuals enrolled under this part 

6 with such a plan of an organization with re7 spect to required benefits described in subpara8 graphs (A), (C), and (D) of section 1852(a)(1); 

9 exceed 

10 ‘‘(B) the actuarial value of the deductibles, 

11 coinsurance, and copayments that would be ap12 plicable on average to individuals entitled to (or 

13 enrolled for) benefits under part A and enrolled 

14 under part B if they were not members of a 

15 MedicareAdvantage organization for the year. 

16 ‘‘(g) REQUIREMENT FOR ADDITIONAL BENEFITS.—

17 ‘‘(1) REQUIREMENT.—

18 ‘‘(A) IN GENERAL.—Each 

19 MedicareAdvantage organization (in relation to 

20 a MedicareAdvantage plan, other than an MSA 

21 plan, it offers) shall provide that if there is an 

22 excess amount (as defined in subparagraph (B)) 

23 for the plan for a contract year, subject to the 

24 succeeding provisions of this subsection, the or25 ganization shall provide to individuals such ad-
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1 ditional benefits described in subparagraph (C) 

2 as the organization may specify in a value 

3 which the Secretary determines is at least equal 

4 to the adjusted excess amount (as defined in 

5 subparagraph (D)). 

6 ‘‘(B) EXCESS AMOUNT.—For purposes of 

7 this paragraph, the term ‘excess amount’ 

8 means, for an organization for a plan, is 100 

9 percent of the amount (if any) by which the 

10 weighted service area benchmark amount (de11 termined under section 1853(d)(2)) exceeds the 

12 plan bid (as adjusted under section 

13 1853(d)(1)). 

14 ‘‘(C) ADDITIONAL BENEFITS DE15 SCRIBED.—The additional benefits described in 

16 this subparagraph are as follows: 

17 ‘‘(i) Subject to subparagraph (F), a 

18 monthly part B premium reduction for in19 dividuals enrolled in the plan.

20 ‘‘(ii) Lowering the amount of the uni21 fied deductible and decreasing the max22 imum limitations on out-of-pocket expenses 

23 for individuals enrolled in the plan.
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1 ‘‘(iii) A reduction in the actuarial 

2 value of plan cost-sharing for plan enroll3 ees. 

4 ‘‘(iv) Subject to subparagraph (E), 

5 such additional benefits as the organization 

6 may specify. 

7 ‘‘(v) Contributing to the stabilization 

8 fund under paragraph (2). 

9 ‘‘(vi) Any combination of the reduc10 tions and benefits described in clauses (i) 

11 through (v). 

12 ‘‘(D) ADJUSTED EXCESS AMOUNT.—For 

13 purposes of this paragraph, the term ‘adjusted 

14 excess amount’ means, for an organization for 

15 a plan, is the excess amount reduced to reflect 

16 any amount withheld and reserved for the orga17 nization for the year under paragraph (2). 

18 ‘‘(E) RULE FOR APPROVAL OF MEDICAL

19 AND PRESCRIPTION DRUG BENEFITS.—An orga20 nization may not specify any additional benefit 

21 that provides for the coverage of any prescrip22 tion drug (other than that relating to prescrip23 tion drugs covered under the original medicare 

24 fee-for-service program option). 

25 ‘‘(F) PREMIUM REDUCTIONS.—
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1 ‘‘(i) IN GENERAL.—Subject to clause 

2 (ii), as part of providing any additional 

3 benefits required under subparagraph (A), 

4 a MedicareAdvantage organization may 

5 elect a reduction in its payments under 

6 section 1853(a)(1)(A)(i) with respect to a 

7 MedicareAdvantage plan and the Secretary 

8 shall apply such reduction to reduce the 

9 premium under section 1839 of each en10 rollee in such plan as provided in section 

11 1840(i). 

12 ‘‘(ii) AMOUNT OF REDUCTION.—The 

13 amount of the reduction under clause (i) 

14 with respect to any enrollee in a 

15 MedicareAdvantage plan—

16 ‘‘(I) may not exceed 125 percent 

17 of the premium described under sec18 tion 1839(a)(3); and 

19 ‘‘(II) shall apply uniformly to 

20 each enrollee of the 

21 MedicareAdvantage plan to which 

22 such reduction applies. 

23 ‘‘(G) UNIFORM APPLICATION.—This para24 graph shall be applied uniformly for all enroll25 ees for a plan. 
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1 ‘‘(H) CONSTRUCTION.—Nothing in this 

2 subsection shall be construed as preventing a 

3 MedicareAdvantage organization from providing 

4 enhanced medical benefits (described in section 

5 1852(a)(3)) that are in addition to the health 

6 care benefits otherwise required to be provided 

7 under this paragraph and from imposing a pre8 mium for such enhanced medical benefits. 

9 ‘‘(2) STABILIZATION FUND.—A MedicareAdvan10 tage organization may provide that a part of the 

11 value of an excess amount described in paragraph 

12 (1) be withheld and reserved in the Federal Hospital 

13 Insurance Trust Fund and in the Federal Supple14 mentary Medical Insurance Trust Fund (in such 

15 proportions as the Secretary determines to be appro16 priate) by the Secretary for subsequent annual con17 tract periods, to the extent required to prevent 

18 undue fluctuations in the additional benefits offered 

19 in those subsequent periods by the organization in 

20 accordance with such paragraph. Any of such value 

21 of the amount reserved which is not provided as ad22 ditional benefits described in paragraph (1)(A) to in23 dividuals electing the MedicareAdvantage plan of the 

24 organization in accordance with such paragraph 
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1 prior to the end of such periods, shall revert for the 

2 use of such Trust Funds. 

3 ‘‘(3) ADJUSTED COMMUNITY RATE.—For pur4 poses of this subsection, subject to paragraph (4), 

5 the term ‘adjusted community rate’ for a service or 

6 services means, at the election of a 

7 MedicareAdvantage organization, either—

8 ‘‘(A) the rate of payment for that service 

9 or services which the Secretary annually deter10 mines would apply to an individual electing a 

11 MedicareAdvantage plan under this part if the 

12 rate of payment were determined under a ‘com13 munity rating system’ (as defined in section 

14 1302(8) of the Public Health Service Act, other 

15 than subparagraph (C)); or 

16 ‘‘(B) such portion of the weighted aggre17 gate premium, which the Secretary annually es18 timates would apply to such an individual, as 

19 the Secretary annually estimates is attributable 

20 to that service or services, 

21 but adjusted for differences between the utilization 

22 characteristics of the individuals electing coverage 

23 under this part and the utilization characteristics of 

24 the other enrollees with the plan (or, if the Secretary 

25 finds that adequate data are not available to adjust 
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1 for those differences, the differences between the uti2 lization characteristics of individuals selecting other 

3 MedicareAdvantage coverage, or MedicareAdvantage 

4 eligible individuals in the area, in the State, or in 

5 the United States, eligible to elect 

6 MedicareAdvantage coverage under this part and the 

7 utilization characteristics of the rest of the popu8 lation in the area, in the State, or in the United 

9 States, respectively). 

10 ‘‘(4) DETERMINATION BASED ON INSUFFICIENT

11 DATA.—For purposes of this subsection, if the Sec12 retary finds that there is insufficient enrollment ex13 perience to determine the average amount of pay14 ments to be made under this part at the beginning 

15 of a contract period or to determine (in the case of 

16 a newly operated provider-sponsored organization or 

17 other new organization) the adjusted community 

18 rate for the organization, the Secretary may deter19 mine such an average based on the enrollment expe20 rience of other contracts entered into under this part 

21 and may determine such a rate using data in the 

22 general commercial marketplace. 

23 ‘‘(h) PROHIBITION OF STATE IMPOSITION OF PRE24 MIUM TAXES.—No State may impose a premium tax or 
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1 similar tax with respect to payments to 

2 MedicareAdvantage organizations under section 1853.

3 ‘‘(i) PERMITTING USE OF SEGMENTS OF SERVICE

4 AREAS.—The Secretary shall permit a MedicareAdvantage 

5 organization to elect to apply the provisions of this section 

6 uniformly to separate segments of a service area (rather 

7 than uniformly to an entire service area) as long as such 

8 segments are composed of 1 or more MedicareAdvantage 

9 payment areas.’’. 

10 (b) STUDY AND REPORT ON CLARIFICATION OF AU11 THORITY REGARDING DISAPPROVAL OF UNREASONABLE

12 BENEFICIARY COST-SHARING.—

13 (1) STUDY.—The Secretary, in consultation 

14 with beneficiaries, consumer groups, employers, and 

15 Medicare+Choice organizations, shall conduct a 

16 study to determine the extent to which the cost-shar17 ing structures under Medicare+Choice plans under 

18 part C of title XVIII of the Social Security Act dis19 courage access to covered services or discriminate 

20 based on the health status of Medicare+Choice eligi21 ble individuals (as defined in section 1851(a)(3) of 

22 the Social Security Act (42 U.S.C. 1395w–

23 21(a)(3))). 

24 (2) REPORT.—Not later than December 31, 

25 2004, the Secretary shall submit a report to Con-
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1 gress on the study conducted under paragraph (1) 

2 together with recommendations for such legislation 

3 and administrative actions as the Secretary con4 siders appropriate. 

5 SEC. 205. SPECIAL RULES FOR PRESCRIPTION DRUG BENE6 FITS. 

7 (a) Part C of title XVIII (42 U.S.C. 1395w–21 et 

8 seq.) is amended by inserting after section 1857 the fol9 lowing new section: 

10 ‘‘SPECIAL RULES FOR PRESCRIPTION DRUG BENEFITS

11 ‘‘SEC. 1858A. (a) AVAILABILITY.—

12 ‘‘(1) PLANS REQUIRED TO PROVIDE QUALIFIED

13 PRESCRIPTION DRUG COVERAGE TO ENROLLEES.—

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

15 subparagraph (B), on and after January 1, 

16 2006, a MedicareAdvantage organization offer17 ing a MedicareAdvantage plan (except for an 

18 MSA plan) shall make available qualified pre19 scription drug coverage that meets the require20 ments for such coverage under this part and 

21 part D to each enrollee of the plan. 

22 ‘‘(B) PRIVATE FEE-FOR-SERVICE PLANS

23 MAY, BUT ARE NOT REQUIRED TO, PROVIDE

24 QUALIFIED PRESCRIPTION DRUG COVERAGE.—

25 Pursuant to section 1852(a)(2)(D), a private 

26 fee-for-service plan may elect not to provide 
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1 qualified prescription drug coverage under part 

2 D to individuals residing in the area served by 

3 the plan. 

4 ‘‘(2) REFERENCE TO PROVISION PERMITTING

5 ADDITIONAL PRESCRIPTION DRUG COVERAGE.—For 

6 the provisions of part D, made applicable to this 

7 part pursuant to paragraph (1), that permit a plan 

8 to make available qualified prescription drug cov9 erage that includes coverage of covered drugs that 

10 exceeds the coverage required under paragraph (1) 

11 of section 1860D–6 in an area, but only if the 

12 MedicareAdvantage organization offering the plan 

13 also offers a MedicareAdvantage plan in the area 

14 that only provides the coverage that is required 

15 under such paragraph (1), see paragraph (2) of such 

16 section. 

17 ‘‘(3) RULE FOR APPROVAL OF MEDICAL AND

18 PRESCRIPTION DRUG BENEFITS.—Pursuant to sec19 tions 1854(g)(1)(F) and 1852(a)(3)(D), a 

20 MedicareAdvantage organization offering a 

21 MedicareAdvantage plan that provides qualified pre22 scription drug coverage may not make available cov23 erage of any prescription drugs (other than that re24 lating to prescription drugs covered under the origi25 nal medicare fee-for-service program option) to an 
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1 enrollee as an additional benefit or as an enhanced 

2 medical benefit. 

3 ‘‘(b) COMPLIANCE WITH ADDITIONAL BENEFICIARY

4 PROTECTIONS.—With respect to the offering of qualified 

5 prescription drug coverage by a MedicareAdvantage orga6 nization under a MedicareAdvantage plan, the organiza7 tion and plan shall meet the requirements of section 

8 1860D–5, including requirements relating to information 

9 dissemination and grievance and appeals, and such other 

10 requirements under part D that the Secretary determines 

11 appropriate in the same manner as such requirements 

12 apply to an eligible entity and a Medicare Prescription 

13 Drug plan under part D. The Secretary shall waive such 

14 requirements to the extent the Secretary determines that 

15 such requirements duplicate requirements otherwise appli16 cable to the organization or the plan under this part. 

17 ‘‘(c) PAYMENTS FOR PRESCRIPTION DRUGS.—

18 ‘‘(1) PAYMENT OF FULL AMOUNT OF PREMIUM

19 TO ORGANIZATIONS FOR QUALIFIED PRESCRIPTION

20 DRUG COVERAGE.—

21 ‘‘(A) IN GENERAL.—For each year (begin22 ning with 2006), the Secretary shall pay to 

23 each MedicareAdvantage organization offering a 

24 MedicareAdvantage plan that provides qualified 

25 prescription drug coverage, an amount equal to 
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1 the full amount of the monthly premium sub2 mitted under section 1854(a)(2)(B) for the 

3 year, as adjusted using the risk adjusters that 

4 apply to the standard prescription drug cov5 erage published under section 1860D–11. 

6 ‘‘(B) APPLICATION OF PART D RISK COR7 RIDOR, STABILIZATION RESERVE FUND, AND

8 ADMINISTRATIVE EXPENSES PROVISIONS.—The 

9 provisions of subsections (b), (c), and (d) of 

10 section 1860D–16 shall apply to a 

11 MedicareAdvantage organization offering a 

12 MedicareAdvantage plan that provides qualified 

13 prescription drug coverage and payments made 

14 to such organization under subparagraph (A) in 

15 the same manner as such provisions apply to an 

16 eligible entity offering a Medicare Prescription 

17 Drug plan and payments made to such entity 

18 under subsection (a) of section 1860D–16. 

19 ‘‘(2) PAYMENT FROM PRESCRIPTION DRUG AC20 COUNT.—Payment made to MedicareAdvantage or21 ganizations under this subsection shall be made from 

22 the Prescription Drug Account in the Federal Sup23 plementary Medical Insurance Trust Fund under 

24 section 1841.
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1 ‘‘(d) COMPUTATION OF MEDICAREADVANTAGE

2 MONTHLY BENEFICIARY OBLIGATION FOR QUALIFIED

3 PRESCRIPTION DRUG COVERAGE.—In the case of a 

4 MedicareAdvantage eligible individual receiving qualified

5 prescription drug coverage under a MedicareAdvantage 

6 plan during a year after 2005, the MedicareAdvantage 

7 monthly beneficiary obligation for qualified prescription 

8 drug coverage of such individual in the year shall be deter9 mined in the same manner as the monthly beneficiary obli10 gation is determined under section 1860D–17 for eligible 

11 beneficiaries enrolled in a Medicare Prescription Drug 

12 plan, except that, for purposes of this subparagraph, any 

13 reference to the monthly plan premium approved by the 

14 Secretary under section 1860D–13 shall be treated as a 

15 reference to the monthly premium for qualified prescrip16 tion drug coverage submitted by the MedicareAdvantage 

17 organization offering the plan under section 

18 1854(a)(2)(A) and approved by the Secretary. 

19 ‘‘(e) COLLECTION OF MEDICAREADVANTAGE

20 MONTHLY BENEFICIARY OBLIGATION FOR QUALIFIED

21 PRESCRIPTION DRUG COVERAGE.—The provisions of sec22 tion 1860D–18, including subsection (b) of such section, 

23 shall apply to the amount of the MedicareAdvantage 

24 monthly beneficiary obligation for qualified prescription 

25 drug coverage (as determined under subsection (d)) re-
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1 quired to be paid by a MedicareAdvantage eligible indi2 vidual enrolled in a MedicareAdvantage plan in the same 

3 manner as such provisions apply to the amount of the 

4 monthly beneficiary obligation required to be paid by an 

5 eligible beneficiary enrolled in a Medicare Prescription 

6 Drug plan under part D. 

7 ‘‘(f) AVAILABILITY OF PREMIUM SUBSIDY AND COST8 SHARING REDUCTIONS FOR LOW-INCOME ENROLLEES

9 AND REINSURANCE PAYMENTS.—For provisions—

10 ‘‘(1) providing premium subsidies and cost11 sharing reductions for low-income individuals receiv12 ing qualified prescription drug coverage through a 

13 MedicareAdvantage plan, see section 1860D–19; and 

14 ‘‘(2) providing a MedicareAdvantage organiza15 tion with reinsurance payments for certain expenses 

16 incurred in providing qualified prescription drug cov17 erage through a MedicareAdvantage plan, see sec18 tion 1860D–20.’’. 

19 (b) TREATMENT OF REDUCTION FOR PURPOSES OF

20 DETERMINING GOVERNMENT CONTRIBUTION UNDER

21 PART B.—Section 1844(c) (42 U.S.C. 1395w) is amended 

22 by striking ‘‘section 1854(f)(1)(E)’’ and inserting ‘‘section 

23 1854(d)(1)(A)(i)’’. 
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1 SEC. 206. FACILITATING EMPLOYER PARTICIPATION. 

2 Section 1858(h) (as added by section 211) is amend3 ed by inserting ‘‘(including subsection (i) of such section)’’ 

4 after ‘‘section 1857’’. 

5 SEC. 207. ADMINISTRATION BY THE CENTER FOR MEDI6 CARE CHOICES. 

7 On and after January 1, 2006, the 

8 MedicareAdvantage program under part C of title XVIII 

9 of the Social Security Act shall be administered by the 

10 Center for Medicare Choices established under section 

11 1808 such title (as added by section 301), and each ref12 erence to the Secretary made in such part shall be deemed 

13 to be a reference to the Administrator of the Center for 

14 Medicare Choices. 

15 SEC. 208. CONFORMING AMENDMENTS. 

16 (a) ORGANIZATIONAL AND FINANCIAL REQUIRE17 MENTS FOR MEDICAREADVANTAGE ORGANIZATIONS; 

18 PROVIDER-SPONSORED ORGANIZATIONS.—Section 1855 

19 (42 U.S.C. 1395w–25) is amended—

20 (1) in subsection (b), in the matter preceding 

21 paragraph (1), by inserting ‘‘subparagraphs (A), 

22 (B), and (D) of’’ before ‘‘section 1852(A)(1)’’; and 

23 (2) by striking ‘‘Medicare+Choice’’ and insert24 ing ‘‘MedicareAdvantage’’ each place it appears. 

25 (b) ESTABLISHMENT OF PSO STANDARDS.—Section 

26 1856 (42 U.S.C. 1395w–26) is amended by striking 
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1 ‘‘Medicare+Choice’’ and inserting ‘‘MedicareAdvantage’’ 

2 each place it appears. 

3 (c) CONTRACTS WITH MEDICAREADVANTAGE ORGA4 NIZATIONS.—Section 1857 (42 U.S.C. 1395w–27) is 

5 amended—

6 (1) in subsection (g)(1)—

7 (A) in subparagraph (B), by striking 

8 ‘‘amount of the Medicare+Choice monthly basic 

9 and supplemental beneficiary premiums’’ and 

10 inserting ‘‘amounts of the MedicareAdvantage 

11 monthly basic premium and MedicareAdvantage 

12 monthly beneficiary premium for enhanced 

13 medical benefits’’; 

14 (B) in subparagraph (F), by striking ‘‘or’’ 

15 after the semicolon at the end; 

16 (C) in subparagraph (G), by adding ‘‘or’’ 

17 after the semicolon at the end; and 

18 (D) by inserting after subparagraph (G) 

19 the following new subparagraph: 

20 ‘‘(H)(i) charges any individual an amount 

21 in excess of the MedicareAdvantage monthly 

22 beneficiary obligation for qualified prescription 

23 drug coverage under section 1858A(d); 
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1 ‘‘(ii) provides coverage for prescription 

2 drugs that is not qualified prescription drug 

3 coverage; 

4 ‘‘(iii) offers prescription drug coverage, but 

5 does not make standard prescription drug cov6 erage available; or

7 ‘‘(iv) provides coverage for prescription 

8 drugs (other than that relating to prescription 

9 drugs covered under the original medicare fee10 for-service program option described in section 

11 1851(a)(1)(A)(i)) as an enhanced medical ben12 efit under section 1852(a)(3)(D) or as an addi13 tional benefit under section 1854(g)(1)(F),’’; 

14 and 

15 (2) by striking ‘‘Medicare+Choice’’ and insert16 ing ‘‘MedicareAdvantage’’ each place it appears. 

17 (d) DEFINITIONS; MISCELLANEOUS PROVISIONS.—

18 Section 1859 (42 U.S.C. 1395w–28) is amended—

19 (1) by striking subsection (c) and inserting the 

20 following new subsection: 

21 ‘‘(c) OTHER REFERENCES TO OTHER TERMS.—

22 ‘‘(1) ENHANCED MEDICAL BENEFITS.—The 

23 term ‘enhanced medical benefits’ is defined in sec24 tion 1852(a)(3)(E). 
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1 ‘‘(2) MEDICAREADVANTAGE ELIGIBLE INDI2 VIDUAL.—The term ‘MedicareAdvantage eligible in3 dividual’ is defined in section 1851(a)(3). 

4 ‘‘(3) MEDICAREADVANTAGE PAYMENT AREA.—

5 The term ‘MedicareAdvantage payment area’ is de6 fined in section 1853(d). 

7 ‘‘(4) NATIONAL PER CAPITA

8 MEDICARE+CHOICE GROWTH PERCENTAGE.—The 

9 ‘national per capita Medicare+Choice growth per10 centage’ is defined in section 1853(c)(6). 

11 ‘‘(5) MEDICAREADVANTAGE MONTHLY BASIC

12 BENEFICIARY PREMIUM; MEDICAREADVANTAGE

13 MONTHLY BENEFICIARY OBLIGATION FOR QUALI14 FIED PRESCRIPTION DRUG COVERAGE; 

15 MEDICAREADVANTAGE MONTHLY BENEFICIARY PRE16 MIUM FOR ENHANCED MEDICAL BENEFITS.—The 

17 terms ‘MedicareAdvantage monthly basic beneficiary 

18 premium’, ‘MedicareAdvantage monthly beneficiary 

19 obligation for qualified prescription drug coverage’, 

20 and ‘MedicareAdvantage monthly beneficiary pre21 mium for enhanced medical benefits’ are defined in 

22 section 1854(b)(2). 

23 ‘‘(6) QUALIFIED PRESCRIPTION DRUG COV24 ERAGE.—The term ‘qualified prescription drug cov-
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1 erage’ has the meaning given such term in section 

2 1860D(9). 

3 ‘‘(7) STANDARD PRESCRIPTION DRUG COV4 ERAGE.—The term ‘standard prescription drug cov5 erage’ has the meaning given such term in section 

6 1860D(10).’’; and 

7 (2) by striking ‘‘Medicare+Choice’’ and insert8 ing ‘‘MedicareAdvantage’’ each place it appears. 

9 (e) CONFORMING AMENDMENTS EFFECTIVE BEFORE

10 2006.—

11 (1) EXTENSION OF MSAS.—Section 1851(b)(4) 

12 (42 U.S.C. 1395w–21(b)(4)) is amended by striking 

13 ‘‘January 1, 2003’’ and inserting ‘‘January 1, 

14 2004’’.

15 (2) CONTINUOUS OPEN ENROLLMENT AND

16 DISENROLLMENT THROUGH 2005.—Section 1851(e) 

17 of the Social Security Act (42 U.S.C. 1395w–21(e)) 

18 is amended—

19 (A) in paragraph (2)(A), by striking 

20 ‘‘THROUGH 2004’’ and ‘‘December 31, 2004’’ 

21 and inserting ‘‘THROUGH 2005’’ and ‘‘December 

22 31, 2005’’, respectively; 

23 (B) in the heading of paragraph (2)(B), by 

24 striking ‘‘DURING 2005’’ and inserting ‘‘DURING

25 2006’’; 
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1 (C) in paragraphs (2)(B)(i) and (2)(C)(i), 

2 by striking ‘‘2005’’ and inserting ‘‘2006’’ each 

3 place it appears; 

4 (D) in paragraph (2)(D), by striking 

5 ‘‘2004’’ and inserting ‘‘2005’’; and 

6 (E) in paragraph (4), by striking ‘‘2005’’ 

7 and inserting ‘‘2006’’ each place it appears. 

8 (3) EFFECTIVE DATE.—The amendments made 

9 by this subsection shall take effect on the date of en10 actment of this Act. 

11 (f) OTHER CONFORMING AMENDMENTS.—

12 (1) CONFORMING MEDICARE CROSS-REF13 ERENCES.—

14 (A) Section 1839(a)(2) (42 U.S.C. 

15 1395r(a)(2)) is amended by striking ‘‘section 

16 1854(f)(1)(E)’’ and inserting ‘‘section 

17 1854(g)(1)(C)(i)’’. 

18 (B) Section 1840(i) (42 U.S.C. 1395s(i)) 

19 is amended by striking ‘‘section 1854(f)(1)(E)’’ 

20 and inserting ‘‘section 1854(g)(1)(C)(i)’’. 

21 (C) Section 1844(c) (42 U.S.C. 1395w(c)) 

22 is amended by striking ‘‘section 1854(f)(1)(E)’’ 

23 and inserting ‘‘section 1854(g)(1)(C)(i)’’. 

24 (D) Section 1876(k)(3)(A) (42 U.S.C. 

25 1395mm(k)(3)(A)) is amended by inserting 
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1 ‘‘(as in effect immediately before the enactment 

2 of the Prescription Drug and Medicare Im3 provements Act of 2003)’’ after section 

4 1853(a). 

5 (E) Section 1876(k)(4) (42 U.S.C. 

6 1395mm(k)(4)(A)) is amended—

7 (i) in subparagraph (A), by striking 

8 ‘‘section 1853(a)(3)(B)’’ and inserting 

9 ‘‘section 1853(a)(3)(D)’’; and 

10 (ii) in subparagraph (B), by striking 

11 ‘‘section 1854(g)’’ and inserting ‘‘section 

12 1854(h)’’.

13 (F) Section 1876(k)(4)(C) (42 U.S.C. 

14 1395mm(k)(4)(C)) is amended by inserting 

15 ‘‘(as in effect immediately before the enactment 

16 of the Prescription Drug and Medicare Im17 provements Act of 2003)’’ after ‘‘section 

18 1851(e)(6)’’. 

19 (G) Section 1894(d) (42 U.S.C. 

20 1395eee(d)) is amended by adding at the end 

21 the following new paragraph: 

22 ‘‘(3) APPLICATION OF PROVISIONS.—For pur23 poses of paragraphs (1) and (2), the references to 

24 section 1853 and subsection (a)(2) of such section in 

25 such paragraphs shall be deemed to be references to 
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1 those provisions as in effect immediately before the 

2 enactment of the Prescription Drug and Medicare 

3 Improvements Act of 2003.’’. 

4 (2) CONFORMING MEDICARE TERMINOLOGY.—

5 Title XVIII (42 U.S.C. 1395 et seq.), except for 

6 part C of such title (42 U.S.C. 1395w–21 et seq.), 

7 and title XIX (42 U.S.C. 1396 et seq.) are each 

8 amended by striking ‘‘Medicare+Choice’’ and insert9 ing ‘‘MedicareAdvantage’’ each place it appears. 

10 SEC. 209. EFFECTIVE DATE. 

11 (a) IN GENERAL.—Except as provided in section 

12 208(d)(3) and subsection (b), the amendments made by 

13 this title shall apply with respect to plan years beginning 

14 on and after January 1, 2006. 

15 (b) MEDICAREADVANTAGE MSA PLANS.—Notwith16 standing any provision of this title, the Secretary shall 

17 apply the payment and other rules that apply with respect 

18 to an MSA plan described in section 1851(a)(2)(B) of the 

19 Social Security Act (42 U.S.C. 1395w–21(a)(2)(B)) as if 

20 this title had not been enacted.
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1 Subtitle B—Preferred Provider 

2 Organizations 

3 SEC. 211. ESTABLISHMENT OF MEDICAREADVANTAGE PRE4 FERRED PROVIDER PROGRAM OPTION. 

5 (a) ESTABLISHMENT OF PREFERRED PROVIDER

6 PROGRAM OPTION.—Section 1851(a)(2) is amended by 

7 adding at the end the following new subparagraph: 

8 ‘‘(D) PREFERRED PROVIDER ORGANIZA9 TION PLANS.—A MedicareAdvantage preferred 

10 provider organization plan under the program 

11 established under section 1858.’’. 

12 (b) PROGRAM SPECIFICATIONS.—Part C of title 

13 XVIII (42 U.S.C. 1395w–21 et seq.) is amended by insert14 ing after section 1857 the following new section: 

15 ‘‘PREFERRED PROVIDER ORGANIZATIONS

16 ‘‘SEC. 1858. (a) ESTABLISHMENT OF PROGRAM.—

17 ‘‘(1) IN GENERAL.—Beginning on January 1, 

18 2006, there is established a preferred provider pro19 gram under which preferred provider organization 

20 plans offered by preferred provider organizations are 

21 offered to MedicareAdvantage eligible individuals in 

22 preferred provider regions. 

23 ‘‘(2) DEFINITIONS.—

24 ‘‘(A) PREFERRED PROVIDER ORGANIZA25 TION.—The term ‘preferred provider organiza-
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1 tion’ means an entity with a contract under sec2 tion 1857 that meets the requirements of this 

3 section applicable with respect to preferred pro4 vider organizations. 

5 ‘‘(B) PREFERRED PROVIDER ORGANIZA6 TION PLAN.—The term ‘preferred provider or7 ganization plan’ means a MedicareAdvantage 

8 plan that—

9 ‘‘(i) has a network of providers that 

10 have agreed to a contractually specified re11 imbursement for covered benefits with the 

12 organization offering the plan; 

13 ‘‘(ii) provides for reimbursement for 

14 all covered benefits regardless of whether 

15 such benefits are provided within such net16 work of providers; and 

17 ‘‘(iii) is offered by a preferred pro18 vider organization. 

19 ‘‘(C) PREFERRED PROVIDER REGION.—

20 The term ‘preferred provider region’ means—

21 ‘‘(i) a region established under para22 graph (3); and 

23 ‘‘(ii) a region that consists of the en24 tire United States. 
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1 ‘‘(3) PREFERRED PROVIDER REGIONS.—For 

2 purposes of this part the Secretary shall establish 

3 preferred provider regions as follows: 

4 ‘‘(A) There shall be at least 10 regions. 

5 ‘‘(B) Each region must include at least 1 

6 State. 

7 ‘‘(C) The Secretary may not divide States 

8 so that portions of the State are in different re9 gions. 

10 ‘‘(D) To the extent possible, the Secretary 

11 shall include multistate metropolitan statistical 

12 areas in a single region. The Secretary may di13 vide metropolitan statistical areas where it is 

14 necessary to establish regions of such size and 

15 geography as to maximize the participation of 

16 preferred provider organization plans. 

17 ‘‘(E) The Secretary may conform the pre18 ferred provider regions to the service areas es19 tablished under section 1860D–10.

20 ‘‘(b) ELIGIBILITY, ELECTION, AND ENROLLMENT; 

21 BENEFITS AND BENEFICIARY PROTECTIONS.—

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

23 succeeding provisions of this subsection, the provi24 sions of sections 1851 and 1852 that apply with re25 spect to coordinated care plans shall apply to pre-
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1 ferred provider organization plans offered by a pre2 ferred provider organization. 

3 ‘‘(2) SERVICE AREA.—The service area of a 

4 preferred provider organization plan shall be a pre5 ferred provider region.

6 ‘‘(3) AVAILABILITY.—Each preferred provider 

7 organization plan must be offered to each 

8 MedicareAdvantage eligible individual who resides in 

9 the service area of the plan. 

10 ‘‘(4) AUTHORITY TO PROHIBIT RISK SELEC11 TION.—The provisions of section 1852(a)(6) shall 

12 apply to preferred provider organization plans. 

13 ‘‘(5) ASSURING ACCESS TO SERVICES IN PRE14 FERRED PROVIDER ORGANIZATION PLANS.—

15 ‘‘(A) IN GENERAL.—In addition to any 

16 other requirements under this section, in the 

17 case of a preferred provider organization plan, 

18 the organization offering the plan must dem19 onstrate to the Secretary that the organization 

20 has sufficient number and range of health care 

21 professionals and providers willing to provide 

22 services under the terms of the plan. 

23 ‘‘(B) DETERMINATION OF SUFFICIENT AC24 CESS.—The Secretary shall find that an organi25 zation has met the requirement under subpara-
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1 graph (A) with respect to any category of 

2 health care professional or provider if, with re3 spect to that category of provider the plan has 

4 contracts or agreements with a sufficient num5 ber and range of providers within such category 

6 to provide covered services under the terms of 

7 the plan. 

8 ‘‘(C) CONSTRUCTION.—Subparagraph (B) 

9 shall not be construed as restricting the persons 

10 from whom enrollees under such a plan may ob11 tain covered benefits. 

12 ‘‘(c) PAYMENTS TO PREFERRED PROVIDER ORGANI13 ZATIONS.—

14 ‘‘(1) PAYMENTS TO ORGANIZATIONS.—

15 ‘‘(A) MONTHLY PAYMENTS.—

16 ‘‘(i) IN GENERAL.—Under a contract 

17 under section 1857 and subject to para18 graph (5), subsection (e), and section 

19 1859(e)(4), the Secretary shall make, to 

20 each preferred provider organization, with 

21 respect to coverage of an individual for a 

22 month under this part in a preferred pro23 vider region, separate monthly payments 

24 with respect to— 
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1 ‘‘(I) benefits under the original 

2 medicare fee-for-service program 

3 under parts A and B in accordance 

4 with paragraph (4); and 

5 ‘‘(II) benefits under the vol6 untary prescription drug program 

7 under part D in accordance with sec8 tion 1858A and the other provisions 

9 of this part. 

10 ‘‘(ii) SPECIAL RULE FOR END-STAGE

11 RENAL DISEASE.—The Secretary shall es12 tablish separate rates of payment applica13 ble with respect to classes of individuals 

14 determined to have end-stage renal disease 

15 and enrolled in a preferred provider orga16 nization plan under this clause that are 

17 similar to the separate rates of payment 

18 described in section 1853(a)(1)(B). 

19 ‘‘(B) ADJUSTMENT TO REFLECT NUMBER

20 OF ENROLLEES.—The Secretary may retro21 actively adjust the amount of payment under 

22 this paragraph in a manner that is similar to 

23 the manner in which payment amounts may be 

24 retroactively adjusted under section 1853(a)(2). 
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1 ‘‘(C) COMPREHENSIVE RISK ADJUSTMENT

2 METHODOLOGY.—The Secretary shall apply the 

3 comprehensive risk adjustment methodology de4 scribed in section 1853(a)(3)(B) to 100 percent 

5 of the amount of payments to plans under para6 graph (4)(D)(ii). 

7 ‘‘(D) ADJUSTMENT FOR SPENDING VARI8 ATIONS WITHIN A REGION.—The Secretary 

9 shall establish a methodology for adjusting the 

10 amount of payments to plans under paragraph 

11 (4)(D)(ii) that achieves the same objective as 

12 the adjustment described in paragraph 

13 1853(a)(2)(C). 

14 ‘‘(2) ANNUAL CALCULATION OF BENCHMARK

15 AMOUNTS FOR PREFERRED PROVIDER REGIONS.—

16 For each year (beginning in 2006), the Secretary 

17 shall calculate a benchmark amount for each pre18 ferred provider region for each month for such year 

19 with respect to coverage of the benefits available 

20 under the original medicare fee-for-service program 

21 option equal to the average of each benchmark 

22 amount calculated under section 1853(a)(4) for each 

23 MedicareAdvantage payment area for the year with24 in such region, weighted by the number of 
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1 MedicareAdvantage eligible individuals residing in 

2 each such payment area for the year. 

3 ‘‘(3) ANNUAL ANNOUNCEMENT OF PAYMENT

4 FACTORS.—

5 ‘‘(A) ANNUAL ANNOUNCEMENT.—Begin6 ning in 2005, at the same time as the Secretary 

7 publishes the risk adjusters under section 

8 1860D–11, the Secretary shall annually an9 nounce (in a manner intended to provide notice 

10 to interested parties) the following payment fac11 tors: 

12 ‘‘(i) The benchmark amount for each 

13 preferred provider region (as calculated 

14 under paragraph (2)(A)) for the year. 

15 ‘‘(ii) The factors to be used for ad16 justing payments described under—

17 ‘‘(I) the comprehensive risk ad18 justment methodology described in 

19 paragraph (1)(C) with respect to each 

20 preferred provider region for the year; 

21 and 

22 ‘‘(II) the methodology used for 

23 adjustment for geographic variations 

24 within such region established under 

25 paragraph (1)(D).
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1 ‘‘(B) ADVANCE NOTICE OF METHODO2 LOGICAL CHANGES.—At least 45 days before 

3 making the announcement under subparagraph 

4 (A) for a year, the Secretary shall—

5 ‘‘(i) provide for notice to preferred 

6 provider organizations of proposed changes 

7 to be made in the methodology from the 

8 methodology and assumptions used in the 

9 previous announcement; and 

10 ‘‘(ii) provide such organizations with 

11 an opportunity to comment on such pro12 posed changes. 

13 ‘‘(C) EXPLANATION OF ASSUMPTIONS.—In 

14 each announcement made under subparagraph 

15 (A), the Secretary shall include an explanation 

16 of the assumptions and changes in methodology 

17 used in the announcement in sufficient detail so 

18 that preferred provider organizations can com19 pute each payment factor described in such 

20 subparagraph. 

21 ‘‘(4) SECRETARY’S DETERMINATION OF PAY22 MENT AMOUNT FOR BENEFITS UNDER THE ORIGI23 NAL MEDICARE FEE-FOR-SERVICE PROGRAM.—The 

24 Secretary shall determine the payment amount for 

25 plans as follows: 
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1 ‘‘(A) REVIEW OF PLAN BIDS.—The Sec2 retary shall review each plan bid submitted 

3 under subsection (d)(1) for the coverage of ben4 efits under the original medicare fee-for-service 

5 program option to ensure that such bids are 

6 consistent with the requirements under this 

7 part and are based on the assumptions de8 scribed in section 1854(a)(2)(A)(iii) that the 

9 plan used with respect to numbers of enrolled 

10 individuals. 

11 ‘‘(B) DETERMINATION OF PREFERRED

12 PROVIDER REGIONAL BENCHMARK AMOUNTS.—

13 The Secretary shall calculate a preferred pro14 vider regional benchmark amount for that plan 

15 for the benefits under the original medicare fee16 for-service program option for each plan equal 

17 to the regional benchmark adjusted by using 

18 the assumptions described in section 

19 1854(a)(2)(A)(iii) that the plan used with re20 spect to numbers of enrolled individuals. 

21 ‘‘(C) COMPARISON TO BENCHMARK.—The 

22 Secretary shall determine the difference be23 tween each plan bid (as adjusted under sub24 paragraph (A)) and the preferred provider re25 gional benchmark amount (as determined under 
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1 subparagraph (B)) for purposes of deter2 mining—

3 ‘‘(i) the payment amount under sub4 paragraph (D); and 

5 ‘‘(ii) the additional benefits required 

6 and MedicareAdvantage monthly basic ben7 eficiary premiums. 

8 ‘‘(D) DETERMINATION OF PAYMENT

9 AMOUNT.—

10 ‘‘(i) IN GENERAL.—Subject to clause 

11 (ii), the Secretary shall determine the pay12 ment amount to a preferred provider orga13 nization for a preferred provider organiza14 tion plan as follows: 

15 ‘‘(I) BIDS THAT EQUAL OR EX16 CEED THE BENCHMARK.—In the case 

17 of a plan bid that equals or exceeds 

18 the preferred provider regional bench19 mark amount, the amount of each 

20 monthly payment to the organization 

21 with respect to each individual en22 rolled in a plan shall be the preferred 

23 provider regional benchmark amount. 

24 ‘‘(II) BIDS BELOW THE BENCH25 MARK.—In the case of a plan bid that 
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1 is less than the preferred provider re2 gional benchmark amount, the 

3 amount of each monthly payment to 

4 the organization with respect to each 

5 individual enrolled in a plan shall be 

6 the preferred provider regional bench7 mark amount reduced by the amount 

8 of any premium reduction elected by 

9 the plan under section 

10 1854(d)(1)(A)(i). 

11 ‘‘(ii) APPLICATION OF ADJUSTMENT

12 METHODOLOGIES.—The Secretary shall ad13 just the amounts determined under sub14 paragraph (A) using the factors described 

15 in paragraph (3)(A)(ii). 

16 ‘‘(E) FACTORS USED IN ADJUSTING BIDS

17 AND BENCHMARKS FOR PREFERRED PROVIDER

18 ORGANIZATIONS AND IN DETERMINING EN19 ROLLEE PREMIUMS.—Subject to subparagraph 

20 (F), in addition to the factors used to adjust 

21 payments to plans described in section 

22 1853(d)(6), the Secretary shall use the adjust23 ment for geographic variation within the region 

24 established under paragraph (1)(D). 
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1 ‘‘(F) ADJUSTMENT FOR NATIONAL COV2 ERAGE DETERMINATIONS AND LEGISLATIVE

3 CHANGES IN BENEFITS.—The Secretary shall 

4 provide for adjustments for national coverage 

5 determinations and legislative changes in bene6 fits applicable with respect to preferred provider 

7 organizations in the same manner as the Sec8 retary provides for adjustments under section 

9 1853(d)(7). 

10 ‘‘(5) PAYMENTS FROM TRUST FUND.—The pay11 ment to a preferred provider organization under this 

12 section shall be made from the Federal Hospital In13 surance Trust Fund and the Federal Supplementary 

14 Medical Insurance Trust Fund in a manner similar 

15 to the manner described in section 1853(g). 

16 ‘‘(6) SPECIAL RULE FOR CERTAIN INPATIENT

17 HOSPITAL STAYS.—Rules similar to the rules appli18 cable under section 1853(h) shall apply with respect 

19 to preferred provider organizations. 

20 ‘‘(7) SPECIAL RULE FOR HOSPICE CARE.—

21 Rules similar to the rules applicable under section 

22 1853(i) shall apply with respect to preferred pro23 vider organizations. 

24 ‘‘(d) SUBMISSION OF BIDS BY PPOS; PREMIUMS.—
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1 ‘‘(1) SUBMISSION OF BIDS BY PREFERRED PRO2 VIDER ORGANIZATIONS.—

3 ‘‘(A) IN GENERAL.—For the requirements 

4 on submissions by MedicareAdvantage preferred

5 provider organization plans, see section 

6 1854(a)(1). 

7 ‘‘(B) UNIFORM PREMIUMS.—Each bid 

8 amount submitted under subparagraph (A) for 

9 a preferred provider organization plan in a pre10 ferred provider region may not vary among 

11 MedicareAdvantage eligible individuals residing 

12 in such preferred provider region. 

13 ‘‘(C) APPLICATION OF FEHBP STANDARD; 

14 PROHIBITION ON PRICE GOUGING.—Each bid 

15 amount submitted under subparagraph (A) for 

16 a preferred provider organization plan must 

17 reasonably and equitably reflect the cost of ben18 efits provided under that plan. 

19 ‘‘(D) REVIEW.—The Secretary shall review 

20 the adjusted community rates (as defined in 

21 section 1854(g)(3)), the amounts of the 

22 MedicareAdvantage monthly basic premium and 

23 the MedicareAdvantage monthly beneficiary 

24 premium for enhanced medical benefits filed 

25 under this paragraph and shall approve or dis-
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1 approve such rates and amounts so submitted. 

2 The Secretary shall review the actuarial as3 sumptions and data used by the preferred pro4 vider organization with respect to such rates 

5 and amounts so submitted to determine the ap6 propriateness of such assumptions and data. 

7 ‘‘(E) AUTHORITY TO LIMIT NUMBER OF

8 PLANS IN A REGION.—If there are bids for 

9 more than 3 preferred provider organization 

10 plans in a preferred provider region, the Sec11 retary shall accept only the 3 lowest-cost cred12 ible bids for that region that meet or exceed the 

13 quality and minimum standards applicable 

14 under this section. 

15 ‘‘(2) MONTHLY PREMIUMS CHARGED.—The 

16 amount of the monthly premium charged to an indi17 vidual enrolled in a preferred provider organization 

18 plan offered by a preferred provider organization 

19 shall be equal to the sum of the following: 

20 ‘‘(A) The MedicareAdvantage monthly 

21 basic beneficiary premium, as defined in section 

22 1854(b)(2)(A) (if any). 

23 ‘‘(B) The MedicareAdvantage monthly ben24 eficiary premium for enhanced medical benefits, 

25 as defined in section 1854(b)(2)(C) (if any). 
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1 ‘‘(C) The MedicareAdvantage monthly obli2 gation for qualified prescription drug coverage, 

3 as defined in section 1854(b)(2)(B) (if any). 

4 ‘‘(3) DETERMINATION OF PREMIUM REDUC5 TIONS, REDUCED COST-SHARING, ADDITIONAL BENE6 FITS, AND BENEFICIARY PREMIUMS.—The rules for 

7 determining premium reductions, reduced cost-shar8 ing, additional benefits, and beneficiary premiums 

9 under section 1854(d) shall apply with respect to 

10 preferred provider organizations. 

11 ‘‘(4) PROHIBITION OF SEGMENTING PRE12 FERRED PROVIDER REGIONS.—The Secretary may 

13 not permit a preferred provider organization to elect 

14 to apply the provisions of this section uniformly to 

15 separate segments of a preferred provider region 

16 (rather than uniformly to an entire preferred pro17 vider region). 

18 ‘‘(e) PORTION OF TOTAL PAYMENTS TO AN ORGANI19 ZATION SUBJECT TO RISK FOR 2 YEARS.—

20 ‘‘(1) NOTIFICATION OF SPENDING UNDER THE

21 PLAN.—

22 ‘‘(A) IN GENERAL.—For 2007 and 2008, 

23 the preferred provider organization offering a 

24 preferred provider organization plan shall notify 

25 the Secretary of the total amount of costs that 
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1 the organization incurred in providing benefits 

2 covered under parts A and B of the original 

3 medicare fee-for-service program for all enroll4 ees under the plan in the previous year. 

5 ‘‘(B) CERTAIN EXPENSES NOT IN6 CLUDED.—The total amount of costs specified 

7 in subparagraph (A) may not include—

8 ‘‘(i) subject to subparagraph (C), ad9 ministrative expenses incurred in providing 

10 the benefits described in such subpara11 graph; or 

12 ‘‘(ii) amounts expended on providing 

13 enhanced medical benefits under section 

14 1852(a)(3)(D). 

15 ‘‘(C) ESTABLISHMENT OF ALLOWABLE AD16 MINISTRATIVE EXPENSES.—For purposes of ap17 plying subparagraph (B)(i), the administrative 

18 expenses incurred in providing benefits de19 scribed in subparagraph (A) under a preferred 

20 provider organization plan may not exceed an 

21 amount determined appropriate by the Adminis22 trator. 

23 ‘‘(2) ADJUSTMENT OF PAYMENT.—

24 ‘‘(A) NO ADJUSTMENT IF COSTS WITHIN

25 RISK CORRIDOR.—If the total amount of costs 
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1 specified in paragraph (1)(A) for the plan for 

2 the year are not more than the first threshold 

3 upper limit of the risk corridor (specified in 

4 paragraph (3)(A)(iii)) and are not less than the 

5 first threshold lower limit of the risk corridor 

6 (specified in paragraph (3)(A)(i)) for the plan 

7 for the year, then no additional payments shall 

8 be made by the Secretary and no reduced pay9 ments shall be made to the preferred provider 

10 organization offering the plan. 

11 ‘‘(B) INCREASE IN PAYMENT IF COSTS

12 ABOVE UPPER LIMIT OF RISK CORRIDOR.—

13 ‘‘(i) IN GENERAL.—If the total 

14 amount of costs specified in paragraph 

15 (1)(A) for the plan for the year are more 

16 than the first threshold upper limit of the 

17 risk corridor for the plan for the year, then 

18 the Secretary shall increase the total of the 

19 monthly payments made to the preferred 

20 provider organization offering the plan for 

21 the year under subsection (c)(1)(A) by an 

22 amount equal to the sum of—

23 ‘‘(I) 50 percent of the amount of 

24 such total costs which are more than 

25 such first threshold upper limit of the 
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1 risk corridor and not more than the 

2 second threshold upper limit of the 

3 risk corridor for the plan for the year 

4 (as specified under paragraph 

5 (3)(A)(iv)); and

6 ‘‘(II) 90 percent of the amount of 

7 such total costs which are more than 

8 such second threshold upper limit of 

9 the risk corridor. 

10 ‘‘(C) REDUCTION IN PAYMENT IF COSTS

11 BELOW LOWER LIMIT OF RISK CORRIDOR.—If 

12 the total amount of costs specified in paragraph 

13 (1)(A) for the plan for the year are less than 

14 the first threshold lower limit of the risk cor15 ridor for the plan for the year, then the Sec16 retary shall reduce the total of the monthly pay17 ments made to the preferred provider organiza18 tion offering the plan for the year under sub19 section (c)(1)(A) by an amount (or otherwise 

20 recover from the plan an amount) equal to—

21 ‘‘(i) 50 percent of the amount of such 

22 total costs which are less than such first 

23 threshold lower limit of the risk corridor 

24 and not less than the second threshold 

25 lower limit of the risk corridor for the plan 
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1 for the year (as specified under paragraph 

2 (3)(A)(ii)); and 

3 ‘‘(ii) 90 percent of the amount of such 

4 total costs which are less than such second 

5 threshold lower limit of the risk corridor. 

6 ‘‘(3) ESTABLISHMENT OF RISK CORRIDORS.—

7 ‘‘(A) IN GENERAL.—For 2006 and 2007, 

8 the Secretary shall establish a risk corridor for 

9 each preferred provider organization plan. The 

10 risk corridor for a plan for a year shall be equal 

11 to a range as follows: 

12 ‘‘(i) FIRST THRESHOLD LOWER

13 LIMIT.—The first threshold lower limit of 

14 such corridor shall be equal to—

15 ‘‘(I) the target amount described 

16 in subparagraph (B) for the plan; 

17 minus 

18 ‘‘(II) an amount equal to 5 per19 cent of such target amount. 

20 ‘‘(ii) SECOND THRESHOLD LOWER

21 LIMIT.—The second threshold lower limit 

22 of such corridor shall be equal to—

23 ‘‘(I) the target amount described 

24 in subparagraph (B) for the plan; 

25 minus 
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1 ‘‘(II) an amount equal to 10 per2 cent of such target amount. 

3 ‘‘(iii) FIRST THRESHOLD UPPER

4 LIMIT.—The first threshold upper limit of 

5 such corridor shall be equal to the sum 

6 of—

7 ‘‘(I) such target amount; and 

8 ‘‘(II) the amount described in 

9 clause (i)(II).

10 ‘‘(iv) SECOND THRESHOLD UPPER

11 LIMIT.—The second threshold upper limit 

12 of such corridor shall be equal to the sum 

13 of—

14 ‘‘(I) such target amount; and 

15 ‘‘(II) the amount described in 

16 clause (ii)(II). 

17 ‘‘(B) TARGET AMOUNT DESCRIBED.—The 

18 target amount described in this paragraph is, 

19 with respect to a preferred provider organiza20 tion plan offered by a preferred provider organi21 zation in a year, an amount equal to the sum 

22 of—

23 ‘‘(i) the total monthly payments made 

24 to the organization for enrollees in the 
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1 plan for the year under subsection 

2 (c)(1)(A); and 

3 ‘‘(ii) the total MedicareAdvantage 

4 basic beneficiary premiums collected for 

5 such enrollees for the year under sub6 section (d)(2)(A). 

7 ‘‘(4) PLANS AT RISK FOR ENTIRE AMOUNT OF

8 ENHANCED MEDICAL BENEFITS.—A preferred pro9 vider organization that offers a preferred provider 

10 organization plan that provides enhanced medical 

11 benefits under section 1852(a)(3)(D) shall be at full 

12 financial risk for the provision of such benefits. 

13 ‘‘(5) NO EFFECT ON ELIGIBLE BENE14 FICIARIES.—No change in payments made by reason 

15 of this subsection shall affect the amount of the 

16 MedicareAdvantage basic beneficiary premium that a 

17 beneficiary is otherwise required to pay under the 

18 plan for the year under subsection (d)(2)(A). 

19 ‘‘(6) DISCLOSURE OF INFORMATION.—The pro20 visions of section 1860D–16(b)(7), including sub21 paragraph (B) of such section, shall apply to a pre22 ferred provider organization and a preferred pro23 vider organization plan in the same manner as such 

24 provisions apply to an eligible entity and a Medicare 

25 Prescription Drug plan under part D. 
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1 ‘‘(f) ORGANIZATIONAL AND FINANCIAL REQUIRE2 MENTS FOR PREFERRED PROVIDER ORGANIZATIONS.—A 

3 preferred provider organization shall be organized and li4 censed under State law as a risk-bearing entity eligible 

5 to offer health insurance or health benefits coverage in 

6 each State within the preferred provider region in which 

7 it offers a preferred provider organization plan. 

8 ‘‘(g) INAPPLICABILITY OF PROVIDER-SPONSORED

9 ORGANIZATION SOLVENCY STANDARDS.—The require10 ments of section 1856 shall not apply with respect to pre11 ferred provider organizations. 

12 ‘‘(h) CONTRACTS WITH PREFERRED PROVIDER OR13 GANIZATIONS.—The provisions of section 1857 shall apply 

14 to a preferred provider organization plan offered by a pre15 ferred provider organization under this section.’’. 

16 (c) PREFERRED PROVIDER TERMINOLOGY DE17 FINED.—Section 1859(a) is amended by adding at the end 

18 the following new paragraph: 

19 ‘‘(3) PREFERRED PROVIDER ORGANIZATION; 

20 PREFERRED PROVIDER ORGANIZATION PLAN; PRE21 FERRED PROVIDER REGION.—The terms ‘preferred 

22 provider organization’, ‘preferred provider organiza23 tion plan’, and ‘preferred provider region’ have the 

24 meaning given such terms in section 1858(a)(2).’’. 
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1 Subtitle C—Other Managed Care 

2 Reforms 

3 SEC. 221. EXTENSION OF REASONABLE COST CONTRACTS. 

4 (a) FIVE-YEAR EXTENSION.—Section 1876(h)(5)(C) 

5 (42 U.S.C. 1395mm(h)(5)(C)) is amended by striking 

6 ‘‘2004’’ and inserting ‘‘2009’’. 

7 (b) APPLICATION OF CERTAIN MEDICARE+CHOICE

8 REQUIREMENTS TO COST CONTRACTS EXTENDED OR RE9 NEWED AFTER 2003.—Section 1876(h) (42 U.S.C. 

10 1395mm(h)(5)), as amended by subsection (a), is amend11 ed—

12 (1) by redesignating paragraph (5) as para13 graph (6); and 

14 (2) by inserting after paragraph (4) the fol15 lowing new paragraph:

16 ‘‘(5) Any reasonable cost reimbursement contract 

17 with an eligible organization under this subsection that is 

18 extended or renewed on or after the date of enactment 

19 of the Prescription Drug and Medicare Improvements Act 

20 of 2003 for plan years beginning on or after January 1, 

21 2004, shall provide that the following provisions of the 

22 Medicare+Choice program under part C (and, on and 

23 after January 1, 2006, the provisions of the 

24 MedicareAdvantage program under such part) shall apply 

25 to such organization and such contract in a substantially 
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1 similar manner as such provisions apply to 

2 Medicare+Choice organizations and Medicare+Choice 

3 plans (or, on and after January 1, 2006, 

4 MedicareAdvantage organizations and MedicareAdvantage 

5 plans, respectively) under such part: 

6 ‘‘(A) Paragraph (1) of section 1852(e) (relating 

7 to the requirement of having an ongoing quality as8 surance program) and paragraph (2)(B) of such sec9 tion (relating to the required elements for such a 

10 program).

11 ‘‘(B) Section 1852(j)(4) (relating to limitations 

12 on physician incentive plans). 

13 ‘‘(C) Section 1854(c) (relating to the require14 ment of uniform premiums among individuals en15 rolled in the plan). 

16 ‘‘(D) Section 1854(g), or, on and after January 

17 1, 2006, section 1854(h) (relating to restrictions on 

18 imposition of premium taxes with respect to pay19 ments to organizations). 

20 ‘‘(E) Section 1856(b) (regarding compliance 

21 with the standards established by regulation pursu22 ant to such section, including the provisions of para23 graph (3) of such section relating to relation to 

24 State laws). 
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1 ‘‘(F) Section 1852(a)(3)(A) (regarding the au2 thority of organizations to include supplemental 

3 health care benefits and, on and after January 1, 

4 2006, enhanced medical benefits under the plan sub5 ject to the approval of the Secretary). 

6 ‘‘(G) The provisions of part C relating to 

7 timelines for benefit filings, contract renewal, and 

8 beneficiary notification. 

9 ‘‘(H) Section 1854(e), or, on and after January 

10 1, 2006, section 1854(f) (relating to proposed cost11 sharing under the contract being subject to review 

12 by the Secretary).’’. 

13 (c) PERMITTING DEDICATED GROUP PRACTICE

14 HEALTH MAINTENANCE ORGANIZATIONS TO PARTICIPATE

15 IN THE MEDICARE COST CONTRACT PROGRAM.—Section 

16 1876(h)(6) of the Social Security Act (42 U.S.C. 

17 1395mm(h)(6)), as redesignated and amended by sub18 sections (a) and (b), is amended—

19 (1) in subparagraph (A), by striking ‘‘After the 

20 date of the enactment’’ and inserting ‘‘Except as 

21 provided in subparagraph (C), after the date of the 

22 enactment’’; 

23 (2) in subparagraph (B), by striking ‘‘subpara24 graph (C)’’ and inserting ‘‘subparagraph (D)’’; 
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1 (3) by redesignating subparagraph (C) as sub2 paragraph (D); and 

3 (4) by inserting after subparagraph (B), the 

4 following new subparagraph: 

5 ‘‘(C) Subject to paragraph (5) and subparagraph 

6 (D), the Secretary shall approve an application to enter 

7 into a reasonable cost contract under this section if—

8 ‘‘(i) the application is submitted to the Sec9 retary by a health maintenance organization (as de10 fined in section 1301(a) of the Public Health Service 

11 Act) that, as of January 1, 2004, and except as pro12 vided in section 1301(b)(3)(B) of such Act, provides 

13 at least 85 percent of the services of a physician 

14 which are provided as basic health services through 

15 a medical group (or groups), as defined in section 

16 1302(4) of such Act; and 

17 ‘‘(ii) the Secretary determines that the organi18 zation meets the requirements applicable to such or19 ganizations and contracts under this section.’’. 

20 SEC. 222. SPECIALIZED MEDICARE+CHOICE PLANS FOR 

21 SPECIAL NEEDS BENEFICIARIES. 

22 (a) TREATMENT AS COORDINATED CARE PLAN.—

23 Section 1851(a)(2)(A) (42 U.S.C. 1395w–21(a)(2)(A)) is 

24 amended by adding at the end the following new sentence: 

25 ‘‘Specialized Medicare+Choice plans for special needs 
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1 beneficiaries (as defined in section 1859(b)(4)) may be 

2 any type of coordinated care plan.’’. 

3 (b) SPECIALIZED MEDICARE+CHOICE PLAN FOR

4 SPECIAL NEEDS BENEFICIARIES DEFINED.—Section 

5 1859(b) (42 U.S.C. 1395w–28(b)) is amended by adding 

6 at the end the following new paragraph: 

7 ‘‘(4) SPECIALIZED MEDICARE+CHOICE PLANS

8 FOR SPECIAL NEEDS BENEFICIARIES.—

9 ‘‘(A) IN GENERAL.—The term ‘specialized 

10 Medicare+Choice plan for special needs bene11 ficiaries’ means a Medicare+Choice plan that 

12 exclusively serves special needs beneficiaries (as 

13 defined in subparagraph (B)). 

14 ‘‘(B) SPECIAL NEEDS BENEFICIARY.—The 

15 term ‘special needs beneficiary’ means a 

16 Medicare+Choice eligible individual who—

17 ‘‘(i) is institutionalized (as defined by 

18 the Secretary); 

19 ‘‘(ii) is entitled to medical assistance 

20 under a State plan under title XIX; or 

21 ‘‘(iii) meets such requirements as the 

22 Secretary may determine would benefit 

23 from enrollment in such a specialized 

24 Medicare+Choice plan described in sub-
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1 paragraph (A) for individuals with severe 

2 or disabling chronic conditions.’’. 

3 (c) RESTRICTION ON ENROLLMENT PERMITTED.—

4 Section 1859 (42 U.S.C. 1395w–28) is amended by add5 ing at the end the following new subsection: 

6 ‘‘(f) RESTRICTION ON ENROLLMENT FOR SPECIAL7 IZED MEDICARE+CHOICE PLANS FOR SPECIAL NEEDS

8 BENEFICIARIES.—In the case of a specialized 

9 Medicare+Choice plan (as defined in subsection (b)(4)), 

10 notwithstanding any other provision of this part and in 

11 accordance with regulations of the Secretary and for peri12 ods before January 1, 2008, the plan may restrict the en13 rollment of individuals under the plan to individuals who 

14 are within 1 or more classes of special needs bene15 ficiaries.’’. 

16 (d) REPORT TO CONGRESS.—Not later than Decem17 ber 31, 2006, the Secretary shall submit to Congress a 

18 report that assesses the impact of specialized 

19 Medicare+Choice plans for special needs beneficiaries on 

20 the cost and quality of services provided to enrollees. Such 

21 report shall include an assessment of the costs and savings 

22 to the medicare program as a result of amendments made 

23 by subsections (a), (b), and (c). 

24 (e) EFFECTIVE DATES.—
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1 (1) IN GENERAL.—The amendments made by 

2 subsections (a), (b), and (c) shall take effect on the 

3 date of enactment of this Act. 

4 (2) DEADLINE FOR ISSUANCE OF REQUIRE5 MENTS FOR SPECIAL NEEDS BENEFICIARIES; TRAN6 SITION.—No later than 1 year after the date of en7 actment of this Act, the Secretary shall issue final 

8 regulations to establish requirements for special 

9 needs beneficiaries under section 1859(b)(4)(B)(iii) 

10 of the Social Security Act, as added by subsection 

11 (b). 

12 SEC. 223. PAYMENT BY PACE PROVIDERS FOR MEDICARE 

13 AND MEDICAID SERVICES FURNISHED BY 

14 NONCONTRACT PROVIDERS. 

15 (a) MEDICARE SERVICES.—

16 (1) MEDICARE SERVICES FURNISHED BY PRO17 VIDERS OF SERVICES.—Section 1866(a)(1)(O) (42 

18 U.S.C. 1395cc(a)(1)(O)) is amended—

19 (A) by striking ‘‘part C or’’ and inserting 

20 ‘‘part C, with a PACE provider under section 

21 1894 or 1934, or’’; 

22 (B) by striking ‘‘(i)’’; 

23 (C) by striking ‘‘and (ii)’’; and 

24 (D) by striking ‘‘members of the organiza25 tion’’ and inserting ‘‘members of the organiza-
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1 tion or PACE program eligible individuals en2 rolled with the PACE provider,’’.

3 (2) MEDICARE SERVICES FURNISHED BY PHYSI4 CIANS AND OTHER ENTITIES.—Section 1894(b) (42 

5 U.S.C. 1395eee(b)) is amended by adding at the end 

6 the following new paragraphs: 

7 ‘‘(3) TREATMENT OF MEDICARE SERVICES FUR8 NISHED BY NONCONTRACT PHYSICIANS AND OTHER

9 ENTITIES.—

10 ‘‘(A) APPLICATION OF MEDICARE+CHOICE

11 REQUIREMENT WITH RESPECT TO MEDICARE

12 SERVICES FURNISHED BY NONCONTRACT PHY13 SICIANS AND OTHER ENTITIES.—Section 

14 1852(k)(1) (relating to limitations on balance 

15 billing against Medicare+Choice organizations 

16 for noncontract physicians and other entities 

17 with respect to services covered under this title) 

18 shall apply to PACE providers, PACE program 

19 eligible individuals enrolled with such PACE 

20 providers, and physicians and other entities 

21 that do not have a contract establishing pay22 ment amounts for services furnished to such an 

23 individual in the same manner as such section 

24 applies to Medicare+Choice organizations, indi25 viduals enrolled with such organizations, and 
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1 physicians and other entities referred to in such 

2 section. 

3 ‘‘(B) REFERENCE TO RELATED PROVISION

4 FOR NONCONTRACT PROVIDERS OF SERVICES.—

5 For the provision relating to limitations on bal6 ance billing against PACE providers for serv7 ices covered under this title furnished by non8 contract providers of services, see section 

9 1866(a)(1)(O). 

10 ‘‘(4) REFERENCE TO RELATED PROVISION FOR

11 SERVICES COVERED UNDER TITLE XIX BUT NOT

12 UNDER THIS TITLE.—For provisions relating to limi13 tations on payments to providers participating under 

14 the State plan under title XIX that do not have a 

15 contract with a PACE provider establishing payment 

16 amounts for services covered under such plan (but 

17 not under this title) when such services are fur18 nished to enrollees of that PACE provider, see sec19 tion 1902(a)(66).’’. 

20 (b) MEDICAID SERVICES.—

21 (1) REQUIREMENT UNDER STATE PLAN.—Sec22 tion 1902(a) (42 U.S.C. 1396a(a)) is amended—

23 (A) in paragraph (64), by striking ‘‘and’’ 

24 at the end; 
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1 (B) in paragraph (65), by striking the pe2 riod at the end and inserting ‘‘; and’’; and 

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

4 following new paragraph: 

5 ‘‘(66) provide, with respect to services cov6 ered under the State plan (but not under title 

7 XVIII) that are furnished to a PACE program 

8 eligible individual enrolled with a PACE pro9 vider by a provider participating under the 

10 State plan that does not have a contract with 

11 the PACE provider that establishes payment 

12 amounts for such services, that such partici13 pating provider may not require the PACE pro14 vider to pay the participating provider an 

15 amount greater than the amount that would 

16 otherwise be payable for the service to the par17 ticipating provider under the State plan for the 

18 State where the PACE provider is located (in 

19 accordance with regulations issued by the Sec20 retary).’’. 

21 (2) REFERENCE IN MEDICAID STATUTE.—Sec22 tion 1934(b) (42 U.S.C. 1396u–4(b)) is amended by 

23 adding at the end the following new paragraphs: 
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1 ‘‘(3) TREATMENT OF MEDICARE SERVICES FUR2 NISHED BY NONCONTRACT PHYSICIANS AND OTHER

3 ENTITIES.—

4 ‘‘(A) APPLICATION OF MEDICARE+CHOICE

5 REQUIREMENT WITH RESPECT TO MEDICARE

6 SERVICES FURNISHED BY NONCONTRACT PHY7 SICIANS AND OTHER ENTITIES.—Section 

8 1852(k)(1) (relating to limitations on balance 

9 billing against Medicare+Choice organizations 

10 for noncontract physicians and other entities 

11 with respect to services covered under title 

12 XVIII) shall apply to PACE providers, PACE 

13 program eligible individuals enrolled with such 

14 PACE providers, and physicians and other enti15 ties that do not have a contract establishing 

16 payment amounts for services furnished to such 

17 an individual in the same manner as such sec18 tion applies to Medicare+Choice organizations, 

19 individuals enrolled with such organizations, 

20 and physicians and other entities referred to in 

21 such section. 

22 ‘‘(B) REFERENCE TO RELATED PROVISION

23 FOR NONCONTRACT PROVIDERS OF SERVICES.—

24 For the provision relating to limitations on bal25 ance billing against PACE providers for serv-
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1 ices covered under title XVIII furnished by non2 contract providers of services, see section 

3 1866(a)(1)(O). 

4 ‘‘(4) REFERENCE TO RELATED PROVISION FOR

5 SERVICES COVERED UNDER THIS TITLE BUT NOT

6 UNDER TITLE XVIII.—For provisions relating to lim7 itations on payments to providers participating 

8 under the State plan under this title that do not 

9 have a contract with a PACE provider establishing 

10 payment amounts for services covered under such 

11 plan (but not under title XVIII) when such services 

12 are furnished to enrollees of that PACE provider, 

13 see section 1902(a)(66).’’. 

14 (c) EFFECTIVE DATE.—The amendments made by 

15 this section shall apply to services furnished on or after 

16 January 1, 2004.

17 SEC. 224. INSTITUTE OF MEDICINE EVALUATION AND RE18 PORT ON HEALTH CARE PERFORMANCE 

19 MEASURES. 

20 (a) EVALUATION.—

21 (1) IN GENERAL.—Not later than the date that 

22 is 2 months after the date of enactment of this Act, 

23 the Secretary of Health and Human Services shall 

24 enter into an arrangement under which the Institute 

25 of Medicine of the National Academy of Sciences (in 
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1 this section referred to as the ‘‘Institute’’) shall con2 duct an evaluation of leading health care perform3 ance measures and options to implement policies 

4 that align performance with payment under the 

5 medicare program under title XVIII of the Social 

6 Security Act (42 U.S.C. 1395 et seq.). 

7 (2) SPECIFIC MATTERS EVALUATED.—In con8 ducting the evaluation under paragraph (1), the In9 stitute shall—

10 (A) catalogue, review, and evaluate the va11 lidity of leading health care performance meas12 ures; 

13 (B) catalogue and evaluate the success and 

14 utility of alternative performance incentive pro15 grams in public or private sector settings; and 

16 (C) identify and prioritize options to imple17 ment policies that align performance with pay18 ment under the medicare program that indi19 cate— 

20 (i) the performance measurement set 

21 to be used and how that measurement set 

22 will be updated; 

23 (ii) the payment policy that will re24 ward performance; and 
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1 (iii) the key implementation issues 

2 (such as data and information technology 

3 requirements) that must be addressed. 

4 (3) SCOPE OF HEALTH CARE PERFORMANCE

5 MEASURES.—The health care performance measures 

6 described in paragraph (2)(A) shall encompass a va7 riety of perspectives, including physicians, hospitals, 

8 health plans, purchasers, and consumers. 

9 (4) CONSULTATION WITH MEDPAC.—In evalu10 ating the matters described in paragraph (2)(C), the 

11 Institute shall consult with the Medicare Payment 

12 Advisory Commission established under section 1805 

13 of the Social Security Act (42 U.S.C. 1395b–6). 

14 (b) REPORT.—Not later than the date that is 18 

15 months after the date of enactment of this Act, the Insti16 tute shall submit to the Secretary of Health and Human 

17 Services, the Committees on Ways and Means and Energy 

18 and Commerce of the House of Representatives, and the 

19 Committee on Finance of the Senate a report on the eval20 uation conducted under subsection (a)(1) describing the 

21 findings of such evaluation and recommendations for an 

22 overall strategy and approach for aligning payment with 

23 performance in the original medicare fee-for-service pro24 gram under parts A and B of title XVIII of the Social 

25 Security Act, the Medicare+Choice program under part 
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1 C of such title, and any other programs under such title 

2 XVIII. 

3 (c) AUTHORIZATION OF APPROPRIATIONS.—There 

4 are authorized to be appropriated $1,000,000 for purposes 

5 of conducting the evaluation and preparing the report re6 quired by this section.

7 SEC. 225. EXPANDING THE WORK OF MEDICARE QUALITY 

8 IMPROVEMENT ORGANIZATIONS TO INCLUDE 

9 PARTS C AND D. 

10 (a) APPLICATION TO MEDICARE MANAGED CARE

11 AND PRESCRIPTION DRUG COVERAGE.—Section 

12 1154(a)(1) (42 U.S.C. 1320c–3(a)(1)) is amended by in13 serting ‘‘, Medicare+Choice organizations and 

14 MedicareAdvantage organizations under part C, and pre15 scription drug card sponsors and eligible entities under 

16 part D’’ after ‘‘under section 1876’’. 

17 (b) PRESCRIPTION DRUG THERAPY QUALITY IM18 PROVEMENT.—Section 1154(a) (42 U.S.C. 1320c–3(a)) is 

19 amended by adding at the end the following new para20 graph: 

21 ‘‘(17) The organization shall execute its respon22 sibilities under subparagraphs (A) and (B) of para23 graph (1) by offering to providers, practitioners, pre24 scription drug card sponsors and eligible entities 

25 under part D, and Medicare+Choice and 
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1 MedicareAdvantage plans under part C quality im2 provement assistance pertaining to prescription drug 

3 therapy. For purposes of this part and title XVIII, 

4 the functions described in this paragraph shall be 

5 treated as a review function.’’. 

6 (c) EFFECTIVE DATE.—The amendments made by 

7 this section shall apply on and after January 1, 2004.

8 TITLE III—CENTER FOR 

9 MEDICARE CHOICES 

10 SEC. 301. ESTABLISHMENT OF THE CENTER FOR MEDICARE 

11 CHOICES. 

12 (a) IN GENERAL.—Title XVIII (42 U.S.C. 1395 et 

13 seq.), as amended by section 111, is amended by inserting 

14 after 1806 the following new section: 

15 ‘‘ESTABLISHMENT OF THE CENTER FOR MEDICARE

16 CHOICES

17 ‘‘SEC. 1808. (a) ESTABLISHMENT.—By not later 

18 than March 1, 2004, the Secretary shall establish within 

19 the Department of Health and Human Services the Center 

20 for Medicare Choices, which shall be separate from the 

21 Centers for Medicare and Medicaid Services. 

22 ‘‘(b) ADMINISTRATOR AND DEPUTY ADMINIS23 TRATOR.—

24 ‘‘(1) ADMINISTRATOR.—

25 ‘‘(A) IN GENERAL.—The Center for Medi26 care Choices shall be headed by an Adminis-
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1 trator (in this section referred to as the ‘Ad2 ministrator’) who shall be appointed by the 

3 President, by and with the advice and consent 

4 of the Senate. The Administrator shall report 

5 directly to the Secretary. 

6 ‘‘(B) COMPENSATION.—The Administrator 

7 shall be paid at the rate of basic pay payable 

8 for level III of the Executive Schedule under 

9 section 5314 of title 5, United States Code.

10 ‘‘(C) TERM OF OFFICE.—The Adminis11 trator shall be appointed for a term of 5 years. 

12 In any case in which a successor does not take 

13 office at the end of an Administrator’s term of 

14 office, that Administrator may continue in of15 fice until the entry upon office of such a suc16 cessor. An Administrator appointed to a term of 

17 office after the commencement of such term 

18 may serve under such appointment only for the 

19 remainder of such term. 

20 ‘‘(D) GENERAL AUTHORITY.—The Admin21 istrator shall be responsible for the exercise of 

22 all powers and the discharge of all duties of the 

23 Center for Medicare Choices, and shall have au24 thority and control over all personnel and ac25 tivities thereof. 
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1 ‘‘(E) RULEMAKING AUTHORITY.—The Ad2 ministrator may prescribe such rules and regu3 lations as the Administrator determines nec4 essary or appropriate to carry out the functions 

5 of the Center for Medicare Choices. The regula6 tions prescribed by the Administrator shall be 

7 subject to the rulemaking procedures estab8 lished under section 553 of title 5, United 

9 States Code. 

10 ‘‘(F) AUTHORITY TO ESTABLISH ORGANI11 ZATIONAL UNITS.—The Administrator may es12 tablish, alter, consolidate, or discontinue such 

13 organizational units or components within the 

14 Center for Medicare Choices as the Adminis15 trator considers necessary or appropriate, ex16 cept that this subparagraph shall not apply 

17 with respect to any unit, component, or provi18 sion provided for by this section.

19 ‘‘(G) AUTHORITY TO DELEGATE.—The Ad20 ministrator may assign duties, and delegate, or 

21 authorize successive redelegations of, authority 

22 to act and to render decisions, to such officers 

23 and employees of the Center for Medicare 

24 Choices as the Administrator may find nec25 essary. Within the limitations of such delega-
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1 tions, redelegations, or assignments, all official 

2 acts and decisions of such officers and employ3 ees shall have the same force and effect as 

4 though performed or rendered by the Adminis5 trator. 

6 ‘‘(2) DEPUTY ADMINISTRATOR.—

7 ‘‘(A) IN GENERAL.—There shall be a Dep8 uty Administrator of the Center for Medicare 

9 Choices who shall be appointed by the Adminis10 trator. 

11 ‘‘(B) COMPENSATION.—The Deputy Ad12 ministrator shall be paid at the rate of basic 

13 pay payable for level IV of the Executive Sched14 ule under section 5315 of title 5, United States 

15 Code. 

16 ‘‘(C) TERM OF OFFICE.—The Deputy Ad17 ministrator shall be appointed for a term of 5 

18 years. In any case in which a successor does not 

19 take office at the end of a Deputy Administra20 tor’s term of office, such Deputy Administrator 

21 may continue in office until the entry upon of22 fice of such a successor. A Deputy Adminis23 trator appointed to a term of office after the 

24 commencement of such term may serve under 
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1 such appointment only for the remainder of 

2 such term. 

3 ‘‘(D) DUTIES.—The Deputy Administrator 

4 shall perform such duties and exercise such 

5 powers as the Administrator shall from time to 

6 time assign or delegate. The Deputy Adminis7 trator shall be the Acting Administrator of the 

8 Center for Medicare Choices during the absence 

9 or disability of the Administrator and, unless 

10 the President designates another officer of the 

11 Government as Acting Administrator, in the 

12 event of a vacancy in the office of the Adminis13 trator. 

14 ‘‘(3) SECRETARIAL COORDINATION OF PROGRAM

15 ADMINISTRATION.—The Secretary shall ensure ap16 propriate coordination between the Administrator 

17 and the Administrator of the Centers for Medicare 

18 and Medicaid Services in carrying out the programs 

19 under this title. 

20 ‘‘(c) DUTIES; ADMINISTRATIVE PROVISIONS.—

21 ‘‘(1) DUTIES.—

22 ‘‘(A) GENERAL DUTIES.—The Adminis23 trator shall carry out parts C and D, includ24 ing—
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1 ‘‘(i) negotiating, entering into, and en2 forcing, contracts with plans for the offer3 ing of MedicareAdvantage plans under 

4 part C, including the offering of qualified 

5 prescription drug coverage under such 

6 plans; and 

7 ‘‘(ii) negotiating, entering into, and 

8 enforcing, contracts with eligible entities 

9 for the offering of Medicare Prescription 

10 Drug plans under part D. 

11 ‘‘(B) OTHER DUTIES.—The Administrator 

12 shall carry out any duty provided for under 

13 part C or D, including duties relating to—

14 ‘‘(i) reasonable cost contracts with eli15 gible organizations under section 1876(h); 

16 and 

17 ‘‘(ii) demonstration projects carried 

18 out in part or in whole under such parts, 

19 including the demonstration project carried 

20 out through a MedicareAdvantage (for21 merly Medicare+Choice) project that dem22 onstrates the application of capitation pay23 ment rates for frail elderly medicare bene24 ficiaries through the use of an interdiscipli25 nary team and through the provision of 
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1 primary care services to such beneficiaries 

2 by means of such a team at the nursing fa3 cility involved. 

4 ‘‘(C) NONINTERFERENCE.—In order to 

5 promote competition under parts C and D, the 

6 Administrator, in carrying out the duties re7 quired under this section, may not, to the ex8 tent possible, interfere in any way with negotia9 tions between eligible entities, 

10 MedicareAdvantage organizations, hospitals, 

11 physicians, other entities or individuals fur12 nishing items and services under this title (in13 cluding contractors for such items and serv14 ices), and drug manufacturers, wholesalers, or 

15 other suppliers of covered drugs. 

16 ‘‘(D) ANNUAL REPORTS.—Not later than 

17 March 31 of each year, the Administrator shall 

18 submit to Congress and the President a report 

19 on the administration of the voluntary prescrip20 tion drug delivery program under this part dur21 ing the previous fiscal year. 

22 ‘‘(2) MANAGEMENT STAFF.—

23 ‘‘(A) IN GENERAL.—The Administrator, 

24 with the approval of the Secretary, may employ, 

25 such management staff as determined appro-
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1 priate. Any such manager shall be required to 

2 have demonstrated, by their education and ex3 perience (either in the public or private sector), 

4 superior expertise in the following areas:

5 ‘‘(i) The review, negotiation, and ad6 ministration of health care contracts. 

7 ‘‘(ii) The design of health care benefit 

8 plans. 

9 ‘‘(iii) Actuarial sciences. 

10 ‘‘(iv) Compliance with health plan 

11 contracts. 

12 ‘‘(v) Consumer education and decision 

13 making. 

14 ‘‘(B) COMPENSATION.—

15 ‘‘(i) IN GENERAL.—Subject to clause 

16 (ii), the Administrator shall establish the 

17 rate of pay for an individual employed 

18 under subparagraph (A). 

19 ‘‘(ii) MAXIMUM RATE.—In no case 

20 may the rate of compensation determined 

21 under clause (i) exceed the highest rate of 

22 basic pay for the Senior Executive Service 

23 under section 5382(b) of title 5, United 

24 States Code.
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1 ‘‘(3) REDELEGATION OF CERTAIN FUNCTIONS

2 OF THE CENTERS FOR MEDICARE AND MEDICAID

3 SERVICES.—

4 ‘‘(A) IN GENERAL.—The Secretary, the 

5 Administrator of the Center for Medicare 

6 Choices, and the Administrator of the Centers 

7 for Medicare and Medicaid Services shall estab8 lish an appropriate transition of responsibility 

9 in order to redelegate the administration of part 

10 C from the Secretary and the Administrator of 

11 the Centers for Medicare and Medicaid Services 

12 to the Administrator of the Center for Medicare 

13 Choices as is appropriate to carry out the pur14 poses of this section. 

15 ‘‘(B) TRANSFER OF DATA AND INFORMA16 TION.—The Secretary shall ensure that the Ad17 ministrator of the Centers for Medicare and 

18 Medicaid Services transfers to the Adminis19 trator such information and data in the posses20 sion of the Administrator of the Centers for 

21 Medicare and Medicaid Services as the Admin22 istrator requires to carry out the duties de23 scribed in paragraph (1). 

24 ‘‘(C) CONSTRUCTION.—Insofar as a re25 sponsibility of the Secretary or the Adminis-
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1 trator of the Centers for Medicare and Medicaid 

2 Services is redelegated to the Administrator 

3 under this section, any reference to the Sec4 retary or the Administrator of the Centers for 

5 Medicare and Medicaid Services in this title or 

6 title XI with respect to such responsibility is 

7 deemed to be a reference to the Administrator. 

8 ‘‘(d) OFFICE OF BENEFICIARY ASSISTANCE.—

9 ‘‘(1) ESTABLISHMENT.—The Secretary shall es10 tablish within the Center for Medicare Choices an 

11 Office of Beneficiary Assistance to carry out func12 tions relating to medicare beneficiaries under this 

13 title, including making determinations of eligibility 

14 of individuals for benefits under this title, providing 

15 for enrollment of medicare beneficiaries under this 

16 title, and the functions described in paragraph (2). 

17 The Office shall be a separate operating division 

18 within the Center for Medicare Choices. 

19 ‘‘(2) DISSEMINATION OF INFORMATION ON

20 BENEFITS AND APPEALS RIGHTS.—

21 ‘‘(A) DISSEMINATION OF BENEFITS INFOR22 MATION.—The Office of Beneficiary Assistance 

23 shall disseminate to medicare beneficiaries, by 

24 mail, by posting on the Internet site of the Cen25 ter for Medicare Choices, and through the toll-
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1 free telephone number provided for under sec2 tion 1804(b), information with respect to the 

3 following: 

4 ‘‘(i) Benefits, and limitations on pay5 ment (including cost-sharing, stop-loss pro6 visions, and formulary restrictions) under 

7 parts C and D. 

8 ‘‘(ii) Benefits, and limitations on pay9 ment under parts A, and B, including in10 formation on medicare supplemental poli11 cies under section 1882. 

12 ‘‘(iii) Other areas determined to be 

13 appropriate by the Administrator. 

14 Such information shall be presented in a man15 ner so that medicare beneficiaries may compare 

16 benefits under parts A, B, and D, and medicare 

17 supplemental policies with benefits under 

18 MedicareAdvantage plans under part C.

19 ‘‘(B) DISSEMINATION OF APPEALS RIGHTS

20 INFORMATION.—The Office of Beneficiary As21 sistance shall disseminate to medicare bene22 ficiaries in the manner provided under subpara23 graph (A) a description of procedural rights (in24 cluding grievance and appeals procedures) of 

25 beneficiaries under the original medicare fee-
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1 for-service program under parts A and B, the 

2 MedicareAdvantage program under part C, and 

3 the voluntary prescription drug delivery pro4 gram under part D. 

5 ‘‘(3) MEDICARE OMBUDSMAN.—

6 ‘‘(A) IN GENERAL.—Within the Office of 

7 Beneficiary Assistance, there shall be a Medi8 care Ombudsman, appointed by the Secretary 

9 from among individuals with expertise and ex10 perience in the fields of health care and advo11 cacy, to carry out the duties described in sub12 paragraph (B). 

13 ‘‘(B) DUTIES.—The Medicare Ombudsman 

14 shall—

15 ‘‘(i) receive complaints, grievances, 

16 and requests for information submitted by 

17 a medicare beneficiary, with respect to any 

18 aspect of the medicare program; 

19 ‘‘(ii) provide assistance with respect to 

20 complaints, grievances, and requests re21 ferred to in clause (i), including—

22 ‘‘(I) assistance in collecting rel23 evant information for such bene24 ficiaries, to seek an appeal of a deci25 sion or determination made by a fiscal 
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1 intermediary, carrier, Medicare-Ad2 van-tage organization, an eligible enti3 ty under part D, or the Secretary; and 

4 ‘‘(II) assistance to such bene5 ficiaries with any problems arising 

6 from disenrollment from a 

7 MedicareAdvantage plan under part C 

8 or a prescription drug plan under part 

9 D; and 

10 ‘‘(iii) submit annual reports to Con11 gress, the Secretary, and the Medicare 

12 Competitive Policy Advisory Board describ13 ing the activities of the Office, and includ14 ing such recommendations for improve15 ment in the administration of this title as 

16 the Ombudsman determines appropriate. 

17 ‘‘(C) COORDINATION WITH STATE OM18 BUDSMAN PROGRAMS AND CONSUMER ORGANI19 ZATIONS.—The Medicare Ombudsman shall, to 

20 the extent appropriate, coordinate with State 

21 medical Ombudsman programs, and with State22 and community-based consumer organizations, 

23 to—

24 ‘‘(i) provide information about the 

25 medicare program; and
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1 ‘‘(ii) conduct outreach to educate 

2 medicare beneficiaries with respect to man3 ners in which problems under the medicare 

4 program may be resolved or avoided. 

5 ‘‘(e) MEDICARE COMPETITIVE POLICY ADVISORY

6 BOARD.—

7 ‘‘(1) ESTABLISHMENT.—There is established 

8 within the Center for Medicare Choices the Medicare 

9 Competitive Policy Advisory Board (in this section 

10 referred to as the ‘Board’). The Board shall advise, 

11 consult with, and make recommendations to the Ad12 ministrator with respect to the administration of 

13 parts C and D, including the review of payment poli14 cies under such parts. 

15 ‘‘(2) REPORTS.—

16 ‘‘(A) IN GENERAL.—With respect to mat17 ters of the administration of parts C and D, the 

18 Board shall submit to Congress and to the Ad19 ministrator such reports as the Board deter20 mines appropriate. Each such report may con21 tain such recommendations as the Board deter22 mines appropriate for legislative or administra23 tive changes to improve the administration of 

24 such parts, including the stability and solvency 

25 of the programs under such parts and the top-
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1 ics described in subparagraph (B). Each such 

2 report shall be published in the Federal Reg3 ister.

4 ‘‘(B) TOPICS DESCRIBED.—Reports re5 quired under subparagraph (A) may include the 

6 following topics: 

7 ‘‘(i) FOSTERING COMPETITION.—Rec8 ommendations or proposals to increase 

9 competition under parts C and D for serv10 ices furnished to medicare beneficiaries. 

11 ‘‘(ii) EDUCATION AND ENROLL12 MENT.—Recommendations for the im13 provement of efforts to provide medicare 

14 beneficiaries information and education on 

15 the program under this title, and specifi16 cally parts C and D, and the program for 

17 enrollment under the title. 

18 ‘‘(iii) QUALITY.—Recommendations 

19 on ways to improve the quality of benefits 

20 provided under plans under parts C and D. 

21 ‘‘(iv) DISEASE MANAGEMENT PRO22 GRAMS.—Recommendations on the incor23 poration of disease management programs 

24 under parts C and D. 
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1 ‘‘(v) RURAL ACCESS.—Recommenda2 tions to improve competition and access to 

3 plans under parts C and D in rural areas. 

4 ‘‘(C) MAINTAINING INDEPENDENCE OF

5 BOARD.—The Board shall directly submit to 

6 Congress reports required under subparagraph 

7 (A). No officer or agency of the United States 

8 may require the Board to submit to any officer 

9 or agency of the United States for approval, 

10 comments, or review, prior to the submission to 

11 Congress of such reports. 

12 ‘‘(3) DUTY OF ADMINISTRATOR.—With respect 

13 to any report submitted by the Board under para14 graph (2)(A), not later than 90 days after the report 

15 is submitted, the Administrator shall submit to Con16 gress and the President an analysis of recommenda17 tions made by the Board in such report. Each such 

18 analysis shall be published in the Federal Register. 

19 ‘‘(4) MEMBERSHIP.—

20 ‘‘(A) APPOINTMENT.—Subject to the suc21 ceeding provisions of this paragraph, the Board 

22 shall consist of 7 members to be appointed as 

23 follows: 

24 ‘‘(i) Three members shall be ap25 pointed by the President. 
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1 ‘‘(ii) Two members shall be appointed 

2 by the Speaker of the House of Represent3 atives, with the advice of the chairman and 

4 the ranking minority member of the Com5 mittees on Ways and Means and on En6 ergy and Commerce of the House of Rep7 resentatives. 

8 ‘‘(iii) Two members shall be appointed 

9 by the President pro tempore of the Senate 

10 with the advice of the chairman and the 

11 ranking minority member of the Com12 mittee on Finance of the Senate. 

13 ‘‘(B) QUALIFICATIONS.—The members 

14 shall be chosen on the basis of their integrity, 

15 impartiality, and good judgment, and shall be 

16 individuals who are, by reason of their edu17 cation and experience in health care benefits 

18 management, exceptionally qualified to perform 

19 the duties of members of the Board. 

20 ‘‘(C) PROHIBITION ON INCLUSION OF FED21 ERAL EMPLOYEES.—No officer or employee of 

22 the United States may serve as a member of 

23 the Board. 

24 ‘‘(5) COMPENSATION.—Members of the Board 

25 shall receive, for each day (including travel time) 
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1 they are engaged in the performance of the functions 

2 of the Board, compensation at rates not to exceed 

3 the daily equivalent to the annual rate in effect for 

4 level IV of the Executive Schedule under section 

5 5315 of title 5, United States Code. 

6 ‘‘(6) TERMS OF OFFICE.—

7 ‘‘(A) IN GENERAL.—The term of office of 

8 members of the Board shall be 3 years. 

9 ‘‘(B) TERMS OF INITIAL APPOINTEES.—As 

10 designated by the President at the time of ap11 pointment, of the members first appointed—

12 ‘‘(i) one shall be appointed for a term 

13 of 1 year; 

14 ‘‘(ii) three shall be appointed for 

15 terms of 2 years; and 

16 ‘‘(iii) three shall be appointed for 

17 terms of 3 years. 

18 ‘‘(C) REAPPOINTMENTS.—Any person ap19 pointed as a member of the Board may not 

20 serve for more than 8 years. 

21 ‘‘(D) VACANCY.—Any member appointed 

22 to fill a vacancy occurring before the expiration 

23 of the term for which the member’s predecessor 

24 was appointed shall be appointed only for the 

25 remainder of that term. A member may serve 
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1 after the expiration of that member’s term until 

2 a successor has taken office. A vacancy in the 

3 Board shall be filled in the manner in which 

4 the original appointment was made. 

5 ‘‘(7) CHAIR.—The Chair of the Board shall be 

6 elected by the members. The term of office of the 

7 Chair shall be 3 years. 

8 ‘‘(8) MEETINGS.—The Board shall meet at the 

9 call of the Chair, but in no event less than 3 times 

10 during each fiscal year. 

11 ‘‘(9) DIRECTOR AND STAFF.—

12 ‘‘(A) APPOINTMENT OF DIRECTOR.—The 

13 Board shall have a Director who shall be ap14 pointed by the Chair. 

15 ‘‘(B) IN GENERAL.—With the approval of 

16 the Board, the Director may appoint such addi17 tional personnel as the Director considers ap18 propriate. 

19 ‘‘(C) ASSISTANCE FROM THE ADMINIS20 TRATOR.—The Administrator shall make avail21 able to the Board such information and other 

22 assistance as it may require to carry out its 

23 functions. 

24 ‘‘(10) CONTRACT AUTHORITY.—The Board may 

25 contract with and compensate government and pri-
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1 vate agencies or persons to carry out its duties 

2 under this subsection, without regard to section 

3 3709 of the Revised Statutes (41 U.S.C. 5). 

4 ‘‘(f) FUNDING.—There is authorized to be appro5 priated, in appropriate part from the Federal Hospital In6 surance Trust Fund and from the Federal Supplementary 

7 Medical Insurance Trust Fund (including the Prescription 

8 Drug Account), such sums as are necessary to carry out 

9 this section.’’. 

10 (b) USE OF CENTRAL, TOLL-FREE NUMBER (1–800–

11 MEDICARE).—Section 1804(b) (42 U.S.C. 1395b–2(b)) 

12 is amended by adding at the end the following: ‘‘By not 

13 later than 1 year after the date of the enactment of the 

14 Prescription Drug and Medicare Improvement Act of 

15 2003, the Secretary shall provide, through the toll-free 

16 number 1–800–MEDICARE, for a means by which indi17 viduals seeking information about, or assistance with, such 

18 programs who phone such toll-free number are transferred 

19 (without charge) to appropriate entities for the provision 

20 of such information or assistance. Such toll-free number 

21 shall be the toll-free number listed for general information 

22 and assistance in the annual notice under subsection (a) 

23 instead of the listing of numbers of individual contrac24 tors.’’. 
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1 SEC. 302. MISCELLANEOUS ADMINISTRATIVE PROVISIONS. 

2 (a) ADMINISTRATOR AS MEMBER AND CO-SEC3 RETARY OF THE BOARD OF TRUSTEES OF THE MEDICARE

4 TRUST FUNDS.—The fifth sentence of sections 1817(b) 

5 and 1841(b) (42 U.S.C. 1395i(b), 1395t(b)) are each 

6 amended by striking ‘‘shall serve as the Secretary’’ and 

7 inserting ‘‘and the Administrator of the Center for Medi8 care Choices shall serve as the Co-Secretaries’’. 

9 (b) INCREASE IN GRADE TO EXECUTIVE LEVEL III 

10 FOR THE ADMINISTRATOR OF THE CENTERS FOR MEDI11 CARE and MEDICAID SERVICES.—

12 (1) IN GENERAL.—Section 5314 of title 5, 

13 United States Code, is amended by adding at the 

14 end the following: 

15 ‘‘Administrator of the Centers for Medicare and 

16 Medicaid Services.’’.

17 (2) CONFORMING AMENDMENT.—Section 5315 

18 of such title is amended by striking ‘‘Administrator 

19 of the Health Care Financing Administration.’’. 

20 (3) EFFECTIVE DATE.—The amendments made 

21 by this subsection take effect on March 1, 2004.
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1 TITLE IV—MEDICARE FEE-FOR2 SERVICE IMPROVEMENTS 

3 Subtitle A—Provisions Relating to 

4 Part A 

5 SEC. 401. EQUALIZING URBAN AND RURAL STANDARDIZED 

6 PAYMENT AMOUNTS UNDER THE MEDICARE 

7 INPATIENT HOSPITAL PROSPECTIVE PAY8 MENT SYSTEM. 

9 (a) IN GENERAL.—Section 1886(d)(3)(A)(iv) (42 

10 U.S.C. 1395ww(d)(3)(A)(iv)) is amended—

11 (1) by striking ‘‘(iv) For discharges’’ and in12 serting ‘‘(iv)(I) Subject to the succeeding provisions 

13 of this clause, for discharges’’; and 

14 (2) by adding at the end the following new sub15 clauses: 

16 ‘‘(II) For discharges occurring during fiscal 

17 year 2004, the operating standardized amount for 

18 hospitals located other than in a large urban area 

shall be increased by 1 19 ⁄2 of the difference between 

20 the operating standardized amount determined 

21 under subclause (I) for hospitals located in large 

22 urban areas for such fiscal year and such amount 

23 determined (without regard to this subclause) for 

24 other hospitals for such fiscal year. 
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1 ‘‘(III) For discharges occurring in a fiscal year 

2 beginning with fiscal year 2005, the Secretary shall 

3 compute an operating standardized amount for hos4 pitals located in any area within the United States 

5 and within each region equal to the operating stand6 ardized amount computed for the previous fiscal 

7 year under this subparagraph for hospitals located 

8 in a large urban area (or, beginning with fiscal year 

9 2006, applicable for all hospitals in the previous fis10 cal year) increased by the applicable percentage in11 crease under subsection (b)(3)(B)(i) for the fiscal 

12 year involved.’’. 

13 (b) CONFORMING AMENDMENTS.—

14 (1) COMPUTING DRG-SPECIFIC RATES.—Section 

15 1886(d)(3)(D) (42 U.S.C. 1395ww(d)(3)(D)) is 

16 amended—

17 (A) in the heading, by striking ‘‘IN DIF18 FERENT AREAS’’; 

19 (B) in the matter preceding clause (i), by 

20 striking ‘‘each of which is’’; 

21 (C) in clause (i)—

22 (i) in the matter preceding subclause 

23 (I), by inserting ‘‘for fiscal years before fis24 cal year 2005,’’ before ‘‘for hospitals’’; and 
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1 (ii) in subclause (II), by striking 

2 ‘‘and’’ after the semicolon at the end;

3 (D) in clause (ii)—

4 (i) in the matter preceding subclause 

5 (I), by inserting ‘‘for fiscal years before fis6 cal year 2005,’’ before ‘‘for hospitals’’; and 

7 (ii) in subclause (II), by striking the 

8 period at the end and inserting ‘‘; and’’; 

9 and 

10 (E) by adding at the end the following new 

11 clause: 

12 ‘‘(iii) for a fiscal year beginning after fiscal 

13 year 2004, for hospitals located in all areas, to 

14 the product of—

15 ‘‘(I) the applicable operating stand16 ardized amount (computed under subpara17 graph (A)), reduced under subparagraph 

18 (B), and adjusted or reduced under sub19 paragraph (C) for the fiscal year; and 

20 ‘‘(II) the weighting factor (determined 

21 under paragraph (4)(B)) for that diag22 nosis-related group.’’. 

23 (2) TECHNICAL CONFORMING SUNSET.—Section 

24 1886(d)(3) (42 U.S.C. 1395ww(d)(3)) is amended—
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1 (A) in the matter preceding subparagraph 

2 (A), by inserting ‘‘, for fiscal years before fiscal 

3 year 1997,’’ before ‘‘a regional adjusted DRG 

4 prospective payment rate’’; and

5 (B) in subparagraph (D), in the matter 

6 preceding clause (i), by inserting ‘‘, for fiscal 

7 years before fiscal year 1997,’’ before ‘‘a re8 gional DRG prospective payment rate for each 

9 region,’’. 

10 SEC. 402. ADJUSTMENT TO THE MEDICARE INPATIENT HOS11 PITAL PPS WAGE INDEX TO REVISE THE 

12 LABOR-RELATED SHARE OF SUCH INDEX. 

13 (a) IN GENERAL.—Section 1886(d)(3)(E) (42 U.S.C. 

14 1395ww(d)(3)(E)) is amended—

15 (1) by striking ‘‘WAGE LEVELS.—The Sec16 retary’’ and inserting ‘‘WAGE LEVELS.—

17 ‘‘(i) IN GENERAL.—Except as provided in 

18 clause (ii), the Secretary’’; and 

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

20 clause: 

21 ‘‘(ii) ALTERNATIVE PROPORTION TO BE

22 ADJUSTED BEGINNING IN FISCAL YEAR 2004.—

23 ‘‘(I) IN GENERAL.—Except as pro24 vided in subclause (II), for discharges oc25 curring on or after October 1, 2003, the 
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1 Secretary shall substitute ‘62 percent’ for 

2 the proportion described in the first sen3 tence of clause (i). 

4 ‘‘(II) HOLD HARMLESS FOR CERTAIN

5 HOSPITALS.—If the application of sub6 clause (I) would result in lower payments 

7 to a hospital than would otherwise be 

8 made, then this subparagraph shall be ap9 plied as if this clause had not been en10 acted.’’. 

11 (b) WAIVING BUDGET NEUTRALITY.—Section 

12 1886(d)(3)(E) (42 U.S.C. 1395ww(d)(3)(E)), as amended 

13 by subsection (a), is amended by adding at the end of 

14 clause (i) the following new sentence: ‘‘The Secretary shall 

15 apply the previous sentence for any period as if the 

16 amendments made by section 402(a) of the Prescription 

17 Drug and Medicare Improvement Act of 2003 had not 

18 been enacted.’’. 

19 SEC. 403. MEDICARE INPATIENT HOSPITAL PAYMENT AD20 JUSTMENT FOR LOW-VOLUME HOSPITALS. 

21 Section 1886(d) (42 U.S.C. 1395ww(d)) is amended 

22 by adding at the end the following new paragraph: 

23 ‘‘(12) PAYMENT ADJUSTMENT FOR LOW-VOL24 UME HOSPITALS.—

25 ‘‘(A) PAYMENT ADJUSTMENT.—
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1 ‘‘(i) IN GENERAL.—Notwithstanding 

2 any other provision of this section, for each 

3 cost reporting period (beginning with the 

4 cost reporting period that begins in fiscal 

5 year 2004), the Secretary shall provide for 

6 an additional payment amount to each low7 volume hospital (as defined in clause (iii)) 

8 for discharges occurring during that cost 

9 reporting period which is equal to the ap10 plicable percentage increase (determined 

11 under clause (ii)) in the amount paid to 

12 such hospital under this section for such 

13 discharges. 

14 ‘‘(ii) APPLICABLE PERCENTAGE IN15 CREASE.—The Secretary shall determine a 

16 percentage increase applicable under this 

17 paragraph that ensures that—

18 ‘‘(I) no percentage increase in 

19 payments under this paragraph ex20 ceeds 25 percent of the amount of 

21 payment that would (but for this 

22 paragraph) otherwise be made to a 

23 low-volume hospital under this section 

24 for each discharge; 
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1 ‘‘(II) low-volume hospitals that 

2 have the lowest number of discharges 

3 during a cost reporting period receive 

4 the highest percentage increases in 

5 payments due to the application of 

6 this paragraph; and

7 ‘‘(III) the percentage increase in 

8 payments to any low-volume hospital 

9 due to the application of this para10 graph is reduced as the number of 

11 discharges per cost reporting period 

12 increases. 

13 ‘‘(iii) LOW-VOLUME HOSPITAL DE14 FINED.—For purposes of this paragraph, 

15 the term ‘low-volume hospital’ means, for a 

16 cost reporting period, a subsection (d) hos17 pital (as defined in paragraph (1)(B)) 

18 other than a critical access hospital (as de19 fined in section 1861(mm)(1)) that— 

20 ‘‘(I) the Secretary determines 

21 had an average of less than 2,000 dis22 charges (determined with respect to 

23 all patients and not just individuals 

24 receiving benefits under this title) 

25 during the 3 most recent cost report-
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1 ing periods for which data are avail2 able that precede the cost reporting 

3 period to which this paragraph ap4 plies; and 

5 ‘‘(II) is located at least 15 miles 

6 from a like hospital (or is deemed by 

7 the Secretary to be so located by rea8 son of such factors as the Secretary 

9 determines appropriate, including the 

10 time required for an individual to 

11 travel to the nearest alternative source 

12 of appropriate inpatient care (after 

13 taking into account the location of 

14 such alternative source of inpatient 

15 care and any weather or travel condi16 tions that may affect such travel 

17 time). 

18 ‘‘(B) PROHIBITING CERTAIN REDUC19 TIONS.—Notwithstanding subsection (e), the 

20 Secretary shall not reduce the payment 

21 amounts under this section to offset the in22 crease in payments resulting from the applica23 tion of subparagraph (A).’’. 
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1 SEC. 404. FAIRNESS IN THE MEDICARE DISPROPOR2 TIONATE SHARE HOSPITAL (DSH) ADJUST3 MENT FOR RURAL HOSPITALS. 

4 (a) EQUALIZING DSH PAYMENT AMOUNTS.—

5 (1) IN GENERAL.—Section 1886(d)(5)(F)(vii) 

6 (42 U.S.C. 1395ww(d)(5)(F)(vii)) is amended by in7 serting ‘‘, and, after October 1, 2003, for any other 

8 hospital described in clause (iv),’’ after ‘‘clause 

9 (iv)(I)’’ in the matter preceding subclause (I). 

10 (2) CONFORMING AMENDMENTS.—Section 

11 1886(d)(5)(F) (42 U.S.C. 1395ww(d)(5)(F)) is 

12 amended—

13 (A) in clause (iv)—

14 (i) in subclause (II)—

15 (I) by inserting ‘‘and before Oc16 tober 1, 2003,’’ after ‘‘April 1, 

17 2001,’’; and 

18 (II) by inserting ‘‘or, for dis19 charges occurring on or after October 

20 1, 2003, is equal to the percent deter21 mined in accordance with the applica22 ble formula described in clause (vii)’’ 

23 after ‘‘clause (xiii)’’; 

24 (ii) in subclause (III)—
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1 (I) by inserting ‘‘and before Oc2 tober 1, 2003,’’ after ‘‘April 1, 

3 2001,’’; and 

4 (II) by inserting ‘‘or, for dis5 charges occurring on or after October 

6 1, 2003, is equal to the percent deter7 mined in accordance with the applica8 ble formula described in clause (vii)’’ 

9 after ‘‘clause (xii)’’; 

10 (iii) in subclause (IV)—

11 (I) by inserting ‘‘and before Oc12 tober 1, 2003,’’ after ‘‘April 1, 

13 2001,’’; and 

14 (II) by inserting ‘‘or, for dis15 charges occurring on or after October 

16 1, 2003, is equal to the percent deter17 mined in accordance with the applica18 ble formula described in clause (vii)’’ 

19 after ‘‘clause (x) or (xi)’’; 

20 (iv) in subclause (V)—

21 (I) by inserting ‘‘and before Oc22 tober 1, 2003,’’ after ‘‘April 1, 

23 2001,’’; and 

24 (II) by inserting ‘‘or, for dis25 charges occurring on or after October 
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1 1, 2003, is equal to the percent deter2 mined in accordance with the applica3 ble formula described in clause (vii)’’ 

4 after ‘‘clause (xi)’’; and 

5 (v) in subclause (VI)— 

6 (I) by inserting ‘‘and before Oc7 tober 1, 2003,’’ after ‘‘April 1, 

8 2001,’’; and 

9 (II) by inserting ‘‘or, for dis10 charges occurring on or after October 

11 1, 2003, is equal to the percent deter12 mined in accordance with the applica13 ble formula described in clause (vii)’’ 

14 after ‘‘clause (x)’’; 

15 (B) in clause (viii), by striking ‘‘The for16 mula’’ and inserting ‘‘For discharges occurring 

17 before October 1, 2003, the formula’’; and 

18 (C) in each of clauses (x), (xi), (xii), and 

19 (xiii), by striking ‘‘For purposes’’ and inserting 

20 ‘‘With respect to discharges occurring before 

21 October 1, 2004, for purposes’’. 

22 (b) EFFECTIVE DATE.—The amendments made by 

23 this section shall apply to discharges occurring on or after 

24 October 1, 2003. 
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1 SEC. 405. CRITICAL ACCESS HOSPITAL (CAH) IMPROVE2 MENTS. 

3 (a) PERMITTING CAHS TO ALLOCATE SWING BEDS

4 AND ACUTE CARE INPATIENT BEDS SUBJECT TO A

5 TOTAL LIMIT OF 25 BEDS.—

6 (1) IN GENERAL.—Section 1820(c)(2)(B)(iii) 

7 (42 U.S.C. 1395i–4(c)(2)(B)(iii)) is amended to 

8 read as follows: 

9 ‘‘(iii) provides not more than a total 

10 of 25 extended care service beds (pursuant 

11 to an agreement under subsection (f)) and 

12 acute care inpatient beds (meeting such 

13 standards as the Secretary may establish) 

14 for providing inpatient care for a period 

15 that does not exceed, as determined on an 

16 annual, average basis, 96 hours per pa17 tient;’’. 

18 (2) CONFORMING AMENDMENT.—Section 

19 1820(f) (42 U.S.C. 1395i–4(f)) is amended by strik20 ing ‘‘and the number of beds used at any time for 

21 acute care inpatient services does not exceed 15 

22 beds’’. 

23 (3) EFFECTIVE DATE.—The amendments made 

24 by this subsection shall with respect to designations 

25 made on or after October 1, 2003. 
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1 (b) ELIMINATION OF THE ISOLATION TEST FOR

2 COST-BASED CAH AMBULANCE SERVICES.—

3 (1) ELIMINATION.—

4 (A) IN GENERAL.—Section 1834(l)(8) (42 

5 U.S.C. 1395m(l)(8)), as added by section 

6 205(a) of BIPA (114 Stat. 2763A–482), is 

7 amended by striking the comma at the end of 

8 subparagraph (B) and all that follows and in9 serting a period. 

10 (B) EFFECTIVE DATE.—The amendment 

11 made by subparagraph (A) shall apply to serv12 ices furnished on or after January 1, 2004. 

13 (2) TECHNICAL CORRECTION.—Section 1834(l) 

14 (42 U.S.C. 1395m(l)) is amended by redesignating 

15 paragraph (8), as added by section 221(a) of BIPA 

16 (114 Stat. 2763A–486), as paragraph (9). 

17 (c) COVERAGE OF COSTS FOR CERTAIN EMERGENCY

18 ROOM ON-CALL PROVIDERS.—

19 (1) IN GENERAL.—Section 1834(g)(5) (42 

20 U.S.C. 1395m(g)(5)) is amended—

21 (A) in the heading—

22 (i) by inserting ‘‘CERTAIN’’ before 

23 ‘‘EMERGENCY’’; and 

24 (ii) by striking ‘‘PHYSICIANS’’ and in25 serting ‘‘PROVIDERS’’; 
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1 (B) by striking ‘‘emergency room physi2 cians who are on-call (as defined by the Sec3 retary)’’ and inserting ‘‘physicians, physician 

4 assistants, nurse practitioners, and clinical 

5 nurse specialists who are on-call (as defined by 

6 the Secretary) to provide emergency services’’; 

7 and 

8 (C) by striking ‘‘physicians’ services’’ and 

9 inserting ‘‘services covered under this title’’. 

10 (2) EFFECTIVE DATE.—The amendments made 

11 by paragraph (1) shall apply to costs incurred for 

12 services provided on or after January 1, 2004. 

13 (d) AUTHORIZATION OF PERIODIC INTERIM PAY14 MENT (PIP).—

15 (1) IN GENERAL.—Section 1815(e)(2) (42 

16 U.S.C. 1395g(e)(2)) is amended—

17 (A) in subparagraph (C), by striking 

18 ‘‘and’’ after the semicolon at the end; 

19 (B) in subparagraph (D), by adding ‘‘and’’ 

20 after the semicolon at the end; and 

21 (C) by inserting after subparagraph (D) 

22 the following new subparagraph: 

23 ‘‘(E) inpatient critical access hospital services;’’. 

24 (2) EFFECTIVE DATE.—The amendments made 

25 by paragraph (1) shall apply to payments for inpa-
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1 tient critical access facility services furnished on or 

2 after January 1, 2004. 

3 (e) EXCLUSION OF NEW CAHS FROM PPS HOS4 PITAL WAGE INDEX CALCULATION.—Section 

5 1886(d)(3)(E)(i) (42 U.S.C. 1395ww(d)(3)(E)(i)), as 

6 amended by section 402, is amended by inserting after the 

7 first sentence the following new sentence: ‘‘In calculating 

8 the hospital wage levels under the preceding sentence ap9 plicable with respect to cost reporting periods beginning 

10 on or after January 1, 2003, the Secretary shall exclude 

11 the wage levels of any facility that became a critical access 

12 hospital prior to the cost reporting period for which such 

13 hospital wage levels are calculated.’’.

14 (f) PROVISIONS RELATED TO CERTAIN RURAL

15 GRANTS.—

16 (1) SMALL RURAL HOSPITAL IMPROVEMENT

17 PROGRAM.—Section 1820(g) (42 U.S.C. 1395i–4(g)) 

18 is amended—

19 (A) by redesignating paragraph (3)(F) as 

20 paragraph (5) and redesignating and indenting 

21 appropriately; and 

22 (B) by inserting after paragraph (3) the 

23 following new paragraph: 

24 ‘‘(4) SMALL RURAL HOSPITAL IMPROVEMENT

25 PROGRAM.—
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1 ‘‘(A) GRANTS TO HOSPITALS.—The Sec2 retary may award grants to hospitals that have 

3 submitted applications in accordance with sub4 paragraph (B) to assist eligible small rural hos5 pitals (as defined in paragraph (3)(B)) in meet6 ing the costs of reducing medical errors, in7 creasing patient safety, protecting patient pri8 vacy, and improving hospital quality and per9 formance. 

10 ‘‘(B) APPLICATION.—A hospital seeking a 

11 grant under this paragraph shall submit an ap12 plication to the Secretary on or before such 

13 date and in such form and manner as the Sec14 retary specifies. 

15 ‘‘(C) AMOUNT OF GRANT.—A grant to a 

16 hospital under this paragraph may not exceed 

17 $50,000. 

18 ‘‘(D) USE OF FUNDS.—A hospital receiv19 ing a grant under this paragraph may use the 

20 funds for the purchase of computer software 

21 and hardware, the education and training of 

22 hospital staff, and obtaining technical assist23 ance.’’. 
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1 (2) AUTHORIZATION FOR APPROPRIATIONS.—

2 Section 1820(j) (42 U.S.C. 1395i–4(j)) is amended 

3 to read as follows: 

4 ‘‘(j) AUTHORIZATION OF APPROPRIATIONS.—

5 ‘‘(1) HI TRUST FUND.—There are authorized to 

6 be appropriated from the Federal Hospital Insur7 ance Trust Fund for making grants to all States 

8 under—

9 ‘‘(A) subsection (g), $25,000,000 in each 

10 of the fiscal years 1998 through 2002; and 

11 ‘‘(B) paragraphs (1) and (2) of subsection 

12 (g), $40,000,000 in each of the fiscal years 

13 2004 through 2008. 

14 ‘‘(2) GENERAL REVENUES.—There are author15 ized to be appropriated from amounts in the Treas16 ury not otherwise appropriated for making grants to 

17 all States under subsection (g)(4), $25,000,000 in 

18 each of the fiscal years 2004 through 2008.’’. 

19 (3) REQUIREMENT THAT STATES AWARDED

20 GRANTS CONSULT WITH THE STATE HOSPITAL ASSO21 CIATION AND RURAL HOSPITALS ON THE MOST AP22 PROPRIATE WAYS TO USE SUCH GRANTS.—

23 (A) IN GENERAL.—Section 1820(g) (42 

24 U.S.C. 1395i–4(g)), as amended by paragraph 
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1 (1), is amended by adding at the end the fol2 lowing new paragraph:

3 ‘‘(6) REQUIRED CONSULTATION FOR STATES

4 AWARDED GRANTS.—A State awarded a grant under 

5 paragraph (1) or (2) shall consult with the hospital 

6 association of such State and rural hospitals located 

7 in such State on the most appropriate ways to use 

8 the funds under such grant.’’. 

9 (B) EFFECTIVE DATE AND APPLICA10 TION.—The amendment made by subparagraph 

11 (A) shall take effect on the date of enactment 

12 of this Act and shall apply to grants awarded 

13 on or after such date and to grants awarded 

14 prior to such date to the extent that funds 

15 under such grants have not been obligated as of 

16 such date. 

17 SEC. 406. AUTHORIZING USE OF ARRANGEMENTS TO PRO18 VIDE CORE HOSPICE SERVICES IN CERTAIN 

19 CIRCUMSTANCES. 

20 (a) IN GENERAL.—Section 1861(dd)(5) (42 U.S.C. 

21 1395x(dd)(5)) is amended by adding at the end the fol22 lowing: 

23 ‘‘(D) In extraordinary, exigent, or other non-routine 

24 circumstances, such as unanticipated periods of high pa25 tient loads, staffing shortages due to illness or other 
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1 events, or temporary travel of a patient outside a hospice 

2 program’s service area, a hospice program may enter into 

3 arrangements with another hospice program for the provi4 sion by that other program of services described in para5 graph (2)(A)(ii)(I). The provisions of paragraph 

6 (2)(A)(ii)(II) shall apply with respect to the services pro7 vided under such arrangements. 

8 ‘‘(E) A hospice program may provide services de9 scribed in paragraph (1)(A) other than directly by the pro10 gram if the services are highly specialized services of a 

11 registered professional nurse and are provided non-rou12 tinely and so infrequently so that the provision of such 

13 services directly would be impracticable and prohibitively 

14 expensive.’’. 

15 (b) CONFORMING PAYMENT PROVISION.—Section 

16 1814(i) (42 U.S.C. 1395f(i)) is amended by adding at the 

17 end the following new paragraph:

18 ‘‘(4) In the case of hospice care provided by a hospice 

19 program under arrangements under section 

20 1861(dd)(5)(D) made by another hospice program, the 

21 hospice program that made the arrangements shall bill 

22 and be paid for the hospice care.’’. 

23 (c) EFFECTIVE DATE.—The amendments made by 

24 this section shall apply to hospice care provided on or after 

25 October 1, 2003. 
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1 SEC. 407. SERVICES PROVIDED TO HOSPICE PATIENTS BY 

2 NURSE PRACTITIONERS, CLINICAL NURSE 

3 SPECIALISTS, AND PHYSICIAN ASSISTANTS. 

4 (a) IN GENERAL.—Section 1812(d)(2)(A) (42 U.S.C. 

5 1395d(d)(2)(A) in the matter following clause (i)(II), is 

6 amended—

7 (1) by inserting ‘‘or services described in sec8 tion 1861(s)(2)(K)’’ after ‘‘except that clause (i) 

9 shall not apply to physicians’ services’’; and 

10 (2) by inserting ‘‘, or by a physician assistant, 

11 nurse practitioner, or clinical nurse specialist who is 

12 not an employee of the hospice program, and who 

13 the individual identifies as the health care provider 

14 having the most significant role in the determination 

15 and delivery of medical care to the individual at the 

16 time the individual makes an election to receive hos17 pice care,’’ after the ‘‘(if not an employee of the hos18 pice program)’’. 

19 (b) EFFECTIVE DATE.—The amendments made by 

20 subsection (a) shall apply to hospice care furnished on or 

21 after October 1, 2003. 

22 SEC. 408. AUTHORITY TO INCLUDE COSTS OF TRAINING OF 

23 PSYCHOLOGISTS IN PAYMENTS TO HOS24 PITALS UNDER MEDICARE. 

25 Effective for cost reporting periods beginning on or 

26 after October 1, 2004, for purposes of payments to hos-
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1 pitals under the medicare program under title XVIII of 

2 the Social Security Act for costs of approved educational 

3 activities (as defined in section 413.85 of title 42 of the 

4 Code of Federal Regulations), such approved educational 

5 activities shall include professional educational training 

6 programs, recognized by the Secretary, for psychologists.

7 SEC. 409. REVISION OF FEDERAL RATE FOR HOSPITALS IN 

8 PUERTO RICO. 

9 Section 1886(d)(9) (42 U.S.C. 1395ww(d)(9)) is 

10 amended—

11 (1) in subparagraph (A)—

12 (A) in clause (i), by striking ‘‘for dis13 charges beginning on or after October 1, 1997, 

14 50 percent (and for discharges between October 

15 1, 1987, and September 30, 1997, 75 percent)’’ 

16 and inserting ‘‘the applicable Puerto Rico per17 centage (specified in subparagraph (E))’’; and 

18 (B) in clause (ii), by striking ‘‘for dis19 charges beginning in a fiscal year beginning on 

20 or after October 1, 1997, 50 percent (and for 

21 discharges between October 1, 1987, and Sep22 tember 30, 1997, 25 percent)’’ and inserting 

23 ‘‘the applicable Federal percentage (specified in 

24 subparagraph (E))’’; and 
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1 (2) by adding at the end the following new sub2 paragraph: 

3 ‘‘(E) For purposes of subparagraph (A), for dis4 charges occurring—

5 ‘‘(i) between October 1, 1987, and September 

6 30, 1997, the applicable Puerto Rico percentage is 

7 75 percent and the applicable Federal percentage is 

8 25 percent; 

9 ‘‘(ii) on or after October 1, 1997, and before 

10 October 1, 2004, the applicable Puerto Rico percent11 age is 50 percent and the applicable Federal per12 centage is 50 percent; 

13 ‘‘(iii) on or after October 1, 2004, and before 

14 October 1, 2009, the applicable Puerto Rico percent15 age is 0 percent and the applicable Federal percent16 age is 100 percent; and 

17 ‘‘(iv) on or after October 1, 2009, the applica18 ble Puerto Rico percentage is 50 percent and the ap19 plicable Federal percentage is 50 percent.’’. 

20 SEC. 410. AUTHORITY REGARDING GERIATRIC FELLOW21 SHIPS. 

22 The Secretary shall have the authority to clarify that 

23 geriatric training programs are eligible for 2 years of fel24 lowship support for purposes of making payments for di25 rect graduate medical education under subsection (h) of 
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1 section 1886 of the Social Security Act (42 U.S.C. 

2 1395ww) and indirect medical education under subsection 

3 (d)(5)(B) of such section on or after October 1, 2003. 

4 SEC. 411. CLARIFICATION OF CONGRESSIONAL INTENT RE5 GARDING THE COUNTING OF RESIDENTS IN A 

6 NONPROVIDER SETTING AND A TECHNICAL 

7 AMENDMENT REGARDING THE 3-YEAR ROLL8 ING AVERAGE AND THE IME RATIO. 

9 (a) CLARIFICATION OF REQUIREMENTS FOR COUNT10 ING RESIDENTS TRAINING IN NONPROVIDER SETTING.—

11 (1) D-GME.—Section 1886(h)(4)(E) (42 

12 U.S.C. 1395ww(h)(4)(E)) is amended by adding at 

13 the end the following new sentence: For purposes of 

14 the preceding sentence time shall only be counted 

15 from the effective date of a written agreement be16 tween the hospital and the entity owning or oper17 ating a nonprovider setting. The effective date of 

18 such written agreement shall be determined in ac19 cordance with generally accepted accounting prin20 ciples. All, or substantially all, of the costs for the 

21 training program in that setting shall be defined as 

22 the residents’ stipends and benefits and other costs, 

23 if any, as determined by the parties.’’. 

24 (2) IME.—Section 1886(d)(5)(B)(iv) (42 

25 U.S.C. 1395ww(d)(5)(B)(iv)) is amended by adding 
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1 at the end the following new sentence: For purposes 

2 of the preceding sentence time shall only be counted 

3 from the effective date of a written agreement be4 tween the hospital and the entity owning or oper5 ating a nonprovider setting. The effective date of 

6 such written agreement shall be determined in ac7 cordance with generally accepted accounting prin8 ciples. All, or substantially all, of the costs for the 

9 training program in that setting shall be defined as 

10 the residents’ stipends and benefits and other costs, 

11 if any, as determined by the parties.’’. 

12 (b) LIMITING ONE-YEAR LAG IN THE INDIRECT

13 MEDICAL EDUCATION (IME) RATIO AND THREE-YEAR

14 ROLLING AVERAGE IN RESIDENT COUNT FOR IME AND

15 FOR DIRECT GRADUATE MEDICAL EDUCATION (D-GME) 

16 TO MEDICAL RESIDENCY PROGRAMS.—

17 (1) IME RATIO AND IME ROLLING AVERAGE.—

18 Section 1886(d)(5)(B)(vi) of the Social Security Act 

19 (42 U.S.C. 1395ww(d)(5)(B)(vi)) is amended by 

20 adding at the end the following new sentence: ‘‘For 

21 cost reporting periods beginning during fiscal years 

22 beginning on or after October 1, 2003, subclauses 

23 (I) and (II) shall be applied only with respect to a 

24 hospital’s approved medical residency training pro-
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1 grams in the fields of allopathic and osteopathic 

2 medicine.’’. 

3 (2) D-GME ROLLING AVERAGE.—Section 

4 1886(h)(4)(G) of the Social Security Act (42 U.S.C. 

5 1395ww(h)(4)(G)) is amended by adding at the end 

6 the following new clause: 

7 ‘‘(iv) APPLICATION FOR FISCAL YEAR

8 2004 AND SUBSEQUENT YEARS.—For cost 

9 reporting periods beginning during fiscal 

10 years beginning on or after October 1, 

11 2003, clauses (i) through (iii) shall be ap12 plied only with respect to a hospital’s ap13 proved medical residency training program 

14 in the fields of allopathic and osteopathic 

15 medicine.’’. 

16 SEC. 412. LIMITATION ON CHARGES FOR INPATIENT HOS17 PITAL CONTRACT HEALTH SERVICES PRO18 VIDED TO INDIANS BY MEDICARE PARTICI19 PATING HOSPITALS. 

20 (a) IN GENERAL.—Section 1866(a)(1) (42 U.S.C. 

21 1395cc(a)(1)) is amended—

22 (1) in subparagraph (R), by striking ‘‘and’’ at 

23 the end; 

24 (2) in subparagraph (S), by striking the period 

25 and inserting ‘‘, and’’; and 
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1 (3) by adding at the end the following new sub2 paragraph: 

3 ‘‘(T) in the case of hospitals which furnish 

4 inpatient hospital services for which payment 

5 may be made under this title, to be a partici6 pating provider of medical care—

7 ‘‘(i) under the contract health services 

8 program funded by the Indian Health 

9 Service and operated by the Indian Health 

10 Service, an Indian tribe, or tribal organiza11 tion (as those terms are defined in section 

12 4 of the Indian Health Care Improvement 

13 Act), with respect to items and services 

14 that are covered under such program and 

15 furnished to an individual eligible for such 

16 items and services under such program; 

17 and 

18 ‘‘(ii) under a program funded by the 

19 Indian Health Service and operated by an 

20 urban Indian organization with respect to 

21 the purchase of items and services for an 

22 eligible urban Indian (as those terms are 

23 defined in such section 4), 

24 in accordance with regulations promulgated by 

25 the Secretary regarding admission practices, 
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1 payment methodology, and rates of payment 

2 (including the acceptance of no more than such 

3 payment rate as payment in full for such items 

4 and services).’’. 

5 (b) EFFECTIVE DATE.—The amendments made by 

6 this section shall apply as of a date specified by the Sec7 retary of Health and Human Services (but in no case later 

8 than 6 months after the date of enactment of this Act) 

9 to medicare participation agreements in effect (or entered 

10 into) on or after such date. 

11 SEC. 413. GAO STUDY AND REPORT ON APPROPRIATENESS 

12 OF PAYMENTS UNDER THE PROSPECTIVE 

13 PAYMENT SYSTEM FOR INPATIENT HOSPITAL 

14 SERVICES. 

15 (a) STUDY.—The Comptroller General of the United 

16 States, using the most current data available, shall con17 duct a study to determine—

18 (1) the appropriate level and distribution of 

19 payments in relation to costs under the prospective 

20 payment system under section 1886 of the Social 

21 Security Act (42 U.S.C. 1395ww) for inpatient hos22 pital services furnished by subsection (d) hospitals 

23 (as defined in subsection (d)(1)(B) of such section); 

24 and 
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1 (2) whether there is a need to adjust such pay2 ments under such system to reflect legitimate dif3 ferences in costs across different geographic areas, 

4 kinds of hospitals, and types of cases. 

5 (b) REPORT.—Not later than 24 months after the 

6 date of enactment of this Act, the Comptroller General 

7 of the United States shall submit to Congress a report 

8 on the study conducted under subsection (a) together with 

9 such recommendations for legislative and administrative 

10 action as the Comptroller General determines appropriate. 

11 Subtitle B—Provisions Relating to 

12 Part B 

13 SEC. 421. ESTABLISHMENT OF FLOOR ON GEOGRAPHIC AD14 JUSTMENTS OF PAYMENTS FOR PHYSICIANS’

15 SERVICES. 

16 Section 1848(e)(1) (42 U.S.C. 1395w–4(e)(1)) is 

17 amended—

18 (1) in subparagraph (A), by striking ‘‘subpara19 graphs (B) and (C)’’ and inserting ‘‘subparagraphs 

20 (B), (C), (E), and (F)’’; and 

21 (2) by adding at the end the following new sub22 paragraphs: 

23 ‘‘(E) FLOOR FOR WORK GEOGRAPHIC INDI24 CES.—
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1 ‘‘(i) IN GENERAL.—For purposes of 

2 payment for services furnished on or after 

3 January 1, 2004, and before January 1, 

4 2008, after calculating the work geo5 graphic indices in subparagraph (A)(iii), 

6 the Secretary shall increase the work geo7 graphic index to the work floor index for 

8 any locality for which such geographic 

9 index is less than the work floor index. 

10 ‘‘(ii) WORK FLOOR INDEX.—For pur11 poses of clause (i), the term ‘applicable 

12 floor index’ means—

13 ‘‘(I) 0.980 with respect to serv14 ices furnished during 2004; and 

15 ‘‘(II) 1.000 for services furnished 

16 during 2005, 2006, and 2007. 

17 ‘‘(F) FLOOR FOR PRACTICE EXPENSE AND

18 MALPRACTICE GEOGRAPHIC INDICES.—For pur19 poses of payment for services furnished on or 

20 after January 1, 2005, and before January 1, 

21 2008, after calculating the practice expense and 

22 malpractice indices in clauses (i) and (ii) of 

23 subparagraph (A) and in subparagraph (B), the 

24 Secretary shall increase any such index to 1.00 
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1 for any locality for which such index is less 

2 than 1.00.’’. 

3 SEC. 422. MEDICARE INCENTIVE PAYMENT PROGRAM IM4 PROVEMENTS. 

5 (a) PROCEDURES FOR SECRETARY, AND NOT PHYSI6 CIANS, TO DETERMINE WHEN BONUS PAYMENTS UNDER

7 MEDICARE INCENTIVE PAYMENT PROGRAM SHOULD BE

8 MADE.—Section 1833(m) (42 U.S.C. 1395l(m)) is amend9 ed—

10 (1) by inserting ‘‘(1)’’ after ‘‘(m)’’; and 

11 (2) by adding at the end the following new 

12 paragraph: 

13 ‘‘(2) The Secretary shall establish procedures under 

14 which the Secretary, and not the physician furnishing the 

15 service, is responsible for determining when a payment is 

16 required to be made under paragraph (1).’’. 

17 (b) EDUCATIONAL PROGRAM REGARDING THE MEDI18 CARE INCENTIVE PAYMENT PROGRAM.—The Secretary 

19 shall establish and implement an ongoing educational pro20 gram to provide education to physicians under the medi21 care program on the medicare incentive payment program 

22 under section 1833(m) of the Social Security Act (42 

23 U.S.C. 1395l(m)). 

24 (c) ONGOING GAO STUDY AND ANNUAL REPORT ON

25 THE MEDICARE INCENTIVE PAYMENT PROGRAM.—
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1 (1) ONGOING STUDY.—The Comptroller Gen2 eral of the United States shall conduct an ongoing 

3 study on the medicare incentive payment program 

4 under section 1833(m) of the Social Security Act 

5 (42 U.S.C. 1395l(m)). Such study shall focus on 

6 whether such program increases the access of medi7 care beneficiaries who reside in an area that is des8 ignated (under section 332(a)(1)(A) of the Public 

9 Health Service Act (42 U.S.C. 254e(a)(1)(A))) as a 

10 health professional shortage area to physicians’ serv11 ices under the medicare program. 

12 (2) ANNUAL REPORTS.—Not later than 1 year 

13 after the date of enactment of this Act, and annually 

14 thereafter, the Comptroller General of the United 

15 States shall submit to Congress a report on the 

16 study conducted under paragraph (1), together with 

17 recommendations as the Comptroller General con18 siders appropriate.

19 SEC. 423. INCREASE IN RENAL DIALYSIS COMPOSITE RATE. 

20 Notwithstanding any other provision of law, with re21 spect to payment under part B of title XVIII of the Social 

22 Security Act for renal dialysis services furnished in 2005 

23 and 2006, the composite rate for such services shall be 

24 increased by 1.6 percent under section 1881(b)(12) of 
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1 such Act (42 U.S.C. 1395rr(b)(7)), as added by section 

2 433(b)(5). 

3 SEC. 424. EXTENSION OF HOLD HARMLESS PROVISIONS 

4 FOR SMALL RURAL HOSPITALS AND TREAT5 MENT OF CERTAIN SOLE COMMUNITY HOS6 PITALS TO LIMIT DECLINE IN PAYMENT 

7 UNDER THE OPD PPS. 

8 (a) SMALL RURAL HOSPITALS.—Section 

9 1833(t)(7)(D)(i) (42 U.S.C. 1395l(t)(7)(D)(i)) is amend10 ed by striking ‘‘2004’’ and inserting ‘‘2006’’. 

11 (b) SOLE COMMUNITY HOSPITALS.—Section 

12 1833(t)(7)(D) (42 U.S.C. 1395l(t)(7)(D)) is amended by 

13 adding at the end the following: 

14 ‘‘(iii) TEMPORARY TREATMENT FOR

15 SOLE COMMUNITY HOSPITALS.—In the 

16 case of a sole community hospital (as de17 fined in section 1886(d)(5)(D)(iii)) located 

18 in a rural area, for covered OPD services 

19 furnished in 2004, 2005, or 2006, for 

20 which the PPS amount is less than the 

21 pre-BBA amount, the amount of payment 

22 under this subsection shall be increased by 

23 the amount of such difference.’’. 
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1 SEC. 425. INCREASE IN PAYMENTS FOR CERTAIN SERVICES 

2 FURNISHED BY SMALL RURAL AND SOLE 

3 COMMUNITY HOSPITALS UNDER MEDICARE 

4 PROSPECTIVE PAYMENT SYSTEM FOR HOS5 PITAL OUTPATIENT DEPARTMENT SERVICES. 

6 (a) INCREASE.—

7 (1) IN GENERAL.—In the case of an applicable 

8 covered OPD service (as defined in paragraph (2)) 

9 that is furnished by a hospital described in clause (i) 

10 or (iii) of paragraph (7)(D) of section 1833(t) of the 

11 Social Security Act (42 U.S.C. 1395l(t)), as amend12 ed by section 424, on or after January 1, 2004, and 

13 before January 1, 2008, the Secretary shall increase 

14 the medicare OPD fee schedule amount (as deter15 mined under paragraph (4)(A) of such section) that 

16 is applicable for such service in that year (deter17 mined without regard to any increase under this sec18 tion in a previous year) by 5 percent. 

19 (2) APPLICABLE COVERED OPD SERVICES DE20 FINED.—For purposes of this section, the term ‘‘ap21 plicable covered OPD service’’ means a covered clinic 

22 or emergency room visit that is classified within the 

23 groups of covered OPD services (as defined in para24 graph (1)(B) of section 1833(t) of the Social Secu25 rity Act (42 U.S.C. 1395l(t))) established under 

26 paragraph (2)(B) of such section. 
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1 (b) NO EFFECT ON COPAYMENT AMOUNT.—The Sec2 retary shall compute the copayment amount for applicable 

3 covered OPD services under section 1833(t)(8)(A) of the 

4 Social Security Act (42 U.S.C. 1395l(t)(8)(A)) as if this 

5 section had not been enacted. 

6 (c) NO EFFECT ON INCREASE UNDER HOLD HARM7 LESS OR OUTLIER PROVISIONS.—The Secretary shall 

8 apply the temporary hold harmless provision under clause 

9 (i) and (iii) of paragraph (7)(D) of section 1833(t) of the 

10 Social Security Act (42 U.S.C. 1395l(t)) and the outlier 

11 provision under paragraph (5) of such section as if this 

12 section had not been enacted. 

13 (d) WAIVING BUDGET NEUTRALITY AND NO REVI14 SION OR ADJUSTMENTS.—The Secretary shall not make 

15 any revision or adjustment under subparagraph (A), (B), 

16 or (C) of section 1833(t)(9) of the Social Security Act (42 

17 U.S.C. 1395l(t)(9)) because of the application of sub18 section (a)(1). 

19 (e) NO EFFECT ON PAYMENTS AFTER INCREASE PE20 RIOD ENDS.—The Secretary shall not take into account 

21 any payment increase provided under subsection (a)(1) in 

22 determining payments for covered OPD services (as de23 fined in paragraph (1)(B) of section 1833(t) of the Social 

24 Security Act (42 U.S.C. 1395l(t))) under such section that 

25 are furnished after January 1, 2008. 
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1 (f) TECHNICAL AMENDMENT.—Section 

2 1833(t)(2)(B) (42 U.S.C. 1395l(t)(2)(B)) is amended by 

3 inserting ‘‘(and periodically revise such groups pursuant 

4 to paragraph (9)(A))’’ after ‘‘establish groups’’. 

5 SEC. 426. INCREASE FOR GROUND AMBULANCE SERVICES 

6 FURNISHED IN A RURAL AREA. 

7 Section 1834(l) (42 U.S.C. 1395m(l)), as amended 

8 by section 405(b)(2), is amended by adding at the end 

9 the following new paragraph: 

10 ‘‘(10) TEMPORARY INCREASE FOR GROUND AM11 BULANCE SERVICES FURNISHED IN A RURAL

12 AREA.—

13 ‘‘(A) IN GENERAL.—Notwithstanding any 

14 other provision of this subsection, in the case of 

15 ground ambulance services furnished on or 

16 after January 1, 2004, and before January 1, 

17 2008, for which the transportation originates in 

18 a rural area described in paragraph (9) or in a 

19 rural census tract described in such paragraph, 

20 the fee schedule established under this section, 

21 with respect to both the payment rate for serv22 ice and the payment rate for mileage, shall pro23 vide that such rates otherwise established, after 

24 application of any increase under such para25 graph, shall be increased by 5 percent. 
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1 ‘‘(B) APPLICATION OF INCREASED PAY2 MENTS AFTER 2007.—The increased payments 

3 under subparagraph (A) shall not be taken into 

4 account in calculating payments for services 

5 furnished on or after the period specified in 

6 such subparagraph.’’. 

7 SEC. 427. ENSURING APPROPRIATE COVERAGE OF AIR AM8 BULANCE SERVICES UNDER AMBULANCE FEE 

9 SCHEDULE. 

10 (a) COVERAGE.—Section 1834(l) (42 U.S.C. 

11 1395m(l)), as amended by section 426, is amended by 

12 adding at the end the following new paragraph: 

13 ‘‘(11) ENSURING APPROPRIATE COVERAGE OF

14 AIR AMBULANCE SERVICES.—

15 ‘‘(A) IN GENERAL.—The regulations de16 scribed in section 1861(s)(7) shall ensure that 

17 air ambulance services (as defined in subpara18 graph (C)) are reimbursed under this sub19 section at the air ambulance rate if the air am20 bulance service— 

21 ‘‘(i) is medically necessary based on 

22 the health condition of the individual being

23 transported at or immediately prior to the 

24 time of the transport; and 
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1 ‘‘(ii) complies with equipment and 

2 crew requirements established by the Sec3 retary. 

4 ‘‘(B) MEDICALLY NECESSARY.—An air 

5 ambulance service shall be considered to be 

6 medically necessary for purposes of subpara7 graph (A)(i) if such service is requested—

8 ‘‘(i) by a physician or a hospital in ac9 cordance with the physician’s or hospital’s 

10 responsibilities under section 1867 (com11 monly known as the Emergency Medical 

12 Treatment and Active Labor Act); 

13 ‘‘(ii) as a result of a protocol estab14 lished by a State or regional emergency 

15 medical service (EMS) agency; 

16 ‘‘(iii) by a physician, nurse practi17 tioner, physician assistant, registered 

18 nurse, or emergency medical responder 

19 who reasonably determines or certifies that 

20 the patient’s condition is such that the 

21 time needed to transport the individual by 

22 land or the lack of an appropriate ground 

23 ambulance, significantly increases the med24 ical risks for the individual; or
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1 ‘‘(iv) by a Federal or State agency to 

2 relocate patients following a natural dis3 aster, an act of war, or a terrorist attack. 

4 ‘‘(C) AIR AMBULANCE SERVICES DE5 FINED.—For purposes of this paragraph, the 

6 term ‘air ambulance service’ means fixed wing 

7 and rotary wing air ambulance services.’’. 

8 (b) CONFORMING AMENDMENT.—Section 1861(s)(7) 

9 (42 U.S.C. 1395x(s)(7)) is amended by inserting ‘‘, sub10 ject to section 1834(l)(11),’’ after ‘‘but’’. 

11 (c) EFFECTIVE DATE.—The amendments made by 

12 this section shall apply to services furnished on or after 

13 January 1, 2004. 

14 SEC. 428. TREATMENT OF CERTAIN CLINICAL DIAGNOSTIC 

15 LABORATORY TESTS FURNISHED BY A SOLE 

16 COMMUNITY HOSPITAL. 

17 Notwithstanding subsections (a), (b), and (h) of sec18 tion 1833 of the Social Security Act (42 U.S.C. 1395l) 

19 and section 1834(d)(1) of such Act (42 U.S.C. 

20 1395m(d)(1)), in the case of a clinical diagnostic labora21 tory test covered under part B of title XVIII of such Act 

22 that is furnished in 2004 or 2005 by a sole community 

23 hospital (as defined in section 1886(d)(5)(D)(iii) of such 

24 Act (42 U.S.C. 1395ww(d)(5)(D)(iii))) as part of services 
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1 furnished to patients of the hospital, the following rules 

2 shall apply: 

3 (1) PAYMENT BASED ON REASONABLE COSTS.—

4 The amount of payment for such test shall be 100 

5 percent of the reasonable costs of the hospital in fur6 nishing such test. 

7 (2) NO BENEFICIARY COST-SHARING.—Notwith8 standing section 432, no coinsurance, deductible, co9 payment, or other cost-sharing otherwise applicable 

10 under such part B shall apply with respect to such 

11 test. 

12 SEC. 429. IMPROVEMENT IN RURAL HEALTH CLINIC REIM13 BURSEMENT. 

14 Section 1833(f) (42 U.S.C. 1395l(f)) is amended—

15 (1) in paragraph (1), by striking ‘‘, and’’ at the 

16 end and inserting a semicolon; 

17 (2) in paragraph (2)—

18 (A) by striking ‘‘in a subsequent year’’ and 

19 inserting ‘‘in 1989 through 2003’’; and 

20 (B) by striking the period at the end and 

21 inserting a semicolon; and 

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

23 paragraphs: 

24 ‘‘(3) in 2004, at $80 per visit; and 
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1 ‘‘(4) in a subsequent year, at the limit estab2 lished under this subsection for the previous year in3 creased by the percentage increase in the MEI (as 

4 so defined) applicable to primary care services (as so 

5 defined) furnished as of the first day of that year.’’. 

6 SEC. 430. ELIMINATION OF CONSOLIDATED BILLING FOR 

7 CERTAIN SERVICES UNDER THE MEDICARE 

8 PPS FOR SKILLED NURSING FACILITY SERV9 ICES. 

10 (a) CERTAIN RURAL HEALTH CLINIC AND FEDER11 ALLY QUALIFIED HEALTH CENTER SERVICES.—Section 

12 1888(e) (42 U.S.C. 1395yy(e)) is amended—

13 (1) in paragraph (2)(A)(i)(II), by striking 

14 ‘‘clauses (ii) and (iii)’’ and inserting ‘‘clauses (ii), 

15 (iii), and (iv)’’; and 

16 (2) by adding at the end of paragraph (2)(A) 

17 the following new clause: 

18 ‘‘(iv) EXCLUSION OF CERTAIN RURAL

19 HEALTH CLINIC AND FEDERALLY QUALI20 FIED HEALTH CENTER SERVICES.—Serv21 ices described in this clause are—

22 ‘‘(I) rural health clinic services 

23 (as defined in paragraph (1) of sec24 tion 1861(aa)); and 
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1 ‘‘(II) Federally qualified health 

2 center services (as defined in para3 graph (3) of such section);

4 that would be described in clause (ii) if such 

5 services were furnished by a physician or practi6 tioner not affiliated with a rural health clinic or 

7 a Federally qualified health center.’’. 

8 (b) CERTAIN SERVICES FURNISHED BY AN ENTITY

9 JOINTLY OWNED BY HOSPITALS AND CRITICAL ACCESS

10 HOSPITALS.—For purposes of applying section 

11 411.15(p)–(3)(iii) of title 42 of the Code of Federal Regu12 lations, the Secretary shall treat an entity that is 100 per13 cent owned as a joint venture by 2 Medicare-participating 

14 hospitals or critical access hospitals as a Medicare-partici15 pating hospital or a critical access hospital. 

16 (c) TECHNICAL AMENDMENTS.—Sections 

17 1842(b)(6)(E) and 1866(a)(1)(H)(ii) (42 U.S.C. 

18 1395u(b)(6)(E); 1395cc(a)(1)(H)(ii)) are each amended 

19 by striking ‘‘section 1888(e)(2)(A)(ii)’’ and inserting 

20 ‘‘clauses (ii), (iii), and (iv) of section 1888(e)(2)(A)’’. 

21 (d) EFFECTIVE DATE.—The amendments made by 

22 this section and the provision of subsection (b) shall apply 

23 to services furnished on or after January 1, 2004.
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1 SEC. 431. FREEZE IN PAYMENTS FOR CERTAIN ITEMS OF 

2 DURABLE MEDICAL EQUIPMENT AND CER3 TAIN ORTHOTICS; ESTABLISHMENT OF QUAL4 ITY STANDARDS AND ACCREDITATION RE5 QUIREMENTS FOR DME PROVIDERS. 

6 (a) FREEZE FOR DME.—Section 1834(a)(14) (42 

7 U.S.C. 1395m(a)(14)) is amended—

8 (1) in subparagraph (E), by striking ‘‘and’’ at 

9 the end; 

10 (2) in subparagraph (F)—

11 (A) by striking ‘‘a subsequent year’’ and 

12 inserting ‘‘2003’’; and 

13 (B) by striking ‘‘the previous year.’’ and 

14 inserting ‘‘2002;’’; and 

15 (3) by adding at the end the following new sub16 paragraphs: 

17 ‘‘(G) for each of the years 2004 through 

18 2010—

19 ‘‘(i) in the case of class III medical 

20 devices described in section 513(a)(1)(C) 

21 of the Federal Food, Drug, and Cosmetic 

22 Act (21 U.S.C. 360(c)(1)(C)), the percent23 age increase described in subparagraph 

24 (B) for the year involved; and 
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1 ‘‘(ii) in the case of covered items not 

2 described in clause (i), 0 percentage points; 

3 and 

4 ‘‘(H) for a subsequent year, the percentage 

5 increase described in subparagraph (B) for the 

6 year involved.’’. 

7 (b) FREEZE FOR OFF-THE-SHELF ORTHOTICS.—

8 Section 1834(h)(4)(A) of the Social Security Act (42 

9 U.S.C. 1395m(h)(4)(A)) is amended—

10 (1) in clause (vii), by striking ‘‘and’’ at the end; 

11 (2) in clause (viii), by striking ‘‘a subsequent 

12 year’’ and inserting ‘‘2003’’; and 

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

14 clauses: 

15 ‘‘(ix) for each of the years 2004 

16 through 2010—

17 ‘‘(I) in the case of orthotics that 

18 have not been custom-fabricated, 0 

19 percent; and 

20 ‘‘(II) in the case of prosthetics, 

21 prosthetic devices, and custom-fab22 ricated orthotics, the percentage in23 crease described in clause (viii) for the 

24 year involved; and 
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1 ‘‘(x) for 2011 and each subsequent 

2 year, the percentage increase described in 

3 clause (viii) for the year involved;’’. 

4 (c) ESTABLISHMENT OF QUALITY STANDARDS AND

5 ACCREDITATION REQUIREMENTS FOR DURABLE MED6 ICAL EQUIPMENT PROVIDERS.—Section 1834(a) (42 

7 U.S.C. 1395m(a)) is amended—

8 (1) by redesignating paragraph (17), as added 

9 by section 4551(c)(1) of the Balanced Budget Act of 

10 1997 (111 Stat. 458), as paragraph (19); and 

11 (2) by adding at the end the following new 

12 paragraph: 

13 ‘‘(20) IDENTIFICATION OF QUALITY STAND14 ARDS.—

15 ‘‘(A) IN GENERAL.—Subject to subpara16 graph (C), the Secretary shall establish and im17 plement quality standards for providers of dura18 ble medical equipment throughout the United 

19 States that are developed by recognized inde20 pendent accreditation organizations (as des21 ignated under subparagraph (B)(i)) and with 

22 which such providers shall be required to com23 ply in order to—

24 ‘‘(i) participate in the program under 

25 this title; 
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1 ‘‘(ii) furnish any item or service de2 scribed in subparagraph (D) for which 

3 payment is made under this part; and 

4 ‘‘(iii) receive or retain a provider or 

5 supplier number used to submit claims for 

6 reimbursement for any item or service de7 scribed in subparagraph (D) for which 

8 payment may be made under this title. 

9 ‘‘(B) DESIGNATION OF INDEPENDENT AC10 CREDITATION ORGANIZATIONS.—

11 ‘‘(i) IN GENERAL.—Not later that the 

12 date that is 6 months after the date of en13 actment of the Prescription Drug and 

14 Medicare Improvement Act of 2003, the 

15 Secretary shall designate independent ac16 creditation organizations for purposes of 

17 subparagraph (A). 

18 ‘‘(ii) CONSULTATION.—In determining 

19 which independent accreditation organiza20 tions to designate under clause (i), the 

21 Secretary shall consult with an expert out22 side advisory panel composed of an appro23 priate selection of representatives of physi24 cians, practitioners, suppliers, and manu25 facturers to review (and advise the Sec-
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1 retary concerning) selection of accrediting 

2 organizations and the quality standards of 

3 such organizations. 

4 ‘‘(C) QUALITY STANDARDS.—The quality 

5 standards described in subparagraph (A) may 

6 not be less stringent than the quality standards 

7 that would otherwise apply if this paragraph 

8 did not apply and shall include consumer serv9 ices standards. 

10 ‘‘(D) ITEMS AND SERVICES DESCRIBED.—

11 The items and services described in this sub12 paragraph are covered items (as defined in 

13 paragraph (13)) for which payment may other14 wise be made under this subsection, other than 

15 items used in infusion, and inhalation drugs 

16 used in conjunction with durable medical equip17 ment. 

18 ‘‘(E) PHASED-IN IMPLEMENTATION.—The 

19 application of the quality standards described in 

20 subparagraph (A) shall be phased-in over a pe21 riod that does not exceed 3 years.’’. 

22 SEC. 432. APPLICATION OF COINSURANCE AND DEDUCT23 IBLE FOR CLINICAL DIAGNOSTIC LABORA24 TORY TESTS. 

25 (a) COINSURANCE.—
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1 (1) IN GENERAL.—Section 1833(a) (42 U.S.C. 

2 1395l(a)) is amended—

3 (A) in paragraph (1)(D)(i), by striking 

4 ‘‘(or 100 percent, in the case of such tests for 

5 which payment is made on an assignment-re6 lated basis)’’; and 

7 (B) in paragraph (2)(D)(i), by striking 

8 ‘‘(or 100 percent, in the case of such tests for 

9 which payment is made on an assignment-re10 lated basis or to a provider having an agree11 ment under section 1866)’’. 

12 (2) CONFORMING AMENDMENT.—The third sen13 tence of section 1866(a)(2)(A) of the Social Security 

14 Act (42 U.S.C. 1395cc(a)(2)(A) is amended by 

15 striking ‘‘and with respect to clinical diagnostic lab16 oratory tests for which payment is made under part 

17 B’’. 

18 (b) DEDUCTIBLE.—Section 1833(b) of the Social Se19 curity Act (42 U.S.C. 1395l(b)) is amended—

20 (1) by striking paragraph (3); and 

21 (2) by redesignating paragraphs (4), (5), and 

22 (6) as paragraphs (3), (4), and (5), respectively.

23 (c) EFFECTIVE DATE.—The amendments made by 

24 this section shall apply to tests furnished on or after Janu25 ary 1, 2004. 
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1 SEC. 433. BASING MEDICARE PAYMENTS FOR COVERED 

2 OUTPATIENT DRUGS ON MARKET PRICES. 

3 (a) MEDICARE MARKET BASED PAYMENT

4 AMOUNT.—Section 1842(o) (42 U.S.C. 1395u(o)) is 

5 amended—

6 (1) in paragraph (1), by striking ‘‘equal to 95 

7 percent of the average wholesale price.’’ and insert8 ing ‘‘equal to—

9 ‘‘(A) in the case of a drug or biological fur10 nished prior to January 1, 2004, 95 percent of the 

11 average wholesale price; and 

12 ‘‘(B) in the case of a drug or biological fur13 nished on or after January 1, 2004, the payment 

14 amount specified in—

15 ‘‘(i) in the case of such a drug or biological 

16 that is first available for payment under this 

17 part on or before April 1, 2003, paragraph (4); 

18 and 

19 ‘‘(ii) in the case of such a drug or biologi20 cal that is first available for payment under this 

21 part after such date, paragraph (5).’’; and 

22 (2) by adding at the end the following new 

23 paragraphs: 

24 ‘‘(4)(A) Subject to subparagraph (C), the payment 

25 amount specified in this paragraph for a year for a drug 

26 or biological is an amount equal to the lesser of—
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1 ‘‘(i) the average wholesale price for the drug or 

2 biological; or 

3 ‘‘(ii) the amount determined under subpara4 graph (B) 

5 ‘‘(B)(i) Subject to clause (ii), the amount determined 

6 under this subparagraph is an amount equal to—

7 ‘‘(I) in the case of a drug or biological fur8 nished in 2004, 85 percent of the average wholesale 

9 price for the drug or biological (determined as of 

10 April 1, 2003); and 

11 ‘‘(II) in the case of a drug or biological fur12 nished in 2005 or a subsequent year, the amount de13 termined under this subparagraph for the previous 

14 year increased by the percentage increase in the con15 sumer price index for medical care for the 12-month 

16 period ending with June of the previous year. 

17 ‘‘(ii) In the case of a vaccine described in subpara18 graph (A) or (B) of section 1861(s)(10), the amount de19 termined under this subparagraph is an amount equal to 

20 the average wholesale price for the drug or biological. 

21 ‘‘(C)(i) The Secretary shall establish a process under 

22 which the Secretary determines, for such drugs or 

23 biologicals as the Secretary determines appropriate, 

24 whether the widely available market price to physicians or 

25 suppliers for the drug or biological furnished in a year 
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1 is different from the payment amount established under 

2 subparagraph (B) for the year. Such determination shall 

3 be based on the information described in clause (ii) as the 

4 Secretary determines appropriate. 

5 ‘‘(ii) The information described in this clause is the 

6 following information: 

7 ‘‘(I) Any report on drug or biological market 

8 prices by the Inspector General of the Department 

9 of Health and Human Services or the Comptroller 

10 General of the United States that is made available 

11 after December 31, 1999. 

12 ‘‘(II) A review of drug or biological market 

13 prices by the Secretary, which may include informa14 tion on such market prices from insurers, private 

15 health plans, manufacturers, wholesalers, distribu16 tors, physician supply houses, specialty pharmacies, 

17 group purchasing arrangements, physicians, sup18 pliers, or any other source the Secretary determines 

19 appropriate. 

20 ‘‘(III) Data and information submitted by the 

21 manufacturer of the drug or biological or by another 

22 entity. 

23 ‘‘(IV) Other data and information as deter24 mined appropriate by the Secretary.
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1 ‘‘(iii) If the Secretary makes a determination under 

2 clause (i) with respect to the widely available market price 

3 for a drug or biological for a year, the following provisions 

4 shall apply: 

5 ‘‘(I) Subject to clause (iv), the amount deter6 mined under this subparagraph shall be substituted 

7 for the amount determined under subparagraph (B) 

8 for purposes of applying subparagraph (A)(ii)(I) for 

9 the year and all subsequent years. 

10 ‘‘(II) The Secretary may make subsequent de11 terminations under clause (i) with respect to the 

12 widely available market price for the drug or biologi13 cal. 

14 ‘‘(III) If the Secretary does not make a subse15 quent determination under clause (i) with respect to 

16 the widely available market price for the drug or bio17 logical for a year, the amount determined under this 

18 subparagraph shall be an amount equal to the 

19 amount determined under this subparagraph for the 

20 previous year increased by the percentage increase 

21 described in subparagraph (B)(i)(II) for the year in22 volved. 

23 ‘‘(iv) If the first determination made under clause (i) 

24 with respect to the widely available market price for a 

25 drug or biological would result in a payment amount in 
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1 a year that is more than 15 percent less than the amount 

2 determined under subparagraph (B) for the drug or bio3 logical for the previous year (or, for 2004, the payment 

4 amount determined under paragraph (1)(A), determined 

5 as of April 1, 2003), the Secretary shall provide for a tran6 sition to the amount determined under clause (i) so that 

7 the payment amount is reduced in annual increments 

8 equal to 15 percent of the payment amount in such pre9 vious year until the payment amount is equal to the 

10 amount determined under clause (i), as increased each 

11 year by the percentage increase described in subparagraph 

12 (B)(i)(II) for the year. The preceding sentence shall not 

13 apply to a drug or biological where a generic version of 

14 the drug or biological first enters the market on or after 

15 January 1, 2004 (even if the generic version of the drug 

16 or biological is not marketed under the chemical name of 

17 such drug or biological). 

18 ‘‘(5) In the case of a drug or biological that is first 

19 available for payment under this part after April 1, 2003, 

20 the following rules shall apply: 

21 ‘‘(A) As a condition of obtaining a code to re22 port such new drug or biological and to receive pay23 ment under this part, a manufacturer shall provide 

24 the Secretary (in a time, manner, and form ap25 proved by the Secretary) with data and information 
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•HR 2606 IH 

1 on prices at which the manufacturer estimates phy2 sicians and suppliers will be able to routinely obtain 

3 the drug or biological in the market during the first 

4 year that the drug or biological is available for pay5 ment under this part and such additional informa6 tion that the manufacturer determines appropriate. 

7 ‘‘(B) During the year that the drug or biologi8 cal is first available for payment under this part, the 

9 manufacturer of the drug or biological shall provide 

10 the Secretary (in a time, manner, and form ap11 proved by the Secretary) with updated information 

12 on the actual market prices paid by such physicians 

13 or suppliers for the drug or biological in the year. 

14 ‘‘(C) The amount specified in this paragraph 

15 for a drug or biological for the year described in 

16 subparagraph (B) is equal to an amount determined 

17 by the Secretary based on the information provided 

18 under subparagraph (A) and other information that 

19 the Secretary determines appropriate. 

20 ‘‘(D) The amount specified in this paragraph 

21 for a drug or biological for the year after the year 

22 described in subparagraph (B) is equal to an 

23 amount determined by the Secretary based on the 

24 information provided under subparagraph (B) and 
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1 other information that the Secretary determines ap2 propriate. 

3 ‘‘(E) The amount specified in this paragraph 

4 for a drug or biological for the year beginning after 

5 the year described in subparagraph (D) and each 

6 subsequent year is equal to the lesser of—

7 ‘‘(i) the average wholesale price for the 

8 drug or biological; or 

9 ‘‘(ii) the amount determined—

10 ‘‘(I) by the Secretary under paragraph 

11 (4)(C)(i) with respect to the widely avail12 able market price for the drug or biological 

13 for the year, if such paragraph was applied 

14 by substituting ‘the payment determined 

15 under paragraph (5)(E)(ii)(II) for the 

16 year’ for ‘established under subparagraph 

17 (B) for the year’; and 

18 ‘‘(II) if no determination described in 

19 subclause (I) is made for the drug or bio20 logical for the year, under this subpara21 graph with respect to the drug or biological 

22 for the previous year increased by the per23 centage increase described in paragraph 

24 (4)(B)(i)(II) for the year involved.’’. 
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1 (b) ADJUSTMENTS TO PAYMENT AMOUNTS FOR AD2 MINISTRATION OF DRUGS AND BIOLOGICALS.—

3 (1) ADJUSTMENT IN PHYSICIAN PRACTICE EX4 PENSE RELATIVE VALUE UNITS.—Section 

5 1848(c)(2) (42 U.S.C. 1395w–4(c)(2)) is amended—

6 (A) in subparagraph (B)—

7 (i) in clause (ii)(II), by striking ‘‘The 

8 adjustments’’ and inserting ‘‘Subject to 

9 clause (iv), the adjustments’’; and 

10 (ii) by adding at the end the following 

11 new clause: 

12 ‘‘(iv) EXEMPTION FROM BUDGET

13 NEUTRALITY IN 2004.—Any additional ex14 penditures under this part that are attrib15 utable to subparagraph (H) shall not be 

16 taken into account in applying clause 

17 (ii)(II) for 2004.’’; and 

18 (B) by adding at the end the following new 

19 subparagraph: 

20 ‘‘(H) ADJUSTMENTS IN PRACTICE EX21 PENSE RELATIVE VALUE UNITS FOR DRUG AD22 MINISTRATION SERVICES FOR 2004.—In estab23 lishing the physician fee schedule under sub24 section (b) with respect to payments for services 

25 furnished in 2004, the Secretary shall, in deter-
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1 mining practice expense relative value units 

2 under this subsection, utilize a survey sub3 mitted to the Secretary as of January 1, 2003, 

4 by a physician specialty organization pursuant 

5 to section 212 of the Medicare, Medicaid, and 

6 SCHIP Balanced Budget Refinement Act of 

7 1999 if the survey—

8 ‘‘(i) covers practice expenses for on9 cology administration services; and 

10 ‘‘(ii) meets criteria established by the 

11 Secretary for acceptance of such surveys.’’. 

12 (2) PAYMENT FOR MULTIPLE CHEMOTHERAPY

13 AGENTS FURNISHED ON A SINGLE DAY THROUGH

14 THE PUSH TECHNIQUE.—

15 (A) REVIEW OF POLICY.—The Secretary 

16 shall review the policy, as in effect on the date 

17 of enactment of this Act, with respect to pay18 ment under section 1848 of the Social Security 

19 Act (42 U.S.C. 1395w–4) for the administra20 tion of more than 1 anticancer 

21 chemotherapeutic agent to an individual on a 

22 single day through the push technique. 

23 (B) MODIFICATION OF POLICY.—After 

24 conducting the review under subparagraph (A), 

25 the Secretary shall modify such payment policy 
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1 if the Secretary determines such modification to 

2 be appropriate. 

3 (C) EXEMPTION FROM BUDGET NEU4 TRALITY UNDER PHYSICIAN FEE SCHEDULE.—

5 If the Secretary modifies such payment policy 

6 pursuant to subparagraph (B), any increased 

7 expenditures under title XVIII of the Social Se8 curity Act resulting from such modification 

9 shall be treated as additional expenditures at10 tributable to subparagraph (H) of section 

11 1848(c)(2) of the Social Security Act (42 

12 U.S.C. 1395w–4(c)(2)), as added by paragraph 

13 (1)(B), for purposes of applying the exemption 

14 to budget neutrality under subparagraph 

15 (B)(iv) of such section, as added by paragraph 

16 (1)(A). 

17 (3) TREATMENT OF OTHER SERVICES CUR18 RENTLY IN THE NONPHYSICIAN WORK POOL.—The 

19 Secretary shall make adjustments to the nonphysi20 cian work pool methodology (as such term is used in 

21 the final rule promulgated by the Secretary in the 

22 Federal Register on December 31, 2002 (67 Fed. 

23 Reg. 251)), for the determination of practice ex24 pense relative value units under the physician fee 

25 schedule under section 1848(c)(2)(C)(ii) of the So-
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1 cial Security Act (42 U.S.C. 1395w–4(c)(2)(C)(ii)), 

2 so that the practice expense relative value units for 

3 services determined under such methodology are not 

4 disproportionately reduced relative to the practice 

5 expense relative value units of services not deter6 mined under such methodology, as a result of the 

7 amendments to such Act made by paragraph (1). 

8 (4) ADMINISTRATION OF BLOOD CLOTTING FAC9 TORS.—Section 1842(o) (42 U.S.C. 1395u(o)), as 

10 amended by subsection (a)(2), is amended by adding 

11 at the end the following new paragraph: 

12 ‘‘(6)(A) Subject to subparagraph (B), in the case of 

13 clotting factors furnished on or after January 1, 2004, 

14 the Secretary shall, after reviewing the January 2003 re15 port to Congress by the Comptroller General of the United 

16 States entitled ‘Payment for Blood Clotting Factor Ex17 ceeds Providers Acquisition Cost’ (GAO–03–184), provide 

18 for a separate payment for the administration of such 

19 blood clotting factors in an amount that the Secretary de20 termines to be appropriate. 

21 ‘‘(B) In determining the separate payment amount 

22 under subparagraph (A) for blood clotting factors fur23 nished in 2004, the Secretary shall ensure that the total 

24 amount of payments under this part (as estimated by the 

25 Secretary) for such factors under paragraphs (4) and (5) 
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1 and such separate payments for such factors does not ex2 ceed the total amount of payments that would have been 

3 made for such factors under this part (as estimated by 

4 the Secretary) if the amendments made by section 433 

5 of the Prescription Drug and Medicare Improvement Act 

6 of 2003 had not been enacted. 

7 ‘‘(C) The separate payment amount under this sub8 paragraph for blood clotting factors furnished in 2005 or 

9 a subsequent year shall be equal to the separate payment 

10 amount determined under this paragraph for the previous 

11 year increased by the percentage increase described in 

12 paragraph (4)(B)(i)(II) for the year involved.’’.

13 (5) INCREASE IN COMPOSITE RATE FOR END

14 STAGE RENAL DISEASE FACILITIES.—Section 

15 1881(b) (42 U.S.C. 1395rr(b) is amended—

16 (A) in paragraph (7), by adding at the end 

17 the following new sentence: ‘‘In the case of di18 alysis services furnished in 2004 or a subse19 quent year, the composite rate for such services 

20 shall be determined under paragraph (12).’’; 

21 and 

22 (B) by adding at the end the following new 

23 paragraph: 

24 ‘‘(12)(A) In the case of dialysis services furnished 

25 during 2004, the composite rate for such services shall be 
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•HR 2606 IH 

1 the composite rate that would otherwise apply under para2 graph (7) for the year increased by an amount to ensure 

3 (as estimated by the Secretary) that—

4 ‘‘(i) the sum of the total amount of—

5 ‘‘(I) the composite rate payments for such 

6 services for the year, as increased under this 

7 paragraph; and 

8 ‘‘(II) the payments for drugs and 

9 biologicals (other than erythropoetin) furnished 

10 in connection with the furnishing of renal dialy11 sis services and separately billed by renal dialy12 sis facilities under paragraphs (4) and (5) of 

13 section 1842(o) for the year; is equal to 

14 ‘‘(ii) the sum of the total amount of the com15 posite rate payments under paragraph (7) for the 

16 year and the payments for the separately billed 

17 drugs and biologicals described in clause (i)(II) that 

18 would have been made if the amendments made by 

19 section 433 of the Prescription Drug and Medicare 

20 Improvement Act of 2003 had not been enacted. 

21 ‘‘(B) Subject to subparagraph (E), in the case of di22 alysis services furnished in 2005, the composite rate for 

23 such services shall be an amount equal to the composite 

24 rate established under subparagraph (A), increased by 

25 0.05 percent and further increased pursuant to section 
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1 423 of the Prescription Drug and Medicare Improvement 

2 Act of 2003. 

3 ‘‘(C) Subject to subparagraph (E), in the case of di4 alysis services furnished in 2006, the composite rate for 

5 such services shall be an amount equal to the composite 

6 rate established under subparagraph (B), increased by 

7 0.05 percent. 

8 ‘‘(D) Subject to subparagraph (E), in the case of di9 alysis services furnished in 2007 or a subsequent year, the 

10 composite rate for such services shall be an amount equal 

11 to the composite rate established under this paragraph for 

12 the previous year (determined as if such section 423 had 

13 not been enacted), increased by 0.05 percent. 

14 ‘‘(E) If the Secretary implements a reduction in the 

15 payment amount under paragraph (4)(C) or (5) for a drug 

16 or biological described in subparagraph (A)(i)(II) for a 

17 year after 2004, the Secretary shall, as estimated by the 

18 Secretary—

19 ‘‘(i) increase the composite rate for dialysis 

20 services furnished in such year in the same manner 

21 that the composite rate for such services for 2004 

22 was increased under subparagraph (A); and 

23 ‘‘(ii) increase the percentage increase under 

24 subparagraph (C) or (D) (as applicable) for years 

25 after the year described in clause (i) to ensure that 
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1 such increased percentage would result in expendi2 tures equal to the sum of the total composite rate 

3 payments for such services for such years and the 

4 total payments for drugs and biologicals described in 

5 subparagraph (A)(i)(II) is equal to the sum of the 

6 total amount of the composite rate payments under 

7 this paragraph for such years and the payments for 

8 the drugs and biologicals described in subparagraph 

9 (A)(i)(II) that would have been made if the reduc10 tion in payment amount described in subparagraph 

11 had not been made. 

12 ‘‘(F) There shall be no administrative or judicial re13 view under section 1869, section 1878, or otherwise, of 

14 determinations of payment amounts, methods, or adjust15 ments under this paragraph.’’. 

16 (6) HOME INFUSION DRUGS.—Section 1842(o) 

17 (42 U.S.C. 1395u(o)), as amended by subsection 

18 (a)(2) and paragraph (4), is amended by adding at 

19 the end the following new paragraph: 

20 ‘‘(7)(A) Subject to subparagraph (B), in the case of 

21 infusion drugs and biologicals furnished through an item 

22 of durable medical equipment covered under section 

23 1861(n) on or after January 1, 2004, the Secretary may 

24 make separate payments for furnishing such drugs and 

25 biologicals in an amount determined by the Secretary if 
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1 the Secretary determines such separate payment to be ap2 propriate. 

3 ‘‘(B) In determining the amount of any separate pay4 ment under subparagraph (A) for a year, the Secretary 

5 shall ensure that the total amount of payments under this 

6 part for such infusion drugs and biologicals for the year 

7 and such separate payments for the year does not exceed 

8 the total amount of payments that would have been made 

9 under this part for the year for such infusion drugs and 

10 biologicals if section 433 of the Prescription Drug and 

11 Medicare Improvement Act of 2003 had not been en12 acted.’’. 

13 (7) INHALATION DRUGS.—Section 1842(o) (42 

14 U.S.C. 1395u(o)), as amended by subsection (a)(2) 

15 and paragraphs (4) and (6), is amended by adding 

16 at the end the following new paragraph: 

17 ‘‘(8)(A) Subject to subparagraph (B), in the case of 

18 inhalation drugs and biologicals furnished through durable 

19 medical equipment covered under section 1861(n) on or 

20 after January 1, 2004, the Secretary may increase pay21 ments for such equipment under section 1834(a) and may 

22 make separate payments for furnishing such drugs and 

23 biologicals if the Secretary determines such increased or 

24 separate payments are necessary to appropriately furnish 

25 such equipment and drugs and biologicals to beneficiaries. 
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1 ‘‘(B) The total amount of any increased payments 

2 and separate payments under subparagraph (A) for a year 

3 may not exceed an amount equal to 10 percent of the 

4 amount (as estimated by the Secretary) by which—

5 ‘‘(i) the total amount of payments that would 

6 have been made for such drugs and biologicals for 

7 the year if section 433 of the Prescription Drug and 

8 Medicare Improvement Act of 2003 had not been en9 acted; exceeds 

10 ‘‘(ii) the total amount of payments for such 

11 drugs and biologicals under paragraphs (4) and 

12 (5).’’. 

13 (8) PHARMACY DISPENSING FEE FOR CERTAIN

14 DRUGS AND BIOLOGICALS.—Section 1842(o)(2) (42 

15 U.S.C. 1395u(o)(2)) is amended to read as follows: 

16 ‘‘(2) If payment for a drug or biological is made to 

17 a licensed pharmacy approved to dispense drugs or 

18 biologicals under this part, the Secretary—

19 ‘‘(A) in the case of an immunosuppressive drug 

20 described in subparagraph (J) of section 1861(s)(2) 

21 and an oral drug described in subparagraph (Q) or 

22 (T) of such section, shall pay a dispensing fee deter23 mined appropriate by the Secretary (less the applica24 ble deductible and coinsurance amounts) to the 

25 pharmacy; and 
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1 ‘‘(B) in the case of a drug or biological not de2 scribed in subparagraph (A), may pay a dispensing 

3 fee determined appropriate by the Secretary (less 

4 the applicable deductible and coinsurance amounts) 

5 to the pharmacy.’’.

6 (9) PAYMENT FOR CHEMOTHERAPY DRUGS

7 PURCHASED BUT NOT ADMINISTERED BY PHYSI8 CIANS.—Section 1842(o) (42 U.S.C. 1395u(o)), as 

9 amended by subsection (a)(2) and paragraphs (4), 

10 (6) and (7), is amended by adding at the end the 

11 following new paragraph: 

12 ‘‘(9)(A) Subject to subparagraph (B), the Sec13 retary may increase (in an amount determined ap14 propriate) the amount of payments to physicians for 

15 anticancer chemotherapeutic drugs or biologicals 

16 that would otherwise be made under this part in 

17 order to compensate such physicians for anticancer 

18 chemotherapeutic drugs or biologicals that are pur19 chased by physicians with a reasonable intent to ad20 minister to an individual enrolled under this part 

21 but which cannot be administered to such individual 

22 despite the reasonable efforts of the physician. 

23 ‘‘(B) The total amount of increased payments 

24 made under subparagraph (A) in a year (as esti25 mated by the Secretary) may not exceed an amount 
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1 equal to 1 percent of the total amount of payments 

2 made under paragraphs (4) and (5) for such 

3 anticancer chemotherapeutic drugs or biologicals fur4 nished by physicians in such year (as estimated by 

5 the Secretary).’’. 

6 (c) LINKAGE OF REVISED DRUG PAYMENTS AND IN7 CREASES FOR DRUG ADMINISTRATION.—The Secretary 

8 shall not implement the revisions in payment amounts for 

9 a category of drug or biological as a result of the amend10 ments made by subsection (a) unless the Secretary concur11 rently implements the adjustments to payment amounts 

12 for administration of such category of drug or biological 

13 for which the Secretary is required to make an adjust14 ment, as specified in the amendments made by, and provi15 sions of, subsection (b). 

16 (d) PROHIBITION OF ADMINISTRATIVE AND JUDI17 CIAL REVIEW.—

18 (1) DRUGS.—Section 1842(o) (42 U.S.C. 

19 1395u(o)), as amended by subsection (a)(2) and 

20 paragraphs (4), (6), (7), and (9) of subsection (b), 

21 is amended by adding at the end the following new 

22 paragraph: 

23 ‘‘(10) There shall be no administrative or judicial re24 view under section 1869, section 1878, or otherwise, of 

25 determinations of payment amounts, methods, or adjust-
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1 ments under paragraph (2) or paragraphs (4) through 

2 (9).’’. 

3 (2) PHYSICIAN FEE SCHEDULE.—Section 

4 1848(i)(1) (42 U.S.C. 1395w–4(i)(1)) is amended—

5 (A) in subparagraph (D), by striking 

6 ‘‘and’’ at the end; 

7 (B) in subparagraph (E), by striking the 

8 period at the end and inserting ‘‘, and’’; and 

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

10 subparagraph: 

11 ‘‘(F) adjustments in practice expense rel12 ative value units under subsection (c)(2)(H).’’. 

13 (3) MULTIPLE CHEMOTHERAPY AGENTS AND

14 OTHER SERVICES CURRENTLY ON THE NON-PHYSI15 CIAN WORK POOL.—There shall be no administrative 

16 or judicial review under section 1869, section 1878, 

17 or otherwise, of determinations of payment amounts, 

18 methods, or adjustments under paragraphs (2) and 

19 (3) of subsection (b). 

20 (e) STUDIES AND REPORTS.—

21 (1) GAO STUDY AND REPORT ON BENEFICIARY

22 ACCESS TO DRUGS AND BIOLOGICALS.—

23 (A) STUDY.—The Comptroller General of 

24 the United States shall conduct a study that ex25 amines the impact the provisions of, and the 
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1 amendments made by, this section have on ac2 cess by medicare beneficiaries to drugs and 

3 biologicals covered under the medicare program. 

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

5 2006, the Comptroller General shall submit a 

6 report to Congress on the study conducted 

7 under subparagraph (A) together with such rec8 ommendations as the Comptroller General de9 termines to be appropriate. 

10 (2) STUDY AND REPORT BY THE HHS INSPEC11 TOR GENERAL ON MARKET PRICES OF DRUGS AND

12 BIOLOGICALS.—

13 (A) STUDY.—The Inspector General of the 

14 Department of Health and Human Services 

15 shall conduct 1 or more studies that—

16 (i) examine the market prices that 

17 drugs and biologicals covered under the 

18 medicare program are widely available to 

19 physicians and suppliers; and 

20 (ii) compare such widely available 

21 market prices to the payment amount for 

22 such drugs and biologicals under section 

23 1842(o) of the Social Security Act (42 

24 U.S.C. 1395u(o). 
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1 (B) REQUIREMENT.—In conducting the 

2 study under subparagraph (A), the Inspector 

3 General shall focus on those drugs and 

4 biologicals that represent the largest portions of 

5 expenditures under the medicare program for 

6 drugs and biologicals.

7 (C) REPORT.—The Inspector General shall 

8 prepare a report on any study conducted under 

9 subparagraph (A). 

10 SEC. 434. INDEXING PART B DEDUCTIBLE TO INFLATION. 

11 The first sentence of section 1833(b) (42 U.S.C. 

12 1395l(b)) is amended by striking ‘‘and $100 for 1991 and 

13 subsequent years’’ and inserting the following: ‘‘, $100 for 

14 1991 through 2005, $125 for 2006, and for 2007 and 

15 thereafter, the amount in effect for the previous year, in16 crease by the percentage increase in the consumer price 

17 index for all urban consumers (U.S. city average) for the 

18 12-month period ending with June of the previous year, 

19 rounded to the nearest dollar’’. 

20 SEC. 435. REVISIONS TO REASSIGNMENT PROVISIONS. 

21 (a) IN GENERAL.—Section 1842(b)(6)(A)(ii) (42 

22 U.S.C. 1395u(b)(6)(A)(ii)) is amended to read as follows: 

23 ‘‘(ii) where the service was provided under a contractual 

24 arrangement between such physician or other person and 

25 an entity (as defined by the Secretary), to the entity if 
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1 under such arrangement such entity submits the bill for 

2 such service and such arrangement meets such program 

3 integrity and other safeguards as the Secretary may deter4 mine to be appropriate,’’. 

5 (b) CONFORMING AMENDMENT.—The second sen6 tence of section 1842(b)(6) (42 U.S.C. 1395u(b)(6)) is 

7 amended by striking ‘‘except to an employer or facility as 

8 described in clause (A)’’ and inserting ‘‘except to an em9 ployer or entity as described in subparagraph (A)’’. 

10 (c) EFFECTIVE DATE.—The amendments made by 

11 this section shall apply to payments made on or after the 

12 date of enactment of this Act. 

13 SEC. 436. EXTENSION OF TREATMENT OF CERTAIN PHYSI14 CIAN PATHOLOGY SERVICES UNDER MEDI15 CARE. 

16 Section 542(c) of BIPA (114 Stat. 2763A–551) is 

17 amended by inserting ‘‘, and for services furnished during 

18 2004 or 2005’’ before the period at the end.

19 SEC. 437. ADEQUATE REIMBURSEMENT FOR OUTPATIENT 

20 PHARMACY THERAPY UNDER THE HOSPITAL 

21 OUTPATIENT PPS. 

22 (a) SPECIAL RULES FOR DRUGS AND

23 BIOLOGICALS.—Section 1833(t) (42 U.S.C. 1395(t)) is 

24 amended—
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1 (1) by redesignating paragraph (13) as para2 graph (14); and 

3 (2) by inserting after paragraph (12) the fol4 lowing new paragraph: 

5 ‘‘(13) SPECIAL RULES FOR CERTAIN DRUGS

6 AND BIOLOGICALS.—

7 ‘‘(A) BEFORE 2007.—

8 ‘‘(i) IN GENERAL.—Notwithstanding 

9 paragraph (6), but subject to clause (ii), 

10 with respect to a separately payable drug 

11 or biological described in subparagraph 

12 (D) furnished on or after January 1, 2005, 

13 and before January 1, 2007, hospitals 

14 shall be reimbursed as follows: 

15 ‘‘(I) DRUGS AND BIOLOGICALS

16 FURNISHED AS PART OF A CURRENT

17 OPD SERVICE.—The amount of pay18 ment for a drug or biological de19 scribed in subparagraph (D) provided 

20 as a part of a service that was a cov21 ered OPD service on May 1, 2003, 

22 shall be the applicable percentage (as 

23 defined in subparagraph (C)) of the 

24 average wholesale price for the drug 

25 or biological that would have been de-
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1 termined under section 1842(o) on 

2 such date. 

3 ‘‘(II) DRUGS AND BIOLOGICALS

4 FURNISHED AS PART OF OTHER OPD

5 SERVICES.—The amount of payment 

6 for a drug or biological described in 

7 subparagraph (D) provided as part of 

8 any other covered OPD service shall 

9 be the applicable percentage (as de10 fined in subparagraph (C)) of the av11 erage wholesale price that would have 

12 been determined under section 

13 1842(o) on May 1, 2003, if payment 

14 for such a drug or biological could 

15 have been made under this part on 

16 that date. 

17 ‘‘(ii) UPDATE FOR 2006.—For 2006, 

18 the amounts determined under clauses (i) 

19 and (ii) shall be the amount established for 

20 2005 increased by the percentage increase 

21 in the Consumer Price Index for all urban 

22 consumers (U.S. urban average) for the 

23 12-month period ending with June of the 

24 previous year. 

25 ‘‘(B) AFTER 2007.—
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1 ‘‘(i) ONGOING STUDY AND REPORTS

2 ON ADEQUATE REIMBURSEMENTS.—

3 ‘‘(I) STUDY.—The Secretary 

4 shall contract with an eligible organi5 zation (as defined in subclause (IV)) 

6 to conduct a study to determine the 

7 hospital acquisition and handling 

8 costs for each individual drug or bio9 logical described in subparagraph (D). 

10 ‘‘(II) STUDY REQUIREMENTS.—

11 The study conducted under subclause 

12 (I) shall—

13 ‘‘(aa) be accurate to within 

14 3 percent of true mean hospital 

15 acquisition and handling costs for 

16 each drug and biological at the 

17 95 percent confidence level; 

18 ‘‘(bb) begin not later than 

19 January 1, 2005; and 

20 ‘‘(cc) be updated annually 

21 for changes in hospital costs and 

22 the addition of newly marketed 

23 products. 

24 ‘‘(III) REPORTS.—Not later than 

25 January 1 of each year (beginning 
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1 with 2006), the Secretary shall submit 

2 to Congress a report on the study 

3 conducted under clause (i) together 

4 with recommendations for such legis5 lative or administrative action as the 

6 Secretary determines to be appro7 priate.

8 ‘‘(IV) ELIGIBLE ORGANIZATION

9 DEFINED.—In this clause, the term 

10 ‘eligible organization’ means a private, 

11 nonprofit organization within the 

12 meaning of section 501(c) of the In13 ternal Revenue Code. 

14 ‘‘(ii) ESTABLISHMENT OF PAYMENT

15 METHODOLOGY.—Notwithstanding para16 graph (6), the Secretary, in establishing a 

17 payment methodology on or after the date 

18 of enactment of the Prescription Drug and 

19 Medicare Improvement Act of 2003, shall 

20 take into consideration the findings of the 

21 study conducted under clause (i)(I) in de22 termining payment amounts for each drug 

23 and biological provided as part of a covered 

24 OPD service furnished on or after January 

25 1, 2007. 
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1 ‘‘(C) APPLICABLE PERCENTAGE DE2 FINED.—In this paragraph, the term ‘applicable 

3 percentage’ means— 

4 ‘‘(i) with respect to a biological prod5 uct (approved under a biologics license ap6 plication under section 351 of the Public 

7 Health Service Act), a single source drug 

8 (as defined in section 1927(k)(7)(A)(iv)), 

9 or an orphan product designated under 

10 section 526 of the Food, Drug, and Cos11 metic Act to which the prospective pay12 ment system established under this sub13 section did not apply under the final rule 

14 for 2003 payments under such system, 94 

15 percent; 

16 ‘‘(ii) with respect to an innovator mul17 tiple source drug (as defined in section 

18 1927(k)(7)(A)(ii)), 91 percent; and 

19 ‘‘(iii) with respect to a noninnovator 

20 multiple source drug (as defined in section 

21 1927(k)(7)(A)(iii)), 71 percent. 

22 ‘‘(D) DRUGS AND BIOLOGICALS DE23 SCRIBED.—A drug or biological described in 

24 this paragraph is any drug or biological—
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1 ‘‘(i) for which the amount of payment 

2 was determined under paragraph (6) prior 

3 to January 1, 2005; 

4 ‘‘(ii) which is assigned to a drug spe5 cific ambulatory payment classification on 

6 or after the date of enactment of the Pre7 scription Drug and Medicare Improvement 

8 Act of 2003; and 

9 ‘‘(iii) that would have been reim10 bursed under paragraph (6) but for the ap11 plication of this paragraph.’’. 

12 (b) EXCEPTIONS TO BUDGET NEUTRALITY RE13 QUIREMENT.—Section 1833(t)(9)(B) (42 U.S.C. 

14 1395l(t)(9)(B)) is amended by adding at the end the fol15 lowing: ‘‘In determining the budget neutrality adjustment 

16 required by the preceding sentence for fiscal years 2005 

17 and 2006, the Secretary shall not take into account any 

18 expenditures that would not have been made but for the 

19 application of paragraph (13).’’. 

20 SEC. 438. LIMITATION OF APPLICATION OF FUNCTIONAL 

21 EQUIVALENCE STANDARD. 

22 Section 1833(t)(6) (42 U.S.C. 1395l(t)(6)) is amend23 ed by adding at the end the following new subparagraph: 

24 ‘‘(F) LIMITATION OF APPLICATION OF

25 FUNCTIONAL EQUIVALENCE STANDARD.—
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1 ‘‘(i) IN GENERAL.—The Secretary 

2 may not publish regulations that apply a 

3 functional equivalence standard to a drug 

4 or biological under this paragraph. 

5 ‘‘(ii) APPLICATION.—Paragraph (1) 

6 shall apply to the application of a func7 tional equivalence standard to a drug or bi8 ological on or after the date of enactment 

9 of the Prescription Drug and Medicare Im10 provement Act of 2003 unless—

11 ‘‘(I) such application was being 

12 made to such drug or biological prior 

13 to such date of enactment; and 

14 ‘‘(II) the Secretary applies such 

15 standard to such drug or biological 

16 only for the purpose of determining 

17 eligibility of such drug or biological 

18 for additional payments under this 

19 paragraph and not for the purpose of 

20 any other payments under this title. 

21 ‘‘(iii) RULE OF CONSTRUCTION.—

22 Nothing in this subparagraph shall be con23 strued to affect the Secretary’s authority 

24 to deem a particular drug to be identical to 

25 another drug if the 2 products are phar-
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1 maceutically equivalent and bioequvalent, 

2 as determined by the Commissioner of 

3 Food and Drugs.’’. 

4 SEC. 439. MEDICARE COVERAGE OF ROUTINE COSTS ASSO5 CIATED WITH CERTAIN CLINICAL TRIALS. 

6 (a) IN GENERAL.—With respect to the coverage of 

7 routine costs of care for beneficiaries participating in a 

8 qualifying clinical trial, as set forth on the date of the en9 actment of this Act in National Coverage Determination 

10 30-1 of the Medicare Coverage Issues Manual, the Sec11 retary shall deem clinical trials conducted in accordance 

12 with an investigational device exemption approved under 

13 section 520(g) of the Federal Food, Drug, and Cosmetic 

14 Act (42 U.S.C. 360j(g)) to be automatically qualified for 

15 such coverage.

16 (b) RULE OF CONSTRUCTION.—Nothing in this sec17 tion shall be construed as authorizing or requiring the Sec18 retary to modify the regulations set forth on the date of 

19 the enactment of this Act at subpart B of part 405 of 

20 title 42, Code of Federal Regulations, or subpart A of part 

21 411 of such title, relating to coverage of, and payment 

22 for, a medical device that is the subject of an investiga23 tional device exemption by the Food and Drug Adminis24 tration (except as may be necessary to implement sub25 section (a)). 
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1 (c) EFFECTIVE DATE.—This section shall apply to 

2 clinical trials begun on or after January 1, 2005. 

3 SEC. 440. WAIVER OF PART B LATE ENROLLMENT PENALTY 

4 FOR CERTAIN MILITARY RETIREES; SPECIAL 

5 ENROLLMENT PERIOD. 

6 (a) WAIVER OF PENALTY.—

7 (1) IN GENERAL.—Section 1839(b) (42 U.S.C. 

8 1395r(b)) is amended by adding at the end the fol9 lowing new sentence: ‘‘No increase in the premium 

10 shall be effected for a month in the case of an indi11 vidual who is 65 years of age or older, who enrolls 

12 under this part during 2002, 2003, 2004, or 2005 

13 and who demonstrates to the Secretary before De14 cember 31, 2005, that the individual is a covered 

15 beneficiary (as defined in section 1072(5) of title 10, 

16 United States Code). The Secretary shall consult 

17 with the Secretary of Defense in identifying individ18 uals described in the previous sentence.’’. 

19 (2) EFFECTIVE DATE.—The amendment made 

20 by paragraph (1) shall apply to premiums for 

21 months beginning with January 2005. The Secretary 

22 shall establish a method for providing rebates of pre23 mium penalties paid for months on or after January 

24 2005 for which a penalty does not apply under such 
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1 amendment but for which a penalty was previously 

2 collected. 

3 (b) MEDICARE PART B SPECIAL ENROLLMENT PE4 RIOD.—

5 (1) IN GENERAL.—In the case of any individual 

6 who, as of the date of enactment of this Act, is 65 

7 years of age or older, is eligible to enroll but is not 

8 enrolled under part B of title XVIII of the Social 

9 Security Act, and is a covered beneficiary (as de10 fined in section 1072(5) of title 10, United States 

11 Code), the Secretary shall provide for a special en12 rollment period during which the individual may en13 roll under such part. Such period shall begin 1 year 

14 after the date of the enactment of this Act and shall 

15 end on December 31, 2005. 

16 (2) COVERAGE PERIOD.—In the case of an indi17 vidual who enrolls during the special enrollment pe18 riod provided under paragraph (1), the coverage pe19 riod under part B of title XVIII of the Social Secu20 rity Act shall begin on the first day of the month 

21 following the month in which the individual enrolls.

22 SEC. 441. DEMONSTRATION OF COVERAGE OF CHIRO23 PRACTIC SERVICES UNDER MEDICARE. 

24 (a) DEFINITIONS.—In this section: 
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1 (1) CHIROPRACTIC SERVICES.—The term 

2 ‘‘chiropractic services’’ has the meaning given that 

3 term by the Secretary for purposes of the dem4 onstration projects, but shall include, at a min5 imum—

6 (A) care for neuromusculoskeletal condi7 tions typical among eligible beneficiaries; and 

8 (B) diagnostic and other services that a 

9 chiropractor is legally authorized to perform by 

10 the State or jurisdiction in which such treat11 ment is provided. 

12 (2) DEMONSTRATION PROJECT.—The term 

13 ‘‘demonstration project’’ means a demonstration 

14 project established by the Secretary under sub15 section (b)(1). 

16 (3) ELIGIBLE BENEFICIARY.—The term ‘‘eligi17 ble beneficiary’’ means an individual who is enrolled 

18 under part B of the medicare program. 

19 (4) MEDICARE PROGRAM.—The term ‘‘medicare 

20 program’’ means the health benefits program under 

21 title XVIII of the Social Security Act (42 U.S.C. 

22 1395 et seq.). 

23 (b) DEMONSTRATION OF COVERAGE OF CHIRO24 PRACTIC SERVICES UNDER MEDICARE.—
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1 (1) ESTABLISHMENT.—The Secretary shall es2 tablish demonstration projects in accordance with 

3 the provisions of this section for the purpose of eval4 uating the feasibility and advisability of covering 

5 chiropractic services under the medicare program (in 

6 addition to the coverage provided for services con7 sisting of treatment by means of manual manipula8 tion of the spine to correct a subluxation described 

9 in section 1861(r)(5) of the Social Security Act (42 

10 U.S.C. 1395x(r)(5))). 

11 (2) NO PHYSICIAN APPROVAL REQUIRED.—In 

12 establishing the demonstration projects, the Sec13 retary shall ensure that an eligible beneficiary who 

14 participates in a demonstration project, including an 

15 eligible beneficiary who is enrolled for coverage 

16 under a Medicare+Choice plan (or, on and after 

17 January 1, 2006, under a MedicareAdvantage plan), 

18 is not required to receive approval from a physician 

19 or other health care provider in order to receive a 

20 chiropractic service under a demonstration project. 

21 (3) CONSULTATION.—In establishing the dem22 onstration projects, the Secretary shall consult with 

23 chiropractors, organizations representing chiroprac24 tors, eligible beneficiaries, and organizations rep25 resenting eligible beneficiaries. 
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1 (4) PARTICIPATION.—Any eligible beneficiary 

2 may participate in the demonstration projects on a 

3 voluntary basis. 

4 (c) CONDUCT OF DEMONSTRATION PROJECTS.—

5 (1) DEMONSTRATION SITES.—

6 (A) SELECTION OF DEMONSTRATION

7 SITES.—The Secretary shall conduct dem8 onstration projects at 6 demonstration sites. 

9 (B) GEOGRAPHIC DIVERSITY.—Of the sites 

10 described in subparagraph (A)—

11 (i) 3 shall be in rural areas; and 

12 (ii) 3 shall be in urban areas. 

13 (C) SITES LOCATED IN HPSAS.—At least 1 

14 site described in clause (i) of subparagraph (B) 

15 and at least 1 site described in clause (ii) of 

16 such subparagraph shall be located in an area 

17 that is designated under section 332(a)(1)(A) of 

18 the Public Health Service Act (42 U.S.C. 

19 254e(a)(1)(A)) as a health professional short20 age area.

21 (2) IMPLEMENTATION; DURATION.—

22 (A) IMPLEMENTATION.—The Secretary 

23 shall not implement the demonstration projects 

24 before October 1, 2004. 
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1 (B) DURATION.—The Secretary shall com2 plete the demonstration projects by the date 

3 that is 3 years after the date on which the first 

4 demonstration project is implemented. 

5 (d) EVALUATION AND REPORT.—

6 (1) EVALUATION.—The Secretary shall conduct 

7 an evaluation of the demonstration projects—

8 (A) to determine whether eligible bene9 ficiaries who use chiropractic services use a 

10 lesser overall amount of items and services for 

11 which payment is made under the medicare pro12 gram than eligible beneficiaries who do not use 

13 such services; 

14 (B) to determine the cost of providing pay15 ment for chiropractic services under the medi16 care program; 

17 (C) to determine the satisfaction of eligible 

18 beneficiaries participating in the demonstration 

19 projects and the quality of care received by such 

20 beneficiaries; and 

21 (D) to evaluate such other matters as the 

22 Secretary determines is appropriate. 

23 (2) REPORT.—Not later than the date that is 

24 1 year after the date on which the demonstration 

25 projects conclude, the Secretary shall submit to Con-
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1 gress a report on the evaluation conducted under 

2 paragraph (1) together with such recommendations 

3 for legislation or administrative action as the Sec4 retary determines is appropriate. 

5 (e) WAIVER OF MEDICARE REQUIREMENTS.—The 

6 Secretary shall waive compliance with such requirements 

7 of the medicare program to the extent and for the period 

8 the Secretary finds necessary to conduct the demonstra9 tion projects. 

10 (f) FUNDING.—

11 (1) DEMONSTRATION PROJECTS.—

12 (A) IN GENERAL.—Subject to subpara13 graph (B) and paragraph (2), the Secretary 

14 shall provide for the transfer from the Federal 

15 Supplementary Insurance Trust Fund under 

16 section 1841 of the Social Security Act (42 

17 U.S.C. 1395t) of such funds as are necessary 

18 for the costs of carrying out the demonstration 

19 projects under this section. 

20 (B) LIMITATION.—In conducting the dem21 onstration projects under this section, the Sec22 retary shall ensure that the aggregate payments 

23 made by the Secretary under the medicare pro24 gram do not exceed the amount which the Sec25 retary would have paid under the medicare pro-
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1 gram if the demonstration projects under this 

2 section were not implemented. 

3 (2) EVALUATION AND REPORT.—There are au4 thorized to be appropriated such sums as are nec5 essary for the purpose of developing and submitting 

6 the report to Congress under subsection (d). 

7 SEC. 442. MEDICARE HEALTH CARE QUALITY DEMONSTRA8 TION PROGRAMS. 

9 Title XVIII (42 U.S.C. 1395 et seq.) is amended by 

10 inserting after section 1866B the following new section: 

11 ‘‘HEALTH CARE QUALITY DEMONSTRATION PROGRAM

12 ‘‘SEC. 1866C. (a) DEFINITIONS.—In this section: 

13 ‘‘(1) BENEFICIARY.—The term ‘beneficiary’ 

14 means a beneficiary who is enrolled in the original 

15 medicare fee-for-service program under parts A and 

16 B or a beneficiary in a staff model or dedicated 

17 group model health maintenance organization under 

18 the Medicare+Choice program (or, on and after 

19 January 1, 2006, under the MedicareAdvantage pro20 gram) under part C. 

21 ‘‘(2) HEALTH CARE GROUP.—

22 ‘‘(A) IN GENERAL.—The term ‘health care 

23 group’ means—

24 ‘‘(i) a group of physicians that is or25 ganized at least in part for the purpose of 
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1 providing physician’s services under this 

2 title; 

3 ‘‘(ii) an integrated health care delivery 

4 system that delivers care through coordi5 nated hospitals, clinics, home health agen6 cies, ambulatory surgery centers, skilled 

7 nursing facilities, rehabilitation facilities 

8 and clinics, and employed, independent, or 

9 contracted physicians; or 

10 ‘‘(iii) an organization representing re11 gional coalitions of groups or systems de12 scribed in clause (i) or (ii). 

13 ‘‘(B) INCLUSION.—As the Secretary deter14 mines appropriate, a health care group may in15 clude a hospital or any other individual or enti16 ty furnishing items or services for which pay17 ment may be made under this title that is affili18 ated with the health care group under an ar19 rangement structured so that such hospital, in20 dividual, or entity participates in a demonstra21 tion project under this section. 

22 ‘‘(3) PHYSICIAN.—Except as otherwise provided 

23 for by the Secretary, the term ‘physician’ means any 

24 individual who furnishes services that may be paid 

25 for as physicians’ services under this title. 
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1 ‘‘(b) DEMONSTRATION PROJECTS.—The Secretary 

2 shall establish a 5-year demonstration program under 

3 which the Secretary shall approve demonstration projects 

4 that examine health delivery factors that encourage the 

5 delivery of improved quality in patient care, including—

6 ‘‘(1) the provision of incentives to improve the 

7 safety of care provided to beneficiaries; 

8 ‘‘(2) the appropriate use of best practice guide9 lines by providers and services by beneficiaries; 

10 ‘‘(3) reduced scientific uncertainty in the deliv11 ery of care through the examination of variations in 

12 the utilization and allocation of services, and out13 comes measurement and research; 

14 ‘‘(4) encourage shared decision making between 

15 providers and patients; 

16 ‘‘(5) the provision of incentives for improving 

17 the quality and safety of care and achieving the effi18 cient allocation of resources;

19 ‘‘(6) the appropriate use of culturally and eth20 nically sensitive health care delivery; and 

21 ‘‘(7) the financial effects on the health care 

22 marketplace of altering the incentives for care deliv23 ery and changing the allocation of resources. 

24 ‘‘(c) ADMINISTRATION BY CONTRACT.—
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1 ‘‘(1) IN GENERAL.—Except as otherwise pro2 vided in this section, the Secretary may administer 

3 the demonstration program established under this 

4 section in a manner that is similar to the manner in 

5 which the demonstration program established under 

6 section 1866A is administered in accordance with 

7 section 1866B. 

8 ‘‘(2) ALTERNATIVE PAYMENT SYSTEMS.—A 

9 health care group that receives assistance under this 

10 section may, with respect to the demonstration 

11 project to be carried out with such assistance, in12 clude proposals for the use of alternative payment 

13 systems for items and services provided to bene14 ficiaries by the group that are designed to—

15 ‘‘(A) encourage the delivery of high quality 

16 care while accomplishing the objectives de17 scribed in subsection (b); and 

18 ‘‘(B) streamline documentation and report19 ing requirements otherwise required under this 

20 title. 

21 ‘‘(3) BENEFITS.—A health care group that re22 ceives assistance under this section may, with re23 spect to the demonstration project to be carried out 

24 with such assistance, include modifications to the 

25 package of benefits available under the traditional 
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1 fee-for-service program under parts A and B or the 

2 package of benefits available through a staff model 

3 or a dedicated group model health maintenance or4 ganization under part C. The criteria employed 

5 under the demonstration program under this section 

6 to evaluate outcomes and determine best practice 

7 guidelines and incentives shall not be used as a basis 

8 for the denial of medicare benefits under the dem9 onstration program to patients against their wishes 

10 (or if the patient is incompetent, against the wishes 

11 of the patient’s surrogate) on the basis of the pa12 tient’s age or expected length of life or of the pa13 tient’s present or predicted disability, degree of med14 ical dependency, or quality of life. 

15 ‘‘(d) ELIGIBILITY CRITERIA.—To be eligible to re16 ceive assistance under this section, an entity shall—

17 ‘‘(1) be a health care group; 

18 ‘‘(2) meet quality standards established by the 

19 Secretary, including—

20 ‘‘(A) the implementation of continuous 

21 quality improvement mechanisms that are 

22 aimed at integrating community-based support 

23 services, primary care, and referral care; 
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1 ‘‘(B) the implementation of activities to in2 crease the delivery of effective care to bene3 ficiaries; 

4 ‘‘(C) encouraging patient participation in 

5 preference-based decisions; 

6 ‘‘(D) the implementation of activities to 

7 encourage the coordination and integration of 

8 medical service delivery; and 

9 ‘‘(E) the implementation of activities to 

10 measure and document the financial impact on 

11 the health care marketplace of altering the in12 centives of health care delivery and changing 

13 the allocation of resources; and 

14 ‘‘(3) meet such other requirements as the Sec15 retary may establish. 

16 ‘‘(e) WAIVER AUTHORITY.—The Secretary may waive 

17 such requirements of titles XI and XVIII as may be nec18 essary to carry out the purposes of the demonstration pro19 gram established under this section. 

20 ‘‘(f) BUDGET NEUTRALITY.—With respect to the 5-

21 year period of the demonstration program under sub22 section (b), the aggregate expenditures under this title for 

23 such period shall not exceed the aggregate expenditures 

24 that would have been expended under this title if the pro-
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1 gram established under this section had not been imple2 mented. 

3 ‘‘(g) NOTICE REQUIREMENTS.—In the case of an in4 dividual that receives health care items or services under 

5 a demonstration program carried out under this section, 

6 the Secretary shall ensure that such individual is notified 

7 of any waivers of coverage or payment rules that are appli8 cable to such individual under this title as a result of the 

9 participation of the individual in such program. 

10 ‘‘(h) PARTICIPATION AND SUPPORT BY FEDERAL

11 AGENCIES.—In carrying out the demonstration program 

12 under this section, the Secretary may direct—

13 ‘‘(1) the Director of the National Institutes of 

14 Health to expand the efforts of the Institutes to 

15 evaluate current medical technologies and improve 

16 the foundation for evidence-based practice; 

17 ‘‘(2) the Administrator of the Agency for 

18 Healthcare Research and Quality to, where possible 

19 and appropriate, use the program under this section 

20 as a laboratory for the study of quality improvement 

21 strategies and to evaluate, monitor, and disseminate 

22 information relevant to such program; and 

23 ‘‘(3) the Administrator of the Centers for Medi24 care and Medicaid Services and the Administrator of 

25 the Center for Medicare Choices to support linkages 
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1 of relevant medicare data to registry information 

2 from participating health care groups for the bene3 ficiary populations served by the participating 

4 groups, for analysis supporting the purposes of the 

5 demonstration program, consistent with the applica6 ble provisions of the Health Insurance Portability 

7 and Accountability Act of 1996. 

8 ‘‘(i) IMPLEMENTATION.—The Secretary shall not im9 plement the demonstration program before October 1, 

10 2004.’’. 

11 SEC. 443. MEDICARE COMPLEX CLINICAL CARE MANAGE12 MENT PAYMENT DEMONSTRATION. 

13 (a) ESTABLISHMENT.—

14 (1) IN GENERAL.—The Secretary shall establish 

15 a demonstration program to make the medicare pro16 gram more responsive to needs of eligible bene17 ficiaries by promoting continuity of care, helping 

18 stabilize medical conditions, preventing or mini19 mizing acute exacerbations of chronic conditions, 

20 and reducing adverse health outcomes, such as ad21 verse drug interactions related to polypharmacy. 

22 (2) SITES.—The Secretary shall designate 6 

23 sites at which to conduct the demonstration program 

24 under this section, of which at least 3 shall be in an 

25 urban area and at least 1 shall be in a rural area. 
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1 One of the sites shall be located in the State of Ar2 kansas.

3 (3) DURATION.—The Secretary shall conduct 

4 the demonstration program under this section for a 

5 3-year period. 

6 (4) IMPLEMENTATION.—The Secretary shall 

7 not implement the demonstration program before 

8 October 1, 2004. 

9 (b) PARTICIPANTS.—Any eligible beneficiary who re10 sides in an area designated by the Secretary as a dem11 onstration site under subsection (a)(2) may participate in 

12 the demonstration program under this section if such ben13 eficiary identifies a principal care physician who agrees to 

14 manage the complex clinical care of the eligible beneficiary 

15 under the demonstration program. 

16 (c) PRINCIPAL CARE PHYSICIAN RESPONSIBIL17 ITIES.—The Secretary shall enter into an agreement with 

18 each principal care physician who agrees to manage the 

19 complex clinical care of an eligible beneficiary under sub20 section (b) under which the principal care physician 

21 shall—

22 (1) serve as the primary contact of the eligible 

23 beneficiary in accessing items and services for which 

24 payment may be made under the medicare program; 
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1 (2) maintain medical information related to 

2 care provided by other health care providers who 

3 provide health care items and services to the eligible 

4 beneficiary, including clinical reports, medication 

5 and treatments prescribed by other physicians, hos6 pital and hospital outpatient services, skilled nursing 

7 home care, home health care, and medical equipment 

8 services; 

9 (3) monitor and advocate for the continuity of 

10 care of the eligible beneficiary and the use of evi11 dence-based guidelines; 

12 (4) promote self-care and family caregiver in13 volvement where appropriate; 

14 (5) have appropriate staffing arrangements to 

15 conduct patient self-management and other care co16 ordination activities as specified by the Secretary; 

17 (6) refer the eligible beneficiary to community 

18 services organizations and coordinate the services of 

19 such organizations with the care provided by health 

20 care providers; and 

21 (7) meet such other complex care management 

22 requirements as the Secretary may specify. 

23 (d) COMPLEX CLINICAL CARE MANAGEMENT FEE.—

24 (1) PAYMENT.—Under an agreement entered 

25 into under subsection (c), the Secretary shall pay to 
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1 each principal care physician, on behalf of each eligi2 ble beneficiary under the care of that physician, the 

3 complex clinical care management fee developed by 

4 the Secretary under paragraph (2). 

5 (2) DEVELOPMENT OF FEE.—The Secretary 

6 shall develop a complex care management fee under 

7 this paragraph that is paid on a monthly basis and 

8 which shall be payment in full for all the functions 

9 performed by the principal care physician under the 

10 demonstration program, including any functions per11 formed by other qualified practitioners acting on be12 half of the physician, appropriate staff under the su13 pervision of the physician, and any other person 

14 under a contract with the physician, including any 

15 person who conducts patient self-management and 

16 caregiver education under subsection (c)(4). 

17 (e) FUNDING.—

18 (1) IN GENERAL.—The Secretary shall provide 

19 for the transfer from the Federal Supplementary In20 surance Trust Fund established under section 1841 

21 of the Social Security Act (42 U.S.C. 1395t) of such 

22 funds as are necessary for the costs of carrying out 

23 the demonstration program under this section. 

24 (2) BUDGET NEUTRALITY.—In conducting the 

25 demonstration program under this section, the Sec-
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1 retary shall ensure that the aggregate payments 

2 made by the Secretary do not exceed the amount 

3 which the Secretary would have paid if the dem4 onstration program under this section was not im5 plemented.

6 (f) WAIVER AUTHORITY.—The Secretary may waive 

7 such requirements of titles XI and XVIII of the Social 

8 Security Act (42 U.S.C. 1301 et seq.; 1395 et seq.) as 

9 may be necessary for the purpose of carrying out the dem10 onstration program under this section. 

11 (g) REPORT.—Not later than 6 months after the 

12 completion of the demonstration program under this sec13 tion, the Secretary shall submit to Congress a report on 

14 such program, together with recommendations for such 

15 legislation and administrative action as the Secretary de16 termines to be appropriate. 

17 (h) DEFINITIONS.—In this section: 

18 (1) ACTIVITY OF DAILY LIVING.—The term ‘‘ac19 tivity of daily living’’ means eating, toiling, transfer20 ring, bathing, dressing, and continence. 

21 (2) CHRONIC CONDITION.—The term ‘‘chronic 

22 condition’’ means a biological, physical, or mental 

23 condition that is likely to last a year or more, for 

24 which there is no known cure, for which there is a 

25 need for ongoing medical care, and which may affect 
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1 an individual’s ability to carry out activities of daily 

2 living or instrumental activities of daily living, or 

3 both. 

4 (3) ELIGIBLE BENEFICIARY.—The term ‘‘eligi5 ble beneficiary’’ means any individual who—

6 (A) is enrolled for benefits under part B of 

7 the medicare program; 

8 (B) has at least 4 complex medical condi9 tions (one of which may be cognitive impair10 ment); and 

11 (C) has—

12 (i) an inability to self-manage their 

13 care; or 

14 (ii) a functional limitation defined as 

15 an impairment in 1 or more activity of 

16 daily living or instrumental activity of daily 

17 living. 

18 (4) INSTRUMENTAL ACTIVITY OF DAILY LIV19 ING.—The term ‘‘instrumental activity of daily liv20 ing’’ means meal preparation, shopping, house21 keeping, laundry, money management, telephone 

22 use, and transportation use.

23 (5) MEDICARE PROGRAM.—The term ‘‘medicare 

24 program’’ means the health care program under title 
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1 XVIII of the Social Security Act (42 U.S.C. 1395 et 

2 seq.). 

3 (6) PRINCIPAL CARE PHYSICIAN.—The term 

4 ‘‘principal care physician’’ means the physician with 

5 primary responsibility for overall coordination of the 

6 care of an eligible beneficiary (as specified in a writ7 ten plan of care) who may be a primary care physi8 cian or a specialist. 

9 SEC. 444. MEDICARE FEE-FOR-SERVICE CARE COORDINA10 TION DEMONSTRATION PROGRAM. 

11 (a) ESTABLISHMENT.—

12 (1) IN GENERAL.—The Secretary shall establish 

13 a demonstration program to contract with qualified 

14 care management organizations to provide health 

15 risk assessment and care management services to el16 igible beneficiaries who receive care under the origi17 nal medicare fee-for-service program under parts A 

18 and B of title XVIII of the Social Security Act to 

19 eligible beneficiaries. 

20 (2) SITES.—The Secretary shall designate 6 

21 sites at which to conduct the demonstration program 

22 under this section. In selecting sites under this para23 graph, the Secretary shall give preference to sites lo24 cated in rural areas. 
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1 (3) DURATION.—The Secretary shall conduct 

2 the demonstration program under this section for a 

3 5-year period. 

4 (4) IMPLEMENTATION.—The Secretary shall 

5 not implement the demonstration program before 

6 October 1, 2004. 

7 (b) PARTICIPANTS.—Any eligible beneficiary who re8 sides in an area designated by the Secretary as a dem9 onstration site under subsection (a)(2) may participate in 

10 the demonstration program under this section if such ben11 eficiary identifies a care management organization who 

12 agrees to furnish care management services to the eligible 

13 beneficiary under the demonstration program. 

14 (c) CONTRACTS WITH CMOS.—

15 (1) IN GENERAL.—The Secretary shall enter 

16 into a contract with care management organizations 

17 to provide care management services to eligible bene18 ficiaries residing in the area served by the care man19 agement organization. 

20 (2) CANCELLATION.—The Secretary may cancel 

21 a contract entered into under paragraph (1) if the 

22 care management organization does not meet nego23 tiated savings or quality outcomes targets for the 

24 year. 
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1 (3) NUMBER OF CMOS.—The Secretary may 

2 contract with more than 1 care management organi3 zation in a geographic area. 

4 (d) PAYMENT TO CMOS.—

5 (1) PAYMENT.—Under an contract entered into 

6 under subsection (c), the Secretary shall pay care 

7 management organizations a fee for which the care 

8 management organization is partially at risk based 

9 on bids submitted by care management organiza10 tions. 

11 (2) PORTION OF PAYMENT AT RISK.—The Sec12 retary shall establish a benchmark for quality and 

13 cost against which the results of the care manage14 ment organization are to be measured. The Sec15 retary may not pay a care management organization 

16 the portion of the fee described in paragraph (1) 

17 that is at risk unless the Secretary determines that 

18 the care management organization has met the 

19 agreed upon savings and outcomes targets for the 

20 year. 

21 (e) FUNDING.—

22 (1) IN GENERAL.—The Secretary shall provide 

23 for the transfer from the Federal Hospital Insurance 

24 Trust Fund under section 1817 of the Social Secu25 rity Act (42 U.S.C. 1395i) and the Federal Supple-
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1 mentary Insurance Trust Fund established under 

2 section 1841 of such Act (42 U.S.C. 1395t), in such 

3 proportion as the Secretary determines to be appro4 priate, of such funds as are necessary for the costs 

5 of carrying out the demonstration program under 

6 this section. 

7 (2) BUDGET NEUTRALITY.—In conducting the 

8 demonstration program under this section, the Sec9 retary shall ensure that the aggregate payments 

10 made by the Secretary do not exceed the amount 

11 which the Secretary would have paid if the dem12 onstration program under this section was not im13 plemented. 

14 (f) WAIVER AUTHORITY.—

15 (1) IN GENERAL.—The Secretary may waive 

16 such requirements of titles XI and XVIII of the So17 cial Security Act (42 U.S.C. 1301 et seq.; 1395 et 

18 seq.) as may be necessary for the purpose of car19 rying out the demonstration program under this sec20 tion. 

21 (2) WAIVER OF MEDIGAP PREEMPTIONS.—The 

22 Secretary shall waive any provision of section 1882 

23 of the Social Security Act that would prevent an in24 surance carrier described in subsection (h)(3)(D) 
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1 from participating in the demonstration program 

2 under this section.

3 (g) REPORT.—Not later than 6 months after the 

4 completion of the demonstration program under this sec5 tion, the Secretary shall submit to Congress a report on 

6 such program, together with recommendations for such 

7 legislation and administrative action as the Secretary de8 termines to be appropriate. 

9 (h) DEFINITIONS.—In this section: 

10 (1) CARE MANAGEMENT SERVICES.—The term 

11 ‘‘care management services’’ means services that are 

12 furnished to an eligible beneficiary (as defined in 

13 paragraph (2)) by a care management organization 

14 (as defined in paragraph (3)) in accordance with 

15 guidelines established by the Secretary that are con16 sistent with guidelines established by the American 

17 Geriatrics Society. 

18 (2) ELIGIBLE BENEFICIARY.—The term ‘‘eligi19 ble beneficiary’’ means an individual who is—

20 (A) entitled to (or enrolled for) benefits 

21 under part A and enrolled for benefits under 

22 part B of the Social Security Act (42 U.S.C. 

23 1395c et seq.; 1395j et seq.); 
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1 (B) not enrolled with a Medicare+Choice 

2 plan or a MedicareAdvantage plan under part 

3 C; and 

4 (C) at high-risk (as defined by the Sec5 retary, but including eligible beneficiaries with 

6 multiple sclerosis or another disabling chronic 

7 condition, eligible beneficiaries residing in a 

8 nursing home or at risk for nursing home place9 ment, or eligible beneficiaries eligible for assist10 ance under a State plan under title XIX). 

11 (3) CARE MANAGEMENT ORGANIZATION.—The 

12 term ‘‘care management organization’’ means an or13 ganization that meets such qualifications as the Sec14 retary may specify and includes any of the following: 

15 (A) A physician group practice, hospital, 

16 home health agency, or hospice program. 

17 (B) A disease management organization. 

18 (C) A Medicare+Choice or MedicareAd19 vantage organization. 

20 (D) Insurance carriers offering medicare 

21 supplemental policies under section 1882 of the 

22 Social Security Act (42 U.S.C. 1395ss). 

23 (E) Such other entity as the Secretary de24 termines to be appropriate. 
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1 SEC. 445. GAO STUDY OF GEOGRAPHIC DIFFERENCES IN 

2 PAYMENTS FOR PHYSICIANS’ SERVICES. 

3 (a) STUDY.—The Comptroller General of the United 

4 States shall conduct a study of differences in payment 

5 amounts under the physician fee schedule under section 

6 1848 of the Social Security Act (42 U.S.C. 1395w–4) for 

7 physicians’ services in different geographic areas. Such 

8 study shall include—

9 (1) an assessment of the validity of the geo10 graphic adjustment factors used for each component 

11 of the fee schedule; 

12 (2) an evaluation of the measures used for such 

13 adjustment, including the frequency of revisions; 

14 (3) an evaluation of the methods used to deter15 mine professional liability insurance costs used in 

16 computing the malpractice component, including a 

17 review of increases in professional liability insurance 

18 premiums and variation in such increases by State 

19 and physician specialty and methods used to update 

20 the geographic cost of practice index and relative 

21 weights for the malpractice component; 

22 (4) an evaluation of whether there is a sound 

23 economic basis for the implementation of the adjust24 ment under subparagraphs (E) and (F) of section 

25 1848(e)(1) of the Social Security Act (42 U.S.C. 
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1 1395w–4(e)(1)), as added by section 421, in those 

2 areas in which the adjustment applies; 

3 (5) an evaluation of the effect of such adjust4 ment on physician location and retention in areas af5 fected by such adjustment, taking into account—

6 (A) differences in recruitment costs and re7 tention rates for physicians, including special8 ists, between large urban areas and other areas; 

9 and 

10 (B) the mobility of physicians, including 

11 specialists, over the last decade; and 

12 (6) an evaluation of appropriateness of extend13 ing such adjustment or making such adjustment per14 manent. 

15 (b) REPORT.—Not later than 1 year after the date 

16 of enactment of this Act, the Comptroller General of the 

17 United States shall submit to Congress a report on the 

18 study conducted under subsection (a). The report shall in19 clude recommendations regarding the use of more current 

20 data in computing geographic cost of practice indices as 

21 well as the use of data directly representative of physi22 cians’ costs (rather than proxy measures of such costs).
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1 Subtitle C—Provisions Relating to 

2 Parts A and B 

3 SEC. 451. INCREASE FOR HOME HEALTH SERVICES FUR4 NISHED IN A RURAL AREA. 

5 (a) IN GENERAL.—In the case of home health serv6 ices furnished in a rural area (as defined in section 

7 1886(d)(2)(D) of the Social Security Act (42 U.S.C. 

8 1395ww(d)(2)(D))) on or after October 1, 2003, and be9 fore October 1, 2005, the Secretary shall increase the pay10 ment amount otherwise made under section 1895 of such 

11 Act (42 U.S.C. 1395fff ) for such services by 5 percent. 

12 (b) WAIVING BUDGET NEUTRALITY.—The Secretary 

13 shall not reduce the standard prospective payment amount 

14 (or amounts) under section 1895 of the Social Security 

15 Act (42 U.S.C. 1395fff ) applicable to home health services 

16 furnished during a period to offset the increase in pay17 ments resulting from the application of subsection (a). 

18 (c) NO EFFECT ON SUBSEQUENT PERIODS.—The 

19 payment increase provided under subsection (a) for a pe20 riod under such subsection—

21 (1) shall not apply to episodes and visits ending 

22 after such period; and 

23 (2) shall not be taken into account in calcu24 lating the payment amounts applicable for episodes 

25 and visits occurring after such period. 
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1 SEC. 452. LIMITATION ON REDUCTION IN AREA WAGE AD2 JUSTMENT FACTORS UNDER THE PROSPEC3 TIVE PAYMENT SYSTEM FOR HOME HEALTH 

4 SERVICES. 

5 Section 1895(b)(4)(C) (42 U.S.C. 1395fff(b)(4)(C)) 

6 is amended—

7 (1) by striking ‘‘FACTORS.—The Secretary’’ and 

8 inserting ‘‘FACTORS.—

9 ‘‘(i) IN GENERAL.—Subject to clause 

10 (ii), the Secretary’’; and 

11 (2) by adding at the end the following new 

12 clause: 

13 ‘‘(ii) LIMITATION ON REDUCTION IN

14 FISCAL YEAR 2005 AND 2006.—For fiscal 

15 years 2004, 2005, and 2006, the area 

16 wage adjustment factor applicable to home 

17 health services furnished in an area in the 

18 fiscal year may not be more that 3 percent 

19 less than the area wage adjustment factor 

20 applicable to home health services for the 

21 area for the previous year.’’. 

22 SEC. 453. CLARIFICATIONS TO CERTAIN EXCEPTIONS TO 

23 MEDICARE LIMITS ON PHYSICIAN REFER24 RALS. 

25 (a) LIMITS ON PHYSICIAN REFERRALS.—
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1 (1) OWNERSHIP AND INVESTMENT INTERESTS

2 IN WHOLE HOSPITALS.—

3 (A) IN GENERAL.—Section 1877(d)(3) (42 

4 U.S.C. 1395nn(d)(3)) is amended—

5 (i) by striking ‘‘and’’ at the end of 

6 subparagraph (A); and 

7 (ii) by redesignating subparagraph 

8 (B) as subparagraph (C) and inserting 

9 after subparagraph (A) the following: 

10 ‘‘(B) the hospital is not a specialty hospital 

11 (as defined in subsection (h)(7)); and’’. 

12 (B) DEFINITION.—Section 1877(h) (42 

13 U.S.C. 1395nn(h)) is amended by adding at the 

14 end the following: 

15 ‘‘(7) SPECIALTY HOSPITAL.—

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

17 section, except as provided in subparagraph 

18 (B), the term ‘specialty hospital’ means a hos19 pital that is primarily or exclusively engaged in 

20 the care and treatment of one of the following: 

21 ‘‘(i) patients with a cardiac condition; 

22 ‘‘(ii) patients with an orthopedic con23 dition; 

24 ‘‘(iii) patients receiving a surgical pro25 cedure; or 
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1 ‘‘(iv) any other specialized category of 

2 patients or cases that the Secretary des3 ignates as inconsistent with the purpose of 

4 permitting physician ownership and invest5 ment interests in a hospital under this sec6 tion. 

7 ‘‘(B) EXCEPTION.—For purposes of this 

8 section, the term ‘specialty hospital’ does not 

9 include any hospital—

10 ‘‘(i) determined by the Secretary—

11 ‘‘(I) to be in operation before 

12 June 12, 2003; or 

13 ‘‘(II) under development as of 

14 such date; 

15 ‘‘(ii) for which the number of beds 

16 and the number of physician investors at 

17 any time on or after such date is no great18 er than the number of such beds or inves19 tors as of such date; and

20 ‘‘(iii) that meets such other require21 ments as the Secretary may specify.’’. 

22 (2) OWNERSHIP AND INVESTMENT INTERESTS

23 IN A RURAL PROVIDER.—Section 1877(d)(2) (42 

24 U.S.C. 1395nn(d)(2)) is amended to read as follows: 
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1 ‘‘(2) RURAL PROVIDERS.—In the case of des2 ignated health services furnished in a rural area (as 

3 defined in section 1886(d)(2)(D)) by an entity, if—

4 ‘‘(A) substantially all of the designated 

5 health services furnished by the entity are fur6 nished to individuals residing in such a rural 

7 area; 

8 ‘‘(B) the entity is not a specialty hospital 

9 (as defined in subsection (h)(7)); and 

10 ‘‘(C) the Secretary determines, with re11 spect to such entity, that such services would 

12 not be available in such area but for the owner13 ship or investment interest.’’. 

14 (b) EFFECTIVE DATE.—Subject to paragraph (2), 

15 the amendments made by this section shall apply to refer16 rals made for designated health services on or after Janu17 ary 1, 2004. 

18 (c) APPLICATION OF EXCEPTION FOR HOSPITALS

19 UNDER DEVELOPMENT.—For purposes of section 

20 1877(h)(7)(B)(i)(II) of the Social Security Act, as added 

21 by subsection (a)(1)(B), in determining whether a hospital 

22 is under development as of June 12, 2003, the Secretary 

23 shall consider—

24 (1) whether architectural plans have been com25 pleted, funding has been received, zoning require-
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1 ments have been met, and necessary approvals from 

2 appropriate State agencies have been received; and 

3 (2) any other evidence the Secretary determines 

4 would indicate whether a hospital is under develop5 ment as of such date. 

6 SEC. 454. DEMONSTRATION PROGRAM FOR SUBSTITUTE 

7 ADULT DAY SERVICES. 

8 (a) ESTABLISHMENT.—The Secretary shall establish 

9 a demonstration program (in this section referred to as 

10 the ‘‘demonstration program’’) under which the Secretary 

11 provides eligible medicare beneficiaries with coverage 

12 under the medicare program of substitute adult day serv13 ices furnished by an adult day services facility. 

14 (b) PAYMENT RATE FOR SUBSTITUTE ADULT DAY

15 SERVICES.—

16 (1) PAYMENT RATE.—For purposes of making 

17 payments to an adult day services facility for sub18 stitute adult day services under the demonstration 

19 program, the following rules shall apply: 

20 (A) ESTIMATION OF PAYMENT AMOUNT.—

21 The Secretary shall estimate the amount that 

22 would otherwise be payable to a home health 

23 agency under section 1895 of the Social Secu24 rity Act (42 U.S.C. 1395fff) for all home health 
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1 services described in subsection (i)(4)(B)(i) 

2 under the plan of care. 

3 (B) AMOUNT OF PAYMENT.—Subject to 

4 paragraph (3)(B), the total amount payable for 

5 substitute adult day services under the plan of 

6 care is equal to 95 percent of the amount esti7 mated to be payable under subparagraph (A). 

8 (2) LIMITATION ON BALANCE BILLING.—Under 

9 the demonstration program, an adult day services 

10 facility shall accept as payment in full for substitute 

11 adult day services (including those services described 

12 in clauses (ii) through (iv) of subsection (i)(4)(B)) 

13 furnished by the facility to an eligible medicare ben14 eficiary the amount of payment provided under the 

15 demonstration program for home health services 

16 consisting of substitute adult services. 

17 (3) ADJUSTMENT IN CASE OF OVERUTILIZA18 TION OF SUBSTITUTE ADULT DAY SERVICES TO EN19 SURE BUDGET NEUTRALITY.—The Secretary shall 

20 monitor the expenditures under the demonstration 

21 program and under title XVIII of the Social Secu22 rity Act for home health services. If the Secretary 

23 estimates that the total expenditures under the dem24 onstration program and under such title XVIII for 

25 home health services for a period determined by the 
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1 Secretary exceed expenditures that would have been 

2 made under such title XVIII for home health serv3 ices for such period if the demonstration program 

4 had not been conducted, the Secretary shall adjust 

5 the rate of payment to adult day services facilities 

6 under paragraph (1)(B) in order to eliminate such 

7 excess. 

8 (c) DEMONSTRATION PROGRAM SITES.—The dem9 onstration program shall be conducted in not more than 

10 3 sites selected by the Secretary. 

11 (d) DURATION; IMPLEMENTATION.—

12 (1) DURATION.—The Secretary shall conduct 

13 the demonstration program for a period of 3 years. 

14 (2) IMPLEMENTATION.—The Secretary may not 

15 implement the demonstration program before Octo16 ber 1, 2004. 

17 (e) VOLUNTARY PARTICIPATION.—Participation of 

18 eligible medicare beneficiaries in the demonstration pro19 gram shall be voluntary. 

20 (f) WAIVER AUTHORITY.—

21 (1) IN GENERAL.—Except as provided in para22 graph (2), the Secretary may waive such require23 ments of titles XI and XVIII of the Social Security 

24 Act (42 U.S.C. 1301 et seq.; 1395 et seq.) as may 
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1 be necessary for the purposes of carrying out the 

2 demonstration program. 

3 (2) MAY NOT WAIVE ELIGIBILITY REQUIRE4 MENTS FOR HOME HEALTH SERVICES.—The Sec5 retary may not waive the beneficiary eligibility re6 quirements for home health services under title 

7 XVIII of the Social Security Act. 

8 (g) EVALUATION AND REPORT.—

9 (1) EVALUATION.—The Secretary shall conduct 

10 an evaluation of the clinical and cost effectiveness of 

11 the demonstration program. 

12 (2) REPORT.—Not later than 30 months after 

13 the commencement of the demonstration program, 

14 the Secretary shall submit to Congress a report on 

15 the evaluation conducted under paragraph (1) and 

16 shall include in the report the following: 

17 (A) An analysis of the patient outcomes 

18 and costs of furnishing care to the eligible 

19 medicare beneficiaries participating in the dem20 onstration program as compared to such out21 comes and costs to such beneficiaries receiving 

22 only home health services under title XVIII of 

23 the Social Security Act for the same health con24 ditions. 
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1 (B) Such recommendations regarding the 

2 extension, expansion, or termination of the pro3 gram as the Secretary determines appropriate. 

4 (i) DEFINITIONS.—In this section: 

5 (1) ADULT DAY SERVICES FACILITY.—

6 (A) IN GENERAL.—Except as provided in 

7 subparagraphs (B) and (C), the term ‘‘adult 

8 day services facility’’ means a public agency or 

9 private organization, or a subdivision of such an 

10 agency or organization, that—

11 (i) is engaged in providing skilled 

12 nursing services and other therapeutic 

13 services directly or under arrangement 

14 with a home health agency; 

15 (ii) provides the items and services de16 scribed in paragraph (4)(B); and 

17 (iii) meets the requirements of para18 graphs (2) through (8) of subsection (o). 

19 (B) INCLUSION.—Notwithstanding sub20 paragraph (A), the term ‘‘adult day services fa21 cility’’ shall include a home health agency in 

22 which the items and services described in 

23 clauses (ii) through (iv) of paragraph (4)(B) 

24 are provided—
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1 (i) by an adult day services program 

2 that is licensed or certified by a State, or 

3 accredited, to furnish such items and serv4 ices in the State; and 

5 (ii) under arrangements with that 

6 program made by such agency. 

7 (C) WAIVER OF SURETY BOND.—The Sec8 retary may waive the requirement of a surety 

9 bond under section 1861(o)(7) of the Social Se10 curity Act (42 U.S.C. 1395x(o)(7)) in the case 

11 of an agency or organization that provides a 

12 comparable surety bond under State law.

13 (2) ELIGIBLE MEDICARE BENEFICIARY.—The 

14 term ‘‘eligible medicare beneficiary’’ means an indi15 vidual eligible for home health services under title 

16 XVIII of the Social Security Act. 

17 (3) HOME HEALTH AGENCY.—The term ‘‘home 

18 health agency’’ has the meaning given such term in 

19 section 1861(o) of the Social Security Act (42 

20 U.S.C. 1395x(o)). 

21 (4) SUBSTITUTE ADULT DAY SERVICES.—

22 (A) IN GENERAL.—The term ‘‘substitute 

23 adult day services’’ means the items and serv24 ices described in subparagraph (B) that are fur25 nished to an individual by an adult day services 
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1 facility as a part of a plan under section 

2 1861(m) of the Social Security Act (42 U.S.C. 

3 1395x(m)) that substitutes such services for 

4 some or all of the items and services described 

5 in subparagraph (B)(i) furnished by a home 

6 health agency under the plan, as determined by 

7 the physician establishing the plan. 

8 (B) ITEMS AND SERVICES DESCRIBED.—

9 The items and services described in this sub10 paragraph are the following items and services: 

11 (i) Items and services described in 

12 paragraphs (1) through (7) of such section 

13 1861(m). 

14 (ii) Meals. 

15 (iii) A program of supervised activities 

16 designed to promote physical and mental 

17 health and furnished to the individual by 

18 the adult day services facility in a group 

19 setting for a period of not fewer than 4 

20 and not greater than 12 hours per day. 

21 (iv) A medication management pro22 gram (as defined in subparagraph (C)). 

23 (C) MEDICATION MANAGEMENT PRO24 GRAM.—For purposes of subparagraph (B)(iv), 

25 the term ‘‘medication management program’’ 
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1 means a program of services, including medi2 cine screening and patient and health care pro3 vider education programs, that provides services 

4 to minimize—

5 (i) unnecessary or inappropriate use 

6 of prescription drugs; and 

7 (ii) adverse events due to unintended 

8 prescription drug-to-drug interactions. 

9 SEC. 455. MEDICARE SECONDARY PAYOR (MSP) PROVI10 SIONS. 

11 (a) TECHNICAL AMENDMENT CONCERNING SEC12 RETARY’S AUTHORITY TO MAKE CONDITIONAL PAYMENT

13 WHEN CERTAIN PRIMARY PLANS DO NOT PAY PROMPT14 LY.—

15 (1) IN GENERAL.—Section 1862(b)(2) (42 

16 U.S.C. 1395y(b)(2)) is amended—

17 (A) in subparagraph (A)(ii), by striking 

18 ‘‘promptly (as determined in accordance with 

19 regulations)’’; 

20 (B) in subparagraph (B)—

21 (i) by redesignating clauses (i) 

22 through (iii) as clauses (ii) through (iv), 

23 respectively; and 

24 (ii) by inserting before clause (ii), as 

25 so redesignated, the following new clause: 
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1 ‘‘(i) AUTHORITY TO MAKE CONDI2 TIONAL PAYMENT.—The Secretary may 

3 make payment under this title with respect 

4 to an item or service if a primary plan de5 scribed in subparagraph (A)(ii) has not 

6 made or cannot reasonably be expected to 

7 make payment with respect to such item or 

8 service promptly (as determined in accord9 ance with regulations). Any such payment 

10 by the Secretary shall be conditioned on 

11 reimbursement to the appropriate Trust 

12 Fund in accordance with the succeeding 

13 provisions of this subsection.’’. 

14 (2) EFFECTIVE DATE.—The amendments made 

15 by paragraph (1) shall be effective as if included in 

16 the enactment of title III of the Medicare and Med17 icaid Budget Reconciliation Amendments of 1984 

18 (Public Law 98–369).

19 (b) CLARIFYING AMENDMENTS TO CONDITIONAL

20 PAYMENT PROVISIONS.—Section 1862(b)(2) (42 U.S.C. 

21 1395y(b)(2)) is further amended—

22 (1) in subparagraph (A), in the matter fol23 lowing clause (ii), by inserting the following sentence 

24 at the end: ‘‘An entity that engages in a business, 

25 trade, or profession shall be deemed to have a self-
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1 insured plan if it carries its own risk (whether by a 

2 failure to obtain insurance, or otherwise) in whole or 

3 in part.’’; 

4 (2) in subparagraph (B)(ii), as redesignated by 

5 subsection (a)(2)(B)—

6 (A) by striking the first sentence and in7 serting the following: ‘‘A primary plan, and an 

8 entity that receives payment from a primary 

9 plan, shall reimburse the appropriate Trust 

10 Fund for any payment made by the Secretary 

11 under this title with respect to an item or serv12 ice if it is demonstrated that such primary plan 

13 has or had a responsibility to make payment 

14 with respect to such item or service. A primary 

15 plan’s responsibility for such payment may be 

16 demonstrated by a judgment, a payment condi17 tioned upon the recipient’s compromise, waiver, 

18 or release (whether or not there is a determina19 tion or admission of liability) of payment for 

20 items or services included in a claim against the 

21 primary plan or the primary plan’s insured, or 

22 by other means.’’; and 

23 (B) in the final sentence, by striking ‘‘on 

24 the date such notice or other information is re25 ceived’’ and inserting ‘‘on the date notice of, or 
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1 information related to, a primary plan’s respon2 sibility for such payment or other information is 

3 received’’; and 

4 (3) in subparagraph (B)(iii), as redesignated by 

5 subsection (a)(2)(B), by striking the first sentence 

6 and inserting the following: ‘‘In order to recover 

7 payment made under this title for an item or service, 

8 the United States may bring an action against any 

9 or all entities that are or were required or respon10 sible (directly, as an insurer or self-insurer, as a 

11 third-party administrator, as an employer that spon12 sors or contributes to a group health plan, or large 

13 group health plan, or otherwise) to make payment 

14 with respect to the same item or service (or any por15 tion thereof) under a primary plan. The United 

16 States may, in accordance with paragraph (3)(A) 

17 collect double damages against any such entity. In 

18 addition, the United States may recover under this 

19 clause from any entity that has received payment 

20 from a primary plan or from the proceeds of a pri21 mary plan’s payment to any entity.’’. 

22 (c) CLERICAL AMENDMENTS.—Section 1862(b) (42 

23 U.S.C. 1395y(b)) is amended—

24 (1) in paragraph (1)(A), by moving the indenta25 tion of clauses (ii) through (v) 2 ems to the left; and 
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1 (2) in paragraph (3)(A), by striking ‘‘such’’ be2 fore ‘‘paragraphs’’. 

3 TITLE V—MEDICARE APPEALS, 

4 REGULATORY, AND CON5 TRACTING IMPROVEMENTS 

6 Subtitle A—Regulatory Reform 

7 SEC. 501. RULES FOR THE PUBLICATION OF A FINAL REGU8 LATION BASED ON THE PREVIOUS PUBLICA9 TION OF AN INTERIM FINAL REGULATION. 

10 (a) IN GENERAL.—Section 1871(a) (42 U.S.C. 

11 1395hh(a)) is amended by adding at the end the following 

12 new paragraph: 

13 ‘‘(3)(A) With respect to the publication of a final reg14 ulation based on the previous publication of an interim 

15 final regulation—

16 ‘‘(i) subject to subparagraph (B), the Secretary 

17 shall publish the final regulation within the 12-

18 month period that begins on the date of publication 

19 of the interim final regulation; 

20 ‘‘(ii) if a final regulation is not published by the 

21 deadline established under this paragraph, the in22 terim final regulation shall not continue in effect un23 less the Secretary publishes a notice described in 

24 subparagraph (B) by such deadline; and 
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1 ‘‘(iii) the final regulation shall include responses 

2 to comments submitted in response to the interim 

3 final regulation. 

4 ‘‘(B) If the Secretary determines before the deadline 

5 otherwise established in this paragraph that there is good 

6 cause, specified in a notice published before such deadline, 

7 for delaying the deadline otherwise applicable under this 

8 paragraph, the deadline otherwise established under this 

9 paragraph shall be extended for such period (not to exceed 

10 12 months) as the Secretary specifies in such notice.’’. 

11 (b) EFFECTIVE DATE.—The amendment made by 

12 subsection (a) shall take effect on the date of enactment 

13 of this Act and shall apply to interim final regulations 

14 published on or after such date. 

15 (c) STATUS OF PENDING INTERIM FINAL REGULA16 TIONS.—Not later than 6 months after the date of enact17 ment of this Act, the Secretary shall publish a notice in 

18 the Federal Register that provides the status of each in19 terim final regulation that was published on or before the 

20 date of enactment of this Act and for which no final regu21 lation has been published. Such notice shall include the 

22 date by which the Secretary plans to publish the final reg23 ulation that is based on the interim final regulation. 
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1 SEC. 502. COMPLIANCE WITH CHANGES IN REGULATIONS 

2 AND POLICIES. 

3 (a) NO RETROACTIVE APPLICATION OF SUB4 STANTIVE CHANGES.—

5 (1) IN GENERAL.—Section 1871 (42 U.S.C. 

6 1395hh) is amended by adding at the end the fol7 lowing new subsection: 

8 ‘‘(d)(1)(A) A substantive change in regulations, man9 ual instructions, interpretative rules, statements of policy, 

10 or guidelines of general applicability under this title shall 

11 not be applied (by extrapolation or otherwise) retroactively 

12 to items and services furnished before the effective date 

13 of the change, unless the Secretary determines that—

14 ‘‘(i) such retroactive application is necessary to 

15 comply with statutory requirements; or 

16 ‘‘(ii) failure to apply the change retroactively 

17 would be contrary to the public interest.’’. 

18 (2) EFFECTIVE DATE.—The amendment made 

19 by paragraph (1) shall apply to substantive changes 

20 issued on or after the date of enactment of this Act. 

21 (b) TIMELINE FOR COMPLIANCE WITH SUBSTANTIVE

22 CHANGES AFTER NOTICE.—

23 (1) IN GENERAL.—Section 1871(d)(1), as 

24 added by subsection (a), is amended by adding at 

25 the end the following: 
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1 ‘‘(B) A compliance action may be made against a pro2 vider of services, physician, practitioner, or other supplier 

3 with respect to noncompliance with such a substantive 

4 change only for items and services furnished on or after 

5 the effective date of the change. 

6 ‘‘(C)(i) Except as provided in clause (ii), a sub7 stantive change may not take effect before the date that 

8 is the end of the 30-day period that begins on the date 

9 that the Secretary has issued or published, as the case 

10 may be, the substantive change. 

11 ‘‘(ii) The Secretary may provide for a substantive 

12 change to take effect on a date that precedes the end of 

13 the 30-day period under clause (i) if the Secretary finds 

14 that waiver of such 30-day period is necessary to comply 

15 with statutory requirements or that the application of such 

16 30-day period is contrary to the public interest. If the Sec17 retary provides for an earlier effective date pursuant to 

18 this clause, the Secretary shall include in the issuance or 

19 publication of the substantive change a finding described 

20 in the first sentence, and a brief statement of the reasons 

21 for such finding.’’. 

22 (2) EFFECTIVE DATE.—The amendment made 

23 by paragraph (1) shall apply to compliance actions 

24 undertaken on or after the date of enactment of this 

25 Act.
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1 SEC. 503. REPORT ON LEGAL AND REGULATORY INCON2 SISTENCIES. 

3 Section 1871 (42 U.S.C. 1395hh), as amended by 

4 section 502(a)(1), is amended by adding at the end the 

5 following new subsection: 

6 ‘‘(e)(1) Not later than 2 years after the date of enact7 ment of this subsection, and every 3 years thereafter, the 

8 Secretary shall submit to Congress a report with respect 

9 to the administration of this title and areas of inconsist10 ency or conflict among the various provisions under law 

11 and regulation. 

12 ‘‘(2) In preparing a report under paragraph (1), the 

13 Secretary shall collect—

14 ‘‘(A) information from beneficiaries, providers 

15 of services, physicians, practitioners, and other sup16 pliers with respect to such areas of inconsistency 

17 and conflict; and 

18 ‘‘(B) information from medicare contractors 

19 that tracks the nature of all communications and 

20 correspondence. 

21 ‘‘(3) A report under paragraph (1) shall include a de22 scription of efforts by the Secretary to reduce such incon23 sistency or conflicts, and recommendations for legislation 

24 or administrative action that the Secretary determines ap25 propriate to further reduce such inconsistency or con26 flicts.’’. 
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1 Subtitle B—Appeals Process 

2 Reform 

3 SEC. 511. SUBMISSION OF PLAN FOR TRANSFER OF RE4 SPONSIBILITY FOR MEDICARE APPEALS. 

5 (a) SUBMISSION OF TRANSITION PLAN.—

6 (1) IN GENERAL.—Not later than April 1, 

7 2004, the Commissioner of Social Security and the 

8 Secretary shall develop and transmit to Congress 

9 and the Comptroller General of the United States a 

10 plan under which the functions of administrative law 

11 judges responsible for hearing cases under title 

12 XVIII of the Social Security Act (and related provi13 sions in title XI of such Act) are transferred from 

14 the responsibility of the Commissioner and the So15 cial Security Administration to the Secretary and 

16 the Department of Health and Human Services. 

17 (2) CONTENTS.—The plan shall include infor18 mation on the following: 

19 (A) WORKLOAD.—The number of such ad20 ministrative law judges and support staff re21 quired now and in the future to hear and decide 

22 such cases in a timely manner, taking into ac23 count the current and anticipated claims vol24 ume, appeals, number of beneficiaries, and stat25 utory changes. 
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1 (B) COST PROJECTIONS AND FINANC2 ING.—Funding levels required for fiscal year 

3 2005 and subsequent fiscal years to carry out 

4 the functions transferred under the plan and 

5 how such transfer should be financed. 

6 (C) TRANSITION TIMETABLE.—A timetable 

7 for the transition. 

8 (D) REGULATIONS.—The establishment of 

9 specific regulations to govern the appeals proc10 ess. 

11 (E) CASE TRACKING.—The development of 

12 a unified case tracking system that will facili13 tate the maintenance and transfer of case spe14 cific data across both the fee-for-service and 

15 managed care components of the medicare pro16 gram. 

17 (F) FEASIBILITY OF PRECEDENTIAL AU18 THORITY.—The feasibility of developing a proc19 ess to give decisions of the Departmental Ap20 peals Board in the Department of Health and 

21 Human Services addressing broad legal issues 

22 binding, precedential authority. 

23 (G) ACCESS TO ADMINISTRATIVE LAW

24 JUDGES.—The feasibility of—
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1 (i) filing appeals with administrative 

2 law judges electronically; and 

3 (ii) conducting hearings using tele- or 

4 video-conference technologies. 

5 (H) INDEPENDENCE OF ADMINISTRATIVE

6 LAW JUDGES.—The steps that should be taken 

7 to ensure the independence of administrative 

8 law judges, including ensuring that such judges 

9 are in an office that is functionally and oper10 ationally separate from the Centers for Medi11 care and Medicaid Services and the Center for 

12 Medicare Choices. 

13 (I) GEOGRAPHIC DISTRIBUTION.—The 

14 steps that should be taken to provide for an ap15 propriate geographic distribution of administra16 tive law judges throughout the United States to 

17 ensure timely access to such judges. 

18 (J) HIRING.—The steps that should be 

19 taken to hire administrative law judges (and 

20 support staff). 

21 (K) PERFORMANCE STANDARDS.—The es22 tablishment of performance standards for ad23 ministrative law judges with respect to timelines 

24 for decisions in cases under title XVIII of the 

25 Social Security Act. 
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1 (L) SHARED RESOURCES.—The feasibility 

2 of the Secretary entering into such arrange3 ments with the Commissioner of Social Security 

4 as may be appropriate with respect to trans5 ferred functions under the plan to share office 

6 space, support staff, and other resources, with 

7 appropriate reimbursement. 

8 (M) TRAINING.—The training that should 

9 be provided to administrative law judges with 

10 respect to laws and regulations under title 

11 XVIII of the Social Security Act. 

12 (3) ADDITIONAL INFORMATION.—The plan may 

13 also include recommendations for further congres14 sional action, including modifications to the require15 ments and deadlines established under section 1869 

16 of the Social Security Act (as amended by sections 

17 521 and 522 of BIPA (114 Stat. 2763A–534) and 

18 this Act). 

19 (b) GAO EVALUATION.—The Comptroller General of 

20 the United States shall—

21 (1) evaluate the plan submitted under sub22 section (a); and 

23 (2) not later than 6 months after such submis24 sion, submit to Congress, the Commissioner of So-
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•HR 2606 IH 

1 cial Security, and the Secretary a report on such 

2 evaluation.

3 (c) SUBMISSION OF GAO REPORT REQUIRED BE4 FORE PLAN IMPLEMENTATION.—The Commissioner of 

5 Social Security and the Secretary may not implement the 

6 plan developed under subsection (a) before the date that 

7 is 6 months after the date the report required under sub8 section (b)(2) is submitted to the Commissioner and the 

9 Secretary. 

10 SEC. 512. EXPEDITED ACCESS TO JUDICIAL REVIEW. 

11 (a) IN GENERAL.—Section 1869(b) (42 U.S.C. 

12 1395ff(b)) is amended—

13 (1) in paragraph (1)(A), by inserting ‘‘, subject 

14 to paragraph (2),’’ before ‘‘to judicial review of the 

15 Secretary’s final decision’’; and 

16 (2) by adding at the end the following new 

17 paragraph: 

18 ‘‘(2) EXPEDITED ACCESS TO JUDICIAL RE19 VIEW.—

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

21 establish a process under which a provider of 

22 services or supplier that furnishes an item or 

23 service or a beneficiary who has filed an appeal 

24 under paragraph (1) (other than an appeal filed 

25 under paragraph (1)(F)(i)) may obtain access 
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1 to judicial review when a review entity (de2 scribed in subparagraph (D)), on its own mo3 tion or at the request of the appellant, deter4 mines that the Departmental Appeals Board 

5 does not have the authority to decide the ques6 tion of law or regulation relevant to the matters 

7 in controversy and that there is no material 

8 issue of fact in dispute. The appellant may 

9 make such request only once with respect to a 

10 question of law or regulation for a specific mat11 ter in dispute in a case of an appeal. 

12 ‘‘(B) PROMPT DETERMINATIONS.—If, after 

13 or coincident with appropriately filing a request 

14 for an administrative hearing, the appellant re15 quests a determination by the appropriate re16 view entity that the Departmental Appeals 

17 Board does not have the authority to decide the 

18 question of law or regulations relevant to the 

19 matters in controversy and that there is no ma20 terial issue of fact in dispute, and if such re21 quest is accompanied by the documents and 

22 materials as the appropriate review entity shall 

23 require for purposes of making such determina24 tion, such review entity shall make a determina25 tion on the request in writing within 60 days 
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1 after the date such review entity receives the re2 quest and such accompanying documents and 

3 materials. Such a determination by such review 

4 entity shall be considered a final decision and 

5 not subject to review by the Secretary. 

6 ‘‘(C) ACCESS TO JUDICIAL REVIEW.—

7 ‘‘(i) IN GENERAL.—If the appropriate 

8 review entity—

9 ‘‘(I) determines that there are no 

10 material issues of fact in dispute and 

11 that the only issues to be adjudicated 

12 are ones of law or regulation that the 

13 Departmental Appeals Board does not 

14 have authority to decide; or 

15 ‘‘(II) fails to make such deter16 mination within the period provided 

17 under subparagraph (B); 

18 then the appellant may bring a civil action 

19 as described in this subparagraph. 

20 ‘‘(ii) DEADLINE FOR FILING.—Such 

21 action shall be filed, in the case described 

22 in—

23 ‘‘(I) clause (i)(I), within 60 days 

24 of the date of the determination de25 scribed in such clause; or 
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•HR 2606 IH 

1 ‘‘(II) clause (i)(II), within 60 

2 days of the end of the period provided 

3 under subparagraph (B) for the deter4 mination. 

5 ‘‘(iii) VENUE.—Such action shall be 

6 brought in the district court of the United 

7 States for the judicial district in which the 

8 appellant is located (or, in the case of an 

9 action brought jointly by more than 1 ap10 plicant, the judicial district in which the 

11 greatest number of applicants are located) 

12 or in the District Court for the District of 

13 Columbia.

14 ‘‘(iv) INTEREST ON ANY AMOUNTS IN

15 CONTROVERSY.—Where a provider of serv16 ices or supplier is granted judicial review 

17 pursuant to this paragraph, the amount in 

18 controversy (if any) shall be subject to an19 nual interest beginning on the first day of 

20 the first month beginning after the 60-day 

21 period as determined pursuant to clause 

22 (ii) and equal to the rate of interest on ob23 ligations issued for purchase by the Fed24 eral Supplementary Medical Insurance 

25 Trust Fund for the month in which the 
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1 civil action authorized under this para2 graph is commenced, to be awarded by the 

3 reviewing court in favor of the prevailing 

4 party. No interest awarded pursuant to the 

5 preceding sentence shall be deemed income 

6 or cost for the purposes of determining re7 imbursement due providers of services, 

8 physicians, practitioners, and other sup9 pliers under this Act. 

10 ‘‘(D) REVIEW ENTITY DEFINED.—For pur11 poses of this subsection, a ‘review entity’ is a 

12 panel of no more than 3 members from the De13 partmental Appeals Board, selected for the pur14 pose of making determinations under this para15 graph.’’. 

16 (b) APPLICATION TO PROVIDER AGREEMENT DETER17 MINATIONS.—Section 1866(h)(1) (42 U.S.C. 

18 1395cc(h)(1)) is amended—

19 (1) by inserting ‘‘(A)’’ after ‘‘(h)(1)’’; and 

20 (2) by adding at the end the following new sub21 paragraph: 

22 ‘‘(B) An institution or agency described in subpara23 graph (A) that has filed for a hearing under subparagraph 

24 (A) shall have expedited access to judicial review under 

25 this subparagraph in the same manner as providers of 
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•HR 2606 IH 

1 services, suppliers, and beneficiaries may obtain expedited 

2 access to judicial review under the process established 

3 under section 1869(b)(2). Nothing in this subparagraph 

4 shall be construed to affect the application of any remedy 

5 imposed under section 1819 during the pendency of an 

6 appeal under this subparagraph.’’. 

7 (c) GAO STUDY AND REPORT ON ACCESS TO JUDI8 CIAL REVIEW.—

9 (1) STUDY.—The Comptroller General of the 

10 United States shall conduct a study on the access of 

11 medicare beneficiaries and health care providers to 

12 judicial review of actions of the Secretary and the 

13 Department of Health and Human Services with re14 spect to items and services under title XVIII of the 

15 Social Security Act subsequent to February 29, 

16 2000, the date of the decision of Shalala, Secretary 

17 of Health and Human Services, et al. v. Illinois 

18 Council on Long Term Care, Inc. (529 U.S. 1 

19 (2000)). 

20 (2) REPORT.—Not later than 1 year after the 

21 date of enactment of this Act, the Comptroller Gen22 eral shall submit to Congress a report on the study 

23 conducted under paragraph (1) together with such 

24 recommendations as the Comptroller General deter25 mines to be appropriate. 
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1 (d) CONFORMING AMENDMENT.—Section 

2 1869(b)(1)(F)(ii) (42 U.S.C. 1395ff(b)(1)(F)(ii)) is 

3 amended to read as follows:

4 ‘‘(ii) REFERENCE TO EXPEDITED AC5 CESS TO JUDICIAL REVIEW.—For the pro6 vision relating to expedited access to judi7 cial review, see paragraph (2).’’. 

8 (e) EFFECTIVE DATE.—The amendments made by 

9 this section shall apply to appeals filed on or after October 

10 1, 2004. 

11 SEC. 513. EXPEDITED REVIEW OF CERTAIN PROVIDER 

12 AGREEMENT DETERMINATIONS. 

13 (a) TERMINATION AND CERTAIN OTHER IMMEDIATE

14 REMEDIES.—

15 (1) IN GENERAL.—The Secretary shall develop 

16 and implement a process to expedite proceedings 

17 under sections 1866(h) of the Social Security Act 

18 (42 U.S.C. 1395cc(h)) in which—

19 (A) the remedy of termination of participa20 tion has been imposed; 

21 (B) a sanction described in clause (i) or 

22 (iii) of section 1819(h)(2)(B) of such Act (42 

23 U.S.C. 1395i–3(h)(2)(B)) has been imposed, 

24 but only if such sanction has been imposed on 

25 an immediate basis; or 
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•HR 2606 IH 

1 (C) the Secretary has required a skilled 

2 nursing facility to suspend operations of a 

3 nurse aide training program. 

4 (2) PRIORITY FOR CASES OF TERMINATION.—

5 Under the process described in paragraph (1), pri6 ority shall be provided in cases of termination de7 scribed in subparagraph (A) of such paragraph. 

8 (b) INCREASED FINANCIAL SUPPORT.—In addition 

9 to any amounts otherwise appropriated, to reduce by 50 

10 percent the average time for administrative determina11 tions on appeals under section 1866(h) of the Social Secu12 rity Act (42 U.S.C. 1395cc(h)), there are authorized to 

13 be appropriated (in appropriate part from the Federal 

14 Hospital Insurance Trust Fund and the Federal Supple15 mentary Medical Insurance Trust Fund) to the Secretary 

16 such sums for fiscal year 2004 and each subsequent fiscal 

17 year as may be necessary to increase the number of ad18 ministrative law judges (and their staffs) at the Depart19 mental Appeals Board of the Department of Health and 

20 Human Services and to educate such judges and staff on 

21 long-term care issues. 

22 SEC. 514. REVISIONS TO MEDICARE APPEALS PROCESS. 

23 (a) TIMEFRAMES FOR THE COMPLETION OF THE

24 RECORD.—Section 1869(b) (42 U.S.C. 1395ff(b)), as 
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1 amended by section 512(a)(2), is amended by adding at 

2 the end the following new paragraph: 

3 ‘‘(3) TIMELY COMPLETION OF THE RECORD.—

4 ‘‘(A) DEADLINE.—Subject to subpara5 graph (B), the deadline to complete the record 

6 in a hearing before an administrative law judge 

7 or a review by the Departmental Appeals Board 

8 is 90 days after the date the request for the re9 view or hearing is filed. 

10 ‘‘(B) EXTENSIONS FOR GOOD CAUSE.—

11 The person filing a request under subparagraph 

12 (A) may request an extension of such deadline 

13 for good cause. The administrative law judge, 

14 in the case of a hearing, and the Departmental 

15 Appeals Board, in the case of a review, may ex16 tend such deadline based upon a finding of 

17 good cause to a date specified by the judge or 

18 Board, as the case may be. 

19 ‘‘(C) DELAY IN DECISION DEADLINES

20 UNTIL COMPLETION OF RECORD.—Notwith21 standing any other provision of this section, the 

22 deadlines otherwise established under sub23 section (d) for the making of determinations in 

24 hearings or review under this section are 90 
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1 days after the date on which the record is com2 plete. 

3 ‘‘(D) COMPLETE RECORD DESCRIBED.—

4 For purposes of this paragraph, a record is 

5 complete when the administrative law judge, in 

6 the case of a hearing, or the Departmental Ap7 peals Board, in the case of a review, has re8 ceived—

9 ‘‘(i) written or testimonial evidence, or 

10 both, submitted by the person filing the re11 quest, 

12 ‘‘(ii) written or oral argument, or 

13 both, 

14 ‘‘(iii) the decision of, and the record 

15 for, the prior level of appeal, and 

16 ‘‘(iv) such other evidence as such 

17 judge or Board, as the case may be, deter18 mines is required to make a determination 

19 on the request.’’. 

20 (b) USE OF PATIENTS’ MEDICAL RECORDS.—Section 

21 1869(c)(3)(B)(i) (42 U.S.C. 1395ff(c)(3)(B)(i)) is amend22 ed by inserting ‘‘(including the medical records of the indi23 vidual involved)’’ after ‘‘clinical experience’’. 

24 (c) NOTICE REQUIREMENTS FOR MEDICARE AP25 PEALS.— 
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1 (1) INITIAL DETERMINATIONS AND REDETER2 MINATIONS.—Section 1869(a) (42 U.S.C. 1395ff(a)) 

3 is amended by adding at the end the following new 

4 paragraph: 

5 ‘‘(4) REQUIREMENTS OF NOTICE OF DETER6 MINATIONS AND REDETERMINATIONS.—A written 

7 notice of a determination on an initial determination 

8 or on a redetermination, insofar as such determina9 tion or redetermination results in a denial of a claim 

10 for benefits, shall be provided in printed form and 

11 written in a manner to be understood by the bene12 ficiary and shall include—

13 ‘‘(A) the reasons for the determination, in14 cluding, as appropriate—

15 ‘‘(i) upon request in the case of an 

16 initial determination, the provision of the 

17 policy, manual, or regulation that resulted 

18 in the denial; and 

19 ‘‘(ii) in the case of a redetermination, 

20 a summary of the clinical or scientific evi21 dence used in making the determination 

22 (as appropriate); 

23 ‘‘(B) the procedures for obtaining addi24 tional information concerning the determination 

25 or redetermination; and 
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1 ‘‘(C) notification of the right to seek a re2 determination or otherwise appeal the deter3 mination and instructions on how to initiate 

4 such a redetermination or appeal under this 

5 section.’’. 

6 (2) RECONSIDERATIONS.—Section 

7 1869(c)(3)(E) (42 U.S.C. 1395ff(c)(3)(E)) is 

8 amended to read as follows: 

9 ‘‘(E) EXPLANATION OF DECISION.—Any 

10 decision with respect to a reconsideration of a 

11 qualified independent contractor shall be in 

12 writing in a manner to be understood by the 

13 beneficiary and shall include—

14 ‘‘(i) to the extent appropriate, a de15 tailed explanation of the decision as well as 

16 a discussion of the pertinent facts and ap17 plicable regulations applied in making such 

18 decision; 

19 ‘‘(ii) a notification of the right to ap20 peal such determination and instructions 

21 on how to initiate such appeal under this 

22 section; and 

23 ‘‘(iii) in the case of a determination of 

24 whether an item or service is reasonable 

25 and necessary for the diagnosis or treat-
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1 ment of illness or injury (under section 

2 1862(a)(1)(A)) an explanation of the med3 ical or scientific rationale for the deci4 sion.’’.

5 (3) APPEALS.—Section 1869(d) (42 U.S.C. 

6 1395ff(d)) is amended—

7 (A) in the heading, by inserting ‘‘; NO8 TICE’’ after ‘‘SECRETARY’’; and 

9 (B) by adding at the end the following new 

10 paragraph:

11 ‘‘(4) NOTICE.—Notice of the decision of an ad12 ministrative law judge shall be in writing in a man13 ner to be understood by the beneficiary and shall in14 clude—

15 ‘‘(A) the specific reasons for the deter16 mination (including, to the extent appropriate, 

17 a summary of the clinical or scientific evidence 

18 used in making the determination); 

19 ‘‘(B) the procedures for obtaining addi20 tional information concerning the decision; and 

21 ‘‘(C) notification of the right to appeal the 

22 decision and instructions on how to initiate 

23 such an appeal under this section.’’. 

24 (4) PREPARATION OF RECORD FOR APPEAL.—

25 Section 1869(c)(3)(J) (42 U.S.C. 1395ff(c)(3)(J)) is 
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1 amended by striking ‘‘such information as is re2 quired for an appeal’’ and inserting ‘‘the record for 

3 the appeal’’. 

4 (d) QUALIFIED INDEPENDENT CONTRACTORS.—

5 (1) ELIGIBILITY REQUIREMENTS OF QUALIFIED

6 INDEPENDENT CONTRACTORS.—Section 1869(c) (42 

7 U.S.C. 1395ff(c)) is amended—

8 (A) in paragraph (2)—

9 (i) by inserting ‘‘(except in the case of 

10 a utilization and quality control peer re11 view organization, as defined in section 

12 1152)’’ after ‘‘means an entity or organi13 zation that’’; and 

14 (ii) by striking the period at the end 

15 and inserting the following: ‘‘and meets the 

16 following requirements: 

17 ‘‘(A) GENERAL REQUIREMENTS.—

18 ‘‘(i) The entity or organization has 

19 (directly or through contracts or other ar20 rangements) sufficient medical, legal, and 

21 other expertise (including knowledge of the 

22 program under this title) and sufficient 

23 staffing to carry out duties of a qualified 

24 independent contractor under this section 

25 on a timely basis. 
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1 ‘‘(ii) The entity or organization has 

2 provided assurances that it will conduct ac3 tivities consistent with the applicable re4 quirements of this section, including that it 

5 will not conduct any activities in a case un6 less the independence requirements of sub7 paragraph (B) are met with respect to the 

8 case. 

9 ‘‘(iii) The entity or organization meets 

10 such other requirements as the Secretary 

11 provides by regulation. 

12 ‘‘(B) INDEPENDENCE REQUIREMENTS.—

13 ‘‘(i) IN GENERAL.—Subject to clause 

14 (ii), an entity or organization meets the 

15 independence requirements of this sub16 paragraph with respect to any case if the 

17 entity—

18 ‘‘(I) is not a related party (as de19 fined in subsection (g)(5)); 

20 ‘‘(II) does not have a material fa21 milial, financial, or professional rela22 tionship with such a party in relation 

23 to such case; and 
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1 ‘‘(III) does not otherwise have a 

2 conflict of interest with such a party 

3 (as determined under regulations). 

4 ‘‘(ii) EXCEPTION FOR COMPENSA5 TION.—Nothing in clause (i) shall be con6 strued to prohibit receipt by a qualified 

7 independent contractor of compensation 

8 from the Secretary for the conduct of ac9 tivities under this section if the compensa10 tion is provided consistent with clause (iii). 

11 ‘‘(iii) LIMITATIONS ON ENTITY COM12 PENSATION.—Compensation provided by 

13 the Secretary to a qualified independent 

14 contractor in connection with reviews 

15 under this section shall not be contingent 

16 on any decision rendered by the contractor 

17 or by any reviewing professional.’’; and 

18 (B) in paragraph (3)(A), by striking ‘‘, 

19 and shall have sufficient training and expertise 

20 in medical science and legal matters to make 

21 reconsiderations under this subsection’’. 

22 (2) ELIGIBILITY REQUIREMENTS FOR REVIEW23 ERS.—Section 1869 (42 U.S.C. 1395ff) is amend24 ed—
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1 (A) by amending subsection (c)(3)(D) to 

2 read as follows: 

3 ‘‘(D) QUALIFICATIONS OF REVIEWERS.—

4 The requirements of subsection (g) shall be met 

5 (relating to qualifications of reviewing profes6 sionals).’’; and 

7 (B) by adding at the end the following new 

8 subsection: 

9 ‘‘(g) QUALIFICATIONS OF REVIEWERS.—

10 ‘‘(1) IN GENERAL.—In reviewing determina11 tions under this section, a qualified independent con12 tractor shall assure that—

13 ‘‘(A) each individual conducting a review 

14 shall meet the qualifications of paragraph (2); 

15 ‘‘(B) compensation provided by the con16 tractor to each such reviewer is consistent with 

17 paragraph (3); and 

18 ‘‘(C) in the case of a review by a panel de19 scribed in subsection (c)(3)(B) composed of 

20 physicians or other health care professionals 

21 (each in this subsection referred to as a ‘review22 ing professional’), each reviewing professional 

23 meets the qualifications described in paragraph 

24 (4). 

25 ‘‘(2) INDEPENDENCE.—
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1 ‘‘(A) IN GENERAL.—Subject to subpara2 graph (B), each individual conducting a review 

3 in a case shall—

4 ‘‘(i) not be a related party (as defined 

5 in paragraph (5));

6 ‘‘(ii) not have a material familial, fi7 nancial, or professional relationship with 

8 such a party in the case under review; and 

9 ‘‘(iii) not otherwise have a conflict of 

10 interest with such a party (as determined 

11 under regulations). 

12 ‘‘(B) EXCEPTION.—Nothing in subpara13 graph (A) shall be construed to—

14 ‘‘(i) prohibit an individual, solely on 

15 the basis of affiliation with a fiscal inter16 mediary, carrier, or other contractor, from 

17 serving as a reviewing professional if—

18 ‘‘(I) a nonaffiliated individual is 

19 not reasonably available; 

20 ‘‘(II) the affiliated individual is 

21 not involved in the provision of items 

22 or services in the case under review; 

23 ‘‘(III) the fact of such an affili24 ation is disclosed to the Secretary and 

25 the beneficiary (or authorized rep-
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1 resentative) and neither party objects; 

2 and 

3 ‘‘(IV) the affiliated individual is 

4 not an employee of the intermediary, 

5 carrier, or contractor and does not 

6 provide services exclusively or pri7 marily to or on behalf of such inter8 mediary, carrier, or contractor; 

9 ‘‘(ii) prohibit an individual who has 

10 staff privileges at the institution where the 

11 treatment involved takes place from serv12 ing as a reviewer merely on the basis of 

13 such affiliation if the affiliation is disclosed 

14 to the Secretary and the beneficiary (or 

15 authorized representative), and neither 

16 party objects; or 

17 ‘‘(iii) prohibit receipt of compensation 

18 by a reviewing professional from a con19 tractor if the compensation is provided 

20 consistent with paragraph (3). 

21 ‘‘(3) LIMITATIONS ON REVIEWER COMPENSA22 TION.—Compensation provided by a qualified inde23 pendent contractor to a reviewer in connection with 

24 a review under this section shall not be contingent 

25 on the decision rendered by the reviewer. 
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1 ‘‘(4) LICENSURE AND EXPERTISE.—Each re2 viewing professional shall be a physician (allopathic 

3 or osteopathic) or health care professional who—

4 ‘‘(A) is appropriately credentialed or li5 censed in 1 or more States to deliver health 

6 care services; and 

7 ‘‘(B) has medical expertise in the field of 

8 practice that is appropriate for the items or 

9 services at issue. 

10 ‘‘(5) RELATED PARTY DEFINED.—For purposes 

11 of this section, the term ‘related party’ means, with 

12 respect to a case under this title involving an indi13 vidual beneficiary, any of the following: 

14 ‘‘(A) The Secretary, the medicare adminis15 trative contractor involved, or any fiduciary, of16 ficer, director, or employee of the Department 

17 of Health and Human Services, or of such con18 tractor. 

19 ‘‘(B) The individual (or authorized rep20 resentative). 

21 ‘‘(C) The health care professional that pro22 vides the items or services involved in the case. 

23 ‘‘(D) The institution at which the items or 

24 services (or treatment) involved in the case are 

25 provided. 
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1 ‘‘(E) The manufacturer of any drug or 

2 other item that is included in the items or serv3 ices involved in the case. 

4 ‘‘(F) Any other party determined under 

5 any regulations to have a substantial interest in 

6 the case involved.’’. 

7 (3) NUMBER OF QUALIFIED INDEPENDENT

8 CONTRACTORS.—Section 1869(c)(4) (42 U.S.C. 

9 1395ff(c)(4)) is amended by striking ‘‘12’’ and in10 serting ‘‘4’’. 

11 (e) IMPLEMENTATION OF CERTAIN BIPA RE12 FORMS.—

13 (1) DELAY IN CERTAIN BIPA REFORMS.—Sec14 tion 521(d) of BIPA (114 Stat. 2763A–543) is 

15 amended to read as follows: 

16 ‘‘(d) EFFECTIVE DATE.—

17 ‘‘(1) IN GENERAL.—Except as specified in 

18 paragraph (2), the amendments made by this section 

19 shall apply with respect to initial determinations 

20 made on or after December 1, 2004. 

21 ‘‘(2) EXPEDITED PROCEEDINGS AND RECONSID22 ERATION REQUIREMENTS.—For the following provi23 sions, the amendments made by subsection (a) shall 

24 apply with respect to initial determinations made on 

25 or after October 1, 2003: 
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1 ‘‘(A) Subsection (b)(1)(F)(i) of section 

2 1869 of the Social Security Act. 

3 ‘‘(B) Subsection (c)(3)(C)(iii) of such sec4 tion. 

5 ‘‘(C) Subsection (c)(3)(C)(iv) of such sec6 tion to the extent that it applies to expedited 

7 reconsiderations under subsection (c)(3)(C)(iii) 

8 of such section. 

9 ‘‘(3) TRANSITIONAL USE OF PEER REVIEW OR10 GANIZATIONS TO CONDUCT EXPEDITED RECONSID11 ERATIONS UNTIL QICS ARE OPERATIONAL.—Expe12 dited reconsiderations of initial determinations under 

13 section 1869(c)(3)(C)(iii) of the Social Security Act 

14 shall be made by peer review organizations until 

15 qualified independent contractors are available for 

16 such expedited reconsiderations.’’. 

17 (2) CONFORMING AMENDMENTS.—Section 

18 521(c) of BIPA (114 Stat. 2763A–543) and section 

19 1869(c)(3)(C)(iii)(III) of the Social Security Act (42 

20 U.S.C. 1395ff(c)(3)(C)(iii)(III)), as added by section 

21 521 of BIPA, are repealed. 

22 (f) EFFECTIVE DATE.—The amendments made by 

23 this section shall be effective as if included in the enact24 ment of the respective provisions of subtitle C of title V 

25 of BIPA, 114 Stat. 2763A–534. 
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1 (g) TRANSITION.—In applying section 1869(g) of the 

2 Social Security Act (as added by subsection (d)(2)), any 

3 reference to a medicare administrative contractor shall be 

4 deemed to include a reference to a fiscal intermediary 

5 under section 1816 of the Social Security Act (42 U.S.C. 

6 1395h) and a carrier under section 1842 of such Act (42 

7 U.S.C. 1395u).

8 SEC. 515. HEARING RIGHTS RELATED TO DECISIONS BY 

9 THE SECRETARY TO DENY OR NOT RENEW A 

10 MEDICARE ENROLLMENT AGREEMENT; CON11 SULTATION BEFORE CHANGING PROVIDER 

12 ENROLLMENT FORMS. 

13 (a) HEARING RIGHTS.—

14 (1) IN GENERAL.—Section 1866 (42 U.S.C. 

15 1395cc) is amended by adding at the end the fol16 lowing new subsection: 

17 ‘‘(j) HEARING RIGHTS IN CASES OF DENIAL OR

18 NONRENEWAL.—The Secretary shall establish by regula19 tion procedures under which—

20 ‘‘(1) there are deadlines for actions on applica21 tions for enrollment (and, if applicable, renewal of 

22 enrollment); and 

23 ‘‘(2) providers of services, physicians, practi24 tioners, and suppliers whose application to enroll 

25 (or, if applicable, to renew enrollment) are denied 
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1 are provided a mechanism to appeal such denial and 

2 a deadline for consideration of such appeals.’’. 

3 (2) EFFECTIVE DATE.—The Secretary shall 

4 provide for the establishment of the procedures 

5 under the amendment made by paragraph (1) within 

6 18 months after the date of enactment of this Act. 

7 (b) CONSULTATION BEFORE CHANGING PROVIDER

8 ENROLLMENT FORMS.—Section 1871 (42 U.S.C. 

9 1395hh), as amended by sections 502 and 503, is amend10 ed by adding at the end the following new subsection: 

11 ‘‘(f) The Secretary shall consult with providers of 

12 services, physicians, practitioners, and suppliers before 

13 making changes in the provider enrollment forms required 

14 of such providers, physicians, practitioners, and suppliers 

15 to be eligible to submit claims for which payment may be 

16 made under this title.’’.

17 SEC. 516. APPEALS BY PROVIDERS WHEN THERE IS NO 

18 OTHER PARTY AVAILABLE. 

19 (a) IN GENERAL.—Section 1870 (42 U.S.C. 1395gg) 

20 is amended by adding at the end the following new sub21 section: 

22 ‘‘(h) Notwithstanding subsection (f) or any other pro23 vision of law, the Secretary shall permit a provider of serv24 ices, physician, practitioner, or other supplier to appeal 

25 any determination of the Secretary under this title relating 
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1 to services rendered under this title to an individual who 

2 subsequently dies if there is no other party available to 

3 appeal such determination.’’. 

4 (b) EFFECTIVE DATE.—The amendment made by 

5 subsection (a) shall take effect on the date of enactment 

6 of this Act and shall apply to items and services furnished 

7 on or after such date. 

8 SEC. 517. PROVIDER ACCESS TO REVIEW OF LOCAL COV9 ERAGE DETERMINATIONS. 

10 (a) PROVIDER ACCESS TO REVIEW OF LOCAL COV11 ERAGE DETERMINATIONS.—Section 1869(f)(5) (42 

12 U.S.C. 1395ff(f)(5)) is amended to read as follows: 

13 ‘‘(5) AGGRIEVED PARTY DEFINED.—In this sec14 tion, the term ‘aggrieved party’ means—

15 ‘‘(A) with respect to a national coverage 

16 determination, an individual entitled to benefits 

17 under part A, or enrolled under part B, or both, 

18 who is in need of the items or services that are 

19 the subject of the coverage determination; and 

20 ‘‘(B) with respect to a local coverage deter21 mination—

22 ‘‘(i) an individual who is entitled to 

23 benefits under part A, or enrolled under 

24 part B, or both, who is adversely affected 

25 by such a determination; or 
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1 ‘‘(ii) a provider of services, physician, 

2 practitioner, or supplier that is adversely 

3 affected by such a determination.’’. 

4 (b) CLARIFICATION OF LOCAL COVERAGE DETER5 MINATION DEFINITION.—Section 1869(f)(2)(B) (42 

6 U.S.C. 1395ff(f)(2)(B)) is amended by inserting ‘‘, includ7 ing, where appropriate, the specific requirements and clin8 ical indications relating to the medical necessity of an item 

9 or service’’ before the period at the end. 

10 (c) REQUEST FOR LOCAL COVERAGE DETERMINA11 TIONS BY PROVIDERS.—Section 1869 (42 U.S.C. 1395ff), 

12 as amended by section 514(d)(2)(B), is amended by add13 ing at the end the following new subsection: 

14 ‘‘(h) REQUEST FOR LOCAL COVERAGE DETERMINA15 TIONS BY PROVIDERS.—

16 ‘‘(1) ESTABLISHMENT OF PROCESS.—The Sec17 retary shall establish a process under which a pro18 vider of services, physician, practitioner, or supplier 

19 who certifies that they meet the requirements estab20 lished in paragraph (3) may request a local coverage 

21 determination in accordance with the succeeding 

22 provisions of this subsection. 

23 ‘‘(2) PROVIDER LOCAL COVERAGE DETERMINA24 TION REQUEST DEFINED.—In this subsection, the 

25 term ‘provider local coverage determination request’ 
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1 means a request, filed with the Secretary, at such 

2 time and in such form and manner as the Secretary 

3 may specify, that the Secretary, pursuant to para4 graph (4)(A), require a fiscal intermediary, carrier, 

5 or program safeguard contractor to make or revise 

6 a local coverage determination under this section 

7 with respect to an item or service. 

8 ‘‘(3) REQUEST REQUIREMENTS.—Under the 

9 process established under paragraph (1), by not 

10 later than 30 days after the date on which a pro11 vider local coverage determination request is filed 

12 under paragraph (1), the Secretary shall determine 

13 whether such request establishes that—

14 ‘‘(A) there have been at least 5 reversals of 

15 redeterminations made by a fiscal intermediary 

16 or carrier after a hearing before an administra17 tive law judge on claims submitted by the pro18 vider in at least 2 different cases before an ad19 ministrative law judge;

20 ‘‘(B) each reversal described in subpara21 graph (A) involves substantially similar mate22 rial facts; 

23 ‘‘(C) each reversal described in subpara24 graph (A) involves the same medical necessity 

25 issue; and 
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1 ‘‘(D) at least 50 percent of the total num2 ber of claims submitted by such provider within 

3 the past year involving the substantially similar 

4 material facts described in subparagraph (B) 

5 and the same medical necessity issue described 

6 in subparagraph (C) have been denied and have 

7 been reversed by an administrative law judge.

8 ‘‘(4) APPROVAL OR REJECTION OF REQUEST.—

9 ‘‘(A) APPROVAL OF REQUEST.—If the Sec10 retary determines that subparagraphs (A) 

11 through (D) of paragraph (3) have been satis12 fied, the Secretary shall require the fiscal inter13 mediary, carrier, or program safeguard con14 tractor identified in the provider local coverage 

15 determination request, to make or revise a local 

16 coverage determination with respect to the item 

17 or service that is the subject of the request not 

18 later than the date that is 210 days after the 

19 date on which the Secretary makes the deter20 mination. Such fiscal intermediary, carrier, or 

21 program safeguard contractor shall retain the 

22 discretion to determine whether or not, and/or 

23 the circumstances under which, to cover the 

24 item or service for which a local coverage deter25 mination is requested. Nothing in this sub-
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1 section shall be construed to require a fiscal 

2 intermediary, carrier or program safeguard con3 tractor to develop a local coverage determina4 tion that is inconsistent with any national cov5 erage determination, or any coverage provision 

6 in this title or in regulation, manual, or inter7 pretive guidance of the Secretary. 

8 ‘‘(B) REJECTION OF REQUEST.—If the 

9 Secretary determines that subparagraphs (A) 

10 through (D) of paragraph (3) have not been 

11 satisfied, the Secretary shall reject the provider 

12 local coverage determination request and shall 

13 notify the provider of services, physician, practi14 tioner, or supplier that filed the request of the 

15 reason for such rejection and no further pro16 ceedings in relation to such request shall be 

17 conducted.’’. 

18 (d) STUDY AND REPORT ON THE USE OF CONTRAC19 TORS TO MONITOR MEDICARE APPEALS.—

20 (1) STUDY.—The Secretary shall conduct a 

21 study on the feasibility and advisability of requiring 

22 fiscal intermediaries and carriers to monitor and 

23 track—

24 (A) the subject matter and status of claims 

25 denied by the fiscal intermediary or carrier (as 
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1 applicable) that are appealed under section 

2 1869 of the Social Security Act (42 U.S.C. 

3 1395ff), as added by section 522 of BIPA (114 

4 Stat. 2763A–543) and amended by this Act; 

5 and 

6 (B) any final determination made with re7 spect to such claims. 

8 (2) REPORT.—Not later than the date that is 

9 1 year after the date of enactment of this Act, the 

10 Secretary shall submit to Congress a report on the 

11 study conducted under paragraph (1) together with 

12 such recommendations for legislation and adminis13 trative action as the Commission determines appro14 priate. 

15 (e) AUTHORIZATION OF APPROPRIATIONS.—There 

16 are authorized to be appropriated such sums as are nec17 essary to carry out the amendments made by subsections 

18 (a), (b), and (c). 

19 (f) EFFECTIVE DATES.—

20 (1) PROVIDER ACCESS TO REVIEW OF LOCAL

21 COVERAGE DETERMINATIONS.—The amendments 

22 made by subsections (a) and (b) shall apply to—

23 (A) any review of any local coverage deter24 mination filed on or after October 1, 2003; 
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1 (B) any request to make such a determina2 tion made on or after such date; or

3 (C) any local coverage determination made 

4 on or after such date. 

5 (2) PROVIDER LOCAL COVERAGE DETERMINA6 TION REQUESTS.—The amendment made by sub7 section (c) shall apply with respect to provider local 

8 coverage determination requests (as defined in sec9 tion 1869(h)(2) of the Social Security Act, as added 

10 by subsection (c)) filed on or after the date of enact11 ment of this Act. 

12 Subtitle C—Contracting Reform 

13 SEC. 521. INCREASED FLEXIBILITY IN MEDICARE ADMINIS14 TRATION. 

15 (a) CONSOLIDATION AND FLEXIBILITY IN MEDICARE

16 ADMINISTRATION.—

17 (1) IN GENERAL.—Title XVIII is amended by 

18 inserting after section 1874 the following new sec19 tion: 

20 ‘‘CONTRACTS WITH MEDICARE ADMINISTRATIVE

21 CONTRACTORS

22 ‘‘SEC. 1874A. (a) AUTHORITY.—

23 ‘‘(1) AUTHORITY TO ENTER INTO CON24 TRACTS.—The Secretary may enter into contracts 

25 with any eligible entity to serve as a medicare ad26 ministrative contractor with respect to the perform-
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1 ance of any or all of the functions described in para2 graph (4) or parts of those functions (or, to the ex3 tent provided in a contract, to secure performance 

4 thereof by other entities). 

5 ‘‘(2) ELIGIBILITY OF ENTITIES.—An entity is 

6 eligible to enter into a contract with respect to the 

7 performance of a particular function described in 

8 paragraph (4) only if—

9 ‘‘(A) the entity has demonstrated capa10 bility to carry out such function;

11 ‘‘(B) the entity complies with such conflict 

12 of interest standards as are generally applicable 

13 to Federal acquisition and procurement; 

14 ‘‘(C) the entity has sufficient assets to fi15 nancially support the performance of such func16 tion; and 

17 ‘‘(D) the entity meets such other require18 ments as the Secretary may impose. 

19 ‘‘(3) MEDICARE ADMINISTRATIVE CONTRACTOR

20 DEFINED.—For purposes of this title and title XI—

21 ‘‘(A) IN GENERAL.—The term ‘medicare 

22 administrative contractor’ means an agency, or23 ganization, or other person with a contract 

24 under this section. 
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1 ‘‘(B) APPROPRIATE MEDICARE ADMINIS2 TRATIVE CONTRACTOR.—With respect to the 

3 performance of a particular function in relation 

4 to an individual entitled to benefits under part 

5 A or enrolled under part B, or both, a specific 

6 provider of services, physician, practitioner, fa7 cility, or supplier (or class of such providers of 

8 services, physicians, practitioners, facilities, or 

9 suppliers), the ‘appropriate’ medicare adminis10 trative contractor is the medicare administra11 tive contractor that has a contract under this 

12 section with respect to the performance of that 

13 function in relation to that individual, provider 

14 of services, physician, practitioner, facility, or 

15 supplier or class of provider of services, physi16 cian, practitioner, facility, or supplier. 

17 ‘‘(4) FUNCTIONS DESCRIBED.—The functions 

18 referred to in paragraphs (1) and (2) are payment 

19 functions (including the function of developing local 

20 coverage determinations, as defined in section 

21 1869(f)(2)(B)), provider services functions, and ben22 eficiary services functions as follows: 

23 ‘‘(A) DETERMINATION OF PAYMENT

24 AMOUNTS.—Determining (subject to the provi25 sions of section 1878 and to such review by the 
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1 Secretary as may be provided for by the con2 tracts) the amount of the payments required 

3 pursuant to this title to be made to providers 

4 of services, physicians, practitioners, facilities, 

5 suppliers, and individuals. 

6 ‘‘(B) MAKING PAYMENTS.—Making pay7 ments described in subparagraph (A) (including 

8 receipt, disbursement, and accounting for funds 

9 in making such payments). 

10 ‘‘(C) BENEFICIARY EDUCATION AND AS11 SISTANCE.—Serving as a center for, and com12 municating to individuals entitled to benefits 

13 under part A or enrolled under part B, or both, 

14 with respect to education and outreach for 

15 those individuals, and assistance with specific 

16 issues, concerns, or problems of those individ17 uals. 

18 ‘‘(D) PROVIDER CONSULTATIVE SERV19 ICES.—Providing consultative services to insti20 tutions, agencies, and other persons to enable 

21 them to establish and maintain fiscal records 

22 necessary for purposes of this title and other23 wise to qualify as providers of services, physi24 cians, practitioners, facilities, or suppliers. 
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1 ‘‘(E) COMMUNICATION WITH PRO2 VIDERS.—Serving as a center for, and commu3 nicating to providers of services, physicians, 

4 practitioners, facilities, and suppliers, any infor5 mation or instructions furnished to the medi6 care administrative contractor by the Secretary, 

7 and serving as a channel of communication 

8 from such providers, physicians, practitioners, 

9 facilities, and suppliers to the Secretary. 

10 ‘‘(F) PROVIDER EDUCATION AND TECH11 NICAL ASSISTANCE.—Performing the functions 

12 described in subsections (e) and (f), relating to 

13 education, training, and technical assistance to 

14 providers of services, physicians, practitioners, 

15 facilities, and suppliers. 

16 ‘‘(G) ADDITIONAL FUNCTIONS.—Per17 forming such other functions, including (subject 

18 to paragraph (5)) functions under the Medicare 

19 Integrity Program under section 1893, as are 

20 necessary to carry out the purposes of this title. 

21 ‘‘(5) RELATIONSHIP TO MIP CONTRACTS.—

22 ‘‘(A) NONDUPLICATION OF ACTIVITIES.—

23 In entering into contracts under this section, 

24 the Secretary shall assure that activities of 

25 medicare administrative contractors do not du-
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1 plicate activities carried out under contracts en2 tered into under the Medicare Integrity Pro3 gram under section 1893. The previous sen4 tence shall not apply with respect to the activity 

5 described in section 1893(b)(5) (relating to 

6 prior authorization of certain items of durable 

7 medical equipment under section 1834(a)(15)). 

8 ‘‘(B) CONSTRUCTION.—An entity shall not 

9 be treated as a medicare administrative con10 tractor merely by reason of having entered into 

11 a contract with the Secretary under section 

12 1893.

13 ‘‘(6) APPLICATION OF FEDERAL ACQUISITION

14 REGULATION.—Except to the extent inconsistent 

15 with a specific requirement of this title, the Federal 

16 Acquisition Regulation applies to contracts under 

17 this title. 

18 ‘‘(b) CONTRACTING REQUIREMENTS.—

19 ‘‘(1) USE OF COMPETITIVE PROCEDURES.—

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

21 laws with general applicability to Federal acqui22 sition and procurement, the Federal Acquisition 

23 Regulation, or in subparagraph (B), the Sec24 retary shall use competitive procedures when 
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1 entering into contracts with medicare adminis2 trative contractors under this section. 

3 ‘‘(B) RENEWAL OF CONTRACTS.—The Sec4 retary may renew a contract with a medicare 

5 administrative contractor under this section 

6 from term to term without regard to section 5 

7 of title 41, United States Code, or any other 

8 provision of law requiring competition, if the 

9 medicare administrative contractor has met or 

10 exceeded the performance requirements applica11 ble with respect to the contract and contractor, 

12 except that the Secretary shall provide for the 

13 application of competitive procedures under 

14 such a contract not less frequently than once 

15 every 6 years. 

16 ‘‘(C) TRANSFER OF FUNCTIONS.—The 

17 Secretary may transfer functions among medi18 care administrative contractors without regard 

19 to any provision of law requiring competition. 

20 The Secretary shall ensure that performance 

21 quality is considered in such transfers. The Sec22 retary shall provide notice (whether in the Fed23 eral Register or otherwise) of any such transfer 

24 (including a description of the functions so 

25 transferred and contact information for the 
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1 contractors involved) to providers of services, 

2 physicians, practitioners, facilities, and sup3 pliers affected by the transfer. 

4 ‘‘(D) INCENTIVES FOR QUALITY.—The 

5 Secretary may provide incentives for medicare 

6 administrative contractors to provide quality 

7 service and to promote efficiency. 

8 ‘‘(2) COMPLIANCE WITH REQUIREMENTS.—No 

9 contract under this section shall be entered into with 

10 any medicare administrative contractor unless the 

11 Secretary finds that such medicare administrative 

12 contractor will perform its obligations under the con13 tract efficiently and effectively and will meet such 

14 requirements as to financial responsibility, legal au15 thority, and other matters as the Secretary finds 

16 pertinent. 

17 ‘‘(3) PERFORMANCE REQUIREMENTS.—

18 ‘‘(A) DEVELOPMENT OF SPECIFIC PER19 FORMANCE REQUIREMENTS.—The Secretary 

20 shall develop contract performance require21 ments to carry out the specific requirements ap22 plicable under this title to a function described 

23 in subsection (a)(4) and shall develop standards 

24 for measuring the extent to which a contractor 

25 has met such requirements. In developing such 
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1 performance requirements and standards for 

2 measurement, the Secretary shall consult with 

3 providers of services, organizations representa4 tive of beneficiaries under this title, and organi5 zations and agencies performing functions nec6 essary to carry out the purposes of this section 

7 with respect to such performance requirements. 

8 The Secretary shall make such performance re9 quirements and measurement standards avail10 able to the public. 

11 ‘‘(B) CONSIDERATIONS.—The Secretary 

12 shall include, as 1 of the standards, provider 

13 and beneficiary satisfaction levels. 

14 ‘‘(C) INCLUSION IN CONTRACTS.—All con15 tractor performance requirements shall be set 

16 forth in the contract between the Secretary and 

17 the appropriate medicare administrative con18 tractor. Such performance requirements—

19 ‘‘(i) shall reflect the performance re20 quirements published under subparagraph 

21 (A), but may include additional perform22 ance requirements; 

23 ‘‘(ii) shall be used for evaluating con24 tractor performance under the contract; 

25 and 
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1 ‘‘(iii) shall be consistent with the writ2 ten statement of work provided under the 

3 contract. 

4 ‘‘(4) INFORMATION REQUIREMENTS.—The Sec5 retary shall not enter into a contract with a medi6 care administrative contractor under this section un7 less the contractor agrees—

8 ‘‘(A) to furnish to the Secretary such time9 ly information and reports as the Secretary may 

10 find necessary in performing his functions 

11 under this title; and 

12 ‘‘(B) to maintain such records and afford 

13 such access thereto as the Secretary finds nec14 essary to assure the correctness and verification 

15 of the information and reports under subpara16 graph (A) and otherwise to carry out the pur17 poses of this title. 

18 ‘‘(5) SURETY BOND.—A contract with a medi19 care administrative contractor under this section 

20 may require the medicare administrative contractor, 

21 and any of its officers or employees certifying pay22 ments or disbursing funds pursuant to the contract, 

23 or otherwise participating in carrying out the con24 tract, to give surety bond to the United States in 
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1 such amount as the Secretary may deem appro2 priate. 

3 ‘‘(6) RETAINING DIVERSITY OF LOCAL COV4 ERAGE DETERMINATIONS.—A contract with a medi5 care administrative contractor under this section to 

6 perform the function of developing local coverage de7 terminations (as defined in section 1869(f)(2)(B)) 

8 shall provide that the contractor shall—

9 ‘‘(A) designate at least 1 different indi10 vidual to serve as medical director for each 

11 State for which such contract performs such 

12 function; 

13 ‘‘(B) utilize such medical director in the 

14 performance of such function; and 

15 ‘‘(C) appoint a contractor advisory com16 mittee with respect to each such State to pro17 vide a formal mechanism for physicians in the 

18 State to be informed of, and participate in, the 

19 development of a local coverage determination 

20 in an advisory capacity. 

21 ‘‘(c) TERMS AND CONDITIONS.—

22 ‘‘(1) IN GENERAL.—Subject to subsection 

23 (a)(6), a contract with any medicare administrative 

24 contractor under this section may contain such 

25 terms and conditions as the Secretary finds nec-
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1 essary or appropriate and may provide for advances 

2 of funds to the medicare administrative contractor 

3 for the making of payments by it under subsection 

4 (a)(4)(B). 

5 ‘‘(2) PROHIBITION ON MANDATES FOR CERTAIN

6 DATA COLLECTION.—The Secretary may not require, 

7 as a condition of entering into, or renewing, a con8 tract under this section, that the medicare adminis9 trative contractor match data obtained other than in 

10 its activities under this title with data used in the 

11 administration of this title for purposes of identi12 fying situations in which the provisions of section 

13 1862(b) may apply. 

14 ‘‘(d) LIMITATION ON LIABILITY OF MEDICARE AD15 MINISTRATIVE CONTRACTORS AND CERTAIN OFFICERS.—

16 ‘‘(1) CERTIFYING OFFICER.—No individual des17 ignated pursuant to a contract under this section as 

18 a certifying officer shall, in the absence of the reck19 less disregard of the individual’s obligations or the 

20 intent by that individual to defraud the United 

21 States, be liable with respect to any payments cer22 tified by the individual under this section. 

23 ‘‘(2) DISBURSING OFFICER.—No disbursing of24 ficer shall, in the absence of the reckless disregard 

25 of the officer’s obligations or the intent by that offi-
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1 cer to defraud the United States, be liable with re2 spect to any payment by such officer under this sec3 tion if it was based upon an authorization (which 

4 meets the applicable requirements for such internal 

5 controls established by the Comptroller General) of 

6 a certifying officer designated as provided in para7 graph (1) of this subsection. 

8 ‘‘(3) LIABILITY OF MEDICARE ADMINISTRATIVE

9 CONTRACTOR.—No medicare administrative con10 tractor shall be liable to the United States for a pay11 ment by a certifying or disbursing officer unless, in 

12 connection with such a payment, the medicare ad13 ministrative contractor acted with reckless disregard 

14 of its obligations under its medicare administrative 

15 contract or with intent to defraud the United States. 

16 ‘‘(4) RELATIONSHIP TO FALSE CLAIMS ACT.—

17 Nothing in this subsection shall be construed to limit 

18 liability for conduct that would constitute a violation 

19 of sections 3729 through 3731 of title 31, United 

20 States Code (commonly known as the ‘‘False Claims 

21 Act’’). 

22 ‘‘(5) INDEMNIFICATION BY SECRETARY.—

23 ‘‘(A) IN GENERAL.—Notwithstanding any 

24 other provision of law and subject to the suc25 ceeding provisions of this paragraph, in the case 
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1 of a medicare administrative contractor (or a 

2 person who is a director, officer, or employee of 

3 such a contractor or who is engaged by the con4 tractor to participate directly in the claims ad5 ministration process) who is made a party to 

6 any judicial or administrative proceeding aris7 ing from, or relating directly to, the claims ad8 ministration process under this title, the Sec9 retary may, to the extent specified in the con10 tract with the contractor, indemnify the con11 tractor (and such persons). 

12 ‘‘(B) CONDITIONS.—The Secretary may 

13 not provide indemnification under subparagraph 

14 (A) insofar as the liability for such costs arises 

15 directly from conduct that is determined by the 

16 Secretary to be criminal in nature, fraudulent, 

17 or grossly negligent. 

18 ‘‘(C) SCOPE OF INDEMNIFICATION.—In19 demnification by the Secretary under subpara20 graph (A) may include payment of judgments, 

21 settlements (subject to subparagraph (D)), 

22 awards, and costs (including reasonable legal 

23 expenses).

24 ‘‘(D) WRITTEN APPROVAL FOR SETTLE25 MENTS.—A contractor or other person de-
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1 scribed in subparagraph (A) may not propose to 

2 negotiate a settlement or compromise of a pro3 ceeding described in such subparagraph without 

4 the prior written approval of the Secretary to 

5 negotiate a settlement. Any indemnification 

6 under subparagraph (A) with respect to 

7 amounts paid under a settlement are condi8 tioned upon the Secretary’s prior written ap9 proval of the final settlement. 

10 ‘‘(E) CONSTRUCTION.—Nothing in this 

11 paragraph shall be construed—

12 ‘‘(i) to change any common law immu13 nity that may be available to a medicare 

14 administrative contractor or person de15 scribed in subparagraph (A); or 

16 ‘‘(ii) to permit the payment of costs 

17 not otherwise allowable, reasonable, or allo18 cable under the Federal Acquisition Regu19 lations.’’. 

20 (2) CONSIDERATION OF INCORPORATION OF

21 CURRENT LAW STANDARDS.—In developing contract 

22 performance requirements under section 1874A(b) 

23 of the Social Security Act (as added by paragraph 

24 (1)) the Secretary shall consider inclusion of the per25 formance standards described in sections 1816(f)(2) 
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1 of such Act (relating to timely processing of recon2 siderations and applications for exemptions) and sec3 tion 1842(b)(2)(B) of such Act (relating to timely 

4 review of determinations and fair hearing requests), 

5 as such sections were in effect before the date of en6 actment of this Act. 

7 (b) CONFORMING AMENDMENTS TO SECTION 1816 

8 (RELATING TO FISCAL INTERMEDIARIES).—Section 1816 

9 (42 U.S.C. 1395h) is amended as follows: 

10 (1) The heading is amended to read as follows: 

11 ‘‘PROVISIONS RELATING TO THE ADMINISTRATION OF

12 PART A’’. 

13 (2) Subsection (a) is amended to read as fol14 lows: 

15 ‘‘(a) The administration of this part shall be con16 ducted through contracts with medicare administrative 

17 contractors under section 1874A.’’. 

18 (3) Subsection (b) is repealed. 

19 (4) Subsection (c) is amended—

20 (A) by striking paragraph (1); and 

21 (B) in each of paragraphs (2)(A) and 

22 (3)(A), by striking ‘‘agreement under this sec23 tion’’ and inserting ‘‘contract under section 

24 1874A that provides for making payments 

25 under this part’’. 

26 (5) Subsections (d) through (i) are repealed. 
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1 (6) Subsections (j) and (k) are each amended—

2 (A) by striking ‘‘An agreement with an 

3 agency or organization under this section’’ and 

4 inserting ‘‘A contract with a medicare adminis5 trative contractor under section 1874A with re6 spect to the administration of this part’’; and 

7 (B) by striking ‘‘such agency or organiza8 tion’’ and inserting ‘‘such medicare administra9 tive contractor’’ each place it appears. 

10 (7) Subsection (l) is repealed. 

11 (c) CONFORMING AMENDMENTS TO SECTION 1842 

12 (RELATING TO CARRIERS).—Section 1842 (42 U.S.C. 

13 1395u) is amended as follows: 

14 (1) The heading is amended to read as follows: 

15 ‘‘PROVISIONS RELATING TO THE ADMINISTRATION OF

16 PART B’’. 

17 (2) Subsection (a) is amended to read as fol18 lows: 

19 ‘‘(a) The administration of this part shall be con20 ducted through contracts with medicare administrative 

21 contractors under section 1874A.’’.

22 (3) Subsection (b) is amended—

23 (A) by striking paragraph (1); 

24 (B) in paragraph (2)—

25 (i) by striking subparagraphs (A) and 

26 (B); 
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1 (ii) in subparagraph (C), by striking 

2 ‘‘carriers’’ and inserting ‘‘medicare admin3 istrative contractors’’; and

4 (iii) by striking subparagraphs (D) 

5 and (E); 

6 (C) in paragraph (3)—

7 (i) in the matter before subparagraph 

8 (A), by striking ‘‘Each such contract shall 

9 provide that the carrier’’ and inserting 

10 ‘‘The Secretary’’; 

11 (ii) by striking ‘‘will’’ the first place it 

12 appears in each of subparagraphs (A), (B), 

13 (F), (G), (H), and (L) and inserting 

14 ‘‘shall’’; 

15 (iii) in subparagraph (B), in the mat16 ter before clause (i), by striking ‘‘to the 

17 policyholders and subscribers of the car18 rier’’ and inserting ‘‘to the policyholders 

19 and subscribers of the medicare adminis20 trative contractor’’; 

21 (iv) by striking subparagraphs (C), 

22 (D), and (E); 

23 (v) in subparagraph (H)—
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1 (I) by striking ‘‘if it makes deter2 minations or payments with respect to 

3 physicians’ services,’’; and 

4 (II) by striking ‘‘carrier’’ and in5 serting ‘‘medicare administrative con6 tractor’’; 

7 (vi) by striking subparagraph (I); 

8 (vii) in subparagraph (L), by striking 

9 the semicolon and inserting a period; 

10 (viii) in the first sentence, after sub11 paragraph (L), by striking ‘‘and shall con12 tain’’ and all that follows through the pe13 riod; and 

14 (ix) in the seventh sentence, by insert15 ing ‘‘medicare administrative contractor,’’ 

16 after ‘‘carrier,’’; 

17 (D) by striking paragraph (5); 

18 (E) in paragraph (6)(D)(iv), by striking 

19 ‘‘carrier’’ and inserting ‘‘medicare administra20 tive contractor’’; and 

21 (F) in paragraph (7), by striking ‘‘the car22 rier’’ and inserting ‘‘the Secretary’’ each place 

23 it appears. 

24 (4) Subsection (c) is amended—

25 (A) by striking paragraph (1); 
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1 (B) in paragraph (2), by striking ‘‘contract 

2 under this section which provides for the dis3 bursement of funds, as described in subsection 

4 (a)(1)(B),’’ and inserting ‘‘contract under sec5 tion 1874A that provides for making payments 

6 under this part’’; 

7 (C) in paragraph (3)(A), by striking ‘‘sub8 section (a)(1)(B)’’ and inserting ‘‘section 

9 1874A(a)(3)(B)’’; 

10 (D) in paragraph (4), by striking ‘‘carrier’’ 

11 and inserting ‘‘medicare administrative con12 tractor’’; 

13 (E) in paragraph (5), by striking ‘‘contract 

14 under this section which provides for the dis15 bursement of funds, as described in subsection 

16 (a)(1)(B), shall require the carrier’’ and ‘‘car17 rier responses’’ and inserting ‘‘contract under 

18 section 1874A that provides for making pay19 ments under this part shall require the medi20 care administrative contractor’’ and ‘‘contractor 

21 responses’’, respectively; and 

22 (F) by striking paragraph (6). 

23 (5) Subsections (d), (e), and (f) are repealed. 
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1 (6) Subsection (g) is amended by striking ‘‘car2 rier or carriers’’ and inserting ‘‘medicare administra3 tive contractor or contractors’’. 

4 (7) Subsection (h) is amended—

5 (A) in paragraph (2)—

6 (i) by striking ‘‘Each carrier having 

7 an agreement with the Secretary under 

8 subsection (a)’’ and inserting ‘‘The Sec9 retary’’; and 

10 (ii) by striking ‘‘Each such carrier’’ 

11 and inserting ‘‘The Secretary’’; 

12 (B) in paragraph (3)(A)—

13 (i) by striking ‘‘a carrier having an 

14 agreement with the Secretary under sub15 section (a)’’ and inserting ‘‘medicare ad16 ministrative contractor having a contract 

17 under section 1874A that provides for 

18 making payments under this part’’; and

19 (ii) by striking ‘‘such carrier’’ and in20 serting ‘‘such contractor’’; 

21 (C) in paragraph (3)(B)—

22 (i) by striking ‘‘a carrier’’ and insert23 ing ‘‘a medicare administrative contractor’’ 

24 each place it appears; and 
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1 (ii) by striking ‘‘the carrier’’ and in2 serting ‘‘the contractor’’ each place it ap3 pears; and 

4 (D) in paragraphs (5)(A) and (5)(B)(iii), 

5 by striking ‘‘carriers’’ and inserting ‘‘medicare 

6 administrative contractors’’ each place it ap7 pears. 

8 (8) Subsection (l) is amended—

9 (A) in paragraph (1)(A)(iii), by striking 

10 ‘‘carrier’’ and inserting ‘‘medicare administra11 tive contractor’’; and 

12 (B) in paragraph (2), by striking ‘‘carrier’’ 

13 and inserting ‘‘medicare administrative con14 tractor’’. 

15 (9) Subsection (p)(3)(A) is amended by striking 

16 ‘‘carrier’’ and inserting ‘‘medicare administrative 

17 contractor’’. 

18 (10) Subsection (q)(1)(A) is amended by strik19 ing ‘‘carrier’’. 

20 (d) EFFECTIVE DATE; TRANSITION RULE.—

21 (1) EFFECTIVE DATE.—

22 (A) IN GENERAL.—Except as otherwise 

23 provided in this subsection, the amendments 

24 made by this section shall take effect on Octo25 ber 1, 2005, and the Secretary is authorized to 
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1 take such steps before such date as may be nec2 essary to implement such amendments on a 

3 timely basis. 

4 (B) CONSTRUCTION FOR CURRENT CON5 TRACTS.—Such amendments shall not apply to 

6 contracts in effect before the date specified 

7 under subparagraph (A) that continue to retain 

8 the terms and conditions in effect on such date 

9 (except as otherwise provided under this title, 

10 other than under this section) until such date 

11 as the contract is let out for competitive bid12 ding under such amendments. 

13 (C) DEADLINE FOR COMPETITIVE BID14 DING.—The Secretary shall provide for the let15 ting by competitive bidding of all contracts for 

16 functions of medicare administrative contrac17 tors for annual contract periods that begin on 

18 or after October 1, 2011. 

19 (2) GENERAL TRANSITION RULES.—

20 (A) AUTHORITY TO CONTINUE TO ENTER

21 INTO NEW AGREEMENTS AND CONTRACTS AND

22 WAIVER OF PROVIDER NOMINATION PROVISIONS

23 DURING TRANSITION.—Prior to the date speci24 fied in paragraph (1)(A), the Secretary may, 

25 consistent with subparagraph (B), continue to 
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1 enter into agreements under section 1816 and 

2 contracts under section 1842 of the Social Se3 curity Act (42 U.S.C. 1395h, 1395u). The Sec4 retary may enter into new agreements under 

5 section 1816 during the time period without re6 gard to any of the provider nomination provi7 sions of such section. 

8 (B) APPROPRIATE TRANSITION.—The Sec9 retary shall take such steps as are necessary to 

10 provide for an appropriate transition from 

11 agreements under section 1816 and contracts 

12 under section 1842 of the Social Security Act 

13 (42 U.S.C. 1395h, 1395u) to contracts under 

14 section 1874A, as added by subsection (a)(1). 

15 (3) AUTHORIZING CONTINUATION OF MIP AC16 TIVITIES UNDER CURRENT CONTRACTS AND AGREE17 MENTS AND UNDER TRANSITION CONTRACTS.—The 

18 provisions contained in the exception in section 

19 1893(d)(2) of the Social Security Act (42 U.S.C. 

20 1395ddd(d)(2)) shall continue to apply notwith21 standing the amendments made by this section, and 

22 any reference in such provisions to an agreement or 

23 contract shall be deemed to include agreements and 

24 contracts entered into pursuant to paragraph (2)(A). 
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1 (e) REFERENCES.—On and after the effective date 

2 provided under subsection (d)(1), any reference to a fiscal 

3 intermediary or carrier under title XI or XVIII of the So4 cial Security Act (or any regulation, manual instruction, 

5 interpretative rule, statement of policy, or guideline issued 

6 to carry out such titles) shall be deemed a reference to 

7 an appropriate medicare administrative contractor (as 

8 provided under section 1874A of the Social Security Act). 

9 (f) SECRETARIAL SUBMISSION OF LEGISLATIVE PRO10 POSAL.—Not later than 6 months after the date of enact11 ment of this Act, the Secretary shall submit to the appro12 priate committees of Congress a legislative proposal pro13 viding for such technical and conforming amendments in 

14 the law as are required by the provisions of this section. 

15 (g) REPORTS ON IMPLEMENTATION.—

16 (1) PROPOSAL FOR IMPLEMENTATION.—At 

17 least 1 year before the date specified in subsection 

18 (d)(1)(A), the Secretary shall submit a report to 

19 Congress and the Comptroller General of the United 

20 States that describes a plan for an appropriate tran21 sition. The Comptroller General shall conduct an 

22 evaluation of such plan and shall submit to Con23 gress, not later than 6 months after the date the re24 port is received, a report on such evaluation and 
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1 shall include in such report such recommendations 

2 as the Comptroller General deems appropriate. 

3 (2) STATUS OF IMPLEMENTATION.—The Sec4 retary shall submit a report to Congress not later 

5 than October 1, 2008, that describes the status of 

6 implementation of such amendments and that in7 cludes a description of the following: 

8 (A) The number of contracts that have 

9 been competitively bid as of such date. 

10 (B) The distribution of functions among 

11 contracts and contractors. 

12 (C) A timeline for complete transition to 

13 full competition. 

14 (D) A detailed description of how the Sec15 retary has modified oversight and management 

16 of medicare contractors to adapt to full com17 petition.

18 Subtitle D—Education and 

19 Outreach Improvements 

20 SEC. 531. PROVIDER EDUCATION AND TECHNICAL ASSIST21 ANCE. 

22 (a) COORDINATION OF EDUCATION FUNDING.—

23 (1) IN GENERAL.—The Social Security Act is 

24 amended by inserting after section 1888 the fol25 lowing new section: 
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1 ‘‘PROVIDER EDUCATION AND TECHNICAL ASSISTANCE

2 ‘‘SEC. 1889. (a) COORDINATION OF EDUCATION

3 FUNDING.—The Secretary shall coordinate the edu4 cational activities provided through medicare contractors 

5 (as defined in subsection (e), including under section 

6 1893) in order to maximize the effectiveness of Federal 

7 education efforts for providers of services, physicians, 

8 practitioners, and suppliers.’’. 

9 (2) EFFECTIVE DATE.—The amendment made 

10 by paragraph (1) shall take effect on the date of en11 actment of this Act. 

12 (3) REPORT.—Not later than October 1, 2004, 

13 the Secretary shall submit to Congress a report that 

14 includes a description and evaluation of the steps 

15 taken to coordinate the funding of provider edu16 cation under section 1889(a) of the Social Security 

17 Act, as added by paragraph (1). 

18 (b) INCENTIVES TO IMPROVE CONTRACTOR PER19 FORMANCE.—

20 (1) IN GENERAL.—Section 1874A, as added by 

21 section 521(a)(1), is amended by adding at the end 

22 the following new subsection:

23 ‘‘(e) INCENTIVES TO IMPROVE CONTRACTOR PER24 FORMANCE IN PROVIDER EDUCATION AND OUTREACH.—
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1 ‘‘(1) METHODOLOGY TO MEASURE CONTRACTOR

2 ERROR RATES.—In order to give medicare contrac3 tors (as defined in paragraph (3)) an incentive to 

4 implement effective education and outreach pro5 grams for providers of services, physicians, practi6 tioners, and suppliers, the Secretary shall develop 

7 and implement by October 1, 2004, a methodology 

8 to measure the specific claims payment error rates 

9 of such contractors in the processing or reviewing of 

10 medicare claims. 

11 ‘‘(2) GAO REVIEW OF METHODOLOGY.—The 

12 Comptroller General of the United States shall re13 view, and make recommendations to the Secretary, 

14 regarding the adequacy of such methodology. 

15 ‘‘(3) MEDICARE CONTRACTOR DEFINED.—For 

16 purposes of this subsection, the term ‘medicare con17 tractor’ includes a medicare administrative con18 tractor, a fiscal intermediary with a contract under 

19 section 1816, and a carrier with a contract under 

20 section 1842.’’. 

21 (2) REPORT.—The Secretary shall submit to 

22 Congress a report that describes how the Secretary 

23 intends to use the methodology developed under sec24 tion 1874A(e)(1) of the Social Security Act, as 

25 added by paragraph (1), in assessing medicare con-
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1 tractor performance in implementing effective edu2 cation and outreach programs, including whether to 

3 use such methodology as a basis for performance bo4 nuses. 

5 (c) IMPROVED PROVIDER EDUCATION AND TRAIN6 ING.—

7 (1) INCREASED FUNDING FOR ENHANCED EDU8 CATION AND TRAINING THROUGH MEDICARE INTEG9 RITY PROGRAM.—Section 1817(k)(4) (42 U.S.C. 

10 1395i(k)(4)) is amended—

11 (A) in subparagraph (A), by striking ‘‘sub12 paragraph (B)’’ and inserting ‘‘subparagraphs 

13 (B) and (C)’’; 

14 (B) in subparagraph (B), by striking ‘‘The 

15 amount appropriated’’ and inserting ‘‘Subject 

16 to subparagraph (C), the amount appro17 priated’’; and 

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

19 subparagraph: 

20 ‘‘(C) ENHANCED PROVIDER EDUCATION

21 AND TRAINING.—

22 ‘‘(i) IN GENERAL.—In addition to the 

23 amount appropriated under subparagraph 

24 (B), the amount appropriated under sub25 paragraph (A) for a fiscal year (beginning 
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1 with fiscal year 2004) is increased by 

2 $35,000,000. 

3 ‘‘(ii) USE.—The funds made available 

4 under this subparagraph shall be used only 

5 to increase the conduct by medicare con6 tractors of education and training of pro7 viders of services, physicians, practitioners, 

8 and suppliers regarding billing, coding, and 

9 other appropriate items and may also be 

10 used to improve the accuracy, consistency, 

11 and timeliness of contractor responses to 

12 written and phone inquiries from providers 

13 of services, physicians, practitioners, and 

14 suppliers.’’. 

15 (2) TAILORING EDUCATION AND TRAINING FOR

16 SMALL PROVIDERS OR SUPPLIERS.—

17 (A) IN GENERAL.—Section 1889, as added 

18 by subsection (a), is amended by adding at the 

19 end the following new subsection: 

20 ‘‘(b) TAILORING EDUCATION AND TRAINING ACTIVI21 TIES FOR SMALL PROVIDERS OR SUPPLIERS.—

22 ‘‘(1) IN GENERAL.—Insofar as a medicare con23 tractor conducts education and training activities, it 

24 shall take into consideration the special needs of 

25 small providers of services or suppliers (as defined in 
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1 paragraph (2)). Such education and training activi2 ties for small providers of services and suppliers may 

3 include the provision of technical assistance (such as 

4 review of billing systems and internal controls to de5 termine program compliance and to suggest more ef6 ficient and effective means of achieving such compli7 ance). 

8 ‘‘(2) SMALL PROVIDER OF SERVICES OR SUP9 PLIER.—In this subsection, the term ‘small provider 

10 of services or supplier’ means—

11 ‘‘(A) an institutional provider of services 

12 with fewer than 25 full-time-equivalent employ13 ees; or 

14 ‘‘(B) a physician, practitioner, or supplier 

15 with fewer than 10 full-time-equivalent employ16 ees.’’. 

17 (B) EFFECTIVE DATE.—The amendment 

18 made by subparagraph (A) shall take effect on 

19 January 1, 2004. 

20 (d) ADDITIONAL PROVIDER EDUCATION PROVI21 SIONS.—

22 (1) IN GENERAL.—Section 1889, as added by 

23 subsection (a) and as amended by subsection (c)(2), 

24 is amended by adding at the end the following new 

25 subsections: 
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1 ‘‘(c) ENCOURAGEMENT OF PARTICIPATION IN EDU2 CATION PROGRAM ACTIVITIES.—A medicare contractor 

3 may not use a record of attendance at (or failure to at4 tend) educational activities or other information gathered 

5 during an educational program conducted under this sec6 tion or otherwise by the Secretary to select or track pro7 viders of services, physicians, practitioners, or suppliers 

8 for the purpose of conducting any type of audit or prepay9 ment review. 

10 ‘‘(d) CONSTRUCTION.—Nothing in this section or sec11 tion 1893(g) shall be construed as providing for disclosure 

12 by a medicare contractor—

13 ‘‘(1) of the screens used for identifying claims 

14 that will be subject to medical review; or 

15 ‘‘(2) of information that would compromise 

16 pending law enforcement activities or reveal findings 

17 of law enforcement-related audits. 

18 ‘‘(e) DEFINITIONS.—For purposes of this section and 

19 section 1817(k)(4)(C), the term ‘medicare contractor’ in20 cludes the following: 

21 ‘‘(1) A medicare administrative contractor with 

22 a contract under section 1874A, a fiscal inter23 mediary with a contract under section 1816, and a 

24 carrier with a contract under section 1842. 
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1 ‘‘(2) An eligible entity with a contract under 

2 section 1893.

3 Such term does not include, with respect to activities of 

4 a specific provider of services, physician, practitioner, or 

5 supplier an entity that has no authority under this title 

6 or title XI with respect to such activities and such provider 

7 of services, physician, practitioner, or supplier.’’. 

8 (2) EFFECTIVE DATE.—The amendment made 

9 by paragraph (1) shall take effect on the date of en10 actment of this Act. 

11 SEC. 532. ACCESS TO AND PROMPT RESPONSES FROM 

12 MEDICARE CONTRACTORS. 

13 (a) IN GENERAL.—Section 1874A, as added by sec14 tion 521(a)(1) and as amended by section 531(b)(1), is 

15 amended by adding at the end the following new sub16 section: 

17 ‘‘(f) COMMUNICATING WITH BENEFICIARIES AND

18 PROVIDERS.—

19 ‘‘(1) COMMUNICATION PROCESS.—The Sec20 retary shall develop a process for medicare contrac21 tors to communicate with beneficiaries and with pro22 viders of services, physicians, practitioners, and sup23 pliers under this title. 

24 ‘‘(2) RESPONSE TO WRITTEN INQUIRIES.—Each 

25 medicare contractor (as defined in paragraph (5)) 
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1 shall provide general written responses (which may 

2 be through electronic transmission) in a clear, con3 cise, and accurate manner to inquiries by bene4 ficiaries, providers of services, physicians, practi5 tioners, and suppliers concerning the programs 

6 under this title within 45 business days of the date 

7 of receipt of such inquiries. 

8 ‘‘(3) RESPONSE TO TOLL-FREE LINES.—The 

9 Secretary shall ensure that medicare contractors 

10 provide a toll-free telephone number at which bene11 ficiaries, providers, physicians, practitioners, and 

12 suppliers may obtain information regarding billing, 

13 coding, claims, coverage, and other appropriate in14 formation under this title. 

15 ‘‘(4) MONITORING OF CONTRACTOR RE16 SPONSES.—

17 ‘‘(A) IN GENERAL.—Each medicare con18 tractor shall, consistent with standards devel19 oped by the Secretary under subparagraph 

20 (B)—

21 ‘‘(i) maintain a system for identifying 

22 who provides the information referred to in 

23 paragraphs (2) and (3); and 
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1 ‘‘(ii) monitor the accuracy, consist2 ency, and timeliness of the information so 

3 provided. 

4 ‘‘(B) DEVELOPMENT OF STANDARDS.—

5 ‘‘(i) IN GENERAL.—The Secretary 

6 shall establish (and publish in the Federal 

7 Register) standards regarding the accu8 racy, consistency, and timeliness of the in9 formation provided in response to inquiries 

10 under this subsection. Such standards shall 

11 be consistent with the performance require12 ments established under subsection (b)(3). 

13 ‘‘(ii) EVALUATION.—In conducting 

14 evaluations of individual medicare contrac15 tors, the Secretary shall consider the re16 sults of the monitoring conducted under 

17 subparagraph (A) taking into account as 

18 performance requirements the standards 

19 established under clause (i). The Secretary 

20 shall, in consultation with organizations 

21 representing providers of services, sup22 pliers, and individuals entitled to benefits 

23 under part A or enrolled under part B, or 

24 both, establish standards relating to the 
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1 accuracy, consistency, and timeliness of the 

2 information so provided. 

3 ‘‘(C) DIRECT MONITORING.—Nothing in 

4 this paragraph shall be construed as preventing 

5 the Secretary from directly monitoring the ac6 curacy, consistency, and timeliness of the infor7 mation so provided. 

8 ‘‘(5) MEDICARE CONTRACTOR DEFINED.—For 

9 purposes of this subsection, the term ‘medicare con10 tractor’ has the meaning given such term in sub11 section (e)(3).’’. 

12 (b) EFFECTIVE DATE.—The amendment made by 

13 subsection (a) shall take effect October 1, 2004. 

14 SEC. 533. RELIANCE ON GUIDANCE. 

15 (a) IN GENERAL.—Section 1871(d), as added by sec16 tion 502(a), is amended by adding at the end the following 

17 new paragraph: 

18 ‘‘(2) If—

19 ‘‘(A) a provider of services, physician, practi20 tioner, or other supplier follows written guidance 

21 provided—

22 ‘‘(i) by the Secretary; or 

23 ‘‘(ii) by a medicare contractor (as defined 

24 in section 1889(e) and whether in the form of 

25 a written response to a written inquiry under 
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1 section 1874A(f)(1) or otherwise) acting within 

2 the scope of the contractor’s contract authority, 

3 in response to a written inquiry with respect to the 

4 furnishing of items or services or the submission of 

5 a claim for benefits for such items or services; 

6 ‘‘(B) the Secretary determines that—

7 ‘‘(i) the provider of services, physician, 

8 practitioner, or supplier has accurately pre9 sented the circumstances relating to such items, 

10 services, and claim to the Secretary or the con11 tractor in the written guidance; and 

12 ‘‘(ii) there is no indication of fraud or 

13 abuse committed by the provider of services, 

14 physician, practitioner, or supplier against the 

15 program under this title; and 

16 ‘‘(C) the guidance was in error; 

17 the provider of services, physician, practitioner, or supplier 

18 shall not be subject to any penalty or interest under this 

19 title (or the provisions of title XI insofar as they relate 

20 to this title) relating to the provision of such items or serv21 ice or such claim if the provider of services, physician, 

22 practitioner, or supplier reasonably relied on such guid23 ance. In applying this paragraph with respect to guidance 

24 in the form of general responses to frequently asked ques25 tions, the Secretary retains authority to determine the ex-
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1 tent to which such general responses apply to the par2 ticular circumstances of individual claims.’’. 

3 (b) EFFECTIVE DATE.—The amendment made by 

4 subsection (a) shall apply to penalties imposed on or after 

5 the date of enactment of this Act.

6 SEC. 534. MEDICARE PROVIDER OMBUDSMAN. 

7 (a) MEDICARE PROVIDER OMBUDSMAN.—Section 

8 1868 (42 U.S.C. 1395ee) is amended—

9 (1) by adding at the end of the heading the fol10 lowing: ‘‘; MEDICARE PROVIDER OMBUDSMAN’’; 

11 (2) by inserting ‘‘PRACTICING PHYSICIANS AD12 VISORY COUNCIL.—(1)’’ after ‘‘(a)’’; 

13 (3) in paragraph (1), as so redesignated under 

14 paragraph (2), by striking ‘‘in this section’’ and in15 serting ‘‘in this subsection’’; 

16 (4) by redesignating subsections (b) and (c) as 

17 paragraphs (2) and (3), respectively; and 

18 (5) by adding at the end the following new sub19 section: 

20 ‘‘(b) MEDICARE PROVIDER OMBUDSMAN.—

21 ‘‘(1) IN GENERAL.—By not later than 1 year 

22 after the date of enactment of the Prescription Drug 

23 and Medicare Improvement Act of 2003, the Sec24 retary shall appoint a Medicare Provider Ombuds25 man. 
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1 ‘‘(2) DUTIES.—The Medicare Provider Om2 budsman shall—

3 ‘‘(A) provide assistance, on a confidential 

4 basis, to entities and individuals providing items 

5 and services, including covered drugs under 

6 part D, under this title with respect to com7 plaints, grievances, and requests for informa8 tion concerning the programs under this title 

9 (including provisions of title XI insofar as they 

10 relate to this title and are not administered by 

11 the Office of the Inspector General of the De12 partment of Health and Human Services) and 

13 in the resolution of unclear or conflicting guid14 ance given by the Secretary and medicare con15 tractors to such providers of services and sup16 pliers regarding such programs and provisions 

17 and requirements under this title and such pro18 visions; and 

19 ‘‘(B) submit recommendations to the Sec20 retary for improvement in the administration of 

21 this title and such provisions, including—

22 ‘‘(i) recommendations to respond to 

23 recurring patterns of confusion in this title 

24 and such provisions (including rec25 ommendations regarding suspending impo-
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1 sition of sanctions where there is wide2 spread confusion in program administra3 tion), and 

4 ‘‘(ii) recommendations to provide for 

5 an appropriate and consistent response (in6 cluding not providing for audits) in cases 

7 of self-identified overpayments by providers 

8 of services and suppliers. 

9 ‘‘(3) STAFF.—The Secretary shall provide the 

10 Medicare Provider Ombudsman with appropriate 

11 staff.’’. 

12 (b) FUNDING.—There are authorized to be appro13 priated to the Secretary (in appropriate part from the 

14 Federal Hospital Insurance Trust Fund and the Federal 

15 Supplementary Medical Insurance Trust Fund (including 

16 the Prescription Drug Account)) to carry out the provi17 sions of subsection (b) of section 1868 of the Social Secu18 rity Act (42 U.S.C. 1395ee) (relating to the Medicare Pro19 vider Ombudsman), as added by subsection (a)(5), such 

20 sums as are necessary for fiscal year 2004 and each suc21 ceeding fiscal year. 

22 SEC. 535. BENEFICIARY OUTREACH DEMONSTRATION PRO23 GRAMS. 

24 (a) DEMONSTRATION ON THE PROVISION OF ADVICE

25 AND ASSISTANCE TO MEDICARE BENEFICIARIES AT
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1 LOCAL OFFICES OF THE SOCIAL SECURITY ADMINISTRA2 TION.—

3 (1) ESTABLISHMENT.—The Secretary shall es4 tablish a demonstration program (in this subsection 

5 referred to as the ‘‘demonstration program’’) under 

6 which medicare specialists employed by the Depart7 ment of Health and Human Services provide advice 

8 and assistance to medicare beneficiaries at the loca9 tion of existing local offices of the Social Security 

10 Administration. 

11 (2) LOCATIONS.—

12 (A) IN GENERAL.—The demonstration pro13 gram shall be conducted in at least 6 offices or 

14 areas. Subject to subparagraph (B), in selecting 

15 such offices and areas, the Secretary shall pro16 vide preference for offices with a high volume of 

17 visits by medicare beneficiaries. 

18 (B) ASSISTANCE FOR RURAL BENE19 FICIARIES.—The Secretary shall provide for the 

20 selection of at least 2 rural areas to participate 

21 in the demonstration program. In conducting 

22 the demonstration program in such rural areas, 

23 the Secretary shall provide for medicare special24 ists to travel among local offices in a rural area 

25 on a scheduled basis. 
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1 (3) DURATION.—The demonstration program 

2 shall be conducted over a 3-year period. 

3 (4) EVALUATION AND REPORT.—

4 (A) EVALUATION.—The Secretary shall 

5 provide for an evaluation of the demonstration 

6 program. Such evaluation shall include an anal7 ysis of—

8 (i) utilization of, and beneficiary satis9 faction with, the assistance provided under 

10 the program; and 

11 (ii) the cost-effectiveness of providing 

12 beneficiary assistance through out-sta13 tioning medicare specialists at local social 

14 security offices. 

15 (B) REPORT.—The Secretary shall submit 

16 to Congress a report on such evaluation and 

17 shall include in such report recommendations 

18 regarding the feasibility of permanently out-sta19 tioning Medicare specialists at local social secu20 rity offices. 

21 (b) DEMONSTRATION ON PROVIDING PRIOR DETER22 MINATIONS.—

23 (1) ESTABLISHMENT.—By not later than 1 

24 year after the date of enactment of this Act, the 

25 Secretary shall establish a demonstration project to 
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1 test the administrative feasibility of providing a 

2 process for medicare beneficiaries and entities and 

3 individuals furnishing such beneficiaries with items 

4 and services under title XVIII of the Social Security 

5 Act program to make a request for, and receive, a 

6 determination (after an advance beneficiary notice is 

7 issued with respect to the item or service involved 

8 but before such item or service is furnished to the 

9 beneficiary) as to whether the item or service is cov10 ered under such title consistent with the applicable 

11 requirements of section 1862(a)(1)(A) of such Act 

12 (42 U.S.C. 1395y(a)(1)(A)) (relating to medical ne13 cessity). 

14 (2) EVALUATION AND REPORT.—

15 (A) EVALUATION.—The Secretary shall 

16 provide for an evaluation of the demonstration 

17 program conducted under paragraph (1). 

18 (B) REPORT.—By not later than January 

19 1, 2006, the Secretary shall submit to Congress 

20 a report on such evaluation together with rec21 ommendations for such legislation and adminis22 trative actions as the Secretary considers appro23 priate. 
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1 Subtitle E—Review, Recovery, and 

2 Enforcement Reform 

3 SEC. 541. PREPAYMENT REVIEW. 

4 (a) IN GENERAL.—Section 1874A, as added by sec5 tion 521(a)(1) and as amended by sections 531(b)(1) and 

6 532(a), is amended by adding at the end the following new 

7 subsection: 

8 ‘‘(g) CONDUCT OF PREPAYMENT REVIEW.—

9 ‘‘(1) STANDARDIZATION OF RANDOM PREPAY10 MENT REVIEW.—A medicare administrative con11 tractor shall conduct random prepayment review 

12 only in accordance with a standard protocol for ran13 dom prepayment audits developed by the Secretary. 

14 ‘‘(2) LIMITATIONS ON INITIATION OF NON15 RANDOM PREPAYMENT REVIEW.—A medicare admin16 istrative contractor may not initiate nonrandom pre17 payment review of a provider of services, physician, 

18 practitioner, or supplier based on the initial identi19 fication by that provider of services, physician, prac20 titioner, or supplier of an improper billing practice 

21 unless there is a likelihood of sustained or high level 

22 of payment error (as defined by the Secretary). 

23 ‘‘(3) TERMINATION OF NONRANDOM PREPAY24 MENT REVIEW.—The Secretary shall establish proto25 cols or standards relating to the termination, includ-
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1 ing termination dates, of nonrandom prepayment re2 view. Such regulations may vary such a termination 

3 date based upon the differences in the circumstances 

4 triggering prepayment review. 

5 ‘‘(4) CONSTRUCTION.—Nothing in this sub6 section shall be construed as preventing the denial of 

7 payments for claims actually reviewed under a ran8 dom prepayment review. In the case of a provider of 

9 services, physician, practitioner, or supplier with re10 spect to which amounts were previously overpaid, 

11 nothing in this subsection shall be construed as lim12 iting the ability of a medicare administrative con13 tractor to request the periodic production of records 

14 or supporting documentation for a limited sample of 

15 submitted claims to ensure that the previous prac16 tice is not continuing. 

17 ‘‘(5) RANDOM PREPAYMENT REVIEW DE18 FINED.—For purposes of this subsection, the term 

19 ‘random prepayment review’ means a demand for 

20 the production of records or documentation absent 

21 cause with respect to a claim.’’. 

22 (b) EFFECTIVE DATE.—

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

24 subsection, the amendment made by subsection (a) 
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1 shall take effect on the date of enactment of this 

2 Act. 

3 (2) DEADLINE FOR PROMULGATION OF CER4 TAIN REGULATIONS.—The Secretary shall first issue 

5 regulations under section 1874A(g) of the Social Se6 curity Act, as added by subsection (a), by not later 

7 than 1 year after the date of enactment of this Act. 

8 (3) APPLICATION OF STANDARD PROTOCOLS

9 FOR RANDOM PREPAYMENT REVIEW.—Section 

10 1874A(g)(1) of the Social Security Act, as added by 

11 subsection (a), shall apply to random prepayment re12 views conducted on or after such date (not later 

13 than 1 year after the date of enactment of this Act) 

14 as the Secretary shall specify. The Secretary shall 

15 develop and publish the standard protocol under 

16 such section by not later than 1 year after the date 

17 of enactment of this Act. 

18 SEC. 542. RECOVERY OF OVERPAYMENTS. 

19 (a) IN GENERAL.—Section 1874A, as added by sec20 tion 521(a)(1) and as amended by sections 531(b)(1), 

21 532(a), and 541(a), is amended by adding at the end the 

22 following new subsection: 

23 ‘‘(h) RECOVERY OF OVERPAYMENTS.—

24 ‘‘(1) USE OF REPAYMENT PLANS.—
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1 ‘‘(A) IN GENERAL.—If the repayment, 

2 within the period otherwise permitted by a pro3 vider of services, physician, practitioner, or 

4 other supplier, of an overpayment under this 

5 title meets the standards developed under sub6 paragraph (B), subject to subparagraph (C), 

7 and the provider, physician, practitioner, or 

8 supplier requests the Secretary to enter into a 

9 repayment plan with respect to such overpay10 ment, the Secretary shall enter into a plan with 

11 the provider, physician, practitioner, or supplier 

12 for the offset or repayment (at the election of 

13 the provider, physician, practitioner, or sup14 plier) of such overpayment over a period of at 

15 least 1 year, but not longer than 3 years. Inter16 est shall accrue on the balance through the pe17 riod of repayment. The repayment plan shall 

18 meet terms and conditions determined to be ap19 propriate by the Secretary. 

20 ‘‘(B) DEVELOPMENT OF STANDARDS.—

21 The Secretary shall develop standards for the 

22 recovery of overpayments. Such standards 

23 shall—

24 ‘‘(i) include a requirement that the 

25 Secretary take into account (and weigh in 
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1 favor of the use of a repayment plan) the 

2 reliance (as described in section 

3 1871(d)(2)) by a provider of services, phy4 sician, practitioner, and supplier on guid5 ance when determining whether a repay6 ment plan should be offered; and 

7 ‘‘(ii) provide for consideration of the 

8 financial hardship imposed on a provider of 

9 services, physician, practitioner, or supplier 

10 in considering such a repayment plan. 

11 In developing standards with regard to financial 

12 hardship with respect to a provider of services, 

13 physician, practitioner, or supplier, the Sec14 retary shall take into account the amount of the 

15 proposed recovery as a proportion of payments 

16 made to that provider, physician, practitioner, 

17 or supplier.

18 ‘‘(C) EXCEPTIONS.—Subparagraph (A) 

19 shall not apply if—

20 ‘‘(i) the Secretary has reason to sus21 pect that the provider of services, physi22 cian, practitioner, or supplier may file for 

23 bankruptcy or otherwise cease to do busi24 ness or discontinue participation in the 

25 program under this title; or 
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1 ‘‘(ii) there is an indication of fraud or 

2 abuse committed against the program. 

3 ‘‘(D) IMMEDIATE COLLECTION IF VIOLA4 TION OF REPAYMENT PLAN.—If a provider of 

5 services, physician, practitioner, or supplier fails 

6 to make a payment in accordance with a repay7 ment plan under this paragraph, the Secretary 

8 may immediately seek to offset or otherwise re9 cover the total balance outstanding (including 

10 applicable interest) under the repayment plan. 

11 ‘‘(E) RELATION TO NO FAULT PROVI12 SION.—Nothing in this paragraph shall be con13 strued as affecting the application of section 

14 1870(c) (relating to no adjustment in the cases 

15 of certain overpayments). 

16 ‘‘(2) LIMITATION ON RECOUPMENT.—

17 ‘‘(A) NO RECOUPMENT UNTIL RECONSID18 ERATION EXERCISED.—In the case of a pro19 vider of services, physician, practitioner, or sup20 plier that is determined to have received an 

21 overpayment under this title and that seeks a 

22 reconsideration of such determination by a 

23 qualified independent contractor under section 

24 1869(c), the Secretary may not take any action 

25 (or authorize any other person, including any 
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1 Medicare contractor, as defined in subpara2 graph (C)) to recoup the overpayment until the 

3 date the decision on the reconsideration has 

4 been rendered. 

5 ‘‘(B) PAYMENT OF INTEREST.—

6 ‘‘(i) RETURN OF RECOUPED AMOUNT

7 WITH INTEREST IN CASE OF REVERSAL.—

8 Insofar as such determination on appeal 

9 against the provider of services, physician, 

10 practitioner, or supplier is later reversed, 

11 the Secretary shall provide for repayment 

12 of the amount recouped plus interest for 

13 the period in which the amount was re14 couped. 

15 ‘‘(ii) INTEREST IN CASE OF AFFIRMA16 TION.—Insofar as the determination on 

17 such appeal is against the provider of serv18 ices, physician, practitioner, or supplier, in19 terest on the overpayment shall accrue on 

20 and after the date of the original notice of 

21 overpayment. 

22 ‘‘(iii) RATE OF INTEREST.—The rate 

23 of interest under this subparagraph shall 

24 be the rate otherwise applicable under this 

25 title in the case of overpayments. 
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1 ‘‘(C) MEDICARE CONTRACTOR DEFINED.—

2 For purposes of this subsection, the term ‘medi3 care contractor’ has the meaning given such 

4 term in section 1889(e). 

5 ‘‘(3) PAYMENT AUDITS.—

6 ‘‘(A) WRITTEN NOTICE FOR POST-PAY7 MENT AUDITS.—Subject to subparagraph (C), if 

8 a medicare contractor decides to conduct a 

9 post-payment audit of a provider of services, 

10 physician, practitioner, or supplier under this 

11 title, the contractor shall provide the provider of 

12 services, physician, practitioner, or supplier 

13 with written notice (which may be in electronic 

14 form) of the intent to conduct such an audit. 

15 ‘‘(B) EXPLANATION OF FINDINGS FOR ALL

16 AUDITS.—Subject to subparagraph (C), if a 

17 medicare contractor audits a provider of serv18 ices, physician, practitioner, or supplier under 

19 this title, the contractor shall—

20 ‘‘(i) give the provider of services, phy21 sician, practitioner, or supplier a full re22 view and explanation of the findings of the 

23 audit in a manner that is understandable 

24 to the provider of services, physician, prac25 titioner, or supplier and permits the devel-
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1 opment of an appropriate corrective action 

2 plan; 

3 ‘‘(ii) inform the provider of services, 

4 physician, practitioner, or supplier of the 

5 appeal rights under this title as well as 

6 consent settlement options (which are at 

7 the discretion of the Secretary); and 

8 ‘‘(iii) give the provider of services, 

9 physician, practitioner, or supplier an op10 portunity to provide additional information 

11 to the contractor. 

12 ‘‘(C) EXCEPTION.—Subparagraphs (A) 

13 and (B) shall not apply if the provision of no14 tice or findings would compromise pending law 

15 enforcement activities, whether civil or criminal, 

16 or reveal findings of law enforcement-related 

17 audits.

18 ‘‘(4) NOTICE OF OVER-UTILIZATION OF

19 CODES.—The Secretary shall establish, in consulta20 tion with organizations representing the classes of 

21 providers of services, physicians, practitioners, and 

22 suppliers, a process under which the Secretary pro23 vides for notice to classes of providers of services, 

24 physicians, practitioners, and suppliers served by a 

25 medicare contractor in cases in which the contractor 
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1 has identified that particular billing codes may be 

2 overutilized by that class of providers of services, 

3 physicians, practitioners, or suppliers under the pro4 grams under this title (or provisions of title XI inso5 far as they relate to such programs). 

6 ‘‘(5) STANDARD METHODOLOGY FOR PROBE

7 SAMPLING.—The Secretary shall establish a stand8 ard methodology for medicare administrative con9 tractors to use in selecting a sample of claims for re10 view in the case of an abnormal billing pattern. 

11 ‘‘(6) CONSENT SETTLEMENT REFORMS.—

12 ‘‘(A) IN GENERAL.—The Secretary may 

13 use a consent settlement (as defined in sub14 paragraph (D)) to settle a projected overpay15 ment. 

16 ‘‘(B) OPPORTUNITY TO SUBMIT ADDI17 TIONAL INFORMATION BEFORE CONSENT SET18 TLEMENT OFFER.—Before offering a provider 

19 of services, physician, practitioner, or supplier a 

20 consent settlement, the Secretary shall—

21 ‘‘(i) communicate to the provider of 

22 services, physician, practitioner, or supplier 

23 in a nonthreatening manner that, based on 

24 a review of the medical records requested 

25 by the Secretary, a preliminary evaluation 
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1 of those records indicates that there would 

2 be an overpayment; and 

3 ‘‘(ii) provide for a 45-day period dur4 ing which the provider of services, physi5 cian, practitioner, or supplier may furnish 

6 additional information concerning the med7 ical records for the claims that had been 

8 reviewed. 

9 ‘‘(C) CONSENT SETTLEMENT OFFER.—The 

10 Secretary shall review any additional informa11 tion furnished by the provider of services, physi12 cian, practitioner, or supplier under subpara13 graph (B)(ii). Taking into consideration such 

14 information, the Secretary shall determine if 

15 there still appears to be an overpayment. If so, 

16 the Secretary—

17 ‘‘(i) shall provide notice of such deter18 mination to the provider of services, physi19 cian, practitioner, or supplier, including an 

20 explanation of the reason for such deter21 mination; and 

22 ‘‘(ii) in order to resolve the overpay23 ment, may offer the provider of services, 

24 physician, practitioner, or supplier—
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1 ‘‘(I) the opportunity for a statis2 tically valid random sample; or 

3 ‘‘(II) a consent settlement. 

4 The opportunity provided under clause (ii)(I) 

5 does not waive any appeal rights with respect to 

6 the alleged overpayment involved. 

7 ‘‘(D) CONSENT SETTLEMENT DEFINED.—

8 For purposes of this paragraph, the term ‘con9 sent settlement’ means an agreement between 

10 the Secretary and a provider of services, physi11 cian, practitioner, or supplier whereby both par12 ties agree to settle a projected overpayment 

13 based on less than a statistically valid sample of 

14 claims and the provider of services, physician, 

15 practitioner, or supplier agrees not to appeal 

16 the claims involved.’’. 

17 (b) EFFECTIVE DATES AND DEADLINES.—

18 (1) Not later than 1 year after the date of en19 actment of this Act, the Secretary shall first—

20 (A) develop standards for the recovery of 

21 overpayments under section 1874A(h)(1)(B) of 

22 the Social Security Act, as added by subsection 

23 (a); 

24 (B) establish the process for notice of over25 utilization of billing codes under section 
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1 1874A(h)(4) of the Social Security Act, as 

2 added by subsection (a); and 

3 (C) establish a standard methodology for 

4 selection of sample claims for abnormal billing 

5 patterns under section 1874A(h)(5) of the So6 cial Security Act, as added by subsection (a). 

7 (2) Section 1874A(h)(2) of the Social Security 

8 Act, as added by subsection (a), shall apply to ac9 tions taken after the date that is 1 year after the 

10 date of enactment of this Act. 

11 (3) Section 1874A(h)(3) of the Social Security 

12 Act, as added by subsection (a), shall apply to audits 

13 initiated after the date of enactment of this Act. 

14 (4) Section 1874A(h)(6) of the Social Security 

15 Act, as added by subsection (a), shall apply to con16 sent settlements entered into after the date of enact17 ment of this Act.

18 SEC. 543. PROCESS FOR CORRECTION OF MINOR ERRORS 

19 AND OMISSIONS ON CLAIMS WITHOUT PUR20 SUING APPEALS PROCESS. 

21 (a) IN GENERAL.—The Secretary shall develop, in 

22 consultation with appropriate medicare contractors (as de23 fined in section 1889(e) of the Social Security Act, as 

24 added by section 531(d)(1)) and representatives of pro25 viders of services, physicians, practitioners, facilities, and 
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1 suppliers, a process whereby, in the case of minor errors 

2 or omissions (as defined by the Secretary) that are de3 tected in the submission of claims under the programs 

4 under title XVIII of such Act, a provider of services, phy5 sician, practitioner, facility, or supplier is given an oppor6 tunity to correct such an error or omission without the 

7 need to initiate an appeal. Such process shall include the 

8 ability to resubmit corrected claims. 

9 (b) DEADLINE.—Not later than 1 year after the date 

10 of enactment of this Act, the Secretary shall first develop 

11 the process under subsection (a). 

12 SEC. 544. AUTHORITY TO WAIVE A PROGRAM EXCLUSION. 

13 The first sentence of section 1128(c)(3)(B) (42 

14 U.S.C. 1320a–7(c)(3)(B)) is amended to read as follows: 

15 ‘‘Subject to subparagraph (G), in the case of an exclusion 

16 under subsection (a), the minimum period of exclusion 

17 shall be not less than 5 years, except that, upon the re18 quest of an administrator of a Federal health care pro19 gram (as defined in section 1128B(f)) who determines 

20 that the exclusion would impose a hardship on bene21 ficiaries of that program, the Secretary may, after con22 sulting with the Inspector General of the Department of 

23 Health and Human Services, waive the exclusion under 

24 subsection (a)(1), (a)(3), or (a)(4) with respect to that 

25 program in the case of an individual or entity that is the 
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1 sole community physician or sole source of essential spe2 cialized services in a community.’’.

3 TITLE VI—OTHER PROVISIONS 

4 SEC. 601. INCREASE IN MEDICAID DSH ALLOTMENTS FOR 

5 FISCAL YEARS 2004 AND 2005. 

6 (a) IN GENERAL.—Section 1923(f)(4) (42 U.S.C. 

7 1396r–4(f)(4)) is amended—

8 (1) in the paragraph heading, by striking ‘‘FIS9 CAL YEARS 2001 AND 2002’’ and inserting ‘‘CERTAIN

10 FISCAL YEARS’’; 

11 (2) in subparagraph (A)—

12 (A) in clause (i)—

13 (i) by striking ‘‘paragraph (2)’’ and 

14 inserting ‘‘paragraphs (2) and (3)’’; and 

15 (ii) by striking ‘‘and’’ at the end; 

16 (B) in clause (ii), by striking the period 

17 and inserting a semicolon; and 

18 (C) by adding at the end the following: 

19 ‘‘(iii) for fiscal year 2004, shall be the 

20 DSH allotment determined under para21 graph (3) for that fiscal year increased by 

22 the amount equal to the product of 0.50 

23 and the difference between—

24 ‘‘(I) the amount that the DSH 

25 allotment would be if the DSH allot-
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1 ment for the State determined under 

2 clause (ii) were increased, subject to 

3 subparagraph (B) and paragraph (5), 

4 by the percentage change in the Con5 sumer Price Index for all urban con6 sumers (all items; U.S. city average) 

7 for each of fiscal years 2002 and 

8 2003; and 

9 ‘‘(II) the DSH allotment deter10 mined under paragraph (3) for the 

11 State for fiscal year 2004; and 

12 ‘‘(iv) for fiscal year 2005, shall be the 

13 DSH allotment determined under para14 graph (3) for that fiscal year increased by 

15 the amount equal to the product of 0.50 

16 and the difference between—

17 ‘‘(I) the amount that the DSH 

18 allotment would be if the DSH allot19 ment for the State determined under 

20 clause (ii) were increased, subject to 

21 subparagraph (B) and paragraph (5), 

22 by the percentage change in the Con23 sumer Price Index for all urban con24 sumers (all items; U.S. city average) 
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1 for each of fiscal years 2002, 2003, 

2 and 2004; and 

3 ‘‘(II) the DSH allotment deter4 mined under paragraph (3) for the 

5 State for fiscal year 2005.’’; and 

6 (3) in subparagraph (C)—

7 (A) in the subparagraph heading, by strik8 ing ‘‘AFTER FISCAL YEAR 2002’’ and inserting 

9 ‘‘FOR OTHER FISCAL YEARS’’; and 

10 (B) by striking ‘‘2003 or’’ and inserting 

11 ‘‘2003, fiscal year 2006, or’’. 

12 (b) DSH ALLOTMENT FOR THE DISTRICT OF CO13 LUMBIA.—Section 1923(f)(4) (42 U.S.C. 1396r–4(f)(4)), 

14 as amended by paragraph (1), is amended—

15 (1) in subparagraph (A), by inserting ‘‘and ex16 cept as provided in subparagraph (C)’’ after ‘‘para17 graph (2)’’; 

18 (2) by redesignating subparagraph (C) as sub19 paragraph (D); and

20 (3) by inserting after subparagraph (B) the fol21 lowing: 

22 ‘‘(C) DSH ALLOTMENT FOR THE DISTRICT

23 OF COLUMBIA.—

24 ‘‘(i) IN GENERAL.—Notwithstanding 

25 subparagraph (A), the DSH allotment for 
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1 the District of Columbia for fiscal year 

2 2004, shall be determined by substituting 

3 ‘‘49’’ for ‘‘32’’ in the item in the table con4 tained in paragraph (2) with respect to the 

5 DSH allotment for FY 00 (fiscal year 

6 2000) for the District of Columbia, and 

7 then increasing such allotment, subject to 

8 subparagraph (B) and paragraph (5), by 

9 the percentage change in the Consumer 

10 Price Index for all urban consumers (all 

11 items; U.S. city average) for each of fiscal 

12 years 2000, 2001, 2002, and 2003. 

13 ‘‘(ii) NO APPLICATION TO ALLOT14 MENTS AFTER FISCAL YEAR 2004.—The 

15 DSH allotment for the District of Colum16 bia for fiscal year 2003, fiscal year 2005, 

17 or any succeeding fiscal year shall be de18 termined under paragraph (3) without re19 gard to the DSH allotment determined 

20 under clause (i).’’. 

21 (c) CONFORMING AMENDMENT.—Section 1923(f)(3) 

22 of such Act (42 U.S.C. 1396r–4(f)(3)) is amended by in23 serting ‘‘, paragraph (4),’’ after ‘‘subparagraph (B)’’.
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1 SEC. 602. INCREASE IN FLOOR FOR TREATMENT AS AN EX2 TREMELY LOW DSH STATE UNDER THE MED3 ICAID PROGRAM FOR FISCAL YEARS 2004 AND 

4 2005. 

5 (a) IN GENERAL.—Section 1923(f)(5) (42 U.S.C. 

6 1396r–4(f)(5)) is amended—

7 (1) by striking ‘‘In the case of’’ and inserting 

8 the following: 

9 ‘‘(A) IN GENERAL.—In the case of’’; and 

10 (2) by adding at the end the following: 

11 ‘‘(B) INCREASE IN FLOOR FOR FISCAL

12 YEARS 2004 AND 2005.—

13 ‘‘(i) FISCAL YEAR 2004.—In the case 

14 of a State in which the total expenditures 

15 under the State plan (including Federal 

16 and State shares) for disproportionate 

17 share hospital adjustments under this sec18 tion for fiscal year 2000, as reported to the 

19 Administrator of the Centers for Medicare 

20 and Medicaid Services as of August 31, 

21 2003, is greater than 0 but less than 3 

22 percent of the State’s total amount of ex23 penditures under the State plan for med24 ical assistance during the fiscal year, the 

25 DSH allotment for fiscal year 2004 shall 

26 be increased to 3 percent of the State’s 
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1 total amount of expenditures under such 

2 plan for such assistance during such fiscal 

3 year. 

4 ‘‘(ii) FISCAL YEAR 2005.—In the case 

5 of a State in which the total expenditures 

6 under the State plan (including Federal 

7 and State shares) for disproportionate 

8 share hospital adjustments under this sec9 tion for fiscal year 2001, as reported to the 

10 Administrator of the Centers for Medicare 

11 and Medicaid Services as of August 31, 

12 2004, is greater than 0 but less than 3 

13 percent of the State’s total amount of ex14 penditures under the State plan for med15 ical assistance during the fiscal year, the 

16 DSH allotment for fiscal year 2005 shall 

17 be the DSH allotment determined for the 

18 State for fiscal year 2004 (under clause (i) 

19 or paragraph (4) (as applicable)), in20 creased by the percentage change in the 

21 consumer price index for all urban con22 sumers (all items; U.S. city average) for 

23 fiscal year 2004. 

24 ‘‘(iii) NO APPLICATION TO ALLOT25 MENTS AFTER FISCAL YEAR 2005.—The 
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1 DSH allotment for any State for fiscal 

2 year 2006 or any succeeding fiscal year 

3 shall be determined under this subsection 

4 without regard to the DSH allotments de5 termined under this subparagraph.’’. 

6 (b) ALLOTMENT ADJUSTMENT.—

7 (1) IN GENERAL.—Section 1923(f) of the Social 

8 Security Act (42 U.S.C. 1396r–4(f)) is amended—

9 (A) by redesignating paragraph (6) as 

10 paragraph (7); and 

11 (B) by inserting after paragraph (5) the 

12 following: 

13 ‘‘(6) ALLOTMENT ADJUSTMENT.—Only with re14 spect to fiscal year 2004 or 2005, if a statewide 

15 waiver under section 1115 that was implemented on 

16 January 1, 1994, is revoked or terminated before 

17 the end of either such fiscal year, the Secretary 

18 shall—

19 ‘‘(A) permit the State whose waiver was 

20 revoked or terminated to submit an amendment 

21 to its State plan that would describe the meth22 odology to be used by the State (after the effec23 tive date of such revocation or termination) to 

24 identify and make payments to disproportionate 

25 share hospitals, including children’s hospitals 
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1 and institutions for mental diseases or other 

2 mental health facilities (other than State-owned 

3 institutions or facilities), on the basis of the 

4 proportion of patients served by such hospitals 

5 that are low-income patients with special needs; 

6 and 

7 ‘‘(B) provide for purposes of this sub8 section for computation of an appropriate DSH 

9 allotment for the State for fiscal year 2004 or 

10 2005 (or both) that provides for the maximum 

11 amount (permitted consistent with paragraph 

12 (3)(B)(ii)) that does not result in greater ex13 penditures under this title than would have 

14 been made if such waiver had not been revoked 

15 or terminated.’’. 

16 (2) TREATMENT OF INSTITUTIONS FOR MENTAL

17 DISEASES.—Section 1923(h)(1) of the Social Secu18 rity Act (42 U.S.C. 1396r–4(h)(1)) is amended—

19 (A) in paragraph (1), in the matter pre20 ceding subparagraph (A), by inserting ‘‘(subject 

21 to paragraph (3))’’ after ‘‘the lesser of the fol22 lowing’’; and

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

24 paragraph: 
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1 ‘‘(3) SPECIAL RULE.—The limitation of para2 graph (1) shall not apply in the case of a State to 

3 which subsection (f)(6) applies.’’. 

4 SEC. 603. INCREASED REPORTING REQUIREMENTS TO EN5 SURE THE APPROPRIATENESS OF PAYMENT 

6 ADJUSTMENTS TO DISPROPORTIONATE 

7 SHARE HOSPITALS UNDER THE MEDICAID 

8 PROGRAM. 

9 Section 1923 (42 U.S.C. 1396r–4) is amended by 

10 adding at the end the following new subsection: 

11 ‘‘(j) ANNUAL REPORTS REGARDING PAYMENT AD12 JUSTMENTS.—With respect to fiscal year 2004 and each 

13 fiscal year thereafter, the Secretary shall require a State, 

14 as a condition of receiving a payment under section 

15 1903(a)(1) with respect to a payment adjustment made 

16 under this section, to submit an annual report that—

17 ‘‘(1) identifies each disproportionate share hos18 pital that received a payment adjustment under this 

19 section for the preceding fiscal year and the amount 

20 of the payment adjustment made to such hospital 

21 for the preceding fiscal year; and 

22 ‘‘(2) includes such other information as the 

23 Secretary determines necessary to ensure the appro24 priateness of the payment adjustments made under 

25 this section for the preceding fiscal year.’’. 
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1 SEC. 604. CLARIFICATION OF INCLUSION OF INPATIENT 

2 DRUG PRICES CHARGED TO CERTAIN PUBLIC 

3 HOSPITALS IN THE BEST PRICE EXEMPTIONS 

4 FOR THE MEDICAID DRUG REBATE PRO5 GRAM. 

6 (a) IN GENERAL.—Section 1927(c)(1)(C)(i)(I) of the 

7 Social Security Act (42 U.S.C. 1396r–8(c)(1)(C)(i)(I)) is 

8 amended by inserting before the semicolon the following: 

9 ‘‘(including inpatient prices charged to hospitals described 

10 in section 340B(a)(4)(L) of the Public Health Service 

11 Act)’’. 

12 (b) ANTI-DIVERSION PROTECTION.—Section 

13 1927(c)(1)(C) of the Social Security Act (42 U.S.C. 

14 1396r–8(c)(1)(C)) is amended by adding at the end the 

15 following: 

16 ‘‘(iii) APPLICATION OF AUDITING AND

17 RECORDKEEPING REQUIREMENTS.—With 

18 respect to a covered entity described in 

19 section 340B(a)(4)(L) of the Public Health 

20 Service Act, any drug purchased for inpa21 tient use shall be subject to the auditing 

22 and recordkeeping requirements described 

23 in section 340B(a)(5)(C) of the Public 

24 Health Service Act.’’. 

25 (c) EFFECTIVE DATE.—The amendments made by 

26 this section take effect on October 1, 2003. 
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1 SEC. 605. ASSISTANCE WITH COVERAGE OF LEGAL IMMI2 GRANTS UNDER THE MEDICAID PROGRAM 

3 AND SCHIP. 

4 (a) MEDICAID PROGRAM.—Section 1903(v) (42 

5 U.S.C. 1396b(v)) is amended—

6 (1) in paragraph (1), by striking ‘‘paragraph 

7 (2)’’ and inserting ‘‘paragraphs (2) and (4)’’; and 

8 (2) by adding at the end the following new 

9 paragraph: 

10 ‘‘(4)(A) With respect to any or all of fiscal years 2005 

11 through 2007, a State may elect (in a plan amendment 

12 under this title) to provide medical assistance under this 

13 title (including under a waiver authorized by the Sec14 retary) for aliens who are lawfully residing in the United 

15 States (including battered aliens described in section 

16 431(c) of such Act) and who are otherwise eligible for such 

17 assistance, within either or both of the following eligibility 

18 categories: 

19 ‘‘(i) PREGNANT WOMEN.—Women during preg20 nancy (and during the 60-day period beginning on 

21 the last day of the pregnancy). 

22 ‘‘(ii) CHILDREN.—Children (as defined under 

23 such plan), including optional targeted low-income 

24 children described in section 1905(u)(2)(B). 

25 ‘‘(B)(i) In the case of a State that has elected to pro26 vide medical assistance to a category of aliens under sub-
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1 paragraph (A), no debt shall accrue under an affidavit of 

2 support against any sponsor of such an alien on the basis 

3 of provision of assistance to such category and the cost 

4 of such assistance shall not be considered as an unreim5 bursed cost. 

6 ‘‘(ii) The provisions of sections 401(a), 402(b), 403, 

7 and 421 of the Personal Responsibility and Work Oppor8 tunity Reconciliation Act of 1996 shall not apply to a 

9 State that makes an election under subparagraph (A).’’. 

10 (b) SCHIP.—Section 2107(e)(1) (42 U.S.C. 

11 1397gg(e)(1)) is amended by redesignating subparagraphs 

12 (C) and (D) as subparagraph (D) and (E), respectively, 

13 and by inserting after subparagraph (B) the following new 

14 subparagraph: 

15 ‘‘(C) Section 1903(v)(4) (relating to op16 tional coverage of categories of permanent resi17 dent alien children), but only if the State has 

18 elected to apply such section to the category of 

19 children under title XIX and only with respect 

20 to any or all of fiscal years 2005 through 

21 2007.’’. 
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1 SEC. 606. ESTABLISHMENT OF CONSUMER OMBUDSMAN AC2 COUNT. 

3 (a) IN GENERAL.—Section 1817 (42 U.S.C. 1395i) 

4 is amended by adding at the end the following new sub5 section: 

6 ‘‘(i) CONSUMER OMBUDSMAN ACCOUNT.—

7 ‘‘(1) ESTABLISHMENT.—There is hereby estab8 lished in the Trust Fund an expenditure account to 

9 be known as the ‘Consumer Ombudsman Account’ 

10 (in this subsection referred to as the ‘Account’). 

11 ‘‘(2) APPROPRIATED AMOUNTS TO ACCOUNT

12 FOR HEALTH INSURANCE INFORMATION, COUN13 SELING, AND ASSISTANCE GRANTS.—

14 ‘‘(A) IN GENERAL.—There are hereby ap15 propriated to the Account from the Trust Fund 

16 for each fiscal year beginning with fiscal year 

17 2005, the amount described in subparagraph 

18 (B) for such fiscal year for the purpose of mak19 ing grants under section 4360 of the Omnibus 

20 Budget Reconciliation Act of 1990. 

21 ‘‘(B) AMOUNT DESCRIBED.—For purposes 

22 of subparagraph (A), the amount described in 

23 this subparagraph for a fiscal year is the 

24 amount equal to the product of—

25 ‘‘(i) $1; and 
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1 ‘‘(ii) the total number of individuals 

2 receiving benefits under this title for the 

3 calendar year ending on December 31 of 

4 the preceding fiscal year.’’.

5 (b) CONFORMING AMENDMENT.—Section 4360(g) of 

6 the Omnibus Budget Reconciliation Act of 1990 (42 

7 U.S.C. 1395b–4(g)) is amended to read as follows: 

8 ‘‘(g) FUNDING.—The Secretary shall use amounts 

9 appropriated to the Consumer Ombudsman Account in ac10 cordance with section 1817(i) of the Social Security Act 

11 for a fiscal year for making grants under this section for 

12 that fiscal year.’’. 

13 SEC. 607. GAO STUDY REGARDING IMPACT OF ASSETS TEST 

14 FOR LOW-INCOME BENEFICIARIES. 

15 (a) STUDY.—The Comptroller General of the United 

16 States shall conduct a study to determine the extent to 

17 which drug utilization and access to covered drugs for an 

18 individual described in subsection (b) differs from the drug 

19 utilization and access to covered drugs of an individual 

20 who qualifies for the transitional assistance prescription 

21 drug card program under section 1807A of the Social Se22 curity Act (as added by section 111) or for the premiums 

23 and cost-sharing subsidies applicable to a qualified medi24 care beneficiary, a specified low-income medicare bene-
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1 ficiary, or a qualifying individual under section 1860D–

2 19 of the Social Security Act (as added by section 101). 

3 (b) INDIVIDUAL DESCRIBED.—An individual is de4 scribed in this subsection if the individual does not qualify 

5 for the transitional assistance prescription drug card pro6 gram under section 1807A of the Social Security Act or 

7 for the premiums and cost-sharing subsidies applicable to 

8 a qualified medicare beneficiary, a specified low-income 

9 medicare beneficiary, or a qualifying individual under sec10 tion 1860D–19 of the Social Security Act solely as a result 

11 of the application of an assets test to the individual. 

12 (c) REPORT.—Not later than September 30, 2007, 

13 the Comptroller General shall submit a report to Congress 

14 on the study conducted under subsection (a) that includes 

15 such recommendations for legislation as the Comptroller 

16 General determines are appropriate. 

17 (d) DEFINITIONS.—In this section: 

18 (1) COVERED DRUGS.—The term ‘‘covered 

19 drugs’’ has the meaning given that term in section 

20 1860D(a)(D) of the Social Security Act. 

21 (2) QUALIFIED MEDICARE BENEFICIARY; SPECI22 FIED LOW-INCOME MEDICARE BENEFICIARY; QUALI23 FYING INDIVIDUAL.—The terms ‘‘qualified medicare 

24 beneficiary’’, ‘‘specified low-income medicare bene25 ficiary’’ and ‘‘qualifying individual’’ have the mean-
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1 ing given those terms under section 1860D–19 of 

2 the Social Security Act. 

3 SEC. 608. HEALTH CARE INFRASTRUCTURE IMPROVEMENT. 

4 At the end of the Social Security Act, add the fol5 lowing new title: 

6 ‘‘TITLE XXII—HEALTH CARE IN7 FRASTRUCTURE IMPROVE8 MENT 

9 ‘‘SEC. 2201. DEFINITIONS. 

10 ‘‘In this title, the following definitions apply: 

11 ‘‘(1) ELIGIBLE PROJECT COSTS.—The term ‘eli12 gible project costs’ means amounts substantially all 

13 of which are paid by, or for the account of, an obli14 gor in connection with a project, including the cost 

15 of—

16 ‘‘(A) development phase activities, includ17 ing planning, feasibility analysis, revenue fore18 casting, environmental study and review, per19 mitting, architectural engineering and design 

20 work, and other preconstruction activities; 

21 ‘‘(B) construction, reconstruction, rehabili22 tation, replacement, and acquisition of facilities 

23 and real property (including land related to the 

24 project and improvements to land), environ-
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1 mental mitigation, construction contingencies, 

2 and acquisition of equipment; 

3 ‘‘(C) capitalized interest necessary to meet 

4 market requirements, reasonably required re5 serve funds, capital issuance expenses, and 

6 other carrying costs during construction;

7 ‘‘(D) major medical equipment determined 

8 to be appropriate by the Secretary; and 

9 ‘‘(E) refinancing projects or activities that 

10 are otherwise eligible for financial assistance 

11 under subparagraphs (A) through (D). 

12 ‘‘(2) FEDERAL CREDIT INSTRUMENT.—The 

13 term ‘Federal credit instrument’ means a secured 

14 loan, loan guarantee, or line of credit authorized to 

15 be made available under this title with respect to a 

16 project. 

17 ‘‘(3) INVESTMENT-GRADE RATING.—The term 

18 ‘investment-grade rating’ means a rating category of 

19 BBB minus, Baa3, or higher assigned by a rating 

20 agency to project obligations offered into the capital 

21 markets. 

22 ‘‘(4) LENDER.—The term ‘lender’ means any 

23 non-Federal qualified institutional buyer (as defined 

24 in section 230.144A(a) of title 17, Code of Federal 

25 Regulations (or any successor regulation), known as 
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1 Rule 144A(a) of the Securities and Exchange Com2 mission and issued under the Securities Act of 1933 

3 (15 U.S.C. 77a et seq.)), including—

4 ‘‘(A) a qualified retirement plan (as de5 fined in section 4974(c) of the Internal Revenue 

6 Code of 1986) that is a qualified institutional 

7 buyer; and 

8 ‘‘(B) a governmental plan (as defined in 

9 section 414(d) of the Internal Revenue Code of 

10 1986) that is a qualified institutional buyer. 

11 ‘‘(5) LINE OF CREDIT.—The term ‘line of cred12 it’ means an agreement entered into by the Sec13 retary with an obligor under section 2204 to provide 

14 a direct loan at a future date upon the occurrence 

15 of certain events. 

16 ‘‘(6) LOAN GUARANTEE.—The term ‘loan guar17 antee’ means any guarantee or other pledge by the 

18 Secretary to pay all or part of the principal of and 

19 interest on a loan or other debt obligation issued by 

20 an obligor and funded by a lender. 

21 ‘‘(7) LOCAL SERVICER.—The term ‘local 

22 servicer’ means a State or local government or any 

23 agency of a State or local government that is re24 sponsible for servicing a Federal credit instrument 

25 on behalf of the Secretary. 
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1 ‘‘(8) OBLIGOR.—The term ‘obligor’ means a 

2 party primarily liable for payment of the principal of 

3 or interest on a Federal credit instrument, which 

4 party may be a corporation, partnership, joint ven5 ture, trust, or governmental entity, agency, or in6 strumentality. 

7 ‘‘(9) PROJECT.—The term ‘project’ means any 

8 project that is designed to improve the health care 

9 infrastructure, including the construction, renova10 tion, or other capital improvement of any hospital, 

11 medical research facility, or other medical facility or 

12 the purchase of any equipment to be used in a hos13 pital, research facility, or other medical research fa14 cility. 

15 ‘‘(10) PROJECT OBLIGATION.—The term 

16 ‘project obligation’ means any note, bond, debenture, 

17 lease, installment sale agreement, or other debt obli18 gation issued or entered into by an obligor in con19 nection with the financing of a project, other than 

20 a Federal credit instrument. 

21 ‘‘(11) RATING AGENCY.—The term ‘rating 

22 agency’ means a bond rating agency identified by 

23 the Securities and Exchange Commission as a Na24 tionally Recognized Statistical Rating Organization. 
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1 ‘‘(12) SECURED LOAN.—The term ‘secured 

2 loan’ means a direct loan or other debt obligation 

3 issued by an obligor and funded by the Secretary in 

4 connection with the financing of a project under sec5 tion 2203. 

6 ‘‘(13) STATE.—The term ‘State’ has the mean7 ing given the term in section 101 of title 23, United 

8 States Code. 

9 ‘‘(14) SUBSIDY AMOUNT.—The term ‘subsidy 

10 amount’ means the amount of budget authority suf11 ficient to cover the estimated long-term cost to the 

12 Federal Government of a Federal credit instrument, 

13 calculated on a net present value basis, excluding 

14 administrative costs and any incidental effects on 

15 governmental receipts or outlays in accordance with 

16 the provisions of the Federal Credit Reform Act of 

17 1990 (2 U.S.C. 661 et seq.). 

18 ‘‘(15) SUBSTANTIAL COMPLETION.—The term 

19 ‘substantial completion’ means the opening of a 

20 project to patients or for research purposes. 

21 ‘‘SEC. 2202. DETERMINATION OF ELIGIBILITY AND PROJECT 

22 SELECTION. 

23 ‘‘(a) ELIGIBILITY.—To be eligible to receive financial 

24 assistance under this title, a project shall meet the fol25 lowing criteria: 
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1 ‘‘(1) APPLICATION.—A State, a local servicer 

2 identified under section 2205(a), or the entity un3 dertaking a project shall submit a project application 

4 to the Secretary. 

5 ‘‘(2) ELIGIBLE PROJECT COSTS.—To be eligible 

6 for assistance under this title, a project shall have 

7 total eligible project costs that are reasonably antici8 pated to equal or exceed $40,000,000. 

9 ‘‘(3) SOURCES OF REPAYMENTS.—Project fi10 nancing shall be repayable, in whole or in part, from 

11 reliable revenue sources as described in the applica12 tion submitted under paragraph (1). 

13 ‘‘(4) PUBLIC SPONSORSHIP OF PRIVATE ENTI14 TIES.—In the case of a project that is undertaken 

15 by an entity that is not a State or local government 

16 or an agency or instrumentality of a State or local 

17 government, the project that the entity is under18 taking shall be publicly sponsored or sponsored by 

19 an entity that is described in section 501(c)(3) of 

20 the Internal Revenue Code of 1986 and exempt from 

21 tax under section 501(a) of such Code. 

22 ‘‘(b) SELECTION AMONG ELIGIBLE PROJECTS.—

23 ‘‘(1) ESTABLISHMENT.—The Secretary shall es24 tablish criteria for selecting among projects that 
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1 meet the eligibility criteria specified in subsection 

2 (a). 

3 ‘‘(2) SELECTION CRITERIA.—

4 ‘‘(A) IN GENERAL.—The selection criteria 

5 shall include the following:

6 ‘‘(i) The extent to which the project is 

7 nationally or regionally significant, in 

8 terms of expanding or improving the 

9 health care infrastructure of the United 

10 States or the region or in terms of the 

11 medical benefit that the project will have. 

12 ‘‘(ii) The creditworthiness of the 

13 project, including a determination by the 

14 Secretary that any financing for the 

15 project has appropriate security features, 

16 such as a rate covenant, credit enhance17 ment requirements, or debt services cov18 erages, to ensure repayment. 

19 ‘‘(iii) The extent to which assistance 

20 under this title would foster innovative 

21 public-private partnerships and attract pri22 vate debt or equity investment. 

23 ‘‘(iv) The likelihood that assistance 

24 under this title would enable the project to 
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1 proceed at an earlier date than the project 

2 would otherwise be able to proceed.

3 ‘‘(v) The extent to which the project 

4 uses or results in new technologies. 

5 ‘‘(vi) The amount of budget authority 

6 required to fund the Federal credit instru7 ment made available under this title. 

8 ‘‘(vii) The extent to which the project 

9 helps maintain or protect the environment. 

10 ‘‘(B) SPECIFIC REQUIREMENTS.—The se11 lection criteria shall require that a project ap12 plicant—

13 ‘‘(i) be engaged in research in the 

14 causes, prevention, and treatment of can15 cer; 

16 ‘‘(ii) be designated as a cancer center 

17 for the National Cancer Institute or be 

18 designated by the State as the official can19 cer institute of the State; and 

20 ‘‘(iii) be located in a State that, on 

21 the date of enactment of this title, has a 

22 population of less than 3,000,000 individ23 uals. 

24 ‘‘(C) RATING LETTER.—For purposes of 

25 subparagraph (A)(ii), the Secretary shall re-
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1 quire each project applicant to provide a rating 

2 letter from at least 1 rating agency indicating 

3 that the project’s senior obligations have the 

4 potential to achieve an investment-grade rating 

5 with or without credit enhancement. 

6 ‘‘SEC. 2203. SECURED LOANS. 

7 ‘‘(a) IN GENERAL.—

8 ‘‘(1) AGREEMENTS.—Subject to paragraphs (2) 

9 through (4), the Secretary may enter into agree10 ments with 1 or more obligors to make secured 

11 loans, the proceeds of which shall be used—

12 ‘‘(A) to finance eligible project costs; 

13 ‘‘(B) to refinance interim construction fi14 nancing of eligible project costs; or 

15 ‘‘(C) to refinance existing debt or prior 

16 project obligations; 

17 of any project selected under section 2202. 

18 ‘‘(2) LIMITATION ON REFINANCING OF INTERIM

19 CONSTRUCTION FINANCING.—A loan under para20 graph (1) shall not refinance interim construction fi21 nancing under paragraph (1)(B) later than 1 year 

22 after the date of substantial completion of the 

23 project. 

24 ‘‘(3) RISK ASSESSMENT.—Before entering into 

25 an agreement for a secured loan under this sub-
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1 section, the Secretary, in consultation with each rat2 ing agency providing a rating letter under section 

3 2202(b)(2)(B), shall determine an appropriate cap4 ital reserve subsidy amount for each secured loan, 

5 taking into account such letter. 

6 ‘‘(4) INVESTMENT-GRADE RATING REQUIRE7 MENT.—The funding of a secured loan under this 

8 section shall be contingent on the project’s senior 

9 obligations receiving an investment-grade rating, ex10 cept that—

11 ‘‘(A) the Secretary may fund an amount of 

12 the secured loan not to exceed the capital re13 serve subsidy amount determined under para14 graph (3) prior to the obligations receiving an 

15 investment-grade rating; and 

16 ‘‘(B) the Secretary may fund the remain17 ing portion of the secured loan only after the 

18 obligations have received an investment-grade 

19 rating by at least 1 rating agency. 

20 ‘‘(b) TERMS AND LIMITATIONS.—

21 ‘‘(1) IN GENERAL.—A secured loan under this 

22 section with respect to a project shall be on such 

23 terms and conditions and contain such covenants, 

24 representations, warranties, and requirements (in-
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1 cluding requirements for audits) as the Secretary de2 termines appropriate. 

3 ‘‘(2) MAXIMUM AMOUNT.—The amount of the 

4 secured loan shall not exceed 100 percent of the rea5 sonably anticipated eligible project costs. 

6 ‘‘(3) PAYMENT.—The secured loan—

7 ‘‘(A) shall—

8 ‘‘(i) be payable, in whole or in part, 

9 from reliable revenue sources; and

10 ‘‘(ii) include a rate covenant, coverage 

11 requirement, or similar security feature 

12 supporting the project obligations; and 

13 ‘‘(B) may have a lien on revenues de14 scribed in subparagraph (A) subject to any lien 

15 securing project obligations. 

16 ‘‘(4) INTEREST RATE.—The interest rate on the 

17 secured loan shall be not less than the yield on mar18 ketable United States Treasury securities of a simi19 lar maturity to the maturity of the secured loan on 

20 the date of execution of the loan agreement. 

21 ‘‘(5) MATURITY DATE.—The final maturity 

22 date of the secured loan shall be not later than 30 

23 years after the date of substantial completion of the 

24 project. 
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1 ‘‘(6) NONSUBORDINATION.—The secured loan 

2 shall not be subordinated to the claims of any holder 

3 of project obligations in the event of bankruptcy, in4 solvency, or liquidation of the obligor. 

5 ‘‘(7) FEES.—The Secretary may establish fees 

6 at a level sufficient to cover all or a portion of the 

7 costs to the Federal Government of making a se8 cured loan under this section. 

9 ‘‘(c) REPAYMENT.—

10 ‘‘(1) SCHEDULE.—The Secretary shall establish 

11 a repayment schedule for each secured loan under 

12 this section based on the projected cash flow from 

13 project revenues and other repayment sources. 

14 ‘‘(2) COMMENCEMENT.—Scheduled loan repay15 ments of principal or interest on a secured loan 

16 under this section shall commence not later than 5 

17 years after the date of substantial completion of the 

18 project. 

19 ‘‘(3) SOURCES OF REPAYMENT FUNDS.—The 

20 sources of funds for scheduled loan repayments 

21 under this section shall include any revenue gen22 erated by the project. 

23 ‘‘(4) DEFERRED PAYMENTS.—

24 ‘‘(A) AUTHORIZATION.—If, at any time 

25 during the 10 years after the date of substan-
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1 tial completion of the project, the project is un2 able to generate sufficient revenues to pay the 

3 scheduled loan repayments of principal and in4 terest on the secured loan, the Secretary may, 

5 subject to subparagraph (C), allow the obligor 

6 to add unpaid principal and interest to the out7 standing balance of the secured loan. 

8 ‘‘(B) INTEREST.—Any payment deferred 

9 under subparagraph (A) shall—

10 ‘‘(i) continue to accrue interest in ac11 cordance with subsection (b)(4) until fully 

12 repaid; and 

13 ‘‘(ii) be scheduled to be amortized 

14 over the remaining term of the loan begin15 ning not later than 10 years after the date 

16 of substantial completion of the project in 

17 accordance with paragraph (1). 

18 ‘‘(C) CRITERIA.—

19 ‘‘(i) IN GENERAL.—Any payment de20 ferral under subparagraph (A) shall be 

21 contingent on the project meeting criteria 

22 established by the Secretary. 

23 ‘‘(ii) REPAYMENT STANDARDS.—The 

24 criteria established under clause (i) shall 
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1 include standards for reasonable assurance 

2 of repayment. 

3 ‘‘(5) PREPAYMENT.—

4 ‘‘(A) USE OF EXCESS REVENUES.—Any 

5 excess revenues that remain after satisfying 

6 scheduled debt service requirements on the 

7 project obligations and secured loan and all de8 posit requirements under the terms of any trust 

9 agreement, bond resolution, reimbursement 

10 agreement, credit agreement, loan agreement, 

11 or similar agreement securing project obliga12 tions may be applied annually to prepay the se13 cured loan without penalty. 

14 ‘‘(B) USE OF PROCEEDS OF REFI15 NANCING.—The secured loan may be prepaid at 

16 any time without penalty, regardless of whether 

17 such repayment is from the proceeds of refi18 nancing from non-Federal funding sources.

19 ‘‘(6) FORGIVENESS OF INDEBTEDNESS.—The 

20 Secretary may forgive a loan secured under this title 

21 under terms and conditions that are analogous to 

22 the loan forgiveness provision for student loans 

23 under part D of title IV of the Higher Education 

24 Act of 1965 (20 U.S.C. 1087a et seq.), except that 
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1 the Secretary shall condition such forgiveness on the 

2 establishment by the project of—

3 ‘‘(A) an outreach program for cancer pre4 vention, early diagnosis, and treatment that 

5 provides services to a substantial majority of 

6 the residents of a State or region, including 

7 residents of rural areas; 

8 ‘‘(B) an outreach program for cancer pre9 vention, early diagnosis, and treatment that 

10 provides services to multiple Indian tribes; and 

11 ‘‘(C)(i) unique research resources (such as 

12 population databases); or 

13 ‘‘(ii) an affiliation with an entity that has 

14 unique research resources. 

15 ‘‘(d) SALE OF SECURED LOANS.—

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

17 as soon as practicable after substantial completion of 

18 a project and after notifying the obligor, the Sec19 retary may sell to another entity or reoffer into the 

20 capital markets a secured loan for the project if the 

21 Secretary determines that the sale or reoffering can 

22 be made on favorable terms. 

23 ‘‘(2) CONSENT OF OBLIGOR.—In making a sale 

24 or reoffering under paragraph (1), the Secretary 

25 may not change the original terms and conditions of 
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1 the secured loan without the written consent of the 

2 obligor. 

3 ‘‘(e) LOAN GUARANTEES.—

4 ‘‘(1) IN GENERAL.—The Secretary may provide 

5 a loan guarantee to a lender in lieu of making a se6 cured loan if the Secretary determines that the 

7 budgetary cost of the loan guarantee is substantially 

8 the same as that of a secured loan. 

9 ‘‘(2) TERMS.—The terms of a guaranteed loan 

10 shall be consistent with the terms set forth in this 

11 section for a secured loan, except that the rate on 

12 the guaranteed loan and any prepayment features 

13 shall be negotiated between the obligor and the lend14 er, with the consent of the Secretary. 

15 ‘‘SEC. 2204. LINES OF CREDIT. 

16 ‘‘(a) IN GENERAL.—

17 ‘‘(1) AGREEMENTS.—Subject to paragraphs (2) 

18 through (4), the Secretary may enter into agree19 ments to make available lines of credit to 1 or more 

20 obligors in the form of direct loans to be made by 

21 the Secretary at future dates on the occurrence of 

22 certain events for any project selected under section 

23 2202. 

24 ‘‘(2) USE OF PROCEEDS.—The proceeds of a 

25 line of credit made available under this section shall 
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1 be available to pay debt service on project obliga2 tions issued to finance eligible project costs, extraor3 dinary repair and replacement costs, operation and 

4 maintenance expenses, and costs associated with un5 expected Federal or State environmental restrictions. 

6 ‘‘(3) RISK ASSESSMENT.—Before entering into 

7 an agreement for a secured loan under this sub8 section, the Secretary, in consultation with each rat9 ing agency providing a rating letter under section 

10 2202(b)(2)(B), shall determine an appropriate sub11 sidy amount for each secured loan, taking into ac12 count such letter. 

13 ‘‘(4) INVESTMENT-GRADE RATING REQUIRE14 MENT.—The funding of a line of credit under this 

15 section shall be contingent on the project’s senior 

16 obligations receiving an investment-grade rating 

17 from at least 1 rating agency. 

18 ‘‘(b) TERMS AND LIMITATIONS.—

19 ‘‘(1) IN GENERAL.—A line of credit under this 

20 section with respect to a project shall be on such 

21 terms and conditions and contain such covenants, 

22 representations, warranties, and requirements (in23 cluding requirements for audits) as the Secretary de24 termines appropriate. 

25 ‘‘(2) MAXIMUM AMOUNTS.—
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1 ‘‘(A) TOTAL AMOUNT.—The total amount 

2 of the line of credit shall not exceed 33 percent 

3 of the reasonably anticipated eligible project 

4 costs. 

5 ‘‘(B) 1-YEAR DRAWS.—The amount drawn 

6 in any 1 year shall not exceed 20 percent of the 

7 total amount of the line of credit.

8 ‘‘(3) DRAWS.—Any draw on the line of credit 

9 shall represent a direct loan and shall be made only 

10 if net revenues from the project (including capital11 ized interest, any debt service reserve fund, and any 

12 other available reserve) are insufficient to pay the 

13 costs specified in subsection (a)(2). 

14 ‘‘(4) INTEREST RATE.—The interest rate on a 

15 direct loan resulting from a draw on the line of cred16 it shall be not less than the yield on 30-year market17 able United States Treasury securities as of the date 

18 on which the line of credit is obligated. 

19 ‘‘(5) SECURITY.—The line of credit—

20 ‘‘(A) shall—

21 ‘‘(i) be payable, in whole or in part, 

22 from reliable revenue sources; and 

23 ‘‘(ii) include a rate covenant, coverage 

24 requirement, or similar security feature 

25 supporting the project obligations; and 
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1 ‘‘(B) may have a lien on revenues de2 scribed in subparagraph (A) subject to any lien 

3 securing project obligations. 

4 ‘‘(6) PERIOD OF AVAILABILITY.—The line of 

5 credit shall be available during the period beginning 

6 on the date of substantial completion of the project 

7 and ending not later than 10 years after that date. 

8 ‘‘(7) RIGHTS OF THIRD-PARTY CREDITORS.—

9 ‘‘(A) AGAINST FEDERAL GOVERNMENT.—A 

10 third-party creditor of the obligor shall not have 

11 any right against the Federal Government with 

12 respect to any draw on the line of credit. 

13 ‘‘(B) ASSIGNMENT.—An obligor may as14 sign the line of credit to 1 or more lenders or 

15 to a trustee on the lenders’ behalf. 

16 ‘‘(8) NONSUBORDINATION.—A direct loan 

17 under this section shall not be subordinated to the 

18 claims of any holder of project obligations in the 

19 event of bankruptcy, insolvency, or liquidation of the 

20 obligor. 

21 ‘‘(9) FEES.—The Secretary may establish fees 

22 at a level sufficient to cover all or a portion of the 

23 costs to the Federal Government of providing a line 

24 of credit under this section. 
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1 ‘‘(10) RELATIONSHIP TO OTHER CREDIT IN2 STRUMENTS.—A project that receives a line of credit 

3 under this section also shall not receive a secured 

4 loan or loan guarantee under section 2203 of an 

5 amount that, combined with the amount of the line 

6 of credit, exceeds 100 percent of eligible project 

7 costs. 

8 ‘‘(c) REPAYMENT.—

9 ‘‘(1) TERMS AND CONDITIONS.—The Secretary 

10 shall establish repayment terms and conditions for 

11 each direct loan under this section based on the pro12 jected cash flow from project revenues and other re13 payment sources. 

14 ‘‘(2) TIMING.—All scheduled repayments of 

15 principal or interest on a direct loan under this sec16 tion shall commence not later than 5 years after the 

17 end of the period of availability specified in sub18 section (b)(6) and be fully repaid, with interest, by 

19 the date that is 25 years after the end of the period 

20 of availability specified in subsection (b)(6). 

21 ‘‘(3) SOURCES OF REPAYMENT FUNDS.—The 

22 sources of funds for scheduled loan repayments 

23 under this section shall include reliable revenue 

24 sources. 
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1 ‘‘SEC. 2205. PROJECT SERVICING. 

2 ‘‘(a) REQUIREMENT.—The State in which a project 

3 that receives financial assistance under this title is located 

4 may identify a local servicer to assist the Secretary in 

5 servicing the Federal credit instrument made available 

6 under this title. 

7 ‘‘(b) AGENCY; FEES.—If a State identifies a local 

8 servicer under subsection (a), the local servicer—

9 ‘‘(1) shall act as the agent for the Secretary; 

10 and 

11 ‘‘(2) may receive a servicing fee, subject to ap12 proval by the Secretary. 

13 ‘‘(c) LIABILITY.—A local servicer identified under 

14 subsection (a) shall not be liable for the obligations of the 

15 obligor to the Secretary or any lender. 

16 ‘‘(d) ASSISTANCE FROM EXPERT FIRMS.—The Sec17 retary may retain the services of expert firms in the field 

18 of project finance to assist in the underwriting and serv19 icing of Federal credit instruments. 

20 ‘‘SEC. 2206. STATE AND LOCAL PERMITS. 

21 ‘‘The provision of financial assistance under this title 

22 with respect to a project shall not—

23 ‘‘(1) relieve any recipient of the assistance of 

24 any obligation to obtain any required State or local 

25 permit or approval with respect to the project; 
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1 ‘‘(2) limit the right of any unit of State or local 

2 government to approve or regulate any rate of re3 turn on private equity invested in the project; or 

4 ‘‘(3) otherwise supersede any State or local law 

5 (including any regulation) applicable to the construc6 tion or operation of the project. 

7 ‘‘SEC. 2207. REGULATIONS. 

8 ‘‘The Secretary may issue such regulations as the 

9 Secretary determines appropriate to carry out this title. 

10 ‘‘SEC. 2208. FUNDING. 

11 ‘‘(a) FUNDING.—

12 ‘‘(1) IN GENERAL.—There are authorized to be 

13 appropriated to carry out this title, $49,000,000 to 

14 remain available during the period beginning on July 

15 1, 2004 and ending on September 30, 2008. 

16 ‘‘(2) ADMINISTRATIVE COSTS.—From funds 

17 made available under paragraph (1), the Secretary 

18 may use, for the administration of this title, not 

19 more than $2,000,000 for each of fiscal years 2004 

20 through 2008. 

21 ‘‘(b) CONTRACT AUTHORITY.—Notwithstanding any 

22 other provision of law, approval by the Secretary of a Fed23 eral credit instrument that uses funds made available 

24 under this title shall be deemed to be acceptance by the 
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1 United States of a contractual obligation to fund the Fed2 eral credit instrument. 

3 ‘‘(c) AVAILABILITY.—Amounts appropriated under 

4 this section shall be available for obligation on July 1, 

5 2004. 

6 ‘‘SEC. 2209. REPORT TO CONGRESS. 

7 ‘‘Not later than 4 years after the date of enactment 

8 of this title, the Secretary shall submit to Congress a re9 port summarizing the financial performance of the 

10 projects that are receiving, or have received, assistance 

11 under this title, including a recommendation as to whether 

12 the objectives of this title are best served—

13 ‘‘(1) by continuing the program under the au14 thority of the Secretary; 

15 ‘‘(2) by establishing a Government corporation 

16 or Government-sponsored enterprise to administer 

17 the program; or 

18 ‘‘(3) by phasing out the program and relying on 

19 the capital markets to fund the types of infrastruc20 ture investments assisted by this title without Fed21 eral participation.’’. 
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1 SEC. 609. CAPITAL INFRASTRUCTURE REVOLVING LOAN 

2 PROGRAM. 

3 (a) IN GENERAL.—Part A of title XVI of the Public 

4 Health Service Act (42 U.S.C. 300q et seq.) is amended 

5 by adding at the end the following new section: 

6 ‘‘CAPITAL INFRASTRUCTURE REVOLVING LOAN PROGRAM

7 ‘‘SEC. 1603. (a) AUTHORITY TO MAKE AND GUAR8 ANTEE LOANS.—

9 ‘‘(1) AUTHORITY TO MAKE LOANS.—The Sec10 retary may make loans from the fund established 

11 under section 1602(d) to any rural entity for 

12 projects for capital improvements, including—

13 ‘‘(A) the acquisition of land necessary for 

14 the capital improvements;

15 ‘‘(B) the renovation or modernization of 

16 any building; 

17 ‘‘(C) the acquisition or repair of fixed or 

18 major movable equipment; and 

19 ‘‘(D) such other project expenses as the 

20 Secretary determines appropriate. 

21 ‘‘(2) AUTHORITY TO GUARANTEE LOANS.—

22 ‘‘(A) IN GENERAL.—The Secretary may 

23 guarantee the payment of principal and interest 

24 for loans made to rural entities for projects for 

25 any capital improvement described in paragraph 

26 (1) to any non-Federal lender. 
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1 ‘‘(B) INTEREST SUBSIDIES.—In the case 

2 of a guarantee of any loan made to a rural enti3 ty under subparagraph (A), the Secretary may 

4 pay to the holder of such loan, for and on be5 half of the project for which the loan was made, 

6 amounts sufficient to reduce (by not more than 

7 3 percent) the net effective interest rate other8 wise payable on such loan. 

9 ‘‘(b) AMOUNT OF LOAN.—The principal amount of 

10 a loan directly made or guaranteed under subsection (a) 

11 for a project for capital improvement may not exceed 

12 $5,000,000. 

13 ‘‘(c) FUNDING LIMITATIONS.—

14 ‘‘(1) GOVERNMENT CREDIT SUBSIDY EXPO15 SURE.—The total of the Government credit subsidy 

16 exposure under the Credit Reform Act of 1990 scor17 ing protocol with respect to the loans outstanding at 

18 any time with respect to which guarantees have been 

19 issued, or which have been directly made, under sub20 section (a) may not exceed $50,000,000 per year. 

21 ‘‘(2) TOTAL AMOUNTS.—Subject to paragraph 

22 (1), the total of the principal amount of all loans di23 rectly made or guaranteed under subsection (a) may 

24 not exceed $250,000,000 per year. 
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1 ‘‘(d) CAPITAL ASSESSMENT AND PLANNING

2 GRANTS.—

3 ‘‘(1) NONREPAYABLE GRANTS.—Subject to 

4 paragraph (2), the Secretary may make a grant to 

5 a rural entity, in an amount not to exceed $50,000, 

6 for purposes of capital assessment and business 

7 planning. 

8 ‘‘(2) LIMITATION.—The cumulative total of 

9 grants awarded under this subsection may not ex10 ceed $2,500,000 per year. 

11 ‘‘(e) TERMINATION OF AUTHORITY.—The Secretary 

12 may not directly make or guarantee any loan under sub13 section (a) or make a grant under subsection (d) after 

14 September 30, 2008.’’. 

15 (b) RURAL ENTITY DEFINED.—Section 1624 of the 

16 Public Health Service Act (42 U.S.C. 300s–3) is amended 

17 by adding at the end the following new paragraph: 

18 ‘‘(14)(A) The term ‘rural entity’ includes—

19 ‘‘(i) a rural health clinic, as defined in sec20 tion 1861(aa)(2) of the Social Security Act; 

21 ‘‘(ii) any medical facility with at least 1 

22 bed, but with less than 50 beds, that is located 

23 in—

24 ‘‘(I) a county that is not part of a 

25 metropolitan statistical area; or 
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1 ‘‘(II) a rural census tract of a metro2 politan statistical area (as determined 

3 under the most recent modification of the 

4 Goldsmith Modification, originally pub5 lished in the Federal Register on February 

6 27, 1992 (57 Fed. Reg. 6725)); 

7 ‘‘(iii) a hospital that is classified as a 

8 rural, regional, or national referral center under 

9 section 1886(d)(5)(C) of the Social Security 

10 Act; and 

11 ‘‘(iv) a hospital that is a sole community 

12 hospital (as defined in section 

13 1886(d)(5)(D)(iii) of the Social Security Act). 

14 ‘‘(B) For purposes of subparagraph (A), the 

15 fact that a clinic, facility, or hospital has been geo16 graphically reclassified under the medicare program 

17 under title XVIII of the Social Security Act shall not 

18 preclude a hospital from being considered a rural en19 tity under clause (i) or (ii) of subparagraph (A).’’.

20 (c) CONFORMING AMENDMENTS.—Section 1602 of 

21 the Public Health Service Act (42 U.S.C. 300q–2) is 

22 amended—

23 (1) in subsection (b)(2)(D), by inserting ‘‘or 

24 1603(a)(2)(B)’’ after ‘‘1601(a)(2)(B)’’; and 

25 (2) in subsection (d)—
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1 (A) in paragraph (1)(C), by striking ‘‘sec2 tion 1601(a)(2)(B)’’ and inserting ‘‘sections 

3 1601(a)(2)(B) and 1603(a)(2)(B)’’; and 

4 (B) in paragraph (2)(A), by inserting ‘‘or 

5 1603(a)(2)(B)’’ after ‘‘1601(a)(2)(B)’’. 

6 SEC. 610. FEDERAL REIMBURSEMENT OF EMERGENCY 

7 HEALTH SERVICES FURNISHED TO UNDOCU8 MENTED ALIENS. 

9 (a) TOTAL AMOUNT AVAILABLE FOR ALLOTMENT.—

10 There is appropriated, out of any funds in the Treasury 

11 not otherwise appropriated, $250,000,000 for each of fis12 cal years 2005 through 2008, for the purpose of making 

13 allotments under this section to States described in para14 graph (1) or (2) of subsection (b). Funds appropriated 

15 under the preceding sentence shall remain available until 

16 expended. 

17 (b) STATE ALLOTMENTS.—

18 (1) BASED ON PERCENTAGE OF UNDOCU19 MENTED ALIENS.—

20 (A) IN GENERAL.—Out of the amount ap21 propriated under subsection (a) for a fiscal 

22 year, the Secretary shall use $167,000,000 of 

23 such amount to make allotments for such fiscal 

24 year in accordance with subparagraph (B). 
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1 (B) FORMULA.—The amount of the allot2 ment for each State for a fiscal year shall be 

3 equal to the product of—

4 (i) the total amount available for al5 lotments under this paragraph for the fis6 cal year; and 

7 (ii) the percentage of undocumented 

8 aliens residing in the State with respect to 

9 the total number of such aliens residing in 

10 all States, as determined by the Statistics 

11 Division of the Immigration and Natu12 ralization Service, as of January 2003, 

13 based on the 2000 decennial census. 

14 (2) BASED ON NUMBER OF UNDOCUMENTED

15 ALIEN APPREHENSION STATES.—

16 (A) IN GENERAL.—Out of the amount ap17 propriated under subsection (a) for a fiscal 

18 year, the Secretary shall use $83,000,000 of 

19 such amount to make allotments for such fiscal 

20 year for each of the 6 States with the highest 

21 number of undocumented alien apprehensions 

22 for such fiscal year. 

23 (B) DETERMINATION OF ALLOTMENTS.—

24 The amount of the allotment for each State de25 scribed in subparagraph (A) for a fiscal year 
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1 shall bear the same ratio to the total amount 

2 available for allotments under this paragraph 

3 for the fiscal year as the ratio of the number 

4 of undocumented alien apprehensions in the 

5 State in that fiscal year bears to the total of 

6 such numbers for all such States for such fiscal 

7 year. 

8 (C) DATA.—For purposes of this para9 graph, the highest number of undocumented 

10 alien apprehensions for a fiscal year shall be 

11 based on the 4 most recent quarterly apprehen12 sion rates for undocumented aliens in such 

13 States, as reported by the Immigration and 

14 Naturalization Service. 

15 (3) RULE OF CONSTRUCTION.—Nothing in this 

16 section shall be construed as prohibiting a State that 

17 is described in both of paragraphs (1) and (2) from 

18 receiving an allotment under both paragraphs for a 

19 fiscal year. 

20 (c) USE OF FUNDS.—

21 (1) AUTHORITY TO MAKE PAYMENTS.—From 

22 the allotments made for a State under subsection (b) 

23 for a fiscal year, the Secretary shall pay directly to 

24 local governments, hospitals, or other providers lo25 cated in the State (including providers of services re-
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1 ceived through an Indian Health Service facility 

2 whether operated by the Indian Health Service or by 

3 an Indian tribe or tribal organization) that provide 

4 uncompensated emergency health services furnished

5 to undocumented aliens during that fiscal year, and 

6 to the State, such amounts (subject to the total 

7 amount available from such allotments) as the local 

8 governments, hospitals, providers, or State dem9 onstrate were incurred for the provision of such 

10 services during that fiscal year. 

11 (2) LIMITATION ON STATE USE OF FUNDS.—

12 Funds paid to a State from allotments made under 

13 subsection (b) for a fiscal year may only be used for 

14 making payments to local governments, hospitals, or 

15 other providers for costs incurred in providing emer16 gency health services to undocumented aliens or for 

17 State costs incurred with respect to the provision of 

18 emergency health services to such aliens. 

19 (3) INCLUSION OF COSTS INCURRED WITH RE20 SPECT TO CERTAIN ALIENS.—Uncompensated emer21 gency health services furnished to aliens who have 

22 been allowed to enter the United States for the sole 

23 purpose of receiving emergency health services may 

24 be included in the determination of costs incurred by 
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1 a State, local government, hospital, or other provider 

2 with respect to the provision of such services. 

3 (d) APPLICATIONS; ADVANCE PAYMENTS.—

4 (1) DEADLINE FOR ESTABLISHMENT OF APPLI5 CATION PROCESS.—

6 (A) IN GENERAL.—Not later than Sep7 tember 1, 2004, the Secretary shall establish a 

8 process under which States, local governments, 

9 hospitals, or other providers located in the 

10 State may apply for payments from allotments 

11 made under subsection (b) for a fiscal year for 

12 uncompensated emergency health services fur13 nished to undocumented aliens during that fis14 cal year. 

15 (B) INCLUSION OF MEASURES TO COMBAT

16 FRAUD.—The Secretary shall include in the 

17 process established under subparagraph (A) 

18 measures to ensure that fraudulent payments 

19 are not made from the allotments determined 

20 under subsection (b). 

21 (2) ADVANCE PAYMENT; RETROSPECTIVE AD22 JUSTMENT.—The process established under para23 graph (1) shall allow for making payments under 

24 this section for each quarter of a fiscal year on the 

25 basis of advance estimates of expenditures submitted 
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1 by applicants for such payments and such other in2 vestigation as the Secretary may find necessary, and 

3 for making reductions or increases in the payments 

4 as necessary to adjust for any overpayment or un5 derpayment for prior quarters of such fiscal year. 

6 (e) DEFINITIONS.—In this section: 

7 (1) HOSPITAL.—The term ‘‘hospital’’ has the 

8 meaning given such term in section 1861(e) of the 

9 Social Security Act (42 U.S.C. 1395x(e)). 

10 (2) INDIAN TRIBE; TRIBAL ORGANIZATION.—

11 The terms ‘‘Indian tribe’’ and ‘‘tribal organization’’ 

12 have the meanings given such terms in section 4 of 

13 the Indian Health Care Improvement Act (25 U.S.C. 

14 1603). 

15 (3) PROVIDER.—The term ‘‘provider’’ includes 

16 a physician, any other health care professional li17 censed under State law, and any other entity that 

18 furnishes emergency health services, including ambu19 lance services. 

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

21 the Secretary of Health and Human Services. 

22 (5) STATE.—The term ‘‘State’’ means the 50 

23 States and the District of Columbia. 
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1 SEC. 611. INCREASE IN APPROPRIATION TO THE HEALTH 

2 CARE FRAUD AND ABUSE CONTROL AC3 COUNT. 

4 Section 1817(k)(3)(A) (42 U.S.C. 1395i(k)(3)(A)) is 

5 amended—

6 (1) in clause (i)—

7 (A) in subclause (II), by striking ‘‘and’’ at 

8 the end; and 

9 (B) by striking subclause (III), and insert10 ing the following new subclauses: 

11 ‘‘(III) for fiscal year 2004, the 

12 limit for fiscal year 2003 increased by 

13 $10,000,000; 

14 ‘‘(IV) for fiscal year 2005, the 

15 limit for fiscal year 2003 increased by 

16 $15,000,000;

17 ‘‘(V) for fiscal year 2006, the 

18 limit for fiscal year 2003 increased by 

19 $25,000,000; and 

20 ‘‘(VI) for each fiscal year after 

21 fiscal year 2006, the limit for fiscal 

22 year 2003.’’; and 

23 (2) in clause (ii)—

24 (A) in subclause (VI), by striking ‘‘and’’ at 

25 the end; 

26 (B) in subclause (VII)—
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1 (i) by striking ‘‘each fiscal year after 

2 fiscal year 2002’’ and inserting ‘‘fiscal year 

3 2003’’; and 

4 (ii) by striking the period and insert5 ing a semicolon; and 

6 (3) by adding at the end the following: 

7 ‘‘(VIII) for fiscal year 2004, 

8 $170,000,000; 

9 ‘‘(IX) for fiscal year 2005, 

10 $175,000,000; 

11 ‘‘(X) for fiscal year 2006, 

12 $185,000,000; and 

13 ‘‘(XI) for each fiscal year after 

14 fiscal year 2006, not less than 

15 $150,000,000 and not more than 

16 $160,000,000.’’. 

17 SEC. 612. INCREASE IN CIVIL PENALTIES UNDER THE 

18 FALSE CLAIMS ACT. 

19 (a) IN GENERAL.—Section 3729(a) of title 31, 

20 United States Code, is amended—

21 (1) by striking ‘‘$5,000’’ and inserting 

22 ‘‘$7,500’’; and 

23 (2) by striking ‘‘$10,000’’ and inserting 

24 ‘‘$15,000’’. 
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1 (b) EFFECTIVE DATE.—The amendments made by 

2 subsection (a) shall apply to violations occurring on or 

3 after January 1, 2004. 

4 SEC. 613. INCREASE IN CIVIL MONETARY PENALTIES 

5 UNDER THE SOCIAL SECURITY ACT. 

6 (a) IN GENERAL.—Section 1128A(a) (42 U.S.C. 

7 1320a–7a(a)), in the matter following paragraph (7), is 

8 amended—

9 (1) by striking ‘‘$10,000’’ each place it appears 

10 and inserting ‘‘$12,500’’; 

11 (2) by striking ‘‘$15,000’’ and inserting 

12 ‘‘$18,750’’; and 

13 (3) striking ‘‘$50,000’’ and inserting 

14 ‘‘$62,500’’. 

15 (b) EFFECTIVE DATE.—The amendments made by 

16 subsection (a) shall apply to violations occurring on or 

17 after January 1, 2004. 

18 SEC. 614. EXTENSION OF CUSTOMS USER FEES. 

19 Section 13031(j)(3) of the Consolidated Omnibus 

20 Budget Reconciliation Act of 1985 (19 U.S.C. 58c(j)(3)) 

21 is amended by striking ‘‘September 30, 2003’’ and insert22 ing ‘‘September 30, 2013’’. 
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1 TITLE VII—ACCESS TO AFFORD2 ABLE PHARMACEUTICALS 

3 SEC. 701. SHORT TITLE. 

4 This title may be cited as the ‘‘Greater Access to Af5 fordable Pharmaceuticals Act’’. 

6 SEC. 702. 30-MONTH STAY-OF-EFFECTIVENESS PERIOD. 

7 (a) ABBREVIATED NEW DRUG APPLICATIONS.—Sec8 tion 505(j) of the Federal Food, Drug, and Cosmetic Act 

9 (21 U.S.C. 355(j)) is amended— 

10 (1) in paragraph (2), by striking subparagraph 

11 (B) and inserting the following: 

12 ‘‘(B) NOTICE OF OPINION THAT PATENT IS NOT

13 VALID OR WILL NOT BE INFRINGED.—

14 ‘‘(i) AGREEMENT TO GIVE NOTICE.—An appli15 cant that makes a certification described in subpara16 graph (A)(vii)(IV) shall include in the application a 

17 statement that the applicant will give notice as re18 quired by this subparagraph. 

19 ‘‘(ii) TIMING OF NOTICE.—An applicant that 

20 makes a certification described in subparagraph 

21 (A)(vii)(IV) shall give notice as required under this 

22 subparagraph—

23 ‘‘(I) if the certification is in the applica24 tion, not later than 20 days after the date of 

25 the postmark on the notice with which the Sec-
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1 retary informs the applicant that the applica2 tion has been filed; or

3 ‘‘(II) if the certification is in an amend4 ment or supplement to the application, at the 

5 time at which the applicant submits the amend6 ment or supplement, regardless of whether the 

7 applicant has already given notice with respect 

8 to another such certification contained in the 

9 application or in an amendment or supplement 

10 to the application. 

11 ‘‘(iii) RECIPIENTS OF NOTICE.—An applicant 

12 required under this subparagraph to give notice shall 

13 give notice to—

14 ‘‘(I) each owner of the patent that is the 

15 subject of the certification (or a representative 

16 of the owner designated to receive such a no17 tice); and 

18 ‘‘(II) the holder of the approved applica19 tion under subsection (b) for the drug that is 

20 claimed by the patent or a use of which is 

21 claimed by the patent (or a representative of 

22 the holder designated to receive such a notice). 

23 ‘‘(iv) CONTENTS OF NOTICE.—A notice required 

24 under this subparagraph shall—
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1 ‘‘(I) state that an application that contains 

2 data from bioavailability or bioequivalence stud3 ies has been submitted under this subsection for 

4 the drug with respect to which the certification 

5 is made to obtain approval to engage in the 

6 commercial manufacture, use, or sale of the 

7 drug before the expiration of the patent re8 ferred to in the certification; and 

9 ‘‘(II) include a detailed statement of the 

10 factual and legal basis of the opinion of the ap11 plicant that the patent is not valid or will not 

12 be infringed.’’; and 

13 (2) in paragraph (5)—

14 (A) in subparagraph (B)—

15 (i) by striking ‘‘under the following’’ 

16 and inserting ‘‘by applying the following to 

17 each certification made under paragraph 

18 (2)(A)(vii)’’; and 

19 (ii) in clause (iii)—

20 (I) in the first sentence, by strik21 ing ‘‘unless’’ and all that follows and 

22 inserting ‘‘unless, before the expira23 tion of 45 days after the date on 

24 which the notice described in para25 graph (2)(B) is received, an action is 
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1 brought for infringement of the patent 

2 that is the subject of the certification 

3 and for which information was sub4 mitted to the Secretary under sub5 section (b)(1) or (c)(2) before the date 

6 on which the application (excluding an 

7 amendment or supplement to the ap8 plication), which the Secretary later 

9 determines is substantially complete, 

10 was submitted.’’; and 

11 (II) in the second sentence—

12 (aa) by striking subclause 

13 (I) and inserting the following: 

14 ‘‘(I) if before the expiration of such period 

15 the district court decides that the patent is in16 valid or not infringed (including any substantive 

17 determination that there is no cause of action 

18 for patent infringement or invalidity), the ap19 proval shall be made effective on—

20 ‘‘(aa) the date on which the court en21 ters judgment reflecting the decision; or 

22 ‘‘(bb) the date of a settlement order 

23 or consent decree signed and entered by 

24 the court stating that the patent that is 
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1 the subject of the certification is invalid or 

2 not infringed;’’; 

3 (bb) by striking subclause 

4 (II) and inserting the following: 

5 ‘‘(II) if before the expiration of such period 

6 the district court decides that the patent has 

7 been infringed—

8 ‘‘(aa) if the judgment of the district 

9 court is appealed, the approval shall be 

10 made effective on—

11 ‘‘(AA) the date on which the 

12 court of appeals decides that the pat13 ent is invalid or not infringed (includ14 ing any substantive determination 

15 that there is no cause of action for 

16 patent infringement or invalidity); or 

17 ‘‘(BB) the date of a settlement 

18 order or consent decree signed and 

19 entered by the court of appeals stat20 ing that the patent that is the subject 

21 of the certification is invalid or not in22 fringed; or 

23 ‘‘(bb) if the judgment of the district 

24 court is not appealed or is affirmed, the 

25 approval shall be made effective on the 
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1 date specified by the district court in a 

2 court order under section 271(e)(4)(A) of 

3 title 35, United States Code;’’; 

4 (cc) in subclause (III), by 

5 striking ‘‘on the date of such 

6 court decision.’’ and inserting ‘‘as 

7 provided in subclause (I); or’’; 

8 and 

9 (dd) by inserting after sub10 clause (III) the following: 

11 ‘‘(IV) if before the expiration of such pe12 riod the court grants a preliminary injunction 

13 prohibiting the applicant from engaging in the 

14 commercial manufacture or sale of the drug 

15 until the court decides the issues of patent va16 lidity and infringement and if the court decides 

17 that such patent has been infringed, the ap18 proval shall be made effective as provided in 

19 subclause (II).’’; 

20 (B) by redesignating subparagraphs (C) 

21 and (D) as subparagraphs (E) and (F), respec22 tively; and 

23 (C) by inserting after subparagraph (B) 

24 the following: 
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1 ‘‘(C) CIVIL ACTION TO OBTAIN PATENT

2 CERTAINTY.—

3 ‘‘(i) DECLARATORY JUDGMENT AB4 SENT INFRINGEMENT ACTION.—If an 

5 owner of the patent or the holder of the 

6 approved application under subsection (b) 

7 for the drug that is claimed by the patent 

8 or a use of which is claimed by the patent

9 does not bring a civil action against the 

10 applicant for infringement of the patent on 

11 or before the date that is 45 days after the 

12 date on which the notice given under para13 graph (2)(B) was received, the applicant 

14 may bring a civil action against the owner 

15 or holder (but not against any owner or 

16 holder that has brought such a civil action 

17 against that applicant, unless that civil ac18 tion was dismissed without prejudice) for 

19 a declaratory judgment under section 2201 

20 of title 28, United States Code, that the 

21 patent is invalid or will not be infringed 

22 by the drug for which the applicant seeks 

23 approval. 

24 ‘‘(ii) COUNTERCLAIM TO INFRINGE25 MENT ACTION.—
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1 ‘‘(I) IN GENERAL.—If an owner 

2 of the patent or the holder of the ap3 proved application under subsection 

4 (b) for the drug that is claimed by the 

5 patent or a use of which is claimed by 

6 the patent brings a patent infringe7 ment action against the applicant, the 

8 applicant may assert a counterclaim 

9 seeking an order requiring the holder 

10 to correct or delete the patent infor11 mation submitted by the holder under 

12 subsection (b) or (c) on the ground 

13 that the patent does not claim ei14 ther—

15 ‘‘(aa) the drug for which the 

16 application was approved; or 

17 ‘‘(bb) an approved method 

18 of using the drug. 

19 ‘‘(II) NO INDEPENDENT CAUSE

20 OF ACTION.—Subclause (I) does not 

21 authorize the assertion of a claim de22 scribed in subclause (I) in any civil 

23 action or proceeding other than a 

24 counterclaim described in subclause 

25 (I). 
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1 ‘‘(iii) NO DAMAGES.—An applicant 

2 shall not be entitled to damages in a civil 

3 action under subparagraph (i) or a coun4 terclaim under subparagraph (ii).’’. 

5 (b) APPLICATIONS GENERALLY.—Section 505 of the 

6 Federal Food, Drug, and Cosmetic Act (21 U.S.C. 355) 

7 is amended—

8 (1) in subsection (b), by striking paragraph (3) 

9 and inserting the following: 

10 ‘‘(3) NOTICE OF OPINION THAT PATENT IS NOT

11 VALID OR WILL NOT BE INFRINGED.—

12 ‘‘(A) AGREEMENT TO GIVE NOTICE.—An appli13 cant that makes a certification described in para14 graph (2)(A)(iv) shall include in the application a 

15 statement that the applicant will give notice as re16 quired by this paragraph. 

17 ‘‘(B) TIMING OF NOTICE.—An applicant that 

18 makes a certification described in paragraph 

19 (2)(A)(iv) shall give notice as required under this 

20 paragraph—

21 ‘‘(i) if the certification is in the applica22 tion, not later than 20 days after the date of 

23 the postmark on the notice with which the Sec24 retary informs the applicant that the applica25 tion has been filed; or 
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1 ‘‘(ii) if the certification is in an amend2 ment or supplement to the application, at the 

3 time at which the applicant submits the amend4 ment or supplement, regardless of whether the 

5 applicant has already given notice with respect 

6 to another such certification contained in the 

7 application or in an amendment or supplement 

8 to the application. 

9 ‘‘(C) RECIPIENTS OF NOTICE.—An applicant 

10 required under this paragraph to give notice shall 

11 give notice to—

12 ‘‘(i) each owner of the patent that is the 

13 subject of the certification (or a representative 

14 of the owner designated to receive such a no15 tice); and 

16 ‘‘(ii) the holder of the approved application 

17 under this subsection for the drug that is 

18 claimed by the patent or a use of which is 

19 claimed by the patent (or a representative of 

20 the holder designated to receive such a notice).

21 ‘‘(D) CONTENTS OF NOTICE.—A notice re22 quired under this paragraph shall—

23 ‘‘(i) state that an application that contains 

24 data from bioavailability or bioequivalence stud25 ies has been submitted under this subsection for 
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1 the drug with respect to which the certification 

2 is made to obtain approval to engage in the 

3 commercial manufacture, use, or sale of the 

4 drug before the expiration of the patent re5 ferred to in the certification; and 

6 ‘‘(ii) include a detailed statement of the 

7 factual and legal basis of the opinion of the ap8 plicant that the patent is not valid or will not 

9 be infringed.’’; and 

10 (2) in subsection (c)(3)—

11 (A) in the first sentence, by striking 

12 ‘‘under the following’’ and inserting ‘‘by apply13 ing the following to each certification made 

14 under subsection (b)(2)(A)(iv)’’; 

15 (B) in subparagraph (C)—

16 (i) in the first sentence, by striking 

17 ‘‘unless’’ and all that follows and inserting 

18 ‘‘unless, before the expiration of 45 days 

19 after the date on which the notice de20 scribed in subsection (b)(3) is received, an 

21 action is brought for infringement of the 

22 patent that is the subject of the certifi23 cation and for which information was sub24 mitted to the Secretary under paragraph 

25 (2) or subsection (b)(1) before the date on 
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1 which the application (excluding an amend2 ment or supplement to the application) was 

3 submitted.’’; 

4 (ii) in the second sentence—

5 (I) by striking ‘‘paragraph 

6 (3)(B)’’ and inserting ‘‘subsection 

7 (b)(3)’’; 

8 (II) by striking clause (i) and in9 serting the following: 

10 ‘‘(i) if before the expiration of such period 

11 the district court decides that the patent is in12 valid or not infringed (including any substantive 

13 determination that there is no cause of action 

14 for patent infringement or invalidity), the ap15 proval shall be made effective on—

16 ‘‘(I) the date on which the court en17 ters judgment reflecting the decision; or 

18 ‘‘(II) the date of a settlement order or 

19 consent decree signed and entered by the 

20 court stating that the patent that is the 

21 subject of the certification is invalid or not 

22 infringed;’’; 

23 (III) by striking clause (ii) and 

24 inserting the following: 
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1 ‘‘(ii) if before the expiration of such period 

2 the district court decides that the patent has 

3 been infringed—

4 ‘‘(I) if the judgment of the district 

5 court is appealed, the approval shall be 

6 made effective on—

7 ‘‘(aa) the date on which the court 

8 of appeals decides that the patent is 

9 invalid or not infringed (including any 

10 substantive determination that there 

11 is no cause of action for patent in12 fringement or invalidity); or 

13 ‘‘(bb) the date of a settlement 

14 order or consent decree signed and 

15 entered by the court of appeals stat16 ing that the patent that is the subject 

17 of the certification is invalid or not in18 fringed; or 

19 ‘‘(II) if the judgment of the district 

20 court is not appealed or is affirmed, the 

21 approval shall be made effective on the 

22 date specified by the district court in a 

23 court order under section 271(e)(4)(A) of 

24 title 35, United States Code;’’; 
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1 (IV) in clause (iii), by striking 

2 ‘‘on the date of such court decision.’’ 

3 and inserting ‘‘as provided in clause 

4 (i); or’’; and 

5 (V) by inserting after clause (iii), 

6 the following: 

7 ‘‘(iv) if before the expiration of such period 

8 the court grants a preliminary injunction pro9 hibiting the applicant from engaging in the 

10 commercial manufacture or sale of the drug 

11 until the court decides the issues of patent va12 lidity and infringement and if the court decides 

13 that such patent has been infringed, the ap14 proval shall be made effective as provided in 

15 clause (ii).’’; and 

16 (iii) in the third sentence, by striking 

17 ‘‘paragraph (3)(B)’’ and inserting ‘‘sub18 section (b)(3)’’; 

19 (C) by redesignating subparagraph (D) as 

20 subparagraph (E); and 

21 (D) by inserting after subparagraph (C) 

22 the following: 

23 ‘‘(D) CIVIL ACTION TO OBTAIN PATENT

24 CERTAINTY.—
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1 ‘‘(i) DECLARATORY JUDGMENT AB2 SENT INFRINGEMENT ACTION.—If an 

3 owner of the patent or the holder of the 

4 approved application under subsection (b) 

5 for the drug that is claimed by the patent 

6 or a use of which is claimed by the patent 

7 does not bring a civil action against the 

8 applicant for infringement of the patent on 

9 or before the date that is 45 days after the 

10 date on which the notice given under sub11 section (b)(3) was received, the applicant 

12 may bring a civil action against the owner 

13 or holder (but not against any owner or 

14 holder that has brought such a civil action 

15 against that applicant, unless that civil ac16 tion was dismissed without prejudice) for a 

17 declaratory judgment under section 2201 

18 of title 28, United States Code, that the 

19 patent is invalid or will not be infringed by 

20 the drug for which the applicant seeks ap21 proval. 

22 ‘‘(ii) COUNTERCLAIM TO INFRINGE23 MENT ACTION.—

24 ‘‘(I) IN GENERAL.—If an owner 

25 of the patent or the holder of the ap-
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1 proved application under subsection 

2 (b) for the drug that is claimed by the 

3 patent or a use of which is claimed by 

4 the patent brings a patent infringe5 ment action against the applicant, the 

6 applicant may assert a counterclaim 

7 seeking an order requiring the holder 

8 to correct or delete the patent infor9 mation submitted by the holder under 

10 subsection (b) or this subsection on 

11 the ground that the patent does not 

12 claim either—

13 ‘‘(aa) the drug for which the 

14 application was approved; or 

15 ‘‘(bb) an approved method 

16 of using the drug. 

17 ‘‘(II) NO INDEPENDENT CAUSE

18 OF ACTION.—Subclause (I) does not 

19 authorize the assertion of a claim de20 scribed in subclause (I) in any civil 

21 action or proceeding other than a 

22 counterclaim described in subclause 

23 (I). 

24 ‘‘(iii) NO DAMAGES.—An applicant 

25 shall not be entitled to damages in a civil 
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1 action under clause (i) or a counterclaim 

2 under clause (ii).’’. 

3 (c) INFRINGEMENT ACTIONS.—Section 271(e) of title 

4 35, United States Code, is amended by adding at the end 

5 the following: 

6 ‘‘(5) The filing of an application described in 

7 paragraph (2) that includes a certification under 

8 subsection (b)(2)(A)(iv) or (j)(2)(A)(vii)(IV) of sec9 tion 505 of the Federal Food, Drug, and Cosmetic 

10 Act (21 U.S.C. 355), and the failure of the owner 

11 of the patent to bring an action for infringement of 

12 a patent that is the subject of the certification be13 fore the expiration of 45 days after the date on 

14 which the notice given under subsection (b)(3) or 

15 (j)(2)(B) of that section is received, shall establish 

16 an actual controversy between the applicant and the 

17 patent owner sufficient to confer subject matter ju18 risdiction in the courts of the United States in any 

19 action brought by the applicant under section 2201 

20 of title 28 for a declaratory judgment that any pat21 ent that is the subject of the certification is invalid 

22 or not infringed.’’. 

23 (d) APPLICABILITY.—

24 (1) IN GENERAL.—Except as provided in para25 graphs (2) and (3), the amendments made by sub-
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1 sections (a), (b), and (c) apply to any proceeding 

2 under section 505 of the Federal Food, Drug, and 

3 Cosmetic Act (21 U.S.C. 355) that is pending on 

4 or after the date of enactment of this Act regardless 

5 of the date on which the proceeding was commenced 

6 or is commenced. 

7 (2) NOTICE OF OPINION THAT PATENT IS IN8 VALID OR WILL NOT BE INFRINGED.—The amend9 ments made by subsections (a)(1) and (b)(1) apply 

10 with respect to any certification under subsection 

11 (b)(2)(A)(iv) or (j)(2)(A)(vii)(IV) of section 505 of 

12 the Federal Food, Drug, and Cosmetic Act (21 

13 U.S.C. 355) after the date of enactment of this Act 

14 in an application filed under subsection (b)(2) or (j) 

15 of that section or in an amendment or supplement 

16 to an application filed under subsection (b)(2) or (j) 

17 of that section. 

18 (3) EFFECTIVE DATE OF APPROVAL.—The 

19 amendments made by subsections (a)(2)(A)(ii)(I) 

20 and (b)(2)(B)(i) apply with respect to any patent in21 formation submitted under subsection (b)(1) or 

22 (c)(2) of section 505 of the Federal Food, Drug, and 

23 Cosmetic Act (21 U.S.C. 355) made after the date 

24 of enactment of this Act. 
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1 SEC. 703. FORFEITURE OF 180-DAY EXCLUSIVITY PERIOD. 

2 (a) IN GENERAL.—Section 505(j)(5) of the Federal 

3 Food, Drug, and Cosmetic Act (21 U.S.C. 355(j)(5)) (as 

4 amended by section ll02) is amended—

5 (1) in subparagraph (B), by striking clause (iv) 

6 and inserting the following: 

7 ‘‘(iv) 180-DAY EXCLUSIVITY PERIOD.—

8 ‘‘(I) DEFINITIONS.—In this paragraph: 

9 ‘‘(aa) 180-DAY EXCLUSIVITY PE10 RIOD.—The term ‘180-day exclusivity pe11 riod’ means the 180-day period ending on 

12 the day before the date on which an appli13 cation submitted by an applicant other 

14 than a first applicant could become effec15 tive under this clause. 

16 ‘‘(bb) FIRST APPLICANT.—The term 

17 ‘first applicant’ means an applicant that, 

18 on the first day on which a substantially 

19 complete application containing a certifi20 cation described in paragraph 

21 (2)(A)(vii)(IV) is submitted for approval of 

22 a drug, submits a substantially complete 

23 application containing a certification de24 scribed in paragraph (2)(A)(vii)(IV) for 

25 the drug. 
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1 ‘‘(cc) SUBSTANTIALLY COMPLETE AP2 PLICATION.—The term ‘substantially com3 plete application’ means an application 

4 under this subsection that on its face is 

5 sufficiently complete to permit a sub6 stantive review and contains all the infor7 mation required by paragraph (2)(A). 

8 ‘‘(dd) TENTATIVE APPROVAL.—

9 ‘‘(AA) IN GENERAL.—The term 

10 ‘tentative approval’ means notification 

11 to an applicant by the Secretary that 

12 an application under this subsection 

13 meets the requirements of paragraph 

14 (2)(A), but cannot receive effective 

15 approval because the application does 

16 not meet the requirements of this sub17 paragraph, there is a period of exclu18 sivity for the listed drug under sub19 paragraph (E) or section 505A, or 

20 there is a 7-year period of exclusivity 

21 for the listed drug under section 527. 

22 ‘‘(BB) LIMITATION.—A drug 

23 that is granted tentative approval by 

24 the Secretary is not an approved drug 

25 and shall not have an effective ap-
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1 proval until the Secretary issues an 

2 approval after any necessary addi3 tional review of the application. 

4 ‘‘(II) EFFECTIVENESS OF APPLICATION.—

5 Subject to subparagraph (D), if the application 

6 contains a certification described in paragraph 

7 (2)(A)(vii)(IV) and is for a drug for which a 

8 first applicant has submitted an application 

9 containing such a certification, the application 

10 shall be made effective on the date that is 180 

11 days after the date of the first commercial mar12 keting of the drug (including the commercial 

13 marketing of the listed drug) by any first appli14 cant.’’; and 

15 (2) by inserting after subparagraph (C) the fol16 lowing: 

17 ‘‘(D) FORFEITURE OF 180-DAY EXCLU18 SIVITY PERIOD.—

19 ‘‘(i) DEFINITION OF FORFEITURE

20 EVENT.—In this subparagraph, the term 

21 ‘forfeiture event’, with respect to an appli22 cation under this subsection, means the oc23 currence of any of the following: 
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1 ‘‘(I) FAILURE TO MARKET.—The 

2 first applicant fails to market the 

3 drug by the later of—

4 ‘‘(aa) the earlier of the date 

5 that is— 

6 ‘‘(AA) 75 days after the 

7 date on which the approval 

8 of the application of the first 

9 applicant is made effective 

10 under subparagraph (B)(iii); 

11 or 

12 ‘‘(BB) 30 months after 

13 the date of submission of 

14 the application of the first 

15 applicant; or 

16 ‘‘(bb) with respect to the 

17 first applicant or any other appli18 cant (which other applicant has 

19 received tentative approval), the 

20 date that is 75 days after the 

21 date as of which, as to each of 

22 the patents with respect to which 

23 the first applicant submitted a 

24 certification qualifying the first 

25 applicant for the 180-day exclu-
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1 sivity period under subparagraph 

2 (B)(iv), at least 1 of the fol3 lowing has occurred: 

4 ‘‘(AA) In an infringe5 ment action brought against 

6 that applicant with respect 

7 to the patent or in a declar8 atory judgment action 

9 brought by that applicant 

10 with respect to the patent, a 

11 court enters a final decision 

12 from which no appeal (other 

13 than a petition to the Su14 preme Court for a writ of 

15 certiorari) has been or can 

16 be taken that the patent is 

17 invalid or not infringed. 

18 ‘‘(BB) In an infringe19 ment action or a declaratory 

20 judgment action described in 

21 subitem (AA), a court signs 

22 a settlement order or con23 sent decree that enters a 

24 final judgment that includes 
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1 a finding that the patent is 

2 invalid or not infringed. 

3 ‘‘(CC) The patent ex4 pires. 

5 ‘‘(DD) The patent is 

6 withdrawn by the holder of 

7 the application approved 

8 under subsection (b). 

9 ‘‘(II) WITHDRAWAL OF APPLICA10 TION.—The first applicant withdraws 

11 the application or the Secretary con12 siders the application to have been 

13 withdrawn as a result of a determina14 tion by the Secretary that the applica15 tion does not meet the requirements 

16 for approval under paragraph (4). 

17 ‘‘(III) AMENDMENT OF CERTIFI18 CATION.—The first applicant amends 

19 or withdraws the certification for all 

20 of the patents with respect to which 

21 that applicant submitted a certifi22 cation qualifying the applicant for the 

23 180-day exclusivity period. 

24 ‘‘(IV) FAILURE TO OBTAIN TEN25 TATIVE APPROVAL.—The first appli-
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1 cant fails to obtain tentative approval 

2 of the application within 30 months 

3 after the date on which the applica4 tion is filed, unless the failure is 

5 caused by a change in or a review of 

6 the requirements for approval of the 

7 application imposed after the date on 

8 which the application is filed. 

9 ‘‘(V) AGREEMENT WITH AN10 OTHER APPLICANT, THE LISTED DRUG

11 APPLICATION HOLDER, OR A PATENT

12 OWNER.—The first applicant enters 

13 into an agreement with another appli14 cant under this subsection for the 

15 drug, the holder of the application for 

16 the listed drug, or an owner of the 

17 patent that is the subject of the cer18 tification under paragraph 

19 (2)(A)(vii)(IV), the Federal Trade 

20 Commission or the Attorney General 

21 files a complaint, and there is a final 

22 decision of the Federal Trade Com23 mission or the court with regard to 

24 the complaint from which no appeal 

25 (other than a petition to the Supreme 
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1 Court for a writ of certiorari) has 

2 been or can be taken that the agree3 ment has violated the antitrust laws 

4 (as defined in section 1 of the Clayton 

5 Act (15 U.S.C. 12), except that the 

6 term includes section 5 of the Federal 

7 Trade Commission Act (15 U.S.C. 45) 

8 to the extent that that section applies 

9 to unfair methods of competition). 

10 ‘‘(VI) EXPIRATION OF ALL PAT11 ENTS.—All of the patents as to which 

12 the applicant submitted a certification 

13 qualifying it for the 180-day exclu14 sivity period have expired. 

15 ‘‘(ii) FORFEITURE.—The 180-day ex16 clusivity period described in subparagraph 

17 (B)(iv) shall be forfeited by a first appli18 cant if a forfeiture event occurs with re19 spect to that first applicant. 

20 ‘‘(iii) SUBSEQUENT APPLICANT.—If 

21 all first applicants forfeit the 180-day ex22 clusivity period under clause (ii)—

23 ‘‘(I) approval of any application 

24 containing a certification described in 

25 paragraph (2)(A)(vii)(IV) shall be 
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1 made effective in accordance with sub2 paragraph (B)(iii); and 

3 ‘‘(II) no applicant shall be eligi4 ble for a 180-day exclusivity period.’’. 

5 (b) EFFECTIVE DATE.—

6 (1) IN GENERAL.—Except as provided in para7 graph (2), the amendment made by subsection (a) 

8 shall be effective only with respect to an application 

9 filed under section 505(j) of the Federal Food, 

10 Drug, and Cosmetic Act (21 U.S.C. 355(j)) after the 

11 date of enactment of this Act for a listed drug for 

12 which no certification under section 

13 505(j)(2)(A)(vii)(IV) of that Act was made before 

14 the date of enactment of this Act. 

15 (2) COLLUSIVE AGREEMENTS.—If a forfeiture 

16 event described in section 505(j)(5)(D)(i)(V) of that 

17 Act occurs in the case of an applicant, the applicant 

18 shall forfeit the 180-day period under section 

19 505(j)(5)(B)(iv) of that Act without regard to when 

20 the first certification under section 

21 505(j)(2)(A)(vii)(IV) of that Act for the listed drug 

22 was made. 

23 (3) DECISION OF A COURT WHEN THE 180-DAY

24 EXCLUSIVITY PERIOD HAS NOT BEEN TRIGGERED.—

25 With respect to an application filed before, on, or 
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1 after the date of enactment of this Act for a listed 

2 drug for which a certification under section 

3 505(j)(2)(A)(vii)(IV) of that Act was made before 

4 the date of enactment of this Act and for which nei5 ther of the events described in subclause (I) or (II) 

6 of section 505(j)(5)(B)(iv) of that Act (as in effect 

7 on the day before the date of enactment of this Act) 

8 has occurred on or before the date of enactment of 

9 this Act, the term ‘‘decision of a court’’ as used in 

10 clause (iv) of section 505(j)(5)(B) of that Act means 

11 a final decision of a court from which no appeal 

12 (other than a petition to the Supreme Court for a 

13 writ of certiorari) has been or can be taken. 

14 SEC. 704. BIOAVAILABILITY AND BIOEQUIVALENCE. 

15 (a) IN GENERAL.—Section 505(j)(8) of the Federal 

16 Food, Drug, and Cosmetic Act (21 U.S.C. 355(j)(8)) is 

17 amended—

18 (1) by striking subparagraph (A) and inserting 

19 the following: 

20 ‘‘(A)(i) The term ‘bioavailability’ means the 

21 rate and extent to which the active ingredient or 

22 therapeutic ingredient is absorbed from a drug and 

23 becomes available at the site of drug action. 

24 ‘‘(ii) For a drug that is not intended to be ab25 sorbed into the bloodstream, the Secretary may as-
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1 sess bioavailability by scientifically valid measure2 ments intended to reflect the rate and extent to 

3 which the active ingredient or therapeutic ingredient 

4 becomes available at the site of drug action.’’; and 

5 (2) by adding at the end the following: 

6 ‘‘(C) For a drug that is not intended to be ab7 sorbed into the bloodstream, the Secretary may es8 tablish alternative, scientifically valid methods to 

9 show bioequivalence if the alternative methods are 

10 expected to detect a significant difference between 

11 the drug and the listed drug in safety and thera12 peutic effect.’’. 

13 (b) EFFECT OF AMENDMENT.—The amendment 

14 made by subsection (a) does not alter the standards for 

15 approval of drugs under section 505(j) of the Federal 

16 Food, Drug, and Cosmetic Act (21 U.S.C. 355(j)). 

17 SEC. 705. REMEDIES FOR INFRINGEMENT. 

18 Section 287 of title 35, United States Code, is 

19 amended by adding at the end the following: 

20 ‘‘(d) CONSIDERATION.—In making a determination 

21 with respect to remedy brought for infringement of a pat22 ent that claims a drug or a method of using a drug, the 

23 court shall consider whether information on the patent 

24 was filed as required under 21 U.S.C. 355 (b) or (c), and, 

25 if such information was required to be filed but was not, 
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1 the court may refuse to award treble damages under sec2 tion 284.’’. 

3 SEC. 706. CONFORMING AMENDMENTS. 

4 Section 505A of the Federal Food, Drug, and Cos5 metic Act (21 U.S.C. 355a) is amended—

6 (1) in subsections (b)(1)(A)(i) and (c)(1)(A)(i), 

7 by striking ‘‘(j)(5)(D)(ii)’’ each place it appears and 

8 inserting ‘‘(j)(5)(F)(ii)’’;

9 (2) in subsections (b)(1)(A)(ii) and 

10 (c)(1)(A)(ii), by striking ‘‘(j)(5)(D)’’ each place it 

11 appears and inserting ‘‘(j)(5)(F)’’; and 

12 (3) in subsections (e) and (l), by striking 

13 ‘‘505(j)(5)(D)’’ each place it appears and inserting 

14 ‘‘505(j)(5)(F)’’. 

15 TITLE VIII—IMPORTATION OF 

16 PRESCRIPTION DRUGS 

17 SEC. 801. IMPORTATION OF PRESCRIPTION DRUGS. 

18 (a) IN GENERAL.—Chapter VIII of the Federal 

19 Food, Drug, and Cosmetic Act (21 U.S.C. 381 et seq.) 

20 is amended by striking section 804 and inserting the fol21 lowing: 

22 ‘‘SEC. 804. IMPORTATION OF PRESCRIPTION DRUGS. 

23 ‘‘(a) DEFINITIONS.—In this section: 

24 ‘‘(1) IMPORTER.—The term ‘importer’ means a 

25 pharmacist or wholesaler. 
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1 ‘‘(2) PHARMACIST.—The term ‘pharmacist’ 

2 means a person licensed by a State to practice phar3 macy, including the dispensing and selling of pre4 scription drugs. 

5 ‘‘(3) PRESCRIPTION DRUG.—The term ‘pre6 scription drug’ means a drug subject to section 

7 503(b), other than—

8 ‘‘(A) a controlled substance (as defined in 

9 section 102 of the Controlled Substances Act 

10 (21 U.S.C. 802)); 

11 ‘‘(B) a biological product (as defined in 

12 section 351 of the Public Health Service Act 

13 (42 U.S.C. 262)); 

14 ‘‘(C) an infused drug (including a peri15 toneal dialysis solution); 

16 ‘‘(D) an intravenously injected drug; or 

17 ‘‘(E) a drug that is inhaled during surgery. 

18 ‘‘(4) QUALIFYING LABORATORY.—The term 

19 ‘qualifying laboratory’ means a laboratory in the 

20 United States that has been approved by the Sec21 retary for the purposes of this section. 

22 ‘‘(5) WHOLESALER.—

23 ‘‘(A) IN GENERAL.—The term ‘wholesaler’ 

24 means a person licensed as a wholesaler or dis-
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1 tributor of prescription drugs in the United 

2 States under section 503(e)(2)(A). 

3 ‘‘(B) EXCLUSION.—The term ‘wholesaler’ 

4 does not include a person authorized to import 

5 drugs under section 801(d)(1). 

6 ‘‘(b) REGULATIONS.—The Secretary, after consulta7 tion with the United States Trade Representative and the 

8 Commissioner of Customs, shall promulgate regulations 

9 permitting pharmacists and wholesalers to import pre10 scription drugs from Canada into the United States. 

11 ‘‘(c) LIMITATION.—The regulations under subsection 

12 (b) shall—

13 ‘‘(1) require that safeguards be in place to en14 sure that each prescription drug imported under the 

15 regulations complies with section 505 (including 

16 with respect to being safe and effective for the in17 tended use of the prescription drug), with sections 

18 501 and 502, and with other applicable require19 ments of this Act; 

20 ‘‘(2) require that an importer of a prescription 

21 drug under the regulations comply with subsections 

22 (d)(1) and (e); and 

23 ‘‘(3) contain any additional provisions deter24 mined by the Secretary to be appropriate as a safe-
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1 guard to protect the public health or as a means to 

2 facilitate the importation of prescription drugs. 

3 ‘‘(d) INFORMATION AND RECORDS.—

4 ‘‘(1) IN GENERAL.—The regulations under sub5 section (b) shall require an importer of a prescrip6 tion drug under subsection (b) to submit to the Sec7 retary the following information and documentation: 

8 ‘‘(A) The name and quantity of the active 

9 ingredient of the prescription drug. 

10 ‘‘(B) A description of the dosage form of 

11 the prescription drug. 

12 ‘‘(C) The date on which the prescription 

13 drug is shipped.

14 ‘‘(D) The quantity of the prescription drug 

15 that is shipped. 

16 ‘‘(E) The point of origin and destination of 

17 the prescription drug. 

18 ‘‘(F) The price paid by the importer for 

19 the prescription drug. 

20 ‘‘(G) Documentation from the foreign sell21 er specifying—

22 ‘‘(i) the original source of the pre23 scription drug; and 
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1 ‘‘(ii) the quantity of each lot of the 

2 prescription drug originally received by the 

3 seller from that source. 

4 ‘‘(H) The lot or control number assigned 

5 to the prescription drug by the manufacturer of 

6 the prescription drug. 

7 ‘‘(I) The name, address, telephone number, 

8 and professional license number (if any) of the 

9 importer. 

10 ‘‘(J)(i) In the case of a prescription drug 

11 that is shipped directly from the first foreign 

12 recipient of the prescription drug from the 

13 manufacturer: 

14 ‘‘(I) Documentation demonstrating 

15 that the prescription drug was received by 

16 the recipient from the manufacturer and 

17 subsequently shipped by the first foreign 

18 recipient to the importer. 

19 ‘‘(II) Documentation of the quantity 

20 of each lot of the prescription drug re21 ceived by the first foreign recipient dem22 onstrating that the quantity being im23 ported into the United States is not more 

24 than the quantity that was received by the 

25 first foreign recipient. 
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1 ‘‘(III)(aa) In the case of an initial im2 ported shipment, documentation dem3 onstrating that each batch of the prescrip4 tion drug in the shipment was statistically 

5 sampled and tested for authenticity and 

6 degradation. 

7 ‘‘(bb) In the case of any subsequent 

8 shipment, documentation demonstrating 

9 that a statistically valid sample of the ship10 ment was tested for authenticity and deg11 radation. 

12 ‘‘(ii) In the case of a prescription drug 

13 that is not shipped directly from the first for14 eign recipient of the prescription drug from the 

15 manufacturer, documentation demonstrating 

16 that each batch in each shipment offered for 

17 importation into the United States was statis18 tically sampled and tested for authenticity and 

19 degradation. 

20 ‘‘(K) Certification from the importer or 

21 manufacturer of the prescription drug that the 

22 prescription drug—

23 ‘‘(i) is approved for marketing in the 

24 United States; and 
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1 ‘‘(ii) meets all labeling requirements 

2 under this Act. 

3 ‘‘(L) Laboratory records, including com4 plete data derived from all tests necessary to 

5 ensure that the prescription drug is in compli6 ance with established specifications and stand7 ards. 

8 ‘‘(M) Documentation demonstrating that 

9 the testing required by subparagraphs (J) and 

10 (L) was conducted at a qualifying laboratory. 

11 ‘‘(N) Any other information that the Sec12 retary determines is necessary to ensure the 

13 protection of the public health. 

14 ‘‘(2) MAINTENANCE BY THE SECRETARY.—The 

15 Secretary shall maintain information and docu16 mentation submitted under paragraph (1) for such 

17 period of time as the Secretary determines to be nec18 essary. 

19 ‘‘(e) TESTING.—The regulations under subsection (b) 

20 shall require—

21 ‘‘(1) that testing described in subparagraphs 

22 (J) and (L) of subsection (d)(1) be conducted by the 

23 importer or by the manufacturer of the prescription 

24 drug at a qualified laboratory;
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1 ‘‘(2) if the tests are conducted by the im2 porter—

3 ‘‘(A) that information needed to—

4 ‘‘(i) authenticate the prescription drug 

5 being tested; and 

6 ‘‘(ii) confirm that the labeling of the 

7 prescription drug complies with labeling re8 quirements under this Act; 

9 be supplied by the manufacturer of the pre10 scription drug to the pharmacist or wholesaler; 

11 and 

12 ‘‘(B) that the information supplied under 

13 subparagraph (A) be kept in strict confidence 

14 and used only for purposes of testing or other15 wise complying with this Act; and 

16 ‘‘(3) may include such additional provisions as 

17 the Secretary determines to be appropriate to pro18 vide for the protection of trade secrets and commer19 cial or financial information that is privileged or 

20 confidential. 

21 ‘‘(f) REGISTRATION OF FOREIGN SELLERS.—Any es22 tablishment within Canada engaged in the distribution of 

23 a prescription drug that is imported or offered for impor24 tation into the United States shall register with the Sec-
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1 retary the name and place of business of the establish2 ment. 

3 ‘‘(g) SUSPENSION OF IMPORTATION.—The Secretary 

4 shall require that importations of a specific prescription 

5 drug or importations by a specific importer under sub6 section (b) be immediately suspended on discovery of a 

7 pattern of importation of that specific prescription drug 

8 or by that specific importer of drugs that are counterfeit 

9 or in violation of any requirement under this section, until 

10 an investigation is completed and the Secretary deter11 mines that the public is adequately protected from coun12 terfeit and violative prescription drugs being imported 

13 under subsection (b). 

14 ‘‘(h) APPROVED LABELING.—The manufacturer of a 

15 prescription drug shall provide an importer written au16 thorization for the importer to use, at no cost, the ap17 proved labeling for the prescription drug. 

18 ‘‘(i) PROHIBITION OF DISCRIMINATION.—

19 ‘‘(1) IN GENERAL.—It shall be unlawful for a 

20 manufacturer of a prescription drug to discriminate 

21 against, or cause any other person to discriminate 

22 against, a pharmacist or wholesaler that purchases 

23 or offers to purchase a prescription drug from the 

24 manufacturer or from any person that distributes a 
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1 prescription drug manufactured by the drug manu2 facturer. 

3 ‘‘(2) DISCRIMINATION.—For the purposes of 

4 paragraph (1), a manufacturer of a prescription 

5 drug shall be considered to discriminate against a 

6 pharmacist or wholesaler if the manufacturer enters 

7 into a contract for sale of a prescription drug, places 

8 a limit on supply, or employs any other measure, 

9 that has the effect of—

10 ‘‘(A) providing pharmacists or wholesalers 

11 access to prescription drugs on terms or condi12 tions that are less favorable than the terms or 

13 conditions provided to a foreign purchaser 

14 (other than a charitable or humanitarian orga15 nization) of the prescription drug; or 

16 ‘‘(B) restricting the access of pharmacists 

17 or wholesalers to a prescription drug that is 

18 permitted to be imported into the United States 

19 under this section. 

20 ‘‘(j) CHARITABLE CONTRIBUTIONS.—Notwith21 standing any other provision of this section, section 

22 801(d)(1) continues to apply to a prescription drug that 

23 is donated or otherwise supplied at no charge by the man24 ufacturer of the drug to a charitable or humanitarian or-
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1 ganization (including the United Nations and affiliates) 

2 or to a government of a foreign country. 

3 ‘‘(k) WAIVER AUTHORITY FOR IMPORTATION BY IN4 DIVIDUALS.—

5 ‘‘(1) DECLARATIONS.—Congress declares that 

6 in the enforcement against individuals of the prohi7 bition of importation of prescription drugs and de8 vices, the Secretary should—

9 ‘‘(A) focus enforcement on cases in which 

10 the importation by an individual poses a signifi11 cant threat to public health; and 

12 ‘‘(B) exercise discretion to permit individ13 uals to make such importations in cir14 cumstances in which—

15 ‘‘(i) the importation is clearly for per16 sonal use; and 

17 ‘‘(ii) the prescription drug or device 

18 imported does not appear to present an 

19 unreasonable risk to the individual. 

20 ‘‘(2) WAIVER AUTHORITY.—

21 ‘‘(A) IN GENERAL.—The Secretary may 

22 grant to individuals, by regulation or on a case23 by-case basis, a waiver of the prohibition of im24 portation of a prescription drug or device or 

25 class of prescription drugs or devices, under 
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1 such conditions as the Secretary determines to 

2 be appropriate. 

3 ‘‘(B) GUIDANCE ON CASE-BY-CASE WAIV4 ERS.—The Secretary shall publish, and update 

5 as necessary, guidance that accurately describes 

6 circumstances in which the Secretary will con7 sistently grant waivers on a case-by-case basis 

8 under subparagraph (A), so that individuals 

9 may know with the greatest practicable degree 

10 of certainty whether a particular importation 

11 for personal use will be permitted. 

12 ‘‘(3) DRUGS IMPORTED FROM CANADA.—In 

13 particular, the Secretary shall by regulation grant 

14 individuals a waiver to permit individuals to import 

15 into the United States a prescription drug that—

16 ‘‘(A) is imported from a licensed pharmacy 

17 for personal use by an individual, not for resale, 

18 in quantities that do not exceed a 90-day sup19 ply; 

20 ‘‘(B) is accompanied by a copy of a valid 

21 prescription; 

22 ‘‘(C) is imported from Canada, from a sell23 er registered with the Secretary; 

24 ‘‘(D) is a prescription drug approved by 

25 the Secretary under chapter V; 
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1 ‘‘(E) is in the form of a final finished dos2 age that was manufactured in an establishment 

3 registered under section 510; and 

4 ‘‘(F) is imported under such other condi5 tions as the Secretary determines to be nec6 essary to ensure public safety. 

7 ‘‘(l) STUDIES; REPORTS.—

8 ‘‘(1) BY THE INSTITUTE OF MEDICINE OF THE

9 NATIONAL ACADEMY OF SCIENCES.—

10 ‘‘(A) STUDY.—

11 ‘‘(i) IN GENERAL.—The Secretary 

12 shall request that the Institute of Medicine 

13 of the National Academy of Sciences con14 duct a study of—

15 ‘‘(I) importations of prescription 

16 drugs made under the regulations 

17 under subsection (b); and 

18 ‘‘(II) information and docu19 mentation submitted under subsection 

20 (d). 

21 ‘‘(ii) REQUIREMENTS.—In conducting 

22 the study, the Institute of Medicine shall—

23 ‘‘(I) evaluate the compliance of 

24 importers with the regulations under 

25 subsection (b); 
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1 ‘‘(II) compare the number of 

2 shipments under the regulations 

3 under subsection (b) during the study 

4 period that are determined to be 

5 counterfeit, misbranded, or adulter6 ated, and compare that number with 

7 the number of shipments made during 

8 the study period within the United 

9 States that are determined to be 

10 counterfeit, misbranded, or adulter11 ated; and 

12 ‘‘(III) consult with the Secretary, 

13 the United States Trade Representa14 tive, and the Commissioner of Patents 

15 and Trademarks to evaluate the effect 

16 of importations under the regulations 

17 under subsection (b) on trade and 

18 patent rights under Federal law. 

19 ‘‘(B) REPORT.—Not later than 2 years 

20 after the effective date of the regulations under 

21 subsection (b), the Institute of Medicine shall 

22 submit to Congress a report describing the find23 ings of the study under subparagraph (A). 

24 ‘‘(2) BY THE COMPTROLLER GENERAL.—
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1 ‘‘(A) STUDY.—The Comptroller General of 

2 the United States shall conduct a study to de3 termine the effect of this section on the price of 

4 prescription drugs sold to consumers at retail. 

5 ‘‘(B) REPORT.—Not later than 18 months 

6 after the effective date of the regulations under 

7 subsection (b), the Comptroller General of the 

8 United States shall submit to Congress a report 

9 describing the findings of the study under sub10 paragraph (A). 

11 ‘‘(m) CONSTRUCTION.—Nothing in this section limits 

12 the authority of the Secretary relating to the importation 

13 of prescription drugs, other than with respect to section 

14 801(d)(1) as provided in this section. 

15 ‘‘(n) EFFECTIVENESS OF SECTION.—

16 ‘‘(1) IN GENERAL.—If, after the date that is 1 

17 year after the effective date of the regulations under 

18 subsection (b) and before the date that is 18 months 

19 after the effective date, the Secretary submits to 

20 Congress a certification that, in the opinion of the 

21 Secretary, based on substantial evidence obtained 

22 after the effective date, the benefits of implementa23 tion of this section do not outweigh any detriment 

24 of implementation of this section, this section shall 

25 cease to be effective as of the date that is 30 days 
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1 after the date on which the Secretary submits the 

2 certification. 

3 ‘‘(2) PROCEDURE.—The Secretary shall not 

4 submit a certification under paragraph (1) unless, 

5 after a hearing on the record under sections 556 and 

6 557 of title 5, United States Code, the Secretary—

7 ‘‘(A)(i) determines that it is more likely 

8 than not that implementation of this section 

9 would result in an increase in the risk to the 

10 public health and safety; 

11 ‘‘(ii) identifies specifically, in qualitative 

12 and quantitative terms, the nature of the in13 creased risk; 

14 ‘‘(iii) identifies specifically the causes of 

15 the increased risk; and 

16 ‘‘(iv)(I) considers whether any measures 

17 can be taken to avoid, reduce, or mitigate the 

18 increased risk; and 

19 ‘‘(II) if the Secretary determines that any 

20 measures described in subclause (I) would re21 quire additional statutory authority, submits to 

22 Congress a report describing the legislation that 

23 would be required; 

24 ‘‘(B) identifies specifically, in qualitative 

25 and quantitative terms, the benefits that would 
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1 result from implementation of this section (in2 cluding the benefit of reductions in the cost of 

3 covered products to consumers in the United 

4 States, allowing consumers to procure needed 

5 medication that consumers might not otherwise 

6 be able to procure without foregoing other ne7 cessities of life); and 

8 ‘‘(C)(i) compares in specific terms the det9 riment identified under subparagraph (A) with 

10 the benefits identified under subparagraph (B); 

11 and 

12 ‘‘(ii) determines that the benefits do not 

13 outweigh the detriment. 

14 ‘‘(o) CONDITIONS.—This section shall become effec15 tive only if the Secretary of Health and Human Services 

16 certifies to the Congress that the implementation of this 

17 section will—

18 ‘‘(1) pose no additional risk to the public’s 

19 health and safety, and 

20 ‘‘(2) result in a significant reduction in the cost 

21 of covered products to the American consumer. 

22 ‘‘(p) AUTHORIZATION OF APPROPRIATIONS.—There 

23 are authorized to be appropriated such sums as are nec24 essary to carry out this section.’’. 
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1 (b) CONFORMING AMENDMENTS.—The Federal 

2 Food, Drug, and Cosmetic Act is amended—

3 (1) in section 301(aa) (21 U.S.C. 331(aa)), by 

4 striking ‘‘covered product in violation of section 

5 804’’ and inserting ‘‘prescription drug in violation of 

6 section 804’’; and 

7 (2) in section 303(a)(6) (21 U.S.C. 333(a)(6), 

8 by striking ‘‘covered product pursuant to section 

9 804(a)’’ and inserting ‘‘prescription drug under sec10 tion 804(b)’’.

Æ