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[Congressional Bills 108th Congress]
[From the U.S. Government Publishing Office]
[H.R. 2606 Introduced in House (IH)]

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.

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

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

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

Sec. 1. Short title; amendments to Social Security Act; references to 
                            BIPA and Secretary; table of contents.
              TITLE I--MEDICARE PRESCRIPTION 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

        ``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.
            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.
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.
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.
                       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.

              TITLE I--MEDICARE PRESCRIPTION DRUG BENEFIT

   Subtitle A--Medicare Voluntary Prescription Drug Delivery Program

SEC. 101. MEDICARE VOLUNTARY PRESCRIPTION DRUG DELIVERY PROGRAM.

    (a) Establishment.--Title XVIII (42 U.S.C. 1395 et seq.) is amended 
by redesignating part D as part E and by inserting after part C the 
following new part:

         ``Part D--Voluntary Prescription Drug Delivery Program

        ``definitions; treatment of references to provisions in 
                       medicareadvantage program

    ``Sec. 1860D. (a) Definitions.--In this part:
            ``(1) Administrator.--The term `Administrator' means the 
        Administrator of the Center for Medicare Choices as established 
        under section 1808.
            ``(2) Covered drug.--
                    ``(A) In general.--Except as provided in 
                subparagraphs (B), (C), and (D), the term `covered 
                drug' means--
                            ``(i) a drug that may be dispensed only 
                        upon a prescription and that is described in 
                        clause (i) or (ii) of subparagraph (A) of 
                        section 1927(k)(2); or
                            ``(ii) a biological product described in 
                        clauses (i) through (iii) of subparagraph (B) 
                        of such section; or
                            ``(iii) insulin described in subparagraph 
                        (C) of such section; and such term includes a 
vaccine licensed under section 351 of the Public Health Service Act and 
any use of a covered drug for a medically accepted indication (as 
defined in section 1927(k)(6)).
                    ``(B) Exclusions.--
                            ``(i) In general.--The term `covered drug' 
                        does not include drugs or classes of drugs, or 
                        their medical uses, which may be excluded from 
                        coverage or otherwise restricted under section 
                        1927(d)(2), other than subparagraph (E) thereof 
                        (relating to smoking cessation agents), or 
                        under section 1927(d)(3).
                            ``(ii) Avoidance of duplicate coverage.--A 
                        drug prescribed for an individual that would 
                        otherwise be a covered drug under this part 
                        shall not be so considered if payment for such 
                        drug is available under part A or B, but shall 
                        be so considered if such payment is not 
                        available under part A or B or because benefits 
                        under such parts have been exhausted.
                    ``(C) Application of formulary restrictions.--A 
                drug prescribed for an individual that would otherwise 
                be a covered drug under this part shall not be so 
                considered under a plan if the plan excludes the drug 
                under a formulary and such exclusion is not 
                successfully resolved under subsection (d) or (e)(2) of 
                section 1860D-5.
                    ``(D) Application of general exclusion 
                provisions.--A Medicare Prescription Drug plan or a 
                MedicareAdvantage plan may exclude from qualified 
                prescription drug coverage any covered drug--
                            ``(i) for which payment would not be made 
                        if section 1862(a) applied to part D; or
                            ``(ii) which are not prescribed in 
                        accordance with the plan or this part.
                Such exclusions are determinations subject to 
                reconsideration and appeal pursuant to section 1860D-
                5(e).
            ``(3) Eligible beneficiary.--The term `eligible 
        beneficiary' means an individual who is entitled to, or 
        enrolled for, benefits under part A and enrolled under part B.
            ``(4) Eligible entity.--The term `eligible entity' means 
        any risk-bearing entity that the Administrator determines to be 
        appropriate to provide eligible beneficiaries with the benefits 
        under a Medicare Prescription Drug plan, including--
                    ``(A) a pharmaceutical benefit management company;
                    ``(B) a wholesale or retail pharmacist delivery 
                system;
                    ``(C) an insurer (including an insurer that offers 
                medicare supplemental policies under section 1882);
                    ``(D) any other risk-bearing entity; or
                    ``(E) any combination of the entities described in 
                subparagraphs (A) through (D).
            ``(5) Initial coverage limit.--The term `initial coverage 
        limit' means the limit as established under section 1860D-
        6(c)(3), or, in the case of coverage that is not standard 
        prescription drug coverage, the comparable limit (if any) 
        established under the coverage.
            ``(6) Medicareadvantage organization; medicareadvantage 
        plan.--The terms `MedicareAdvantage organization' and 
        `MedicareAdvantage plan' have the meanings given such terms in 
        subsections (a)(1) and (b)(1), respectively, of section 1859 
        (relating to definitions relating to MedicareAdvantage 
        organizations).
            ``(7) Medicare prescription drug plan.--The term `Medicare 
        Prescription Drug plan' means prescription drug coverage that 
        is offered under a policy, contract, or plan--
                    ``(A) that has been approved under section 1860D-
                13; and
                    ``(B) by an eligible entity pursuant to, and in 
                accordance with, a contract between the Administrator 
                and the entity under section 1860D-7(b).
            ``(8) Prescription drug account.--The term `Prescription 
        Drug Account' means the Prescription Drug Account (as 
        established under section 1860D-25) in the Federal 
        Supplementary Medical Insurance Trust Fund under section 1841.
            ``(9) Qualified prescription drug coverage.--The term 
        `qualified prescription drug coverage' means the coverage 
        described in section 1860D-6(a)(1).
            ``(10) Standard prescription drug coverage.--The term 
        `standard prescription drug coverage' means the coverage 
        described in section 1860D-6(c).
    ``(b) Application of MedicareAdvantage Provisions Under This 
Part.--For purposes of applying provisions of part C under this part 
with respect to a Medicare Prescription Drug plan and an eligible 
entity, unless otherwise provided in this part such provisions shall be 
applied as if--
            ``(1) any reference to a MedicareAdvantage plan included a 
        reference to a Medicare Prescription Drug plan;
            ``(2) any reference to a provider-sponsored organization 
        included a reference to an eligible entity;
            ``(3) any reference to a contract under section 1857 
        included a reference to a contract under section 1860D-7(b); 
        and
            ``(4) any reference to part C included a reference to this 
        part.

  ``Subpart 1--Establishment of Voluntary Prescription Drug Delivery 
                                Program

    ``establishment of voluntary prescription drug delivery program

    ``Sec. 1860D-1. (a) Provision of Benefit.--
            ``(1) In general.--The Administrator shall provide for and 
        administer a voluntary prescription drug delivery program under 
        which each eligible beneficiary enrolled under this part shall 
        be provided with access to qualified prescription drug coverage 
        as follows:
                    ``(A) Medicareadvantage enrollees receive coverage 
                through medicareadvantage plan.--
                            ``(i) In general.--Except as provided in 
                        clause (ii), an eligible beneficiary who is 
                        enrolled under this part and enrolled in a 
                        MedicareAdvantage plan offered by a 
                        MedicareAdvantage organization shall receive 
                        coverage of benefits under this part through 
                        such plan.
                            ``(ii) Exception for enrollees in 
                        medicareadvantage msa plans.--An eligible 
                        beneficiary who is enrolled under this part and 
                        enrolled in an MSA plan under part C shall 
                        receive coverage of benefits under this part 
                        through enrollment in a Medicare Prescription 
                        Drug plan that is offered in the geographic 
                        area in which the beneficiary resides. For 
                        purposes of this part, the term `MSA plan' has 
                        the meaning given such term in section 
                        1859(b)(3).
                            ``(iii) Exception for enrollees in 
                        medicareadvantage private fee-for-service 
                        plans.--An eligible beneficiary who is enrolled 
                        under this part and enrolled in a private fee-
                        for-service plan under part C shall--
                                    ``(I) receive benefits under this 
                                part through such plan if the plan 
                                provides qualified prescription drug 
                                coverage; and
                                    ``(II) if the plan does not provide 
                                qualified prescription drug coverage, 
                                receive coverage of benefits under this 
                                part through enrollment in a Medicare 
                                Prescription Drug plan that is offered 
                                in the geographic area in which the 
                                beneficiary resides. For purposes of 
                                this part, the term `private fee-for-
                                service plan' has the meaning given 
                                such term in section 1859(b)(2).
                    ``(B) Fee-for-service enrollees receive coverage 
                through a medicare prescription drug plan.--An eligible 
                beneficiary who is enrolled under this part but is not 
                enrolled in a MedicareAdvantage plan (except for an MSA 
plan or a private fee-for-service plan that does not provide qualified 
prescription drug coverage) shall receive coverage of benefits under 
this part through enrollment in a Medicare Prescription Drug plan that 
is offered in the geographic area in which the beneficiary resides.
            ``(2) Voluntary nature of program.--Nothing in this part 
        shall be construed as requiring an eligible beneficiary to 
        enroll in the program under this part.
            ``(3) Scope of benefits.--Pursuant to section 1860D-
        6(b)(3)(C), the program established under this part shall 
        provide for coverage of all therapeutic categories and classes 
        of covered drugs (although not necessarily for all drugs within 
        such categories and classes).
            ``(4) Program to begin in 2006.--The Administrator shall 
        establish the program under this part in a manner so that 
benefits are first provided beginning on January 1, 2006.
    ``(b) Access to Alternative Prescription Drug Coverage.--In the 
case of an eligible beneficiary who has creditable prescription drug 
coverage (as defined in section 1860D-2(b)(1)(F)), such beneficiary--
            ``(1) may continue to receive such coverage and not enroll 
        under this part; and
            ``(2) pursuant to section 1860D-2(b)(1)(C), is permitted to 
        subsequently enroll under this part without any penalty and 
        obtain access to qualified prescription drug coverage in the 
        manner described in subsection (a) if the beneficiary 
        involuntarily loses such coverage.
    ``(c) Financing.--The costs of providing benefits under this part 
shall be payable from the Prescription Drug Account.

                       ``enrollment under program

    ``Sec. 1860D-2. (a) Establishment of Enrollment Process.--
            ``(1) Process similar to part b enrollment.--The 
        Administrator shall establish a process through which an 
        eligible beneficiary (including an eligible beneficiary 
        enrolled in a MedicareAdvantage plan offered by a 
        MedicareAdvantage organization) may make an election to enroll 
        under this part. Such process shall be similar to the process 
        for enrollment in part B under section 1837, including the 
        deeming provisions of such section.
            ``(2) Condition of enrollment.--An eligible beneficiary 
        must be enrolled under this part in order to be eligible to 
        receive access to qualified prescription drug coverage.
    ``(b) Special Enrollment Procedures.--
            ``(1) Late enrollment penalty.--
                    ``(A) Increase in monthly beneficiary obligation.--
                Subject to the succeeding provisions of this paragraph, 
                in the case of an eligible beneficiary whose coverage 
                period under this part began pursuant to an enrollment 
                after the beneficiary's initial enrollment period under 
                part B (determined pursuant to section 1837(d)) and not 
                pursuant to the open enrollment period described in 
                paragraph (2), the Administrator shall establish 
                procedures for increasing the amount of the monthly 
                beneficiary obligation under section 1860D-17 
                applicable to such beneficiary by an amount that the 
                Administrator determines is actuarially sound for each 
                full 12-month period (in the same continuous period of 
                eligibility) in which the eligible beneficiary could 
                have been enrolled under this part but was not so 
                enrolled.
                    ``(B) Periods taken into account.--For purposes of 
                calculating any 12-month period under subparagraph (A), 
                there shall be taken into account--
                            ``(i) the months which elapsed between the 
                        close of the eligible beneficiary's initial 
                        enrollment period and the close of the 
                        enrollment period in which the beneficiary 
                        enrolled; and
                            ``(ii) in the case of an eligible 
                        beneficiary who reenrolls under this part, the 
                        months which elapsed between the date of 
                        termination of a previous coverage period and 
                        the close of the enrollment period in which the 
                        beneficiary reenrolled.
                    ``(C) Periods not taken into account.--
                            ``(i) In general.--For purposes of 
                        calculating any 12-month period under 
                        subparagraph (A), subject to clause (ii), there 
                        shall not be taken into account months for 
                        which the eligible beneficiary can demonstrate 
                        that the beneficiary had creditable 
                        prescription drug coverage (as defined in 
                        subparagraph (F)).
                            ``(ii) Beneficiary must involuntarily lose 
                        coverage.--Clause (i) shall only apply with 
                        respect to coverage--
                                    ``(I) in the case of coverage 
                                described in clause (ii) of 
                                subparagraph (F), if the plan 
                                terminates, ceases to provide, or 
                                reduces the value of the prescription 
                                drug coverage under such plan to below 
                                the actuarial value of standard 
                                prescription drug coverage (as 
                                determined under section 1860D-6(f));
                                    ``(II) in the case of coverage 
                                described in clause (i), (iii), or (iv) 
                                of subparagraph (F), if the beneficiary 
                                is involuntarily disenrolled or becomes 
                                ineligible for such coverage; or
                                    ``(III) in the case of a 
                                beneficiary with coverage described in 
                                clause (v) of subparagraph (F), if the 
                                issuer of the policy terminates 
                                coverage under the policy.
                    ``(D) Periods treated separately.--Any increase in 
                an eligible beneficiary's monthly beneficiary 
                obligation under subparagraph (A) with respect to a 
                particular continuous period of eligibility shall not 
                be applicable with respect to any other continuous 
                period of eligibility which the beneficiary may have.
                    ``(E) Continuous period of eligibility.--
                            ``(i) In general.--Subject to clause (ii), 
                        for purposes of this paragraph, an eligible 
                        beneficiary's `continuous period of 
                        eligibility' is the period that begins with the 
                        first day on which the beneficiary is eligible 
                        to enroll under section 1836 and ends with the 
                        beneficiary's death.
                            ``(ii) Separate period.--Any period during 
                        all of which an eligible beneficiary satisfied 
                        paragraph (1) of section 1836 and which 
                        terminated in or before the month preceding the 
                        month in which the beneficiary attained age 65 
                        shall be a separate `continuous period of 
                        eligibility' with respect to the beneficiary 
                        (and each such period which terminates shall be 
                        deemed not to have existed for purposes of 
                        subsequently applying this paragraph).
                    ``(F) Creditable prescription drug coverage 
                defined.--Subject to subparagraph (G), for purposes of 
                this part, the term `creditable prescription drug 
                coverage' means any of the following:
                            ``(i) Drug-only coverage under Medicaid.--
                        Coverage of covered outpatient drugs (as 
                        defined in section 1927) under title XIX 
                        through a waiver under 1115 where covered 
                        outpatient drugs are the sole medical 
                        assistance benefit.
                            ``(ii) Prescription drug coverage under a 
                        group health plan.--Any outpatient prescription 
                        drug coverage under a group health plan, 
                        including a health benefits plan under chapter 
                        89 of title 5, United States Code (commonly 
                        known as the Federal employees health benefits 
                        program), and a qualified retiree prescription 
                        drug plan (as defined in section 1860D-
                        20(e)(4)).
                            ``(iii) State pharmaceutical assistance 
                        program.--Coverage of prescription drugs under 
                        a State pharmaceutical assistance program.
                            ``(iv) Veterans' coverage of prescription 
                        drugs.--Coverage of prescription drugs for 
                        veterans, and survivors and dependents of 
                        veterans, under chapter 17 of title 38, United 
                        States Code.
                            ``(v) Prescription drug coverage under 
                        medigap policies.--Coverage under a 
medicare supplemental policy under section 1882 that provides benefits 
for prescription drugs (whether or not such coverage conforms to the 
standards for packages of benefits under section 1882(p)(1)).
                    ``(G) Requirement for creditable coverage.--
                Coverage described in clauses (i) through (v) of 
                subparagraph (F) shall not be considered to be 
                creditable coverage under this part unless the coverage 
                provides coverage of the cost of prescription drugs the 
                actuarial value of which (as defined by the 
                Administrator) to the beneficiary equals or exceeds the 
                actuarial value of standard prescription drug coverage 
                (as determined under section 1860D-6(f)).
                    ``(H) Disclosure.--
                            ``(i) In general.--Each entity that offers 
                        coverage of the type described in clause (ii) 
                        (iii), (iv), or (v) of subparagraph (F) shall 
                        provide for disclosure, consistent with 
                        standards established by the Administrator, of 
                        whether the coverage provides coverage of the 
                        cost of prescription drugs the actuarial value 
                        of which (as defined by the Administrator) to 
                        the beneficiary equals or exceeds the actuarial 
                        value of standard prescription drug coverage 
                        (as determined under section 1860D-6(f)).
                            ``(ii) Waiver of limitations.--An 
                        individual may apply to the Administrator to 
                        waive the application of subparagraph (G) if 
                        the individual establishes that the individual 
                        was not adequately informed that the coverage 
                        the beneficiary was enrolled in did not provide 
                        the level of benefits required in order for the 
                        coverage to be considered creditable coverage 
                        under subparagraph (F).
            ``(2) Initial election periods.--
                    ``(A) Open enrollment period for current 
                beneficiaries in which late enrollment procedures do 
                not apply.--In the case of an individual who is an 
                eligible beneficiary as of November 1, 2005, there 
                shall be an open enrollment period of 6 months 
                beginning on that date under which such beneficiary may 
                enroll under this part without the application of the 
                late enrollment procedures established under paragraph 
                (1)(A).
                    ``(B) Individual covered in future.--In the case of 
                an individual who becomes an eligible beneficiary after 
                such date, there shall be an initial election period 
                which is the same as the initial enrollment period 
                under section 1837(d).
            ``(3) Special enrollment period for beneficiaries who 
        involuntarily lose creditable prescription drug coverage.--
                    ``(A) Establishment.--The Administrator shall 
                establish a special open enrollment period (as 
                described in subparagraph (B)) for an eligible 
                beneficiary that loses creditable prescription drug 
                coverage.
                    ``(B) Special open enrollment period.--The special 
                open enrollment period described in this subparagraph 
                is the 63-day period that begins on--
                            ``(i) in the case of a beneficiary with 
                        coverage described in clause (ii) of paragraph 
                        (1)(F), the later of the date on which the plan 
                        terminates, ceases to provide, or substantially 
                        reduces (as defined by the Administrator) the 
                        value of the prescription drug coverage under 
                        such plan or the date the beneficiary is 
                        provided with notice of such termination or 
                        reduction;
                            ``(ii) in the case of a beneficiary with 
                        coverage described in clause (i), (iii), or 
                        (iv) of paragraph (1)(F), the later of the date 
                        on which the beneficiary is involuntarily 
                        disenrolled or becomes ineligible for such 
                        coverage or the date the beneficiary is 
                        provided with notice of such loss of 
                        eligibility; or
                            ``(iii) in the case of a beneficiary with 
                        coverage described in clause (v) of paragraph 
                        (1)(F), the latter of the date on which the 
                        issuer of the policy terminates coverage under 
                        the policy or the date the beneficiary is 
                        provided with notice of such termination.
    ``(c) Period of Coverage.--
            ``(1) In general.--Except as provided in paragraph (2) and 
        subject to paragraph (3), an eligible beneficiary's coverage 
        under the program under this part shall be effective for the 
        period provided in section 1838, as if that section applied to 
        the program under this part.
            ``(2) Open and special enrollment.--
                    ``(A) Open enrollment.--An eligible beneficiary who 
                enrolls under the program under this part pursuant to 
                subsection (b)(2) shall be entitled to the benefits 
                under this part beginning on January 1, 2006.
                    ``(B) Special enrollment.--Subject to paragraph 
                (3), an eligible beneficiary who enrolls under the 
                program under this part pursuant to subsection (b)(3) 
                shall be entitled to the benefits under this part 
                beginning on the first day of the month following the 
                month in which such enrollment occurs.
            ``(3) Limitation.--Coverage under this part shall not begin 
        prior to January 1, 2006.
    ``(d) Termination.--
            ``(1) In general.--The causes of termination specified in 
        section 1838 shall apply to this part in the same manner as 
        such causes apply to part B.
            ``(2) Coverage terminated by termination of coverage under 
        part a or b.--
                    ``(A) In general.--In addition to the causes of 
                termination specified in paragraph (1), the 
                Administrator shall terminate an individual's coverage 
                under this part if the individual is no longer enrolled 
                in both parts A and B.
                    ``(B) Effective date.--The termination described in 
                subparagraph (A) shall be effective on the effective 
                date of termination of coverage under part A or (if 
                earlier) under part B.
            ``(3) Procedures regarding termination of a beneficiary 
        under a plan.--The Administrator shall establish procedures for 
        determining the status of an eligible beneficiary's enrollment 
        under this part if the beneficiary's enrollment in a Medicare 
        Prescription Drug plan offered by an eligible entity under this 
        part is terminated by the entity for cause (pursuant to 
        procedures established by the Administrator under section 
        1860D-3(a)(1)).

            ``election of a medicare prescription drug plan

    ``Sec. 1860D-3. (a) In General.--
            ``(1) Process.--
                    ``(A) Election.--
                            ``(i) In general.--The Administrator shall 
                        establish a process through which an eligible 
                        beneficiary who is enrolled under this part but 
                        not enrolled in a MedicareAdvantage plan 
                        (except for an MSA plan or a private fee-for-
                        service plan that does not provide qualified 
                        prescription drug coverage) offered by a 
                        MedicareAdvantage organization--
                                    ``(I) shall make an election to 
                                enroll in any Medicare Prescription 
                                Drug plan that is offered by an 
                                eligible entity and that serves the 
                                geographic area in which the 
                                beneficiary resides; and
                                    ``(II) may make an annual election 
                                to change the election under this 
                                clause.
                            ``(ii) Clarification regarding 
                        enrollment.--The process established under 
                        clause (i) shall include, in the case of an 
                        eligible beneficiary who is enrolled under this 
                        part but who has failed to make an election of 
                        a Medicare Prescription Drug plan in an area, 
                        for the enrollment in any Medicare Prescription 
                        Drug plan that has been designated by the 
                        Administrator in the area. The Administrator 
                        shall establish a process for designating a 
                        plan or plans in order to carry out the 
                        preceding sentence.
                    ``(B) Requirements for process.--In establishing 
                the process under subparagraph (A), the Administrator 
                shall--
                            ``(i) use rules similar to the rules for 
                        enrollment, disenrollment, and termination of 
                        enrollment with a MedicareAdvantage plan under 
                        section 1851, including--
                                    ``(I) the establishment of special 
                                election periods under subsection 
                                (e)(4) of such section; and
                                    ``(II) the application of the 
                                guaranteed issue and renewal provisions 
                                of section 1851(g) (other than clause 
                                (i) and the second sentence of clause 
                                (ii) of paragraph (3)(C), relating to 
                                default enrollment); and
                            ``(ii) coordinate enrollments, 
                        disenrollments, and terminations of enrollment 
                        under part C with enrollments, disenrollments, 
                        and terminations of enrollment under this part.
            ``(2) First enrollment period for plan enrollment.--The 
        process developed under paragraph (1) shall ensure that 
        eligible beneficiaries who enroll under this part during the 
        open enrollment period under section 1860D-2(b)(2) are 
        permitted to elect an eligible entity prior to January 1, 2006, 
        in order to ensure that coverage under this part is effective 
        as of such date.
    ``(b) Enrollment in a MedicareAdvantage Plan.--
            ``(1) In general.--An eligible beneficiary who is enrolled 
        under this part and enrolled in a MedicareAdvantage plan 
        (except for an MSA plan or a private fee-for-service plan that 
        does not provide qualified prescription drug coverage) offered 
        by a MedicareAdvantage organization shall receive access to 
        such coverage under this part through such plan.
            ``(2) Rules.--Enrollment in a MedicareAdvantage plan is 
        subject to the rules for enrollment in such plan under section 
        1851.
    ``(c) Information To Entities To Facilitate Enrollment.--
Notwithstanding any other provision of law, the Administrator may 
provide to each eligible entity with a contract under this part such 
information about eligible beneficiaries as the Administrator 
determines to be necessary to facilitate efficient enrollment by such 
beneficiaries with such entities. The Administrator may provide such 
information only so long as and to the extent necessary to carry out 
such objective.

                ``providing information to beneficiaries

    ``Sec. 1860D-4. (a) Activities.--
            ``(1) In general.--The Administrator shall conduct 
        activities that are designed to broadly disseminate information 
        to eligible beneficiaries (and prospective eligible 
        beneficiaries) regarding the coverage provided under this part.
            ``(2) Special rule for first enrollment under the 
        program.--The activities described in paragraph (1) shall 
        ensure that eligible beneficiaries are provided with such 
        information at least 30 days prior to the first enrollment 
        period described in section 1860D-3(a)(2).
    ``(b) Requirements.--
            ``(1) In general.--The activities described in subsection 
        (a) shall--
                    ``(A) be similar to the activities performed by the 
                Administrator under section 1851(d);
                    ``(B) be coordinated with the activities performed 
                by--
                            ``(i) the Administrator under such section; 
                        and
                            ``(ii) the Secretary under section 1804; 
                        and
                    ``(C) provide for the dissemination of information 
                comparing the plans offered by eligible entities under 
                this part that are available to eligible beneficiaries 
                residing in an area.
            ``(2) Comparative information.--The comparative information 
        described in paragraph (1)(C) shall include a comparison of the 
        following:
                    ``(A) Benefits.--The benefits provided under the 
                plan and the formularies and grievance and appeals 
                processes under the plan.
                    ``(B) Monthly beneficiary obligation.--The monthly 
                beneficiary obligation under the plan.
                    ``(C) Quality and performance.--The quality and 
                performance of the eligible entity offering the plan.
                    ``(D) Beneficiary cost-sharing.--The cost-sharing 
                required of eligible beneficiaries under the plan.
                    ``(E) Consumer satisfaction surveys.--The results 
                of consumer satisfaction surveys regarding the plan and 
                the eligible entity offering such plan (conducted 
                pursuant to section 1860D-5(h).
                    ``(F) Additional information.--Such additional 
                information as the Administrator may prescribe.

                       ``beneficiary protections

    ``Sec. 1860D-5. (a) Dissemination of Information.--
            ``(1) General information.--An eligible entity offering a 
        Medicare Prescription Drug plan shall disclose, in a clear, 
        accurate, and standardized form to each enrollee at the time of 
        enrollment, and at least annually thereafter, the information 
        described in section 1852(c)(1) relating to such plan. Such 
        information includes the following:
                    ``(A) Access to covered drugs, including access 
                through pharmacy networks.
                    ``(B) How any formulary used by the entity 
                functions.
                    ``(C) Copayments, coinsurance, and deductible 
                requirements.
                    ``(D) Grievance and appeals processes.
        The information described in the preceding sentence shall also 
        be made available on request to prospective enrollees during 
        open enrollment periods.
            ``(2) Disclosure upon request of general coverage, 
        utilization, and grievance information.--Upon request of an 
        individual eligible to enroll in a Medicare Prescription Drug 
        plan, the eligible entity offering such plan shall provide 
        information similar (as determined by the Administrator) to the 
        information described in subparagraphs (A), (B), and (C) of 
        section 1852(c)(2) to such individual.
            ``(3) Response to beneficiary questions.--An eligible 
        entity offering a Medicare Prescription Drug plan shall have a 
        mechanism for providing on a timely basis specific information 
        to enrollees upon request, including information on the 
        coverage of specific drugs and changes in its formulary.
            ``(4) Claims information.--An eligible entity offering a 
        Medicare Prescription Drug plan must furnish to enrolled 
        individuals in a form easily understandable to such 
        individuals--
                    ``(A) an explanation of benefits (in accordance 
                with section 1806(a) or in a comparable manner); and
                    ``(B) when prescription drug benefits are provided 
                under this part, a notice of the benefits in relation 
                to the initial coverage limit and annual out-of-pocket 
                limit for the current year (except that such notice 
                need not be provided more often than monthly).
            ``(5) Approval of marketing material and application 
        forms.--The provisions of section 1851(h) shall apply to 
        marketing material and application forms under this part in the 
        same manner as such provisions apply to marketing material and 
        application forms under part C.
    ``(b) Access to Covered Drugs.--
            ``(1) Access to negotiated prices for prescription drugs.--
        An eligible entity offering a Medicare Prescription Drug plan 
        shall have in place procedures to ensure that beneficiaries are 
        not charged more than the negotiated price of a covered drug. 
        Such procedures shall include the issuance of a card (or other 
        technology) that may be used by an enrolled beneficiary for the 
        purchase of prescription drugs for which coverage is not 
        otherwise provided under the Medicare Prescription Drug plan.
            ``(2) Assuring pharmacy access.--
                    ``(A) In general.--An eligible entity offering a 
                Medicare Prescription Drug plan shall secure the 
                participation in its network of a sufficient number of 
                pharmacies that dispense (other than by mail order) 
                drugs directly to patients to ensure convenient access 
                (as determined by the Administrator and including 
                adequate emergency access) for enrolled beneficiaries, 
                in accordance with standards established by the 
                Administrator under section 1860D-7(g) that ensure such 
                convenient access. Such standards shall take into 
                account reasonable distances to pharmacy services in 
                both urban and rural areas.
                    ``(B) Use of point-of-service system.--An eligible 
                entity offering a Medicare Prescription Drug plan shall 
                establish an optional point-of-service method of 
                operation under which--
                            ``(i) the plan provides access to any or 
                        all pharmacies that are not participating 
                        pharmacies in its network; and
                            ``(ii) the plan may charge beneficiaries 
                        through adjustments in copayments any 
                        additional costs associated with the point-of-
                        service option.
                The additional copayments so charged shall not count 
                toward the application of section 1860D-6(c).
            ``(3) Requirements on development and application of 
        formularies.--If an eligible entity offering a Medicare 
        Prescription Drug plan uses a formulary, the following 
        requirements must be met:
                    ``(A) Pharmacy and therapeutic (p&t) committee.--
                            ``(i) In general.--The eligible entity must 
                        establish a pharmacy and therapeutic committee 
                        that develops and reviews the formulary.
                            ``(ii) Composition.--A pharmacy and 
                        therapeutic committee shall include at least 1 
                        academic expert, at least 1 practicing 
                        physician, and at least 1 practicing 
                        pharmacist, all of whom have expertise in the 
                        care of elderly or disabled persons, and a 
                        majority of the members of such committee shall 
                        consist of individuals who are a practicing 
                        physician or a practicing pharmacist (or both).
                    ``(B) Formulary development.--In developing and 
                reviewing the formulary, the committee shall base 
                clinical decisions on the strength of scientific 
                evidence and standards of practice, including assessing 
                peer-reviewed medical literature, such as randomized 
                clinical trials, pharmacoeconomic studies, outcomes 
                research data, and on such other information as the 
                committee determines to be appropriate.
                    ``(C) Inclusion of drugs in all therapeutic 
                categories and classes.--
                            ``(i) In general.--The formulary must 
                        include drugs within each therapeutic category 
                        and class of covered drugs (as defined by the 
                        Administrator), although not necessarily for 
                        all drugs within such categories and classes.
                            ``(ii) Requirement.--In defining 
                        therapeutic categories and classes of covered 
                        drugs pursuant to clause (i), the Administrator 
                        shall use--
                                    ``(I) the compendia referred to 
                                section 1927(g)(1)(B)(i); and
                                    ``(II) other recognized sources of 
                                drug classifications and 
                                categorizations determined appropriate 
                                by the Administrator.
                    ``(D) Provider education.--The committee shall 
                establish policies and procedures to educate and inform 
                health care providers concerning the formulary.
                    ``(E) Notice before removing drugs from 
                formulary.--Any removal of a drug from a formulary 
                shall take effect only after appropriate notice is made 
                available to beneficiaries, physicians, and 
                pharmacists.
                    ``(F) Appeals and exceptions to application.--The 
                eligible entity must have, as part of the appeals 
                process under subsection (e), a process for timely 
                appeals for denials of coverage based on such 
                application of the formulary.
    ``(c) Cost and Utilization Management; Quality Assurance; 
Medication Therapy Management Program.--
            ``(1) In general.--An eligible entity shall have in place 
        the following with respect to covered drugs:
                    ``(A) A cost-effective drug utilization management 
                program, including incentives to reduce costs when 
                appropriate.
                    ``(B) Quality assurance measures to reduce medical 
                errors and adverse drug interactions and to improve 
                medication use, which--
                            ``(i) shall include a medication therapy 
                        management program described in paragraph (2); 
                        and
                            ``(ii) may include beneficiary education 
                        programs, counseling, medication refill 
                        reminders, and special packaging.
                    ``(C) A program to control fraud, abuse, and waste.
        Nothing in this section shall be construed as impairing an 
        eligible entity from applying cost management tools (including 
        differential payments) under all methods of operation.
            ``(2) Medication therapy management program.--
                    ``(A) In general.--A medication therapy management 
                program described in this paragraph is a program of 
                drug therapy management and medication administration 
                that is designed to assure, with respect to 
                beneficiaries with chronic diseases (such as diabetes, 
                asthma, hypertension, hyperlipidemia, and congestive 
                heart failure) or multiple prescriptions, that covered 
                drugs under the Medicare Prescription Drug plan 
are appropriately used to optimize therapeutic outcomes through 
improved medication use and to achieve therapeutic goals and reduce the 
risk of adverse events, including adverse drug interactions.
                    ``(B) Elements.--Such program may include--
                            ``(i) enhanced beneficiary understanding of 
                        such appropriate use through beneficiary 
                        education, counseling, and other appropriate 
                        means;
                            ``(ii) increased beneficiary adherence with 
                        prescription medication regimens through 
                        medication refill reminders, special packaging, 
                        and other appropriate means; and
                            ``(iii) detection of patterns of overuse 
                        and underuse of prescription drugs.
                    ``(C) Development of program in cooperation with 
                licensed pharmacists.--The program shall be developed 
                in cooperation with licensed and practicing pharmacists 
                and physicians.
                    ``(D) Considerations in pharmacy fees.--The 
                eligible entity offering a Medicare Prescription Drug 
                plan shall take into account, in establishing fees for 
                pharmacists and others providing services under the 
                medication therapy management program, the resources 
                and time used in implementing the program.
            ``(3) Public disclosure of pharmaceutical prices for 
        equivalent drugs.--The eligible entity offering a Medicare 
        Prescription Drug plan shall provide that each pharmacy or 
        other dispenser that arranges for the dispensing of a covered 
        drug shall inform the beneficiary at the time of purchase of 
        the drug of any differential between the price of the 
        prescribed drug to the enrollee and the price of the lowest 
        cost generic drug covered under the plan that is 
        therapeutically equivalent and bioequivalent.
    ``(d) Grievance Mechanism, Coverage Determinations, and 
Reconsiderations.--
            ``(1) In general.--An eligible entity shall provide 
        meaningful procedures for hearing and resolving grievances 
        between the eligible entity (including any entity or individual 
        through which the eligible entity provides covered benefits) 
        and enrollees with Medicare Prescription Drug plans of the 
        eligible entity under this part in accordance with section 
        1852(f).
            ``(2) Application of coverage determination and 
        reconsideration provisions.--The requirements of paragraphs (1) 
        through (3) of section 1852(g) shall apply to an eligible 
        entity with respect to covered benefits under the Medicare 
        Prescription Drug plan it offers under this part in the same 
        manner as such requirements apply to a MedicareAdvantage 
        organization with respect to benefits it offers under a 
        MedicareAdvantage plan under part C.
            ``(3) Request for review of tiered formulary 
        determinations.--In the case of a Medicare Prescription Drug 
        plan offered by an eligible entity that provides for tiered 
        cost-sharing for drugs included within a formulary and provides 
        lower cost-sharing for preferred drugs included within the 
        formulary, an individual who is enrolled in the plan may 
        request coverage of a nonpreferred drug under the terms 
        applicable for preferred drugs if the prescribing physician 
        determines that the preferred drug for treatment of the same 
        condition is not as effective for the individual or has adverse 
        effects for the individual.
    ``(e) Appeals.--
            ``(1) In general.--Subject to paragraph (2), the 
        requirements of paragraphs (4) and (5) of section 1852(g) shall 
        apply to an eligible entity with respect to drugs not included 
        on any formulary in a manner that is similar (as determined by 
        the Administrator) to the manner that such requirements apply 
        to a MedicareAdvantage organization with respect to benefits it 
        offers under a MedicareAdvantage plan under part C.
            ``(2) Formulary determinations.--An individual who is 
        enrolled in a Medicare Prescription Drug plan offered by an 
        eligible entity may appeal to obtain coverage for a covered 
        drug that is not on a formulary of the entity under the terms 
applicable for a formulary drug if the prescribing physician determines 
that the formulary drug for treatment of the same condition is not as 
effective for the individual or has adverse effects for the individual.
    ``(f) Privacy, Confidentiality, and Accuracy of Enrollee Records.--
Insofar as an eligible entity maintains individually identifiable 
medical records or other health information regarding eligible 
beneficiaries enrolled in the Medicare Prescription Drug plan offered 
by the entity, the entity shall have in place procedures to--
            ``(1) safeguard the privacy of any individually 
        identifiable beneficiary information in a manner consistent 
        with the Federal regulations (concerning the privacy of 
        individually identifiable health information) promulgated under 
        section 264(c) of the Health Insurance Portability and 
        Accountability Act of 1996;
            ``(2) maintain such records and information in a manner 
        that is accurate and timely;
            ``(3) ensure timely access by such beneficiaries to such 
        records and information; and
            ``(4) otherwise comply with applicable laws relating to 
        patient privacy and confidentiality.
    ``(g) Uniform Monthly Plan Premium.--An eligible entity shall 
ensure that the monthly plan premium for a Medicare Prescription Drug 
plan charged under this part is the same for all eligible beneficiaries 
enrolled in the plan.
    ``(h) Consumer Satisfaction Surveys.--An eligible entity shall 
conduct consumer satisfaction surveys with respect to the plan and the 
entity. The Administrator shall establish uniform requirements for such 
surveys.

                      ``prescription drug benefits

    ``Sec. 1860D-6. (a) Requirements.--
            ``(1) In general.--For purposes of this part and part C, 
        the term `qualified prescription drug coverage' means either of 
        the following:
                    ``(A) Standard prescription drug coverage with 
                access to negotiated prices.--Standard prescription 
                drug coverage (as defined in subsection (c)) and access 
                to negotiated prices under subsection (e).
                    ``(B) Actuarially equivalent prescription drug 
                coverage with access to negotiated prices.--Coverage of 
                covered drugs which meets the alternative coverage 
                requirements of subsection (d) and access to negotiated 
                prices under subsection (e), but only if it is approved 
                by the Administrator as provided under subsection (d).
            ``(2) Permitting additional prescription drug coverage.--
                    ``(A) In general.--Subject to subparagraph (B) and 
                section 1860D-13(c)(2), nothing in this part shall be 
                construed as preventing qualified prescription drug 
                coverage from including coverage of covered drugs that 
                exceeds the coverage required under paragraph (1).
                    ``(B) Requirement.--An eligible entity may not 
                offer a Medicare Prescription Drug plan that provides 
                additional benefits pursuant to subparagraph (A) in an 
                area unless the eligible entity offering such plan also 
                offers a Medicare Prescription Drug plan in the area 
                that only provides the coverage of prescription drugs 
                that is required under paragraph (1).
            ``(3) Cost control mechanisms.--In providing qualified 
        prescription drug coverage, the entity offering the Medicare 
        Prescription Drug plan or the MedicareAdvantage plan may use a 
        variety of cost control mechanisms, including the use of 
        formularies, tiered copayments, selective contracting with 
        providers of prescription drugs, and mail order pharmacies.
    ``(b) Application of Secondary Payor Provisions.--The provisions of 
section 1852(a)(4) shall apply under this part in the same manner as 
they apply under part C.
    ``(c) Standard Prescription Drug Coverage.--For purposes of this 
part and part C, the term `standard prescription drug coverage' means 
coverage of covered drugs that meets the following requirements:
            ``(1) Deductible.--
                    ``(A) In general.--The coverage has an annual 
                deductible--
                            ``(i) for 2006, that is equal to $275; or
                            ``(ii) for a subsequent year, that is equal 
                        to the amount specified under this paragraph 
                        for the previous year increased by the 
                        percentage specified in paragraph (5) for the 
                        year involved.
                    ``(B) Rounding.--Any amount determined under 
                subparagraph (A)(ii) that is not a multiple of $1 shall 
                be rounded to the nearest multiple of $1.
            ``(2) Limits on cost-sharing.--The coverage has cost-
        sharing (for costs above the annual deductible specified in 
        paragraph (1) and up to the initial coverage limit under 
        paragraph (3)) that is equal to 50 percent or that is 
        actuarially consistent (using processes established under 
        subsection (f)) with an average expected payment of 50 percent 
        of such costs.
            ``(3) Initial coverage limit.--
                    ``(A) In general.--Subject to paragraph (4), the 
                coverage has an initial coverage limit on the maximum 
                costs that may be recognized for payment purposes 
                (including the annual deductible)--
                            ``(i) for 2006, that is equal to $4,500; or
                            ``(ii) for a subsequent year, that is equal 
                        to the amount specified in this paragraph for 
                        the previous year, increased by the annual 
                        percentage increase described in paragraph (5) 
                        for the year involved.
                    ``(B) Rounding.--Any amount determined under 
                subparagraph (A)(ii) that is not a multiple of $1 shall 
                be rounded to the nearest multiple of $1.
            ``(4) Limitation on out-of-pocket expenditures by 
        beneficiary.--
                    ``(A) In general.--The coverage provides benefits 
                with cost-sharing that is equal to 15 percent after the 
                individual has incurred costs (as described in 
                subparagraph (C)) for covered drugs in a year equal to 
                the annual out-of-pocket limit specified in 
                subparagraph (B).
                    ``(B) Annual out-of-pocket limit.--
                            ``(i) In general.--For purposes of this 
                        part, the `annual out-of-pocket limit' 
                        specified in this subparagraph--
                                    ``(I) for 2006, is equal to $3,700; 
                                or
                                    ``(II) for a subsequent year, is 
                                equal to the amount specified in this 
                                subparagraph for the previous year, 
                                increased by the annual percentage 
                                increase described in paragraph (5) for 
                                the year involved.
                            ``(ii) Rounding.--Any amount determined 
                        under clause (i)(II) that is not a multiple of 
                        $1 shall be rounded to the nearest multiple of 
                        $1.
                    ``(C) Application.--In applying subparagraph (A)--
                            ``(i) incurred costs shall only include 
                        costs incurred, with respect to covered drugs, 
                        for the annual deductible (described in 
                        paragraph (1)), cost-sharing (described in 
                        paragraph (2)), and amounts for which benefits 
                        are not provided because of the application of 
                        the initial coverage limit described in 
                        paragraph (3) (including costs incurred for 
                        covered drugs described in section 
                        1860D(a)(2)(C)); and
                            ``(ii) such costs shall be treated as 
                        incurred without regard to whether the 
                        individual or another person, including a State 
                        program or other third-party coverage, has paid 
                        for such costs, except that only the applicable 
                        percent (specified in subparagraph (D)) of the 
                        amount of portion of such costs that are paid 
                        or reimbursed through insurance, a group health 
                        plan, or other third-party payment arrangement 
                        for such costs shall not be counted.
                    ``(D) Applicable percent defined.--
                            ``(i) In general.--For purposes of 
                        subparagraph (C)(ii), but subject to clause 
                        (ii), the applicable percent specified in this 
                        subparagraph is--
                                    ``(I) for years before 2010, 25 
                                percent;
                                    ``(II) for 2011, 2012, 2013, 2014, 
                                and 2015, 50 percent; and
                                    ``(III) for any year thereafter, 
                                100 percent.
                            ``(ii) Secretarial limitation on total 
                        expenditures.--The Secretary, in consultation 
                        with the Office of Management and Budget, shall 
                        estimate at the time of enactment of this part, 
                        the aggregate budget outlays that will result 
                        during the 10-fiscal-year period beginning with 
                        fiscal year 2004 from the enactment of the 
                        Prescription Drug and Medicare Improvement Act 
                        of 2003. If such estimate exceeds 
                        $400,000,000,000, the Secretary shall provide 
                        for such proportional reductions in the 
                        percentages specified in clause (i) as the 
                        Secretary determines to be necessary to assure 
                        that such aggregate budget outlays during such 
                        period do not exceed such amount.
                    ``(E) Information regarding third-party 
                reimbursement.--In order to ensure compliance with the 
                requirements of subparagraph (C)(ii), the Administrator 
                is authorized to establish procedures, in coordination 
                with the Secretary of Treasury and the Secretary of 
                Labor, for determining whether costs for individuals 
                are being reimbursed through insurance or otherwise, a 
                group health plan, or other third-party payment 
                arrangement, and for alerting the entities in which 
                such individuals are enrolled about such reimbursement 
                arrangements. An entity with a contract under this part 
                may also periodically ask individuals enrolled in a 
                plan offered by the entity whether the individuals have 
                or expect to receive such third-party reimbursement. A 
                material misrepresentation of the information described 
                in the preceding sentence by an individual (as defined 
                in standards set by the Administrator and determined 
                through a process established by the Administrator) 
                shall constitute grounds for termination of enrollment 
                under section 1860D-2(d).
            ``(5) Annual percentage increase.--For purposes of this 
        part, the annual percentage increase specified in this 
        paragraph for a year is equal to the annual percentage increase 
        in average per capita aggregate expenditures for covered drugs 
        in the United States for beneficiaries under this title, as 
        determined by the Administrator for the 12-month period ending 
        in July of the previous year.
    ``(d) Alternative Coverage Requirements.--A Medicare Prescription 
Drug plan or MedicareAdvantage plan may provide a different 
prescription drug benefit design from the standard prescription drug 
coverage described in subsection (c) so long as the Administrator 
determines (based on an actuarial analysis by the Administrator) that 
the following requirements are met and the plan applies for, and 
receives, the approval of the Administrator for such benefit design:
            ``(1) Assuring at least actuarially equivalent prescription 
        drug coverage.--
                    ``(A) Assuring equivalent value of total 
                coverage.--The actuarial value of the total coverage 
                (as determined under subsection (f)) is at least equal 
                to the actuarial value (as so determined) of standard 
                prescription drug coverage.
                    ``(B) Assuring equivalent unsubsidized value of 
                coverage.--The unsubsidized value of the coverage is at 
                least equal to the unsubsidized value of standard 
                prescription drug coverage. For purposes of this 
                subparagraph, the unsubsidized value of coverage is the 
                amount by which the actuarial value of the coverage (as 
                determined under subsection (f)) exceeds the actuarial 
                value of the amounts associated with the application of 
                section 1860D-17(c) and reinsurance payments under 
                section 1860D-20 with respect to such coverage.
                    ``(C) Assuring standard payment for costs at 
                initial coverage limit.--The coverage is designed, 
                based upon an actuarially representative pattern of 
                utilization (as determined under subsection (f)), to 
                provide for the payment, with respect to costs incurred 
                that are equal to the initial coverage limit under 
                subsection (c)(3), of an amount equal to at least the 
                product of--
                            ``(i) such initial coverage limit minus the 
                        deductible under subsection (c)(1); and
                            ``(ii) the percentage specified in 
                        subsection (c)(2).
        Benefits other than qualified prescription drug coverage shall 
        not be taken into account for purposes of this paragraph.
            ``(2) Deductible and limitation on out-of-pocket 
        expenditures by beneficiaries may not vary.--The coverage may 
        not vary the deductible under subsection (c)(1) for the year or 
        the limitation on out-of-pocket expenditures by beneficiaries 
        described in subsection (c)(4) for the year.
    ``(e) Access to Negotiated Prices.--
            ``(1) Access.--
                    ``(A) In general.--Under qualified prescription 
                drug coverage offered by an eligible entity or a 
                MedicareAdvantage organization, the entity or 
                organization shall provide beneficiaries with access to 
                negotiated prices used for payment for covered drugs, 
                regardless of the fact that no benefits may be payable 
                under the coverage with respect to such drugs because 
                of the application of the deductible, any cost-sharing, 
                or an initial coverage limit (described in subsection 
                (c)(3)). For purposes of this part, the term 
                `negotiated prices' includes all discounts, direct or 
                indirect subsidies, rebates, or other price concessions 
                or direct or indirect remunerations and shall reflect 
prices that are no higher than the prices negotiated by the Secretary 
under subparagraph (B).
                    ``(B) Secretarial negotiated price.--
                Notwithstanding any otherprovision of this part, the 
                Secretary shall, consistent with the requirements of 
                this part and the goals of providing quality care and 
                containing costs under this part, negotiate contracts 
                with manufacturers of covered outpatient prescription 
                drugs that provide for the maximum prices that may be 
                charged to individuals enrolled under this part by 
                participating pharmacies for dispensing such drugs to 
                such individuals.
                    ``(C) Medicaid related provisions.--Insofar as a 
                State elects to provide medical assistance under title 
                XIX for a drug based on the prices negotiated under a 
                Medicare Prescription Drug plan under this part, the 
                requirements of section 1927 shall not apply to such 
                drugs. The prices negotiated under a Medicare 
                Prescription Drug plan with respect to covered drugs, 
                under a MedicareAdvantage plan with respect to such 
                drugs, or under a qualified retiree prescription drug 
                plan (as defined in section 1860D-20(e)(4)) with 
                respect to such drugs, on behalf of eligible 
                beneficiaries, shall (notwithstanding any other 
                provision of law) not be taken into account for the 
                purposes of establishing the best price under section 
                1927(c)(1)(C).
            ``(2) Cards or other technology.--
                    ``(A) In general.--In providing the access under 
                paragraph (1), the eligible entity or MedicareAdvantage 
                organization shall issue a card or use other technology 
                pursuant to section 1860D-5(b)(1).
                    ``(B) National standards.--
                            ``(i) Development.--The Administrator shall 
                        provide for the development of national 
                        standards relating to a standardized format for 
                        the card or other technology required under 
                        subparagraph (A). Such standards shall be 
                        compatible with parts C and D of title XI and 
                        may be based on standards developed by an 
                        appropriate standard setting organization.
                            ``(ii) Consultation.--In developing the 
                        standards under clause (i), the Administrator 
                        shall consult with the National Council for 
                        Prescription Drug Programs and other standard-
                        setting organizations determined appropriate by 
                        the Administrator.
                            ``(iii) Implementation.--The Administrator 
                        shall implement the standards developed under 
                        clause (i) by January 1, 2008.
            ``(3) Disclosure.--The eligible entity offering a Medicare 
        Prescription Drug plan and the MedicareAdvantage organization 
        offering a MedicareAdvantage plan shall disclose to the 
        Administrator (in a manner specified by the Administrator) the 
        extent to which discounts, direct or indirect subsidies, 
        rebates, or other price concessions or direct or indirect 
        remunerations made available to the entity or organization by a 
        manufacturer are passed through to enrollees through pharmacies 
        and other dispensers or otherwise. The provisions of section 
        1927(b)(3)(D) shall apply to information disclosed to the 
        Administrator under this paragraph in the same manner as such 
        provisions apply to information disclosed under such section.
            ``(4) Audits and reports.--To protect against fraud and 
        abuse and to ensure proper disclosures and accounting under 
        this part, in addition to any protections against fraud and 
        abuse provided under section 1860D-7(f)(1), the Administrator 
        may periodically audit the financial statements and records of 
        an eligible entity offering a Medicare Prescription Drug plan 
        and a MedicareAdvantage organization offering a 
        MedicareAdvantage plan.
    ``(f) Actuarial Valuation; Determination of Annual Percentage 
Increases.--
            ``(1) Processes.--For purposes of this section, the 
        Administrator shall establish processes and methods--
                    ``(A) for determining the actuarial valuation of 
                prescription drug coverage, including--
                            ``(i) an actuarial valuation of standard 
                        prescription drug coverage and of the 
                        reinsurance payments under section 1860D-20;
                            ``(ii) the use of generally accepted 
                        actuarial principles and methodologies; and
                            ``(iii) applying the same methodology for 
                        determinations of alternative coverage under 
                        subsection (d) as is used with respect to 
                        determinations of standard prescription drug 
                        coverage under subsection (c); and
                    ``(B) for determining annual percentage increases 
                described in subsection (c)(5).
        Such processes shall take into account any effect that 
        providing actuarially equivalent prescription drug coverage 
        rather than standard prescription drug coverage has on drug 
        utilization.
            ``(2) Use of outside actuaries.--Under the processes under 
        paragraph (1)(A), eligible entities and MedicareAdvantage 
        organizations may use actuarial opinions certified by 
        independent, qualified actuaries to establish actuarial values, 
        but the Administrator shall determine whether such actuarial 
        values meet the requirements under subsection (c)(1).

``requirements for entities offering medicare prescription drug plans; 
                       establishment of standards

    ``Sec. 1860D-7. (a) General Requirements.--An eligible entity 
offering a Medicare Prescription Drug plan shall meet the following 
requirements:
            ``(1) Licensure.--Subject to subsection (c), the entity is 
        organized and licensed under State law as a risk-bearing entity 
        eligible to offer health insurance or health benefits coverage 
        in each State in which it offers a Medicare Prescription Drug 
        plan.
            ``(2) Assumption of financial risk.--
                    ``(A) In general.--Subject to subparagraph (B) and 
                subsections (d)(2) and (e) of section 1860D-13, to the 
                extent that the entity is at risk pursuant to such 
                section 1860D-16, the entity assumes financial risk on 
                a prospective basis for the benefits that it offers 
                under a Medicare Prescription Drug plan and that is not 
                covered under section 1860D-20.
                    ``(B) Reinsurance permitted.--To the extent that 
                the entity is at risk pursuant to section 1860D-16, the 
                entity may obtain insurance or make other arrangements 
                for the cost of coverage provided to any enrolled 
                member under this part.
            ``(3) Solvency for unlicensed entities.--In the case of an 
        eligible entity that is not described in paragraph (1) and for 
        which a waiver has been approved under subsection (c), such 
        entity shall meet solvency standards established by the 
        Administrator under subsection (d).
    ``(b) Contract Requirements.--The Administrator shall not permit an 
eligible beneficiary to elect a Medicare Prescription Drug plan offered 
by an eligible entity under this part, and the entity shall not be 
eligible for payments under section 1860D-16 or 1860D-20, unless the 
Administrator has entered into a contract under this subsection with 
the entity with respect to the offering of such plan. Such a contract 
with an entity may cover more than 1 Medicare Prescription Drug plan. 
Such contract shall provide that the entity agrees to comply with the 
applicable requirements and standards of this part and the terms and 
conditions of payment as provided for in this part.
    ``(c) Waiver of Certain Requirements in Order To Ensure Beneficiary 
Choice.--
            ``(1) In general.--In the case of an eligible entity that 
        seeks to offer a Medicare Prescription Drug plan in a State, 
        the Administrator shall waive the requirement of subsection 
        (a)(1) that the entity be licensed in that State if the 
        Administrator determines, based on the application and other 
evidence presented to the Administrator, that any of the grounds for 
approval of the application described in paragraph (2) have been met.
            ``(2) Grounds for approval.--The grounds for approval under 
        this paragraph are the grounds for approval described in 
        subparagraphs (B), (C), and (D) of section 1855(a)(2), and also 
        include the application by a State of any grounds other than 
        those required under Federal law.
            ``(3) Application of waiver procedures.--With respect to an 
        application for a waiver (or a waiver granted) under this 
        subsection, the provisions of subparagraphs (E), (F), and (G) 
        of section 1855(a)(2) shall apply.
            ``(4) References to certain provisions.--For purposes of 
        this subsection, in applying the provisions of section 
        1855(a)(2) under this subsection to Medicare Prescription Drug 
        plans and eligible entities--
                    ``(A) any reference to a waiver application under 
                section 1855 shall be treated as a reference to a 
                waiver application under paragraph (1); and
                    ``(B) any reference to solvency standards were 
                treated as a reference to solvency standards 
                established under subsection (d).
    ``(d) Solvency Standards for Non-Licensed Entities.--
            ``(1) Establishment and publication.--The Administrator, in 
        consultation with the National Association of Insurance 
        Commissioners, shall establish and publish, by not later than 
        January 1, 2005, financial solvency and capital adequacy 
        standards for entities described in paragraph (2).
            ``(2) Compliance with standards.--An eligible entity that 
        is not licensed by a State under subsection (a)(1) and for 
        which a waiver application has been approved under subsection 
        (c) shall meet solvency and capital adequacy standards 
        established under paragraph (1). The Administrator shall 
        establish certification procedures for such eligible entities 
        with respect to such solvency standards in the manner described 
        in section 1855(c)(2).
    ``(e) Licensure Does Not Substitute for or Constitute 
Certification.--The fact that an entity is licensed in accordance with 
subsection (a)(1) or has a waiver application approved under subsection 
(c) does not deem the eligible entity to meet other requirements 
imposed under this part for an eligible entity.
    ``(f) Incorporation of Certain MedicareAdvantage Contract 
Requirements.--The following provisions of section 1857 shall apply, 
subject to subsection (c)(4), to contracts under this section in the 
same manner as they apply to contracts under section 1857(a):
            ``(1) Protections against fraud and beneficiary 
        protections.--Section 1857(d).
            ``(2) Intermediate sanctions.--Section 1857(g), except that 
        in applying such section--
                    ``(A) the reference in section 1857(g)(1)(B) to 
                section 1854 is deemed a reference to this part; and
                    ``(B) the reference in section 1857(g)(1)(F) to 
                section 1852(k)(2)(A)(ii) shall not be applied.
            ``(3) Procedures for termination.--Section 1857(h).
    ``(g) Other Standards.--The Administrator shall establish by 
regulation other standards (not described in subsection (d)) for 
eligible entities and Medicare Prescription Drug plans consistent with, 
and to carry out, this part. The Administrator shall publish such 
regulations by January 1, 2005.
    ``(h) Periodic Review and Revision of Standards.--
            ``(1) In general.--Subject to paragraph (2), the 
        Administrator shall periodically review the standards 
        established under this section and, based on such review, may 
        revise such standards if the Administrator determines such 
        revision to be appropriate.
            ``(2) Prohibition of midyear implementation of significant 
        new regulatory requirements.--The Administrator may not 
        implement, other than at the beginning of a calendar year, 
        regulations under this section that impose new, significant 
        regulatory requirements on an eligible entity or a Medicare 
        Prescription Drug plan.
    ``(i) Relation to State Laws.--
            ``(1) In general.--The standards established under this 
        part shall supersede any State law or regulation (including 
        standards described in paragraph (2)) with respect to Medicare 
        Prescription Drug plans which are offered by eligible entities 
        under this part--
                    ``(A) to the extent such law or regulation is 
                inconsistent with such standards; and
                    ``(B) in the same manner as such laws and 
                regulations are superseded under section 1856(b)(3).
            ``(2) Standards specifically superseded.--State standards 
        relating to the following are superseded under this section:
                    ``(A) Benefit requirements, including requirements 
                relating to cost-sharing and the structure of 
                formularies.
                    ``(B) Premiums.
                    ``(C) Requirements relating to inclusion or 
                treatment of providers.
                    ``(D) Coverage determinations (including related 
                appeals and grievance processes).
                    ``(E) Requirements relating to marketing materials 
                and summaries and schedules of benefits regarding a 
                Medicare Prescription Drug plan.
            ``(3) Prohibition of state imposition of premium taxes.--No 
        State may impose a premium tax or similar tax with respect to--
                    ``(A) monthly beneficiary obligations paid to the 
                Administrator for Medicare Prescription Drug plans 
                under this part; or
                    ``(B) any payments made by the Administrator under 
                this part to an eligible entity offering such a plan.

             ``Subpart 2--Prescription Drug Delivery System

                    ``establishment of service areas

    ``Sec. 1860D-10. (a) Establishment.--
            ``(1) Initial establishment.--Not later than April 15, 
        2005, the Administrator shall establish and publish the service 
        areas in which Medicare Prescription Drug plans may offer 
        benefits under this part.
            ``(2) Periodic review and revision of service areas.--The 
        Administrator shall periodically review the service areas 
        applicable under this section and, based on such review, may 
        revise such service areas if the Administrator determines such 
        revision to be appropriate.
    ``(b) Requirements for Establishment of Service Areas.--
            ``(1) In general.--The Administrator shall establish the 
        service areas under subsection (a) in a manner that--
                    ``(A) maximizes the availability of Medicare 
                Prescription Drug plans to eligible beneficiaries; and
                    ``(B) minimizes the ability of eligible entities 
                offering such plans to favorably select eligible 
                beneficiaries.
            ``(2) Additional requirements.--The Administrator shall 
        establish the service areas under subsection (a) consistent 
        with the following requirements:
                    ``(A) There shall be at least 10 service areas.
                    ``(B) Each service area must include at least 1 
                State.
                    ``(C) The Administrator may not divide States so 
                that portions of the State are in different service 
                areas.
                    ``(D) To the extent possible, the Administrator 
                shall include multistate metropolitan statistical areas 
                in a single service area. The Administrator may divide 
                metropolitan statistical areas where it is necessary to 
                establish service areas of such size and geography as 
                to maximize the participation of Medicare Prescription 
                Drug plans.
            ``(3) May conform to medicareadvantage preferred provider 
        regions.--The Administrator may conform the service areas 
        established under this section to the preferred provider 
        regions established under section 1858(a)(3).

                    ``publication of risk adjusters

    ``Sec. 1860D-11. (a) Publication.--Not later than April 15 of each 
year (beginning in 2005), the Administrator shall publish the risk 
adjusters established under subsection (b) to be used in computing--
            ``(1) the amount of payment to Medicare Prescription Drug 
        plans in the subsequent year under section 1860D-16(a), insofar 
        as it is attributable to standard prescription drug coverage 
        (or actuarially equivalent prescription drug coverage); and
            ``(2) the amount of payment to MedicareAdvantage plans in 
        the subsequent year under section 1858A(c), insofar as it is 
        attributable to standard prescription drug coverage (or 
        actuarially equivalent prescription drug coverage).
    ``(b) Establishment of Risk Adjusters.--
            ``(1) In general.--Subject to paragraph (2), the 
        Administrator shall establish an appropriate methodology for 
        adjusting the amount of payment to plans referred to in 
        subsection (a) to take into account variation in costs based on 
        the differences in actuarial risk of different enrollees being 
        served. Any such risk adjustment shall be designed in a manner 
        as to not result in a change in the aggregate payments 
        described in paragraphs (1) and (2) of subsection (a).
            ``(2) Considerations.--In establishing the methodology 
        under paragraph (1), the Administrator may take into account 
        the similar methodologies used under section 1853(a)(3) to 
        adjust payments to MedicareAdvantage organizations.
            ``(3) Data collection.--In order to carry out this 
        subsection, the Administrator shall require--
                    ``(A) eligible entities to submit data regarding 
                drug claims that can be linked at the beneficiary 
level to part A and part B data and such other information as the 
Administrator determines necessary; and
                    ``(B) MedicareAdvantage organizations (except MSA 
                plans or a private fee-for-service plan that does not 
                provide qualified prescription drug coverage) to submit 
                data regarding drug claims that can be linked to other 
                data that such organizations are required to submit to 
                the Administrator and such other information as the 
                Administrator determines necessary.

   ``submission of bids for proposed medicare prescription drug plans

    ``Sec. 1860D-12. (a) Submission.--
            ``(1) In general.--Each eligible entity that intends to 
        offer a Medicare Prescription Drug plan in an area in a year 
        (beginning with 2006) shall submit to the Administrator, at 
        such time in the previous year and in such manner as the 
        Administrator may specify, such information as the 
        Administrator may require, including the information described 
        in subsection (b).
            ``(2) Annual submission.--An eligible entity shall submit 
        the information required under paragraph (1) with respect to a 
        Medicare Prescription Drug plan that the entity intends to 
        offer on an annual basis.
    ``(b) Information Described.--The information described in this 
subsection includes information on each of the following:
            ``(1) The benefits under the plan (as required under 
        section 1860D-6).
            ``(2) The actuarial value of the qualified prescription 
        drug coverage.
            ``(3) The amount of the monthly plan premium under the 
        plan, including an actuarial certification of--
                    ``(A) the actuarial basis for such monthly plan 
                premium;
                    ``(B) the portion of such monthly plan premium 
                attributable to standard prescription drug coverage or 
                actuarially equivalent prescription drug coverage and, 
                if applicable, to benefits that are in addition to such 
                coverage; and
                    ``(C) the reduction in such monthly plan premium 
                resulting from the payments provided under section 
                1860D-20.
            ``(4) The service area for the plan.
            ``(5) Whether the entity plans to use any funds in the plan 
        stabilization reserve fund in the Prescription Drug Account 
        that are available to the entity to stabilize or reduce the 
        monthly plan premium submitted under paragraph (3), and if so, 
        the amount in such reserve fund that is to be used.
            ``(6) Such other information as the Administrator may 
        require to carry out this part.
    ``(c) Options Regarding Service Areas.--
            ``(1) In general.--The service area of a Medicare 
        Prescription Drug plan shall be either--
                    ``(A) the entire area of 1 of the service areas 
                established by the Administrator under section 1860D-
                10; or
                    ``(B) the entire area covered by the medicare 
                program.
            ``(2) Rule of construction.--Nothing in this part shall be 
        construed as prohibiting an eligible entity from submitting 
        separate bids in multiple service areas as long as each bid is 
        for a single service area.

        ``approval of proposed medicare prescription drug plans

    ``Sec. 1860D-13. (a) Approval.--
            ``(1) In general.--The Administrator shall review the 
        information filed under section 1860D-12 and shall approve or 
        disapprove the Medicare Prescription Drug plan.
            ``(2) Requirements for approval.--The Administrator may not 
        approve a Medicare Prescription Drug plan unless the following 
        requirements are met:
                    ``(A) Compliance with requirements.--The plan and 
                the entity offering the plan comply with the 
                requirements under this part.
                    ``(B) Application of fehbp standard.--(i) The 
                portion of the monthly plan premium submitted under 
                section 1860D-12(b) that is attributable to standard 
                prescription drug coverage reasonably and equitably 
                reflects the actuarial value of the standard 
                prescription drug coverage less the actuarial value of 
                the reinsurance payments under section 1860D-20 and the 
                amount of any funds in the plan stabilization reserve 
                fund in the Prescription Drug Account used to stabilize 
                or reduce the monthly plan premium.
                    ``(ii) If the plan provides additional prescription 
                drug coverage pursuant to section 1860D-6(a)(2), the 
                monthly plan premium reasonably and equitably reflects 
                the actuarial value of the coverage provided less the 
                actuarial value of the reinsurance payments under 
                section 1860D-20 and the amount of any funds in the 
                plan stabilization reserve fund in the Prescription 
                Drug Account used to stabilize or reduce the monthly 
                plan premium.
    ``(b) Negotiation.--In exercising the authority under subsection 
(a), the Administrator shall have the authority to--
            ``(1) negotiate the terms and conditions of the proposed 
        monthly plan premiums submitted and other terms and conditions 
        of a proposed plan; and
            ``(2) disapprove, or limit enrollment in, a proposed plan 
        based on--
                    ``(A) the costs to beneficiaries under the plan;
                    ``(B) the quality of the coverage and benefits 
                under the plan;
                    ``(C) the adequacy of the network under the plan; 
                or
                    ``(D) other factors determined appropriate by the 
                Administrator.
    ``(c) Special Rules for Approval.--The Administrator may approve a 
Medicare Prescription Drug plan submitted under section 1860D-12 only 
if the benefits under such plan--
            ``(1) include the required benefits under section 1860D-
        6(a)(1); and
            ``(2) are not designed in such a manner that the 
        Administrator finds is likely to result in favorable selection 
        of eligible beneficiaries.
    ``(d) Access to Competitive Coverage.--
            ``(1) Number of contracts.--The Administrator, consistent 
        with the requirements of this part and the goal of containing 
        costs under this title, shall, with respect to a year, approve 
        at least 2 contracts to offer a Medicare Prescription Drug plan 
        in each service area (established under section 1860D-10) for 
        the year.
            ``(2) Authority to reduce risk to ensure access.--
                    ``(A) In general.--Subject to subparagraph (B), if 
                the Administrator determines, with respect to an area, 
                that the access required under paragraph (1) is not 
                going to be provided in the area during the subsequent 
                year, the Administrator shall--
                            ``(i) adjust the percents specified in 
                        paragraphs (2) and (4) of section 1860D-16(b) 
                        in an area in a year; or
                            ``(ii) increase the percent specified in 
                        section 1860D-20(c)(1) in an area in a year.
                The administrator shall exercise the authority under 
                the preceding sentence only so long as (and to the 
                extent) necessary to assure the access guaranteed under 
                paragraph (1).
                    ``(B) Requirements for use of authority.--In 
                exercising authority under subparagraph (A), the 
                Administrator--
                            ``(i) shall not provide for the full 
                        underwriting of financial risk for any eligible 
                        entity;
                            ``(ii) shall not provide for any 
                        underwriting of financial risk for a public 
                        eligible entity with respect to the offering of 
                        a nationwide Medicare Prescription Drug plan; 
                        and
                            ``(iii) shall seek to maximize the 
                        assumption of financial risk by eligible 
                        entities to ensure fair competition among 
                        Medicare Prescription Drug plans.
                    ``(C) Requirement to accept 2 full-risk qualified 
                bids before exercising authority.--The Administrator 
                may not exercise the authority under subparagraph (A) 
                with respect to an area and year if 2 or more qualified 
                bids are submitted by eligible entities to offer a 
                Medicare Prescription Drug plan in the area for the 
                year under paragraph (1) before the application of 
                subparagraph (A).
                    ``(D) Reports.--The Administrator, in each annual 
                report to Congress under section 1808(c)(1)(D), shall 
                include information on the exercise of authority under 
                subparagraph (A). The Administrator also shall include 
                such recommendations as may be appropriate to limit the 
                exercise of such authority.
    ``(e) Guaranteed Access.--
            ``(1) Access.--In order to assure access to qualified 
        prescription drug coverage in an area, the Administrator shall 
        take the following steps:
                    ``(A) Determination.--Not later than September 1 of 
                each year (beginning in 2005) and for each area 
                (established under section 1860D-10), the Administrator 
                shall make a determination as to whether the access 
                required under subsection (d)(1) is going to be 
                provided in the area during the subsequent year. Such 
                determination shall be made after the Administrator has 
                exercised the authority under subsection (d)(2).
                    ``(B) Contract with an entity to provide coverage 
                in an area.--Subject to paragraph (3), if the 
                Administrator makes a determination under subparagraph 
                (A) that the access required under subsection (d)(1) is 
                not going to be provided in an area during the 
                subsequent year, the Administrator shall enter into a 
                contract with an entity to provide eligible 
                beneficiaries enrolled under this part (and not, except 
                for an MSA plan or a private fee-for-service plan that 
                does not provide qualified prescription drug coverage 
                enrolled in a MedicareAdvantage plan) and residing in 
                the area with standard prescription drug coverage 
                (including access to negotiated prices for such 
                beneficiaries pursuant to section 1860D-6(e)) during 
                the subsequent year. An entity may be awarded a 
                contract for more than 1 of the areas for which the 
                Administrator is required to enter into a contract 
                under this paragraph but the Administrator may enter 
                into only 1 such contract in each such area. An entity 
                with a contract under this part shall meet the 
                requirements described in section 1860D-5 and such 
                other requirements determined appropriate by the 
                Administrator.
                    ``(C) Requirement to accept 2 reduced-risk 
                qualified bids before entering into contract.--The 
                Administrator may not enter into a contract under 
                subparagraph (B) with respect to an area and year if 2 
                or more qualified bids are submitted by eligible 
                entities to offer a Medicare Prescription Drug plan in 
                the area for the year after the Administrator has 
                exercised the authority under subsection (d)(2) in the 
                area for the year.
                    ``(D) Entity required to meet beneficiary 
                protection and other requirements.--An entity with a 
                contract under subparagraph (B) shall meet the 
                requirements described in section 1860D-5 and such 
                other requirements determined appropriate by the 
                Administrator.
                    ``(E) Competitive procedures.--Competitive 
                procedures (as defined in section 4(5) of the Office of 
                Federal Procurement Policy Act (41 U.S.C. 
403(5))) shall be used to enter into a contract under subparagraph (B).
            ``(2) Monthly beneficiary obligation for enrollment.--
                    ``(A) In general.--In the case of an eligible 
                beneficiary receiving access to qualified prescription 
                drug coverage through enrollment with an entity with a 
                contract under paragraph (1)(B), the monthly 
                beneficiary obligation of such beneficiary for such 
                enrollment shall be an amount equal to the applicable 
                percent (as determined under section 1860D-17(c)) of 
                the monthly national average premium (as computed under 
                section 1860D-15) for the area for the year, as 
                adjusted using the geographic adjuster under 
                subparagraph (B).
                    ``(B) Establishment of geographic adjuster.--The 
                Administrator shall establish an appropriate 
                methodology for adjusting the monthly beneficiary 
                obligation (as computed under subparagraph (A)) for the 
                year in an area to take into account differences in 
                drug prices among areas. In establishing such 
                methodology, the Administrator may take into account 
                differences in drug utilization between eligible 
                beneficiaries in an area and eligible beneficiaries in 
                other areas and the results of the ongoing study 
                required under section 106 of the Prescription Drug and 
                Medicare Improvement Act of 2003. Any such adjustment 
                shall be applied in a manner so as to not result in a 
                change in the aggregate payments made under this part 
                that would have been made if the Administrator had not 
                applied such adjustment.
            ``(3) Payments under the contract.--
                    ``(A) In general.--A contract entered into under 
                paragraph (1)(B) shall provide for--
                            ``(i) payment for the negotiated costs of 
                        covered drugs provided to eligible 
                        beneficiaries enrolled with the entity; and
                            ``(ii) payment of prescription management 
                        fees that are tied to performance requirements 
                        established by the Administrator for the 
                        management, administration, and delivery of the 
                        benefits under the contract.
                    ``(B) Performance requirements.--The performance 
                requirements established by the Administrator pursuant 
                to subparagraph (A)(ii) shall include the following:
                            ``(i) The entity contains costs to the 
                        Prescription Drug Account and to eligible 
                        beneficiaries enrolled under this part and with 
                        the entity.
                            ``(ii) The entity provides such 
                        beneficiaries with quality clinical care.
                            ``(iii) The entity provides such 
                        beneficiaries with quality services.
                    ``(C) Entity only at risk to the extent of the fees 
                tied to performance requirements.--An entity with a 
                contract under paragraph (1)(B) shall only be at risk 
                for the provision of benefits under the contract to the 
                extent that the management fees paid to the entity are 
                tied to performance requirements under subparagraph 
                (A)(ii).
            ``(4) Eligible entity that submitted a bid for the area not 
        eligible to be awarded the contract.--An eligible entity that 
        submitted a bid to offer a Medicare Prescription Drug plan for 
        an area for a year under section 1860D-12, including a bid 
        submitted after the Administrator has exercised the authority 
        under subsection (d)(2), may not be awarded a contract under 
        paragraph (1)(B) for that area and year. The previous sentence 
        shall apply to an entity that was awarded a contract under 
        paragraph (1)(B) for the area in the previous year and 
        submitted such a bid under section 1860D-12 for the year.
            ``(5) Contract to be available in designated area for 2 
        years.--Notwithstanding paragraph (1), if the Administrator 
        enters into a contract with an entity with respect to an area 
designated under subparagraph (B) of such paragraph for a year, the 
following rules shall apply:
                    ``(A) The contract shall be for a 2-year period.
                    ``(B) The Secretary is not required to make the 
                determination under paragraph (1)(A) with respect to 
                the second year of the contract for the area.
                    ``(C) During the second year of the contract, an 
                eligible beneficiary residing in the area may continue 
                to receive standard prescription drug coverage 
                (including access to negotiated prices for such 
                beneficiaries pursuant to section 1860D-6(e)) under 
                such contract or through any Medicare Prescription Drug 
                plan that is available in the area.
            ``(6) Entity not permitted to market or brand the 
        contract.--An entity with a contract under paragraph (1)(B) may 
        not engage in any marketing or branding of such contract.
            ``(7) Rules for areas where only 1 competitively bid plan 
        was approved.--In the case of an area where (before the 
        application of this subsection) only 1 Medicare Prescription 
        Drug plan was approved for a year--
                    ``(A) the plan may (at the option of the plan) be 
                offered in the area for the year (under rules 
                applicable to such plans under this part and not under 
                this subsection);
                    ``(B) eligible beneficiaries described in paragraph 
                (1)(B) may receive access to qualified prescription 
                drug coverage through enrollment in the plan or with an 
                entity with a contract under paragraph (1)(B); and
                    ``(C) for purposes of applying section 1860D-
                3(a)(1)(A)(ii), such plan shall be the plan designated 
                in the area under such section.
    ``(f) Two-Year Contracts.--Except for a contract entered into under 
subsection (e)(1)(B), a contract approved under this part (including a 
contract under) shall be for a 2-year period.

 ``computation of monthly standard prescription drug coverage premiums

    ``Sec. 1860D-14. (a) In General.--For each year (beginning with 
2006), the Administrator shall compute a monthly standard prescription 
drug coverage premium for each Medicare Prescription Drug plan approved 
under section 1860D-13 and for each MedicareAdvantage plan.
    ``(b) Requirements.--The monthly standard prescription drug 
coverage premium for a plan for a year shall be equal to--
            ``(1) in the case of a plan offered by an eligible entity 
        or MedicareAdvantage organization that provides standard 
        prescription drug coverage or an actuarially equivalent 
        prescription drug coverage and does not provide additional 
        prescription drug coverage pursuant to section 1860D-6(a)(2), 
        the monthly plan premium approved for the plan under section 
        1860D-13 for the year; and
            ``(2) in the case of a plan offered by an eligible entity 
        or MedicareAdvantage organization that provides additional 
        prescription drug coverage pursuant to section 1860D-6(a)(2)--
                    ``(A) an amount that reflects only the actuarial 
                value of the standard prescription drug coverage 
                offered under the plan; or
                    ``(B) if determined appropriate by the 
                Administrator, the monthly plan premium approved under 
                section 1860D-13 for the year for the Medicare 
                Prescription Drug plan (or, if applicable, the 
                MedicareAdvantage plan) that, as required under section 
                1860D-6(a)(2)(B) for a Medicare Prescription Drug plan 
                and a MedicareAdvantage plan--
                            ``(i) is offered by such entity or 
                        organization in the same area as the plan; and
                            ``(ii) does not provide additional 
                        prescription drug coverage pursuant to such 
                        section.

           ``computation of monthly national average premium

    ``Sec. 1860D-15. (a) Computation.--
            ``(1) In general.--For each year (beginning with 2006) the 
        Administrator shall compute a monthly national average premium 
        equal to the average of the monthly standard prescription drug 
        coverage premium for each Medicare Prescription Drug plan and 
        each MedicareAdvantage plan (as computed under section 1860D-
        14). Such premium may be adjusted pursuant to any methodology 
        determined under subsection (b), as determined appropriate by 
        the Administrator.
            ``(2) Weighted average.--The monthly national average 
        premium computed under paragraph (1) shall be a weighted 
        average, with the weight for each plan being equal to the 
        average number of beneficiaries enrolled under such plan in the 
        previous year.
    ``(b) Geographic Adjustment.--The Administrator shall establish an 
appropriate methodology for adjusting the monthly national average 
premium (as computed under subsection (a)) for the year in an area to 
take into account differences in prices for covered drugs among 
different areas. In establishing such methodology, the Administrator 
may take into account differences in drug utilization between eligible 
beneficiaries in that area and other eligible beneficiaries and the 
results of the ongoing study required under section 106 of the 
Prescription Drug and Medicare Improvement Act of 2003. Any such 
adjustment shall be applied in a manner as to not result in a change in 
aggregate payments made under this part than would have been made if 
the Administrator had not applied such adjustment.
    ``(c) Special Rule for 2006.--For purposes of applying this section 
for 2006, the Administrator shall establish procedures for determining 
the weighted average under subsection (a)(2) for 2005.

                    ``payments to eligible entities

    ``Sec. 1860D-16. (a) Payment of Monthly Plan Premiums.--For each 
year (beginning with 2006), the Administrator shall pay to each entity 
offering a Medicare Prescription Drug plan in which an eligible 
beneficiary is enrolled an amount equal to the full amount of the 
monthly plan premium approved for the plan under section 1860D-13 on 
behalf of each eligible beneficiary enrolled in such plan for the year, 
as adjusted using the risk adjusters that apply to the standard 
prescription drug coverage published under section 1860D-11.
    ``(b) Portion of Total Payments of Monthly Plan Premiums Subject to 
Risk.--
            ``(1) Notification of spending under the plan.--
                    ``(A) In general.--For each year (beginning in 
                2007), the eligible entity offering a Medicare 
                Prescription Drug plan shall notify the Administrator 
                of the following:
                            ``(i) Total actual costs.--The total amount 
                        of costs that the entity incurred in providing 
                        standard prescription drug coverage (or 
                        prescription drug coverage that is actuarially 
                        equivalent pursuant to section 1860D-
                        6(a)(1)(B)) for all enrollees under the plan in 
                        the previous year.
                            ``(ii) Actual costs for specific drugs.--
                        With respect to the total amount under clause 
                        (i) for the year, a breakdown of--
                                    ``(I) each covered drug that 
                                constitutes a portion of such amount;
                                    ``(II) the negotiated price for the 
                                eligible entity for each such drug;
                                    ``(III) the number of 
                                prescriptions; and
                                    ``(IV) the average beneficiary 
                                coinsurance rate for a each covered 
                                drug that constitutes a portion of such 
                                amount.
                    ``(B) Certain expenses not included.--The amounts 
                under clauses (i) and (ii)(II) of subparagraph (A) may 
                not include--
                            ``(i) administrative expenses incurred in 
                        providing the coverage described in 
                        subparagraph (A)(i);
                            ``(ii) amounts expended on providing 
                        additional prescription drug coverage pursuant 
                        to section 1860D-6(a)(2); or
                            ``(iii) amounts expended for which the 
                        entity is subsequently provided with 
                        reinsurance payments under section 1860D-20.
            ``(2) Adjustment of payment.--
                    ``(A) No adjustment if allowable costs within risk 
                corridor.--If the allowable costs (specified in 
                paragraph (3)) for the plan for the year are not more 
                than the first threshold upper limit of the risk 
                corridor (specified in paragraph (4)(A)(iii)) and are 
                not less than the first threshold lower limit of the 
                risk corridor (specified in paragraph (4)(A)(i)) for 
                the plan for the year, then no additional payments 
                shall be made by the Administrator and no payments 
                shall be made by (or collected from) the eligible 
                entity offering the plan.
                    ``(B) Increase in payment if allowable costs above 
                upper limit of risk corridor.--
                            ``(i) In general.--If the allowable costs 
                        for the plan for the year are more than the 
                        first threshold upper limit of the risk 
                        corridor for the plan for the year, then the 
                        Administrator shall increase the total of the 
                        monthly payments made to the entity offering 
                        the plan for the year under subsection (a) by 
                        an amount equal to the sum of--
                                    ``(I) the applicable percent (as 
                                defined in subparagraph (D)) of such 
                                allowable costs which are more than 
                                such first threshold upper limit of the 
                                risk corridor and not more than the 
                                second threshold upper limit of the 
                                risk corridor for the plan for the year 
                                (as specified under paragraph 
                                (4)(A)(iv)); and
                                    ``(II) 90 percent of such allowable 
                                costs which are more than such second 
                                threshold upper limit of the risk 
                                corridor.
                            ``(ii) Special transitional corridor for 
                        2006 and 2007.--If the Administrator determines 
                        with respect to 2006 or 2007 that at least 60 
                        percent of Medicare Prescription Drug plans and 
                        MedicareAdvantage Plans (excluding MSA plans or 
                        private fee-for-service plans that do not 
                        provide qualified prescription drug coverage) 
                        have allowable costs for the plan for the year 
                        that are more than the first threshold upper 
                        limit of the risk corridor for the plan for the 
                        year and that such plans represent at least 60 
                        percent of eligible beneficiaries enrolled 
                        under this part, clause (i)(I) shall be applied 
                        by substituting `90 percent' for `applicable 
                        percent'.
                    ``(C) Plan payment if allowable costs below lower 
                limit of risk corridor.--If the allowable costs for the 
                plan for the year are less than the first threshold 
                lower limit of the risk corridor for the plan for the 
                year, then the entity offering the plan shall make a 
                payment to the Administrator of an amount (or the 
                Administrator shall otherwise recover from the plan an 
                amount) equal to--
                            ``(i) the applicable percent (as so 
                        defined) of such allowable costs which are less 
                        than such first threshold lower limit of the 
                        risk corridor and not less than the second 
                        threshold lower limit of the risk corridor for 
                        the plan for the year (as specified under 
                        paragraph (4)(A)(ii)); and
                            ``(ii) 90 percent of such allowable costs 
                        which are less than such second threshold lower 
                        limit of the risk corridor.
                    ``(D) Applicable percent defined.--For purposes of 
                this paragraph, the term `applicable percent' means--
                            ``(i) for 2006 and 2007, 75 percent; and
                            ``(ii) for 2008 and subsequent years, 50 
                        percent.
            ``(3) Establishment of allowable costs.--
                    ``(A) In general.--For each year, the Administrator 
                shall establish the allowable costs for each Medicare 
                Prescription Drug plan for the year. The allowable 
                costs for a plan for a year shall be equal to the 
                amount described in paragraph (1)(A)(i) for the plan 
                for the year, adjusted under subparagraph (B)(ii).
                    ``(B) Repricing of costs.--
                            ``(i) Calculation of average plan cost.--
                        Utilizing the information obtained under 
                        paragraph (1)(A)(ii) and section 1860D-
                        20(b)(1)(B), for each year (beginning with 
                        2006), the Administrator shall establish an 
                        average negotiated price with respect to all 
                        Medicare Prescription Drug plans for each 
                        covered drug.
                            ``(ii) Adjustment if actual costs exceed 
                        average costs.--With respect to a Medicare 
                        Prescription Drug plan for a year, the 
                        Administrator shall reduce the amount described 
                        in paragraph (1)(A)(i) for the plan for the 
                        year to the extent such amount is based on 
                        costs of specific covered drugs furnished under 
                        the plan in the year (as specified under 
                        paragraph (1)(A)(ii)) for which the negotiated 
                        prices are greater than the average negotiated 
                        price for the covered drug for the year (as 
                        determined under clause (i)).
            ``(4) Establishment of risk corridors.--
                    ``(A) In general.--For each year (beginning with 
                2006), the Administrator shall establish a risk 
                corridor for each Medicare Prescription Drug plan. The 
                risk corridor for a plan for a year shall be equal to a 
                range as follows:
                            ``(i) First threshold lower limit.--The 
                        first threshold lower limit of such corridor 
                        shall be equal to--
                                    ``(I) the target amount described 
                                in subparagraph (B) for the plan; minus
                                    ``(II) an amount equal to the first 
                                threshold risk percentage for the plan 
                                (as determined under subparagraph 
                                (C)(i)) of such target amount.
                            ``(ii) Second threshold lower limit.--The 
                        second threshold lower limit of such corridor 
                        shall be equal to--
                                    ``(I) the target amount described 
                                in subparagraph (B) for the plan; minus
                                    ``(II) an amount equal to the 
                                second threshold risk percentage for 
                                the plan (as determined under 
                                subparagraph (C)(ii)) of such target 
                                amount.
                            ``(iii) First threshold upper limit.--The 
                        first threshold upper limit of such corridor 
                        shall be equal to the sum of--
                                    ``(I) such target amount; and
                                    ``(II) the amount described in 
                                clause (i)(II).
                            ``(iv) Second threshold upper limit.--The 
                        second threshold upper limit of such corridor 
                        shall be equal to the sum of--
                                    ``(I) such target amount; and
                                    ``(II) the amount described in 
                                clause (ii)(II).
                    ``(B) Target amount described.--The target amount 
                described in this paragraph is, with respect to a 
                Medicare Prescription Drug plan offered by an eligible 
                entity in a year--
                            ``(i) in the case of a plan offered by an 
                        eligible entity that provides standard 
                        prescription drug coverage or actuarially 
                        equivalent prescription drug coverage and does 
not provide additional prescription drug coverage pursuant to section 
1860D-6(a)(2), an amount equal to the total of the monthly plan 
premiums paid to such entity for such plan for the year pursuant to 
subsection (a), reduced by the percentage specified in subparagraph 
(D); and
                            ``(ii) in the case of a plan offered by an 
                        eligible entity that provides additional 
                        prescription drug coverage pursuant to section 
                        1860D-6(a)(2), an amount equal to the total of 
                        the monthly plan premiums paid to such entity 
                        for such plan for the year pursuant to 
                        subsection (a) that are related to standard 
                        prescription drug coverage (determined using 
                        the rules under section 1860D-14(b)), reduced 
                        by the percentage specified in subparagraph 
                        (D).
                    ``(C) First and second threshold risk percentage 
                defined.--
                            ``(i) First threshold risk percentage.--
                        Subject to clause (iii), for purposes of this 
                        section, the first threshold risk percentage 
                        is--
                                    ``(I) for 2006 and 2007, 2.5 
                                percent;
                                    ``(II) for 2008 through 2011, 5 
                                percent; and
                                    ``(III) for 2012 and subsequent 
                                years, a percentage established by the 
                                Administrator, but in no case less than 
                                5 percent.
                            ``(ii) Second threshold risk percentage.--
                        Subject to clause (iii), for purposes of this 
                        section, the second threshold risk percentage 
                        is--
                                    ``(I) for 2006 and 2007, 5.0 
                                percent;
                                    ``(II) for 2008 through 2011, 10 
                                percent
                                    ``(III) for 2012 and subsequent 
                                years, a percentage established by the 
                                Administrator that is greater than the 
                                percent established for the year under 
                                clause (i)(III), but in no case less 
                                than 10 percent.
                            ``(iii) Reduction of risk percentage to 
                        ensure 2 plans in an area.--Pursuant to 
                        paragraph (2) of section 1860D-13(d), the 
                        Administrator may reduce the applicable first 
                        or second threshold risk percentage in an area 
                        in a year in order to ensure the access to 
                        plans required under paragraph (1) of such 
                        section.
                    ``(D) Target amount not to include administrative 
                expenses negotiated between the administrator and the 
                entity offering the plan.--For each year (beginning in 
                2006), the Administrator and the entity offering a 
                Medicare Prescription Drug plan shall negotiate, as 
                part of the negotiation process described in section 
                1860D-13(b) during the previous year, the percentage of 
                the payments to the entity under subsection (a) with 
                respect to the plan that are attributable and 
                reasonably incurred for administrative expenses for 
                providing standard prescription drug coverage or 
                actuarially equivalent prescription drug coverage in 
                the year.
            ``(5) Plans at risk for entire amount of additional 
        prescription drug coverage.--An eligible entity that offers a 
        Medicare Prescription Drug plan that provides additional 
        prescription drug coverage pursuant to section 1860D-6(a)(2) 
        shall be at full financial risk for the provision of such 
        additional coverage.
            ``(6) No effect on eligible beneficiaries.--No change in 
        payments made by reason of this subsection shall affect the 
        beneficiary obligation under section 1860D-17 for the year in 
        which such change in payments is made.
            ``(7) Disclosure of information.--
                    ``(A) In general.--Each contract under this part 
                shall provide that--
                            ``(i) the entity offering a Medicare 
                        Prescription Drug plan shall provide the 
                        Administrator with such information as the 
                        Administrator determines is necessary to carry 
                        out this section; and
                            ``(ii) the Administrator shall have the 
                        right to inspect and audit any books and 
                        records of the eligible entity that pertain to 
                        the information regarding costs provided to the 
                        Administrator under paragraph (1).
                    ``(B) Restriction on use of information.--
                Information disclosed or obtained pursuant to the 
                provisions of this section may be used by officers and 
                employees of the Department of Health and Human 
                Services only for the purposes of, and to the extent 
                necessary in, carrying out this section.
    ``(c) Stabilization Reserve Fund.--
            ``(1) Establishment.--
                    ``(A) In general.--There is established, within the 
                Prescription Drug Account, a stabilization reserve fund 
                in which the Administrator shall deposit amounts on 
                behalf of eligible entities in accordance with 
                paragraph (2) and such amounts shall be made available 
                by the Secretary for the use of eligible entities in 
                contract year 2008 and subsequent contract years in 
                accordance with paragraph (3).
                    ``(B) Reversion of unused amounts.--Any amount in 
                the stabilization reserve fund established under 
                subparagraph (A) that is not expended by an eligible 
                entity in accordance with paragraph (3) or that was 
                deposited for the use of an eligible entity that no 
                longer has a contract under this part shall revert for 
                the use of the Prescription Drug Account.
            ``(2) Deposit of amounts for 5 years.--
                    ``(A) In general.--If the target amount for a 
                Medicare Prescription Drug plan for 2006, 2007, 2008, 
                2009, or 2010 (as determined under subsection 
                (b)(4)(B)) exceeds the applicable costs for the plan 
                for the year by more than 3 percent, then--
                            ``(i) the entity offering the plan shall 
                        make a payment to the Administrator of an 
                        amount (or the Administrator shall otherwise 
                        recover from the plan an amount) equal to the 
                        portion of such excess that is in excess of 3 
                        percent of the target amount; and
                            ``(ii) the Administrator shall deposit an 
                        amount equal to the amount collected or 
                        otherwise recovered under clause (i) in the 
                        stabilization reserve fund on behalf of the 
                        eligible entity offering such plan.
                    ``(B) Applicable costs.--For purposes of 
                subparagraph (A), the term `applicable costs' means, 
                with respect to a Medicare Prescription Drug plan and 
                year, an amount equal the sum of--
                            ``(i) the allowable costs for the plan and 
                        year (as determined under subsection (b)(3)(A); 
                        and
                            ``(ii) the total amount by which monthly 
                        payments to the plan were reduced (or otherwise 
                        recovered from the plan) for the year under 
                        subsection (b)(2)(C).
            ``(3) Use of reserve fund to stabilize or reduce monthly 
        plan premiums.--
                    ``(A) In general.--For any contract year beginning 
                after 2007, an eligible entity offering a Medicare 
                Prescription Drug plan may use funds in the 
                stabilization reserve fund in the Prescription Drug 
                Account that were deposited in such fund on behalf of 
                the entity to stabilize or reduce monthly plan premiums 
                submitted under section 1860D-12(b)(3).
                    ``(B) Procedures.--The Administrator shall 
                establish procedures for--
                            ``(i) reducing monthly plan premiums 
                        submitted under section 1860D-12(b)(3) pursuant 
                        to subparagraph (A); and
                            ``(ii) making payments from the plan 
                        stabilization reserve fund in the Prescription 
                        Drug Account to eligible entities that inform 
                        the Secretary under section 1860D-12(b)(5) of 
                        the entity's intent to use funds in such 
                        reserve fund to reduce such premiums.
    ``(d) Portion of Payments of Monthly Plan Premiums Attributable to 
Administrative Expenses Tied to Performance Requirements.--
            ``(1) In general.--The Administrator shall establish 
        procedures to adjust the portion of the payments made to an 
        entity under subsection (a) that are attributable to 
        administrative expenses (as determined pursuant to subsection 
        (b)(4)(D)) to ensure that the entity meets the performance 
        requirements described in clauses (ii) and (iii) of section 
        1860D-13(e)(4)(B).
            ``(2) No effect on eligible beneficiaries.--No change in 
        payments made by reason of this subsection shall affect the 
        beneficiary obligation under section 1860D-17 for the year in 
        which such change in payments is made.
    ``(e) Payment Terms.--
            ``(1) Administrator payments.--Payments to an entity 
        offering a Medicare Prescription Drug plan under this section 
        shall be made in a manner determined by the Administrator and 
        based upon the manner in which payments are made under section 
        1853(a) (relating to payments to MedicareAdvantage 
        organizations).
            ``(2) Plan payments.--The Administrator shall establish a 
        process for collecting (or otherwise recovering) amounts that 
        an entity offering a Medicare Prescription Drug plan is 
        required to make to the Administrator under this section.
    ``(f) Payments to MedicareAdvantage Plans.--For provisions related 
to payments to MedicareAdvantage organizations offering 
MedicareAdvantage plans for qualified prescription drug coverage made 
available under the plan, see section 1858A(c).
    ``(g) Secondary Payer Provisions.--The provisions of section 
1862(b) shall apply to the benefits provided under this part.

            ``computation of monthly beneficiary obligation

    ``Sec. 1860D-17. (a) Beneficiaries Enrolled in a Medicare 
Prescription Drug Plan.--In the case of an eligible beneficiary 
enrolled under this part and in a Medicare Prescription Drug plan, the 
monthly beneficiary obligation for enrollment in such plan in a year 
shall be determined as follows:
            ``(1) Monthly plan premium equals monthly national average 
        premium.--If the amount of the monthly plan premium approved by 
        the Administrator under section 1860D-13 for a Medicare 
        Prescription Drug plan for the year is equal to the monthly 
        national average premium (as computed under section 1860D-15) 
        for the area for the year, the monthly beneficiary obligation 
        of the eligible beneficiary in that year shall be an amount 
        equal to the applicable percent (as determined in subsection 
        (c)) of the amount of such monthly national average premium.
            ``(2) Monthly plan premium less than monthly national 
        average premium.--If the amount of the monthly plan premium 
        approved by the Administrator under section 1860D-13 for the 
        Medicare Prescription Drug plan for the year is less than the 
        monthly national average premium (as computed under section 
        1860D-15) for the area for the year, the monthly beneficiary 
        obligation of the eligible beneficiary in that year shall be an 
        amount equal to--
                    ``(A) the applicable percent of the amount of such 
                monthly national average premium; minus
                    ``(B) the amount by which such monthly national 
                average premium exceeds the amount of the monthly plan 
                premium approved by the Administrator for the plan.
            ``(3) Monthly plan premium exceeds monthly national average 
        premium.--If the amount of the monthly plan premium approved by 
        the Administrator under section 1860D-13 for a Medicare 
        Prescription Drug plan for the year exceeds the monthly 
        national average premium (as computed under section 1860D-15) 
        for the area for the year, the monthly beneficiary obligation 
        of the eligible beneficiary in that year shall be an amount 
        equal to the sum of--
                    ``(A) the applicable percent of the amount of such 
                monthly national average premium; plus
                    ``(B) the amount by which the monthly plan premium 
                approved by the Administrator for the plan exceeds the 
                amount of such monthly national average premium.
    ``(b) Beneficiaries Enrolled in a MedicareAdvantage Plan.--In the 
case of an eligible beneficiary that is enrolled in a MedicareAdvantage 
plan (except for an MSA plan or a private fee-for-service plan that 
does not provide qualified prescription drug coverage), the Medicare 
monthly beneficiary obligation for qualified prescription drug coverage 
shall be determined pursuant to section 1858A(d).
    ``(c) Applicable Percent.--For purposes of this section, except as 
provided in section 1860D-19 (relating to premium subsidies for low-
income individuals), the applicable percent for any year is the 
percentage equal to a fraction--
            ``(1) the numerator of which is 27.5 percent; and
            ``(2) the denominator of which is 100 percent minus a 
        percentage equal to--
                    ``(A) the total reinsurance payments which the 
                Administrator estimates will be made under section 
                1860D-20 to qualifying entities described in subsection 
                (e)(3) of such section during the year; divided by
                    ``(B) the sum of--
                            ``(i) the amount estimated under 
                        subparagraph (A) for the year; and
                            ``(ii) the total payments which the 
                        Administrator estimates will be made under 
                        sections 1860D-16 and 1858A(c) during the year 
                        that relate to standard prescription drug 
                        coverage (or actuarially equivalent 
                        prescription drug coverage).

             ``collection of monthly beneficiary obligation

    ``Sec. 1860D-18. (a) Collection of Amount in Same Manner as Part B 
Premium.--
            ``(1) In general.--Subject to paragraph (2), the amount of 
        the monthly beneficiary obligation (determined under section 
        1860D-17) applicable to an eligible beneficiary under this part 
        (after application of any increase under section 1860D-
        2(b)(1)(A)) shall be collected and credited to the Prescription 
        Drug Account in the same manner as the monthly premium 
        determined under section 1839 is collected and credited to the 
        Federal Supplementary Medical Insurance Trust Fund under 
        section 1840.
            ``(2) Procedures for sponsor to pay obligation on behalf of 
        retiree.--The Administrator shall establish procedures under 
        which an eligible beneficiary enrolled in a Medicare 
        Prescription Drug plan may elect to have the sponsor (as 
        defined in paragraph (5) of section 1860D-20(e)) of employment-
        based retiree health coverage (as defined in paragraph (4)(B) 
        of such section) in which the beneficiary is enrolled pay the 
        amount of the monthly beneficiary obligation applicable to the 
        beneficiary under this part directly to the Administrator.
    ``(b) Information Necessary for Collection.--In order to carry out 
subsection (a), the Administrator shall transmit to the Commissioner of 
Social Security--
            ``(1) by the beginning of each year, the name, social 
        security account number, monthly beneficiary obligation owed by 
        each individual enrolled in a Medicare Prescription Drug plan 
        for each month during the year, and other information 
        determined appropriate by the Administrator; and
            ``(2) periodically throughout the year, information to 
        update the information previously transmitted under this 
        paragraph for the year.
    ``(c) Collection for Beneficiaries Enrolled in a MedicareAdvantage 
Plan.--For provisions related to the collection of the monthly 
beneficiary obligation for qualified prescription drug coverage under a 
MedicareAdvantage plan, see section 1858A(e).

    ``premium and cost-sharing subsidies for low-income individuals

    ``Sec. 1860D-19. (a) Amount of Subsidies.--
            ``(1) Full premium subsidy and reduction of cost-sharing 
        for qualified medicare beneficiaries.--In the case of a 
        qualified medicare beneficiary (as defined in paragraph 
        (4)(A))--
                    ``(A) section 1860D-17 shall be applied--
                            ``(i) in subsection (c), by substituting `0 
                        percent' for the applicable percent that would 
                        otherwise apply under such subsection; and
                            ``(ii) in subsection (a)(3)(B), by 
                        substituting `the amount of the monthly plan 
                        premium for the Medicare Prescription Drug plan 
                        with the lowest monthly plan premium in the 
                        area that the beneficiary resides' for `the 
                        amount of such monthly national average 
                        premium', but only if there is no Medicare 
                        Prescription Drug plan offered in the area in 
                        which the individual resides that has a monthly 
                        plan premium for the year that is equal to or 
                        less than the monthly national average premium 
                        (as computed under section 1860D-15) for the 
                        area for the year;
                    ``(B) the annual deductible applicable under 
                section 1860D-6(c)(1) in a year shall be reduced to $0;
                    ``(C) section 1860D-6(c)(2) shall be applied by 
                substituting `2.5 percent' for `50 percent' each place 
                it appears;
                    ``(D) such individual shall be responsible for 
                cost-sharing for the cost of any covered drug provided 
                in the year (after the individual has reached the 
                initial coverage limit described in section 1860D-
                6(c)(3) and before the individual has reached the 
                annual out-of-pocket limit under section 1860D-
                6(c)(4)(A)), that is equal to 5.0 percent; and
                    ``(E) section 1860D-6(c)(4)(A) shall be applied by 
                substituting `2.5 percent' for `10 percent'.
        In no case may the application of subparagraph (A) result in a 
        monthly beneficiary obligation that is below 0.
            ``(2) Full premium subsidy and reduction of cost-sharing 
        for specified low income medicare beneficiaries and qualifying 
        individuals.--In the case of a specified low income medicare 
        beneficiary (as defined in paragraph (4)(B)) or a qualifying 
        individual (as defined in paragraph (4)(C))--
                    ``(A) section 1860D-17 shall be applied--
                            ``(i) in subsection (c), by substituting `0 
                        percent' for the applicable percent that would 
                        otherwise apply under such subsection; and
                            ``(ii) in subsection (a)(3)(B), by 
                        substituting `the amount of the monthly plan 
                        premium for the Medicare Prescription Drug plan 
                        with the lowest monthly plan premium in the 
                        area that the beneficiary resides' for `the 
                        amount of such monthly national average 
                        premium', but only if there is no Medicare 
                        Prescription Drug plan offered in the area in 
                        which the individual resides that has a monthly 
                        plan premium for the year that is equal to or 
                        less than the monthly national average premium 
                        (as computed under section 1860D-15) for the 
                        area for the year;
                    ``(B) the annual deductible applicable under 
                section 1860D-6(c)(1) in a year shall be reduced to $0;
                    ``(C) section 1860D-6(c)(2) shall be applied by 
                substituting `5.0 percent' for `50 percent' each place 
                it appears;
                    ``(D) such individual shall be responsible for 
                cost-sharing for the cost of any covered drug provided 
                in the year (after the individual has reached the 
                initial coverage limit described in section 1860D-
                6(c)(3) and before the individual has reached the 
                annual out-of-pocket limit under section 1860D-
                6(c)(4)(A)), that is equal to 10.0 percent; and
                    ``(E) section 1860D-6(c)(4)(A) shall be applied by 
                substituting `2.5 percent' for `10 percent'.
        In no case may the application of subparagraph (A) result in a 
        monthly beneficiary obligation that is below 0.
            ``(3) Sliding scale premium subsidy and reduction of cost-
        sharing for subsidy-eligible individuals.--
                    ``(A) In general.--In the case of a subsidy-
                eligible individual (as defined in paragraph (4)(D))--
                            ``(i) section 1860D-17 shall be applied--
                                    ``(I) in subsection (c), by 
                                substituting `subsidy percent' for the 
                                applicable percentage that would 
                                otherwise apply under such subsection; 
                                and
                                    ``(II) in subparagraphs (A) and (B) 
                                of subsection (a)(3), by substituting 
                                `the amount of the monthly plan premium 
                                for the Medicare Prescription Drug plan 
                                with the lowest monthly plan premium in 
                                the area that the beneficiary resides' 
                                for `the amount of such monthly 
                                national average premium', but only if 
                                there is no Medicare Prescription Drug 
                                plan offered in the area in which the 
                                individual resides that has a monthly 
                                plan premium for the year that is equal 
                                to or less than the monthly national 
                                average premium (as computed under 
                                section 1860D-15) for the area for the 
                                year;
                            ``(ii) the annual deductible applicable 
                        under section 1860D-6(c)(1)--
                                    ``(I) for 2006, shall be reduced to 
                                $50; and
                                    ``(II) for a subsequent year, shall 
                                be reduced to the amount specified 
                                under this clause for the previous year 
                                increased by the percentage specified 
                                in section 1860D-6(c)(5) for the year 
                                involved;
                            ``(iii) section 1860D-6(c)(2) shall be 
                        applied by substituting `10.0 percent' for `50 
                        percent' each place it appears;
                            ``(iv) such individual shall be responsible 
                        for cost-sharing for the cost of any covered 
                        drug provided in the year (after the individual 
                        has reached the initial coverage limit 
                        described in section 1860D-6(c)(3) and before 
                        the individual has reached the annual out-of-
                        pocket limit under section 1860D-6(c)(4)(A)), 
                        that is equal to 20.0 percent; and
                            ``(v) such individual shall be responsible 
                        for the cost-sharing described in section 
                        1860D-6(c)(4)(A).
                In no case may the application of clause (i) result in 
                a monthly beneficiary obligation that is below 0.
                    ``(B) Subsidy percent defined.--For purposes of 
                subparagraph (A)(i), the term `subsidy percent' means, 
                with respect to a State, a percent determined on a 
                linear sliding scale ranging from--
                            ``(i) 0 percent with respect to a subsidy-
                        eligible individual residing in the State whose 
                        income does not exceed 135 percent of the 
                        poverty line; to
                            ``(ii) the highest percentage that would 
                        otherwise apply under section 1860D-17 in the 
                        service area in which the subsidy-eligible 
                        individual resides, in the case of a subsidy-
                        eligible individual residing in the State whose 
                        income equals 160 percent of the poverty line.
            ``(4) Definitions.--In this part:
                    ``(A) Qualified medicare beneficiary.--Subject to 
                subparagraph (H), the term `qualified medicare 
                beneficiary' means an individual who--
                            ``(i) is enrolled under this part, 
                        including an individual who is enrolled under a 
                        MedicareAdvantage plan; and
                            ``(ii) is described in section 1905(p)(1).
                    ``(B) Specified low income medicare beneficiary.--
                Subject to subparagraph (H), the term `specified low 
                income medicare beneficiary' means an individual who--
                            ``(i) is enrolled under this part, 
                        including an individual who is enrolled under a 
                        MedicareAdvantage plan; and
                            ``(ii) is described in section 
                        1902(a)(10)(E)(iii).
                    ``(C) Qualifying individual.--Subject to 
                subparagraph (H), the term `qualifying individual' 
                means an individual who--
                            ``(i) is enrolled under this part, 
                        including an individual who is enrolled under a 
                        MedicareAdvantage plan; and
                            ``(ii) is described in section 
                        1902(a)(10)(E)(iv) (without regard to any 
                        termination of the application of such section 
                        under title XIX).
                    ``(D) Subsidy-eligible individual.--Subject to 
                subparagraph (H), the term `subsidy-eligible 
                individual' means an individual--
                            ``(i) who is enrolled under this part, 
                        including an individual who is enrolled under a 
                        MedicareAdvantage plan
                            ``(ii) whose income is less than 160 
                        percent of the poverty line; and
                            ``(iii) who is not--
                                    ``(I) a qualified medicare 
                                beneficiary;
                                    ``(II) a specified low-income 
                                medicare beneficiary; or
                                    ``(III) a qualifying individual.
                    ``(E) Poverty line.--The term `poverty line' has 
                the meaning given such term in section 673(2) of the 
                Community Services Block Grant Act (42 U.S.C. 9902(2)), 
                including any revision required by such section.
                    ``(F) Eligibility determinations.--Beginning on 
                November 1, 2005, the determination of whether an 
                individual residing in a State is an individual 
                described in subparagraph (A), (B), (C), or (D) and, 
                for purposes of paragraph (3), the amount of an 
                individual's income, shall be determined under the 
                State medicaid plan for the State under section 
                1935(a). In the case of a State that does not operate 
                such a medicaid plan (either under title XIX or under a 
                statewide waiver granted under section 1115), such 
                determination shall be made under arrangements made by 
                the Administrator.
                    ``(G) Nonapplication to dual eligible individuals 
                and territorial residents.--In the case of an 
                individual who is not a resident of the 50 States or 
                the District of Columbia--
                            ``(i) the subsidies provided under this 
                        section shall not apply; and
                            ``(ii) such individuals may be provided 
                        with medical assistance for covered outpatient 
                        drugs (as such term is defined for purposes of 
                        section 1927) in accordance with section 1935 
                        under the State medicaid program under title 
                        XIX.
    ``(b) Rules in Applying Cost-Sharing Subsidies.--Nothing in this 
section shall be construed as preventing an eligible entity offering a 
Medicare Prescription Drug plan or a MedicareAdvantage organization 
offering a MedicareAdvantage plan from waiving or reducing the amount 
of the deductible or other cost-sharing otherwise applicable pursuant 
to section 1860D-6(a)(2).
    ``(c) Administration of Subsidy Program.--The Administrator shall 
establish a process whereby, in the case of an individual eligible for 
a cost-sharing subsidy under subsection (a) who is enrolled in a 
Medicare Prescription Drug plan or a MedicareAdvantage plan--
            ``(1) the Administrator provides for a notification of the 
        eligible entity or MedicareAdvantage organization involved that 
        the individual is eligible for a cost-sharing subsidy and the 
        amount of the subsidy under such subsection;
            ``(2) the entity or organization involved reduces the cost-
        sharing otherwise imposed by the amount of the applicable 
        subsidy and submits to the Administrator information on the 
        amount of such reduction; and
            ``(3) the Administrator periodically and on a timely basis 
        reimburses the entity or organization for the amount of such 
        reductions.
The reimbursement under paragraph (3) may be computed on a capitated 
basis, taking into account the actuarial value of the subsidies and 
with appropriate adjustments to reflect differences in the risks 
actually involved.
    ``(d) Relation to Medicaid Program.--For provisions providing for 
eligibility determinations and additional Federal payments for 
expenditures related to providing prescription drug coverage for 
territorial residents under the medicaid program, see section 1935.

``reinsurance payments for expenses incurred in providing prescription 
         drug coverage above the annual out-of-pocket threshold

    ``Sec. 1860D-20. (a) Reinsurance Payments.--
            ``(1) In general.--Subject to section 1860D-21(b), the 
        Administrator shall provide in accordance with this section for 
        payment to a qualifying entity of the reinsurance payment 
        amount (as specified in subsection (c)(1)) for costs incurred 
        by the entity in providing prescription drug coverage for a 
        qualifying covered individual after the individual has reached 
        the annual out-of-pocket threshold specified in section 1860D-
        6(c)(4)(B) for the year.
            ``(2) Budget authority.--This section constitutes budget 
        authority in advance of appropriations Acts and represents the 
        obligation of the Administrator to provide for the payment of 
        amounts provided under this section.
    ``(b) Notification of Spending Under the Plan for Costs Incurred in 
Providing Prescription Drug Coverage Above the Annual Out-of-Pocket 
Threshold.--
            ``(1) In general.--Each qualifying entity shall notify the 
        Administrator of the following with respect to a qualifying 
        covered individual for a coverage year:
                    ``(A) Total actual costs.--The total amount (if 
                any) of costs that the qualifying entity incurred in 
                providing prescription drug coverage for the individual 
                in the year after the individual had reached the annual 
                out-of-pocket threshold specified in section 1860D-
                6(c)(4)(B) for the year.
                    ``(B) Actual costs for specific drugs.--With 
                respect to the total amount under subparagraph (A) for 
                the year, a breakdown of--
                            ``(i) each covered drug that constitutes a 
                        portion of such amount;
                            ``(ii) the negotiated price for the 
                        qualifying entity for each such drug;
                            ``(iii) the number of prescriptions; and
                            ``(iv) the average beneficiary coinsurance 
                        rate for a each covered drug that constitutes a 
                        portion of such amount.
            ``(2) Certain expenses not included.--The amounts under 
        subparagraphs (A) and (B)(ii) of paragraph (1) may not 
        include--
                    ``(A) administrative expenses incurred in providing 
                the coverage described in paragraph (1)(A); or
                    ``(B) amounts expended on providing additional 
                prescription drug coverage pursuant to section 1860D-
                6(a)(2).
            ``(3) Restriction on use of information.--The restriction 
        specified in section 1860D-16(b)(7)(B) shall apply to 
        information disclosed or obtained pursuant to the provisions of 
        this section.
    ``(c) Reinsurance Payment Amount.--
            ``(1) In general.--The reinsurance payment amount under 
        this subsection for a qualifying covered individual for a 
        coverage year is an amount equal to 80 percent of the allowable 
        costs (as specified in paragraph (2)) incurred by the 
        qualifying entity with respect to the individual and year.
            ``(2) Allowable costs.--
                    ``(A) In general.--In the case of a qualifying 
                entity that has incurred costs described in subsection 
                (b)(1)(A) with respect to a qualifying covered 
                individual for a coverage year, the Administrator shall 
                establish the allowable costs for the individual and 
                year. Such allowable costs shall be equal to the amount 
                described in such subsection for the individual and 
                year, adjusted under subparagraph (B).
                    ``(B) Repricing of costs if actual costs exceed 
                average costs.--The Administrator shall reduce the 
                amount described in subsection (b)(1)(A) with respect 
                to a qualifying covered individual for a coverage year 
                to the extent such amount is based on costs of specific 
                covered drugs furnished under the plan in the year (as 
                specified under subsection (b)(1)(B)) that are greater 
                than the average cost for the covered drug for the year 
                (as determined under section 1860D-16(b)(3)(A)).
    ``(d) Payment Methods.--
            ``(1) In general.--Payments under this section shall be 
        based on such a method as the Administrator determines. The 
Administrator may establish a payment method by which interim payments 
of amounts under this section are made during a year based on the 
Administrator's best estimate of amounts that will be payable after 
obtaining all of the information.
            ``(2) Source of payments.--Payments under this section 
        shall be made from the Prescription Drug Account.
    ``(e) Definitions.--In this section:
            ``(1) Coverage year.--The term `coverage year' means a 
        calendar year in which covered drugs are dispensed if a claim 
        for payment is made under the plan for such drugs, regardless 
        of when the claim is paid.
            ``(2) Qualifying covered individual.--The term `qualifying 
        covered individual' means an individual who--
                    ``(A) is enrolled in this part and in a Medicare 
                Prescription Drug plan;
                    ``(B) is enrolled in this part and in a 
                MedicareAdvantage plan (except for an MSA plan or a 
                private fee-for-service plan that does not provide 
                qualified prescription drug coverage); or
                    ``(C) is eligible for, but not enrolled in, the 
                program under this part, and is covered under a 
                qualified retiree prescription drug plan.
            ``(3) Qualifying entity.--The term `qualifying entity' 
        means any of the following that has entered into an agreement 
        with the Administrator to provide the Administrator with such 
        information as may be required to carry out this section:
                    ``(A) An eligible entity offering a Medicare 
                Prescription Drug plan under this part.
                    ``(B) A MedicareAdvantage organization offering a 
                MedicareAdvantage plan under part C (except for an MSA 
                plan or a private fee-for-service plan that does not 
                provide qualified prescription drug coverage).
                    ``(C) The sponsor of a qualified retiree 
                prescription drug plan.
            ``(4) Qualified retiree prescription drug plan.--
                    ``(A) In general.--The term `qualified retiree 
                prescription drug plan' means employment-based retiree 
                health coverage if, with respect to a qualifying 
                covered individual who is covered under the plan, the 
                following requirements are met:
                            ``(i) Assurance.--The sponsor of the plan 
                        shall annually attest, and provide such 
                        assurances as the Administrator may require, 
                        that the coverage meets or exceeds the 
                        requirements for qualified prescription drug 
                        coverage.
                            ``(ii) Disclosure of information.--The 
                        sponsor complies with the requirements 
                        described in clauses (i) and (ii) of section 
                        1860D-16(b)(7)(A).
                    ``(B) Employment-based retiree health coverage.--
                The term `employment-based retiree health coverage' 
                means health insurance or other coverage, whether 
                provided by voluntary insurance coverage or pursuant to 
                statutory or contractual obligation, of health care 
                costs for retired individuals (or for such individuals 
                and their spouses and dependents) based on their status 
                as former employees or labor union members.
            ``(5) Sponsor.--The term `sponsor' means a plan sponsor, as 
        defined in section 3(16)(B) of the Employee Retirement Income 
        Security Act of 1974.

 ``direct subsidy for sponsor of a qualified retiree prescription drug 
  plan for plan enrollees eligible for, but not enrolled in, this part

    ``Sec. 1860D-21. (a) Direct Subsidy.--
            ``(1) In general.--The Administrator shall provide for the 
        payment to a sponsor of a qualified retiree prescription drug 
        plan (as defined in section 1860D-20(e)(4)) for each qualifying 
        covered individual (described in subparagraph (C) of section 
        1860D-20(e)(2)) enrolled in the plan for each month for which 
        such individual is so enrolled.
            ``(2) Amount of payment.--
                    ``(A) In general.--The amount of the payment under 
                paragraph (1) shall be an amount equal to the direct 
                subsidy percent determined for the year of the monthly 
                national average premium for the area for the year 
                (determined under section 1860D-15), as adjusted using 
                the risk adjusters that apply to the standard 
                prescription drug coverage published under section 
                1860D-11.
                    ``(B) Direct subsidy percent.--For purposes of 
                subparagraph (A), the term `direct subsidy percent' 
                means the percentage equal to--
                            ``(i) 100 percent; minus
                            ``(ii) the applicable percent for the year 
                        (as determined under section 1860D-17(c).
    ``(b) Payment Methods.--
            ``(1) In general.--Payments under this section shall be 
        based on such a method as the Administrator determines. The 
        Administrator may establish a payment method by which interim 
        payments of amounts under this section are made during a year 
        based on the Administrator's best estimate of amounts that will 
        be payable after obtaining all of the information.
            ``(2) Source of payments.--Payments under this section 
        shall be made from the Prescription Drug Account.

                 ``Subpart 3--Miscellaneous Provisions

   ``prescription drug account in the federal supplementary medical 
                          insurance trust fund

    ``Sec. 1860D-25. (a) Establishment.--
            ``(1) In general.--There is created within the Federal 
        Supplementary Medical Insurance Trust Fund established by 
        section 1841 an account to be known as the `Prescription Drug 
        Account' (in this section referred to as the `Account').
            ``(2) Funds.--The Account shall consist of such gifts and 
        bequests as may be made as provided in section 201(i)(1), and 
        such amounts as may be deposited in, or appropriated to, the 
        Account as provided in this part.
            ``(3) Separate from rest of trust fund.--Funds provided 
        under this part to the Account shall be kept separate from all 
        other funds within the Federal Supplementary Medical Insurance 
        Trust Fund.
    ``(b) Payments From Account.--
            ``(1) In general.--The Managing Trustee shall pay from time 
        to time from the Account such amounts as the Secretary 
        certifies are necessary to make payments to operate the program 
        under this part, including--
                    ``(A) payments to eligible entities under section 
                1860D-16;
                    ``(B) payments under 1860D-19 for low-income 
                subsidy payments for cost-sharing;
                    ``(C) reinsurance payments under section 1860D-20;
                    ``(D) payments to sponsors of qualified retiree 
                prescription drug plans under section 1860D-21;
                    ``(E) payments to MedicareAdvantage organizations 
                for the provision of qualified prescription drug 
                coverage under section 1858A(c); and
                    ``(F) payments with respect to administrative 
                expenses under this part in accordance with section 
                201(g).
            ``(2) Treatment in relation to part b premium.--Amounts 
        payable from the Account shall not be taken into account in 
        computing actuarial rates or premium amounts under section 
        1839.
    ``(c) Appropriations To Cover Benefits and Administrative Costs.--
There are appropriated to the Account in a fiscal year, out of any 
moneys in the Treasury not otherwise appropriated, an amount equal to 
the payments and transfers made from the Account in the year.

                       ``other related provisions

    ``Sec. 1860D-26. (a) Restriction on Enrollment in a Medicare 
Prescription Drug Plan Offered by a Sponsor of Employment-Based Retiree 
Health Coverage.--
            ``(1) In general.--In the case of a Medicare Prescription 
        Drug plan offered by an eligible entity that is a sponsor (as 
        defined in paragraph (5) of section 1860D-20(e)) of employment-
        based retiree health coverage (as defined in paragraph (4)(B) 
        of such section), notwithstanding any other provision of this 
        part and in accordance with regulations of the Administrator, 
        the entity offering the plan may restrict the enrollment of 
eligible beneficiaries enrolled under this part to eligible 
beneficiaries who are enrolled in such coverage.
            ``(2) Limitation.--The sponsor of the employment-based 
        retiree health coverage described in paragraph (1) may not 
        offer enrollment in the Medicare Prescription Drug plan 
        described in such paragraph based on the health status of 
        eligible beneficiaries enrolled for such coverage.
    ``(b) Coordination With State Pharmaceutical Assistance Programs.--
            ``(1) In general.--An eligible entity offering a Medicare 
        Prescription Drug plan, or a MedicareAdvantage organization 
        offering a MedicareAdvantage plan (other than an MSA plan or a 
        private fee-for-service plan that does not provide qualified 
        prescription drug coverage), may enter into an agreement with a 
        State pharmaceutical assistance program described in paragraph 
        (2) to coordinate the coverage provided under the plan with the 
        assistance provided under the State pharmaceutical assistance 
        program.
            ``(2) State pharmaceutical assistance program described.--
        For purposes of paragraph (1), a State pharmaceutical 
        assistance program described in this paragraph is a program 
        that has been established pursuant to a waiver under section 
        1115 or otherwise.
    ``(c) Regulations To Carry Out This Part.--
            ``(1) Authority for interim final regulations.--The 
        Secretary may promulgate initial regulations implementing this 
        part in interim final form without prior opportunity for public 
        comment.
            ``(2) Final regulations.--A final regulation reflecting 
        public comments must be published within 1 year of the interim 
        final regulation promulgated under paragraph (1).''.
    (b) Conforming Amendments to Federal Supplementary Medical 
Insurance Trust Fund.--Section 1841 (42 U.S.C. 1395t) is amended--
            (1) in the last sentence of subsection (a)--
                    (A) by striking ``and'' before ``such amounts''; 
                and
                    (B) by inserting before the period the following: 
                ``, and such amounts as may be deposited in, or 
                appropriated to, the Prescription Drug Account 
                established by section 1860D-25'';
            (2) in subsection (g), by inserting after ``by this part,'' 
        the following: ``the payments provided for under part D (in 
        which case the payments shall be made from the Prescription 
        Drug Account in the Trust Fund),'';
            (3) in subsection (h), by inserting after ``1840(d)'' the 
        following: ``and sections 1860D-18 and 1858A(e) (in which case 
        the payments shall be made from the Prescription Drug Account 
in the Trust Fund)''; and
            (4) in subsection (i), by inserting after ``section 
        1840(b)(1)'' the following: ``, sections 1860D-18 and 1858A(e) 
        (in which case the payments shall be made from the Prescription 
        Drug Account in the Trust Fund),''.
    (c) Conforming References to Previous Part D.--Any reference in law 
(in effect before the date of enactment of this Act) to part D of title 
XVIII of the Social Security Act is deemed a reference to part F of 
such title (as in effect after such date).
    (d) Submission of Legislative Proposal.--Not later than 6 months 
after the date of the enactment of this Act, the Secretary shall submit 
to the appropriate committees of Congress a legislative proposal 
providing for such technical and conforming amendments in the law as 
are required by the provisions of this Act.

SEC. 102. STUDY AND REPORT ON PERMITTING PART B ONLY INDIVIDUALS TO 
              ENROLL IN MEDICARE VOLUNTARY PRESCRIPTION DRUG DELIVERY 
              PROGRAM.

    (a) Study.--The Administrator of the Center for Medicare Choices 
(as established under section 1808 of the Social Security Act, as added 
by section 301(a)) shall conduct a study on the need for rules relating 
to permitting individuals who are enrolled under part B of title XVIII 
of the Social Security Act but are not entitled to benefits under part 
A of such title to buy into the medicare voluntary prescription drug 
delivery program under part D of such title (as so added).
    (b) Report.--Not later than January 1, 2005, the Administrator of 
the Center for Medicare Choices shall submit a report to Congress on 
the study conducted under subsection (a), together with any 
recommendations for legislation that the Administrator determines to be 
appropriate as a result of such study.

SEC. 103. RULES RELATING TO MEDIGAP POLICIES THAT PROVIDE PRESCRIPTION 
              DRUG COVERAGE.

    (a) Rules Relating to Medigap Policies That Provide Prescription 
Drug Coverage.--Section 1882 (42 U.S.C. 1395ss) is amended by adding at 
the end the following new subsection:
    ``(v) Rules Relating to Medigap Policies That Provide Prescription 
Drug Coverage.--
            ``(1) Prohibition on sale, issuance, and renewal of 
        policies that provide prescription drug coverage to part d 
        enrollees.--
                    ``(A) In general.--Notwithstanding any other 
                provision of law, on or after January 1, 2006, no 
                medicare supplemental policy that provides coverage of 
                expenses for prescription drugs may be sold, issued, or 
                renewed under this section to an individual who is 
                enrolled under part D.
                    ``(B) Penalties.--The penalties described in 
                subsection (d)(3)(A)(ii) shall apply with respect to a 
                violation of subparagraph (A).
            ``(2) Issuance of substitute policies if the policyholder 
        obtains prescription drug coverage under part d.--
                    ``(A) In general.--The issuer of a medicare 
                supplemental policy--
                            ``(i) may not deny or condition the 
                        issuance or effectiveness of a medicare 
                        supplemental policy that has a benefit package 
                        classified as `A', `B', `C', `D', `E', `F' 
                        (including the benefit package classified as 
                        `F' with a high deductible feature, as 
                        described in subsection (p)(11)), or `G' (under 
                        the standards established under subsection 
                        (p)(2)) and that is offered and is available 
                        for issuance to new enrollees by such issuer;
                            ``(ii) may not discriminate in the pricing 
                        of such policy, because of health status, 
                        claims experience, receipt of health care, or 
                        medical condition; and
                            ``(iii) may not impose an exclusion of 
                        benefits based on a pre-existing condition 
                        under such policy,
                in the case of an individual described in subparagraph 
                (B) who seeks to enroll under the policy during the 
                open enrollment period established under section 1860D-
                2(b)(2) and who submits evidence that they meet the 
                requirements under subparagraph (B) along with the 
                application for such medicare supplemental policy.
                    ``(B) Individual described.--An individual 
                described in this subparagraph is an individual who--
                            ``(i) enrolls in the medicare prescription 
                        drug delivery program under part D; and
                            ``(ii) at the time of such enrollment was 
                        enrolled and terminates enrollment in a 
                        medicare supplemental policy which has a 
                        benefit package classified as `H', `I', or `J' 
                        (including the benefit package classified as 
                        `J' with a high deductible feature, as 
                        described in section 1882(p)(11)) under the 
                        standards referred to in subparagraph (A)(i) or 
                        terminates enrollment in a policy to which such 
                        standards do not apply but which provides 
                        benefits for prescription drugs.
                    ``(C) Enforcement.--The provisions of subparagraph 
                (A) shall be enforced as though they were included in 
                subsection (s).
            ``(3) Notice required to be provided to current 
        policyholders with prescription drug coverage.--No medicare 
        supplemental policy of an issuer shall be deemed to meet the 
        standards in subsection (c) unless the issuer provides written 
        notice during the 60-day period immediately preceding the 
        period established for the open enrollment period established 
        under section 1860D-2(b)(2), to each individual who is a 
        policyholder or certificate holder of a medicare supplemental 
        policy issued by that issuer that provides some coverage of 
        expenses for prescription drugs (at the most recent available 
        address of that individual) of--
                    ``(A) the ability to enroll in a new medicare 
                supplemental policy pursuant to paragraph (2); and
                    ``(B) the fact that, so long as such individual 
                retains coverage under such policy, the individual 
                shall be ineligible for coverage of prescription drugs 
                under part D.''.
    (b) Rule of Construction.--
            (1) In general.--Nothing in this Act shall be construed to 
        require an issuer of a medicare supplemental policy under 
        section 1882 of the Social Security Act (42 U.S.C. 1395rr) to 
        participate as an eligible entity under part D of such Act, as 
        added by section 101, as a condition for issuing such policy.
            (2) Prohibition on state requirement.--A State may not 
        require an issuer of a medicare supplemental policy under 
        section 1882 of the Social Security Act (42 U.S.C. 1395rr) to 
        participate as an eligible entity under part D of such Act, as 
        added by section 101, as a condition for issuing such policy.

SEC. 104. MEDICAID AND OTHER AMENDMENTS RELATED TO LOW-INCOME 
              BENEFICIARIES.

    (a) Determinations of Eligibility for Low-Income Subsidies.--
Section 1902(a) (42 U.S.C. 1396a(a)) is amended--
            (1) by striking ``and'' at the end of paragraph (64);
            (2) by striking the period at the end of paragraph (65) and 
        inserting ``; and''; and
            (3) by inserting after paragraph (65) the following new 
        paragraph:
            ``(66) provide for making eligibility determinations under 
        section 1935(a).''.
    (b) New Section.--
            (1) In general.--Title XIX (42 U.S.C. 1396 et seq.) is 
        amended--
                    (A) by redesignating section 1935 as section 1936; 
                and
                    (B) by inserting after section 1934 the following 
                new section:

  ``special provisions relating to medicare prescription drug benefit

    ``Sec. 1935. (a) Requirement for Making Eligibility Determinations 
for Low-Income Subsidies.--As a condition of its State plan under this 
title under section 1902(a)(66) and receipt of any Federal financial 
assistance under section 1903(a), a State shall satisfy the following:
            ``(1) Determination of eligibility for transitional 
        prescription drug assistance card program for eligible low-
        income beneficiaries.--For purposes of section 1807A, submit to 
        the Secretary an eligibility plan under which the State--
                    ``(A) establishes eligibility standards consistent 
                with the provisions of that section;
                    ``(B) establishes procedures for providing 
                presumptive eligibility for eligible low-income 
                beneficiaries (as defined in section 1807A(i)(2)) under 
                that section in a manner that is similar to the manner 
                in which presumptive eligibility is provided to 
                children and pregnant women under this title;
                    ``(C) makes determinations of eligibility and 
                income for purposes of identifying eligible low-income 
                beneficiaries (as so defined) under that section; and
                    ``(D) communicates to the Secretary determinations 
                of eligibility or discontinuation of eligibility under 
                that section for purposes of notifying prescription 
                drug card sponsors under that section of the identity 
                of eligible medicare low-income beneficiaries.
            ``(2) Determination of eligibility for premium and cost-
        sharing subsidies under part d of title xviii for low-income 
        individuals.--Beginning November 1, 2005, for purposes of 
        section 1860D-19--
                    ``(A) make determinations of eligibility for 
                premium and cost-sharing subsidies under and in 
                accordance with such section;
                    ``(B) establish procedures for providing 
                presumptive eligibility for individuals eligible for 
                subsidies under that section in a manner that is 
                similar to the manner in which presumptive eligibility 
                is provided to children and pregnant women under this 
                title;
                    ``(C) inform the Administrator of the Center for 
                Medicare Choices of such determinations in cases in 
                which such eligibility is established; and
                    ``(D) otherwise provide such Administrator with 
                such information as may be required to carry out part D 
                of title XVIII (including section 1860D-19).
            ``(3) Agreement to establish information and enrollment 
        sites at social security field offices.--Enter into an 
        agreement with the Commissioner of Social Security to use all 
        Social Security field offices located in the State as 
        information and enrollment sites for making the eligibility 
        determinations required under paragraphs (1) and (2).
    ``(b) Federal Subsidy of Administrative Costs.--
            ``(1) Enhanced match for eligibility determinations.--
        Subject to paragraphs (2) and (4), with respect to calendar 
        quarters beginning on or after January 1, 2004, the amounts 
        expended by a State in carrying out subsection (a) are 
        expenditures reimbursable under section 1903(a)(7) except that, 
        in applying such section with respect to such expenditures 
        incurred for--
                    ``(A) such calendar quarters occurring in fiscal 
                year 2004 or 2005, `75 percent' shall be substituted 
                for `50 per centum';
                    ``(B) calendar quarters occurring in fiscal year 
                2006, `70 percent' shall be substituted for `50 per 
                centum';
                    ``(C) calendar quarters occurring in fiscal year 
                2007, `65 percent' shall be substituted for `50 per 
                centum'; and
                    ``(D) calendar quarters occurring in fiscal year 
                2008 or any fiscal year thereafter, `60 percent' shall 
                be substituted for `50 per centum'.
            ``(2) 100 percent match for eligibility determinations for 
        subsidy-eligible individuals.--In the case of amounts expended 
        by a State on or after November 1, 2005, to determine whether 
        an individual is a subsidy-eligible individual for purposes of 
        section 1860D-19, such expenditures shall be reimbursed under 
        section 1903(a)(7) by substituting `100 percent' for `50 per 
        centum'.
            ``(3) Enhanced match for updates or improvements to 
        eligibility determination systems.--With respect to calendar 
        quarters occurring in fiscal year 2004, 2005, or 2006, the 
        Secretary, in addition to amounts otherwise paid under section 
        1903(a), shall pay to each State which has a plan approved 
        under this title, for each such quarter an amount equal to 90 
        percent of so much of the sums expended during such quarter as 
        are attributable to the design, development, acquisition, or 
        installation of improved eligibility determination systems 
        (including hardware and software for such systems) in order to 
        carry out the requirements of subsection (a) and section 
        1807A(h)(1) and to the design, development, acquisition or 
        installation of improved data systems necessary to track 
        prescription drug spending for purposes of implementing section 
        1935(c). No payment shall be made to a State under 
the preceding sentence unless the State's improved eligibility 
determination system--
                    ``(A) satisfies such standards for improvement as 
                the Secretary may establish; and
                    ``(B) complies, and is compatible, with the 
                standards established under part C of title XI and any 
                regulations promulgated under section 264(c) of the 
                Health Insurance Portability and Accountability Act of 
                1996 (42 U.S.C. 1320d-2 note).
            ``(4) Coordination.--The State shall provide the Secretary 
        with such information as may be necessary to properly allocate 
        expenditures described in paragraph (1), (2), or (3) that may 
        otherwise be made for similar eligibility determinations or 
        expenditures.
    ``(c) Federal Assumption of Medicaid Prescription Drug Costs for 
Dually Eligible Beneficiaries.--
            ``(1) In general.--For purpose of section 1903(a)(1) for a 
        State for a calendar quarter in a year (beginning with 2006) 
        the amount computed under this subsection is equal to the 
        product of the following:
                    ``(A) Standard prescription drug coverage under 
                medicare.--With respect to individuals who are 
                residents of the State, who are entitled to, or 
                enrolled for, benefits under part A of title XVIII, or 
                are enrolled under part B of title XVIII and are 
                receiving medical assistance under subparagraph (A)(i), 
                (A)(ii), or (C) of section 1902(a)(10) (or as the 
                result of the application of section 1902(f)) that 
                includes covered outpatient drugs (as defined for 
                purposes of section 1927) under the State plan under 
                this title (including such a plan operated under a 
                waiver under section 1115)--
                            ``(i) the total amounts attributable to 
                        such individuals in the quarter under section 
                        1860D-19 (relating to premium and cost-sharing 
                        subsidies for low-income medicare 
                        beneficiaries); and
                            ``(ii) the actuarial value of standard 
                        prescription drug coverage (as determined under 
                        section 1860D-6(f)) provided to such 
                        individuals in the quarter.
                    ``(B) State matching rate.--A proportion computed 
                by subtracting from 100 percent the Federal medical 
                assistance percentage (as defined in section 1905(b)) 
                applicable to the State and the quarter.
                    ``(C) Phase-out proportion.--Subject to 
                subparagraph (D), the phase-out proportion for a 
                quarter in--
                            ``(i) 2006 is 100 percent;
                            ``(ii) 2007 is 95 percent;
                            ``(iii) 2008 or 2009, is 90 percent;
                            ``(iv) 2010 is 85 percent; or
                            ``(v) 2011, 2012, or 2013 is 80 percent.
    ``(d) Medicaid as Secondary Payor.--In the case of an individual 
who is entitled to a Medicare Prescription Drug plan under part D or 
drug coverage under a MedicareAdvantage plan, and medical assistance 
including covered outpatient drugs under this title, medical assistance 
shall continue to be provided under this title for covered outpatient 
drugs to the extent payment is not made under the Medicare Prescription 
Drug plan or a MedicareAdvantage plan.
    ``(e) Treatment of Territories.--
            ``(1) In general.--In the case of a State, other than the 
        50 States and the District of Columbia--
                    ``(A) the previous provisions of this section shall 
                not apply to residents of such State; and
                    ``(B) if the State establishes a plan described in 
                paragraph (2), the amount otherwise determined under 
                section 1108(f) (as increased under section 1108(g)) 
                for the State shall be further increased by the amount 
                specified in paragraph (3).
            ``(2) Plan.--The plan described in this paragraph is a plan 
        that--
                    ``(A) provides medical assistance with respect to 
                the provision of covered drugs (as defined in section 
                1860D(a)(2)) to individuals described in subparagraph 
                (A), (B), (C), or (D) of section 1860D-19(a)(3); and
                    ``(B) ensures that additional amounts received by 
                the State that are attributable to the operation of 
                this subsection are used only for such assistance.
            ``(3) Increased amount.--
                    ``(A) In general.--The amount specified in this 
                paragraph for a State for a fiscal year is equal to the 
                product of--
                            ``(i) the aggregate amount specified in 
                        subparagraph (B); and
                            ``(ii) the amount specified in section 
                        1108(g)(1) for that State, divided by the sum 
                        of the amounts specified in such section for 
                        all such States.
                    ``(B) Aggregate amount.--The aggregate amount 
                specified in this subparagraph for--
                            ``(i) the last 3 quarters of fiscal year 
                        2006, is equal to $22,500,000;
                            ``(ii) fiscal year 2007, is equal to 
                        $30,000,000; and
                            ``(iii) any subsequent fiscal year, is 
                        equal to the aggregate amount specified in this 
                        subparagraph for the previous fiscal year 
                        increased by the annual percentage increase 
                        specified in section 1860D-6(c)(5) for the 
                        calendar year beginning in such fiscal year.
            ``(4) Nonapplication.--Section 1927(d)(2)(E) shall not 
        apply to a State described in paragraph (1) for purposes of 
        providing medical assistance described in paragraph (2)(A).
            ``(5) Report.--The Secretary shall submit to Congress a 
        report on the application of this subsection and may include in 
        the report such recommendations as the Secretary deems 
        appropriate.
    ``(f) Definition.--For purposes of this section, the term `subsidy-
eligible individual' has the meaning given that term in subparagraph 
(D) of section 1860D-19(a)(4).''.
            (2) Conforming amendments.--
                    (A) Section 1903(a)(1) (42 U.S.C. 1396a(a)(1)) is 
                amended by inserting before the semicolon the 
                following: ``, reduced by the amount computed under 
                section 1935(c)(1) for the State and the quarter''.
                    (B) Section 1108(f) (42 U.S.C. 1308(f)) is amended 
                by inserting ``and section 1935(e)(1)(B)'' after 
                ``Subject to subsection (g)''.
            (3) Amendment to best price.--Section 1927(c)(1)(C)(i) (42 
        U.S.C. 1396r-8(c)(1)(C)(i)), as amended by section 111(b), is 
        amended--
                    (A) by striking ``and'' at the end of subclause 
                (IV);
                    (B) by striking the period at the end of subclause 
                (V) and inserting ``; and''; and
                    (C) by adding at the end the following new 
                subclause:
                                    ``(VI) any prices charged which are 
                                negotiated under a Medicare 
                                Prescription Drug plan under part D of 
                                title XVIII with respect to covered 
                                drugs, under a MedicareAdvantage plan 
                                under part C of such title with respect 
                                to such drugs, or under a qualified 
                                retiree prescription drug plan (as 
                                defined in section 1860D-20(f)(1)) with 
                                respect to such drugs, on behalf of 
                                eligible beneficiaries (as defined in 
                                section 1860D(a)(3).''.
    (c) Extension of Medicare Cost-Sharing for Part B Premium for 
Qualifying Individuals Through 2008.--
            (1) In general.--Section 1902(a)(10)(E)(iv) (42 U.S.C. 
        1396a(a)(10)(E)(iv)) is amended to read as follows:
                    ``(iv) subject to sections 1933 and 1905(p)(4), for 
                making medical assistance available (but only for 
                premiums payable with respect to months during the 
                period beginning with January 1998, and ending with 
                December 2008) for medicare cost-sharing described in 
                section 1905(p)(3)(A)(ii) for individuals who would be 
                qualified medicare beneficiaries described in section 
                1905(p)(1) but for the fact that their income exceeds 
                the income level established by the State under section 
                1905(p)(2) and is at least 120 percent, but less than 
                135 percent, of the official poverty line (referred to 
                in such section) for a family of the size involved and 
                who are not otherwise eligible for medical assistance 
                under the State plan;''.
            (2) Total amount available for allocation.--Section 1933(c) 
        (42 U.S.C. 1396u-3(c)) is amended--
                    (A) in paragraph (1)--
                            (i) in subparagraph (D), by striking 
                        ``and'' at the end;
                            (ii) in subparagraph (E)--
                                    (I) by striking ``fiscal year 
                                2002'' and inserting ``each of fiscal 
                                years 2002 through 2008''; and
                                    (II) by striking the period and 
                                inserting ``; and''; and
                            (iii) by adding at the end the following 
                        new subparagraph:
                    ``(F) the first quarter of fiscal year 2009, 
                $100,000,000.''; and
                    (B) in paragraph (2)(A), by striking ``the sum of'' 
                and all that follows through ``1902(a)(10)(E)(iv)(II) 
                in the State; to'' and inserting ``twice the total 
                number of individuals described in section 
                1902(a)(10)(E)(iv) in the State; to''.
    (d) Outreach by the Commissioner of Social Security.--Section 1144 
(42 U.S.C. 1320b-14) is amended--
            (1) in the section heading, by inserting ``and subsidies 
        for low-income individuals under title xviii'' after ``cost-
        sharing'';
            (2) in subsection (a)--
                    (A) in paragraph (1)--
                            (i) in subparagraph (A), by inserting ``for 
                        the transitional prescription drug assistance 
                        card program under section 1807A, or for 
                        premium and cost-sharing subsidies under 
                        section 1860D-19'' before the semicolon; and
                            (ii) in subparagraph (B), by inserting ``, 
                        program, and subsidies'' after ``medical 
                        assistance''; and
                    (B) in paragraph (2)--
                            (i) in the matter preceding subparagraph 
                        (A), by inserting ``, the transitional 
                        prescription drug assistance card program under 
                        section 1807A, or premium and cost-sharing 
                        subsidies under section 1860D-19'' after 
                        ``assistance''; and
                            (ii) in subparagraph (A), by striking 
                        ``such eligibility'' and inserting 
                        ``eligibility for medicare cost-sharing under 
                        the medicaid program''; and
            (3) in subsection (b)--
                    (A) in paragraph (1)(A), by inserting ``, for the 
                transitional prescription drug assistance card program 
                under section 1807A, or for premium and cost-sharing 
                subsidies for low-income individuals under section 
                1860D-19'' after ``1933''; and
                    (B) in paragraph (2), by inserting ``, program, and 
                subsidies'' after ``medical assistance''.

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

    (a) Expansion of Membership.--
            (1) In general.--Section 1805(c) (42 U.S.C. 1395b-6(c)) is 
        amended--
                    (A) in paragraph (1), by striking ``17'' and 
                inserting ``19''; and
                    (B) in paragraph (2)(B), by inserting ``experts in 
                the area of pharmacology and prescription drug benefit 
                programs,'' after ``other health professionals,''.
            (2) Initial terms of additional members.--
                    (A) In general.--For purposes of staggering the 
                initial terms of members of the Medicare Payment 
                Advisory Commission under section 1805(c)(3) of the 
                Social Security Act (42 U.S.C. 1395b-6(c)(3)), the 
                initial terms of the 2 additional members of the 
                Commission provided for by the amendment under 
                paragraph (1)(A) are as follows:
                            (i) One member shall be appointed for 1 
                        year.
                            (ii) One member shall be appointed for 2 
                        years.
                    (B) Commencement of terms.--Such terms shall begin 
                on January 1, 2005.
    (b) Expansion of Duties.--Section 1805(b)(2) (42 U.S.C. 1395b-
6(b)(2)) is amended by adding at the end the following new 
subparagraph:
                    ``(D) Voluntary prescription drug delivery 
                program.--Specifically, the Commission shall review, 
                with respect to the voluntary prescription drug 
                delivery program under part D, competition among 
                eligible entities offering Medicare Prescription Drug 
                plans and beneficiary access to such plans and covered 
                drugs, particularly in rural areas.''.

SEC. 106. STUDY REGARDING VARIATIONS IN SPENDING AND DRUG UTILIZATION.

    (a) Study.--The Secretary shall study on an ongoing basis 
variations in spending and drug utilization under part D of title XVIII 
of the Social Security Act for covered drugs to determine the impact of 
such variations on premiums imposed by eligible entities offering 
Medicare Prescription Drug plans under that part. In conducting such 
study, the Secretary shall examine the impact of geographic adjustments 
of the monthly national average premium under section 1860D-15 of such 
Act on--
            (1) maximization of competition under part D of title XVIII 
        of such Act; and
            (2) the ability of eligible entities offering Medicare 
        Prescription Drug plans to contain costs for covered drugs.
    (b) Report.--Beginning with 2007, the Secretary shall submit annual 
reports to Congress on the study required under subsection (a).

 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.

    (a) In General.--Title XVIII is amended by inserting after section 
1806 the following new sections:

     ``medicare prescription drug discount card endorsement program

    ``Sec. 1807. (a) Establishment.--There is established a medicare 
prescription drug discount card endorsement program under which the 
Secretary shall--
            ``(1) endorse prescription drug discount card programs 
        offered by prescription drug card sponsors that meet the 
        requirements of this section; and
            ``(2) make available to eligible beneficiaries information 
        regarding such endorsed programs.
    ``(b) Eligibility, Election of Program, and Enrollment Fees.--
            ``(1) Eligibility and election of program.--
                    ``(A) In general.--Subject to subparagraph (B), the 
                Secretary shall establish procedures--
                            ``(i) for identifying eligible 
                        beneficiaries; and
                            ``(ii) under which such beneficiaries may 
                        make an election to enroll in any prescription 
                        drug discount card program endorsed under this 
                        section and disenroll from such a program.
                    ``(B) Limitation.--An eligible beneficiary may not 
                be enrolled in more than 1 prescription drug discount 
                card program at any time.
            ``(2) Enrollment fees.--
                    ``(A) In general.--A prescription drug card sponsor 
                may charge an annual enrollment fee to each eligible 
                beneficiary enrolled in a prescription drug discount 
                card program offered by such sponsor.
                    ``(B) Amount.--No enrollment fee charged under 
                subparagraph (A) may exceed $25.
                    ``(C) Uniform enrollment fee.--A prescription drug 
                card sponsor shall ensure that the enrollment fee for a 
                prescription drug discount card program endorsed under 
                this section is the same for all eligible medicare 
                beneficiaries enrolled in the program.
                    ``(D) Collection.--Any enrollment fee shall be 
                collected by the prescription drug card sponsor.
    ``(c) Providing Information to Eligible Beneficiaries.--
            ``(1) Promotion of informed choice.--
                    ``(A) By the secretary.--In order to promote 
                informed choice among endorsed prescription drug 
                discount card programs, the Secretary shall provide for 
                the dissemination of information which compares the 
                costs and benefits of such programs. Such dissemination 
                shall be coordinated with the dissemination of 
                educational information on other medicare options.
                    ``(B) By prescription drug card sponsors.--Each 
                prescription drug card sponsor shall make available to 
                each eligible beneficiary (through the Internet and 
                otherwise) information--
                            ``(i) that the Secretary identifies as 
                        being necessary to promote informed choice 
                        among endorsed prescription drug discount card 
                        programs by eligible beneficiaries, including 
                        information on enrollment fees, negotiated 
                        prices for prescription drugs charged to 
                        beneficiaries, and services relating to 
                        prescription drugs offered under the program; 
                        and
                            ``(ii) on how any formulary used by such 
                        sponsor functions.
            ``(2) Use of medicare toll-free number.--The Secretary 
        shall provide through the 1-800-MEDICARE toll free telephone 
        number for the receipt and response to inquiries and complaints 
        concerning the medicare prescription drug discount card 
        endorsement program established under this section and 
        prescription drug discount card programs endorsed under such 
        program.
    ``(d) Beneficiary Protections.--
            ``(1) In general.--Each prescription drug discount card 
        program endorsed under this section shall meet such 
        requirements as the Secretary identifies to protect and promote 
        the interest of eligible beneficiaries, including requirements 
        that--
                    ``(A) relate to appeals by eligible beneficiaries 
                and marketing practices; and
                    ``(B) ensure that beneficiaries are not charged 
                more than the lower of the negotiated retail price or 
                the usual and customary price.
            ``(2) Ensuring pharmacy access.--Each prescription drug 
        card sponsor offering a prescription drug discount card program 
        endorsed under this section shall secure the participation in 
        its network of a sufficient number of pharmacies that dispense 
        (other than by mail order) drugs directly to patients to ensure 
        convenient access (as determined by the Secretary and including 
        adequate emergency access) for enrolled beneficiaries. Such 
        standards shall take into account reasonable distances to 
        pharmacy services in both urban and rural areas.
            ``(3) Quality assurance.--Each prescription drug card 
        sponsor offering a prescription drug discount card program 
        endorsed under this section shall have in place adequate 
        procedures for assuring that quality service is provided to 
        eligible beneficiaries enrolled in a prescription drug discount 
        card program offered by such sponsor.
            ``(4) Confidentiality of enrollee records.--Insofar as a 
        prescription drug card sponsor maintains individually 
        identifiable medical records or other health information 
        regarding eligible beneficiaries enrolled in a prescription 
        drug discount card program endorsed under this section, the 
        prescription drug card sponsor shall have in place procedures 
        to safeguard the privacy of any individually identifiable 
        beneficiary information in a manner that the Secretary 
        determines is consistent with the Federal regulations 
        (concerning the privacy of individually identifiable health 
        information) promulgated under section 264(c) of the Health 
        Insurance Portability and Accountability Act of 1996.
            ``(5) No other fees.--A prescription drug card sponsor may 
        not charge any fee to an eligible beneficiary under a 
        prescription drug discount card program endorsed under this 
        section other than an enrollment fee charged under subsection 
        (b)(2)(A).
            ``(6) Prices.--
                    ``(A) Avoidance of high priced drugs.--A 
                prescription drug card sponsor may not recommend 
                switching an eligible beneficiary to a drug with a 
                higher negotiated price absent a recommendation by a 
                licensed health professional that there is a clinical 
                indication with respect to the patient for such a 
                switch.
                    ``(B) Price stability.--Negotiated prices charged 
                for prescription drugs covered under a prescription 
                drug discount card program endorsed under this section 
                may not change more frequently than once every 60 days.
    ``(e) Prescription Drug Benefits.--
            ``(1) In general.--Each prescription drug card sponsor may 
        only provide benefits that relate to prescription drugs (as 
        defined in subsection (i)(2)) under a prescription drug 
        discount card program endorsed under this section.
            ``(2) Savings to eligible beneficiaries.--
                    ``(A) In general.--Subject to subparagraph (D), 
                each prescription drug card sponsor shall provide 
                eligible beneficiaries who enroll in a prescription 
                drug discount card program offered by such sponsor that 
                is endorsed under this section with access to 
                negotiated prices used by the sponsor with respect to 
                prescription drugs dispensed to eligible beneficiaries.
                    ``(B) Inapplicability of medicaid best price 
                rules.--The requirements of section 1927 relating to 
                manufacturer best price shall not apply to the 
                negotiated prices for prescription drugs made available 
                under a prescription drug discount card program 
                endorsed under this section.
                    ``(C) Guaranteed access to negotiated prices.--The 
                Secretary, in consultation with the Inspector General 
                of the Department of Health and Human Services, shall 
                establish procedures to ensure that eligible 
                beneficiaries have access to the negotiated prices for 
                prescription drugs provided under subparagraph (A).
                    ``(D) Application of formulary restrictions.--A 
                drug prescribed for an eligible beneficiary that would 
                otherwise be a covered drug under this section shall 
                not be so considered under a prescription drug discount 
                card program if the program excludes the drug under a 
                formulary.
            ``(3) Beneficiary services.--Each prescription drug 
        discount card program endorsed under this section shall provide 
        pharmaceutical support services, such as education, counseling, 
        and services to prevent adverse drug interactions.
            ``(4) Discount cards.--Each prescription drug card sponsor 
        shall issue a card to eligible beneficiaries enrolled in a 
        prescription drug discount card program offered by such sponsor 
        that the beneficiary may use to obtain benefits under the 
        program.
    ``(f) Submission of Applications for Endorsement and Approval.--
            ``(1) Submission of applications for endorsement.--Each 
        prescription drug card sponsor that seeks endorsement of a 
prescription drug discount card program under this section shall submit 
to the Secretary, at such time and in such manner as the Secretary may 
specify, such information as the Secretary may require.
            ``(2) Approval.--The Secretary shall review the information 
        submitted under paragraph (1) and shall determine whether to 
        endorse the prescription drug discount card program to which 
        such information relates. The Secretary may not approve a 
        program unless the program and prescription drug card sponsor 
        offering the program comply with the requirements under this 
        section.
    ``(g) Requirements on Development and Application of Formularies.--
If a prescription drug card sponsor offering a prescription drug 
discount card program uses a formulary, the following requirements must 
be met:
            ``(1) Pharmacy and therapeutic (p&t) committee.--
                    ``(A) In general.--The eligible entity must 
                establish a pharmacy and therapeutic committee that 
                develops and reviews the formulary.
                    ``(B) Composition.--A pharmacy and therapeutic 
                committee shall include at least 1 academic expert, at 
                least 1 practicing physician, and at least 1 practicing 
                pharmacist, all of whom have expertise in the care of 
                elderly or disabled persons, and a majority of the 
                members of such committee shall consist of individuals 
                who are a practicing physician or a practicing 
                pharmacist (or both).
            ``(2) Formulary development.--In developing and reviewing 
        the formulary, the committee shall base clinical decisions on 
        the strength of scientific evidence and standards of practice, 
        including assessing peer-reviewed medical literature, such as 
        randomized clinical trials, pharmacoeconomic studies, outcomes 
        research data, and such other information as the committee 
        determines to be appropriate.
            ``(3) Inclusion of drugs in all therapeutic categories and 
        classes.--
                    ``(A) In general.--The formulary must include drugs 
                within each therapeutic category and class of covered 
                outpatient drugs (as defined by the Secretary), 
                although not necessarily for all drugs within such 
                categories and classes.
                    ``(B) Requirement.--In defining therapeutic 
                categories and classes of covered outpatient drugs 
                pursuant to subparagraph (A), the Secretary shall use 
                the compendia referred to section 1927(g)(1)(B)(i) or 
                other recognized sources for categorizing drug 
                therapeutic categories and classes.
            ``(4) Provider education.--The committee shall establish 
        policies and procedures to educate and inform health care 
        providers concerning the formulary.
            ``(5) Notice before removing drugs from formulary.--Any 
        removal of a drug from a formulary shall take effect only after 
        appropriate notice is made available to beneficiaries and 
        pharmacies.
    ``(h) Fraud and Abuse Prevention.--
            ``(1) In general.--The Secretary shall provide appropriate 
        oversight to ensure compliance of endorsed programs with the 
        requirements of this section, including verification of the 
        negotiated prices and services provided.
            ``(2) Disqualification for abusive practices.--The 
        Secretary may implement intermediate sanctions and may revoke 
        the endorsement of a program that the Secretary determines no 
        longer meets the requirements of this section or that has 
        engaged in false or misleading marketing practices.
            ``(3) Authority with respect to civil money penalties.--The 
        Secretary may impose a civil money penalty in an amount not to 
        exceed $10,000 for any violation of this section. The 
        provisions of section 1128A (other than subsections (a) and 
        (b)) shall apply to a civil money penalty under the previous 
        sentence in the same manner as such provisions apply to a 
        penalty or proceeding under section 1128A(a).
            ``(4) Reporting to secretary.--Each prescription drug card 
        sponsor offering a prescription drug discount card program 
        endorsed under this section shall report information relating 
        to program performance, use of prescription drugs by eligible 
        beneficiaries enrolled in the program, financial information of 
        the sponsor, and such other information as the Secretary may 
        specify. The Secretary may not disclose any proprietary data 
        reported under this paragraph.
            ``(5) Drug utilization review.--The Secretary may use 
        claims data from parts A and B for purposes of conducting a 
        drug utilization review program.
    ``(i) Definitions.--In this section:
            ``(1) Eligible beneficiary.--
                    ``(A) In general.--The term `eligible beneficiary' 
                means an individual who--
                            ``(i) is entitled to, or enrolled for, 
                        benefits under part A and enrolled under part 
                        B; and
                            ``(ii) is not a dual eligible individual 
                        (as defined in subparagraph (B)).
                    ``(B) Dual eligible individual.--
                            ``(i) In general.--The term `dual eligible 
                        individual' means an individual who is--
                                    ``(I) enrolled under title XIX or 
                                under a waiver under section 1115 of 
                                the requirements of such title for 
                                medical assistance that includes but is 
                                limited solely to covered outpatient 
                                drugs (as such term is defined for 
                                purposes of section 1927); and
                                    ``(II) entitled to benefits under 
                                part A and enrolled under part B.
                            ``(ii) Inclusion of medically needy.--Such 
                        term includes an individual described in 
                        section 1902(a)(10)(C).
            ``(2) Prescription drug.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), the term `prescription drug' means--
                            ``(i) a drug that may be dispensed only 
                        upon a prescription and that is described in 
                        clause (i) or (ii) of subparagraph (A) of 
                        section 1927(k)(2); or
                            ``(ii) a biological product or insulin 
                        described in subparagraph (B) or (C) of such 
                        section,
                and such term includes a vaccine licensed under section 
                351 of the Public Health Service Act and any use of a 
                covered outpatient drug for a medically accepted 
                indication (as defined in section 1927(k)(6)).
                    ``(B) Exclusions.--The term `prescription drug' 
                does not include drugs or classes of drugs, or their 
                medical uses, which may be excluded from coverage or 
                otherwise restricted under section 1927(d)(2), other 
                than subparagraph (E) thereof (relating to smoking 
                cessation agents), or under section 1927(d)(3).
            ``(3) Negotiated price.--The term `negotiated price' 
        includes all discounts, direct or indirect subsidies, rebates, 
        price concessions, and direct or indirect remunerations.
            ``(4) Prescription drug card sponsor.--The term 
        `prescription drug card sponsor' means any entity with 
        demonstrated experience and expertise in operating a 
        prescription drug discount card program, an insurance program 
        that provides coverage for prescription drugs, or a similar 
        program that the Secretary determines to be appropriate to 
        provide eligible beneficiaries with the benefits under a 
        prescription drug discount card program endorsed by the 
        Secretary under this section, including--
                    ``(A) a pharmaceutical benefit management company;
                    ``(B) a wholesale or retail pharmacist delivery 
                system;
                    ``(C) an insurer (including an insurer that offers 
                medicare supplemental policies under section 1882);
                    ``(D) any other entity; or
                    ``(E) any combination of the entities described in 
                subparagraphs (A) through (D).

 ``transitional prescription drug assistance card program for eligible 
                        low-income beneficiaries

    ``Sec. 1807A. (a) Establishment.--
            ``(1) In general.--There is established a program under 
        which the Secretary shall award contracts to prescription drug 
        card sponsors offering a prescription drug discount card that 
        has been endorsed by the Secretary under section 1807 under 
        which such sponsors shall offer a prescription drug assistance 
        card program to eligible low-income beneficiaries in accordance 
        with the requirements of this section.
            ``(2) Application of discount card provisions.--Except as 
        otherwise provided in this section, the provisions of section 
        1807 shall apply to the program established under this section.
    ``(b) Eligibility, Election of Program, and Enrollment Fees.--
            ``(1) Eligibility and election of program.--
                    ``(A) In general.--Subject to the succeeding 
                provisions of this paragraph, the enrollment procedures 
                established under section 1807(b)(1)(A)(ii) shall apply 
                for purposes of this section.
                    ``(B) Enrollment of any eligible low-income 
                beneficiary.--Each prescription drug card sponsor 
                offering a prescription drug assistance card program 
                under this section shall permit any eligible low-income 
                beneficiary to enroll in such program if it serves the 
                geographic area in which the beneficiary resides.
                    ``(C) Simultaneous enrollment in prescription drug 
                discount card program.--An eligible low-income 
                beneficiary who enrolls in a prescription drug 
                assistance card program offered by a prescription drug 
                card sponsor under this section shall be simultaneously 
                enrolled in a prescription drug discount card program 
                offered by such sponsor.
            ``(2) Waiver of enrollment fees.--
                    ``(A) In general.--A prescription drug card sponsor 
                may not charge an enrollment fee to any eligible low-
                income beneficiary enrolled in a prescription drug 
                discount card program offered by such sponsor.
                    ``(B) Payment by secretary.--Under a contract 
                awarded under subsection (f)(2), the Secretary shall 
                pay to each prescription drug card sponsor an amount 
                equal to any enrollment fee charged under section 
                1807(b)(2)(A) on behalf of each eligible low-income 
                beneficiary enrolled in a prescription drug discount 
                card program under paragraph (1)(C) offered by such 
                sponsor.
    ``(c) Additional Beneficiary Protections.--
            ``(1) Providing information to eligible low-income 
        beneficiaries.--In addition to the information provided to 
        eligible beneficiaries under section 1807(c), the prescription 
        drug card sponsor shall--
                    ``(A) periodically notify each eligible low-income 
                beneficiary enrolled in a prescription drug assistance 
                card program offered by such sponsor of the amount of 
                coverage for prescription drugs remaining under 
                subsection (d)(2)(A); and
                    ``(B) notify each eligible low-income beneficiary 
                enrolled in a prescription drug assistance card program 
                offered by such sponsor of the grievance and appeals 
                processes under the program.
            ``(2) Convenient access in long-term care facilities.--For 
        purposes of determining whether convenient access has been 
        provided under section 1807(d)(2) with respect to eligible low-
        income beneficiaries enrolled in a prescription drug assistance 
        card program, the Secretary may only make a determination that 
        such access has been provided if an appropriate arrangement is 
        in place for eligible low-income beneficiaries who are in a 
        long-term care facility (as defined by the Secretary) to 
        receive prescription drug benefits under the program.
            ``(3) Coordination of benefits.--
                    ``(A) In general.--The Secretary shall establish 
                procedures under which eligible low-income 
                beneficiaries who are enrolled for coverage described 
                in subparagraph (B) and enrolled in a prescription drug 
                assistance card program have access to the prescription 
                drug benefits available under such program.
                    ``(B) Coverage described.--Coverage described in 
                this subparagraph is as follows:
                            ``(i) Coverage of prescription drugs under 
                        a State pharmaceutical assistance program.
                            ``(ii) Enrollment in a Medicare+Choice plan 
                        under part C.
            ``(4) Grievance mechanism.--Each prescription drug card 
        sponsor with a contract under this section shall provide in 
        accordance with section 1852(f) meaningful procedures for 
        hearing and resolving grievances between the prescription drug 
        card sponsor (including any entity or individual through which 
        the prescription drug card sponsor provides covered benefits) 
        and enrollees in a prescription drug assistance card program 
        offered by such sponsor.
            ``(5) Application of coverage determination and 
        reconsideration provisions.--
                    ``(A) In general.--The requirements of paragraphs 
                (1) through (3) of section 1852(g) shall apply with 
                respect to covered benefits under a prescription drug 
                assistance card program under this section in the same 
                manner as such requirements apply to a Medicare+Choice 
                organization with respect to benefits it offers under a 
                Medicare+Choice plan under part C.
                    ``(B) Request for review of tiered formulary 
                determinations.--In the case of a prescription drug 
                assistance card program offered by a prescription drug 
                card sponsor that provides for tiered pricing for drugs 
                included within a formulary and provides lower prices 
                for preferred drugs included within the formulary, an 
                eligible low-income beneficiary who is enrolled in the 
                program may request coverage of a nonpreferred drug 
                under the terms applicable for preferred drugs if the 
                prescribing physician determines that the preferred 
                drug for treatment of the same condition is not as 
                effective for the eligible low-income beneficiary or 
                has adverse effects for the eligible low-income 
                beneficiary.
                    ``(C) Formulary determinations.--An eligible low-
                income beneficiary who is enrolled in a prescription 
                drug assistance card program offered by a prescription 
                drug card sponsor may appeal to obtain coverage for a 
                covered drug that is not on a formulary of the entity 
                if the prescribing physician determines that the 
                formulary drug for treatment of the same condition is 
                not as effective for the eligible low-income 
                beneficiary or has adverse effects for the eligible 
                low-income beneficiary.
            ``(6) Appeals.--
                    ``(A) In general.--Subject to subparagraph (B), a 
                prescription drug card sponsor shall meet the 
                requirements of paragraphs (4) and (5) of section 
                1852(g) with respect to drugs not included on any 
                formulary in a similar manner (as determined by the 
                Secretary) as such requirements apply to a 
                Medicare+Choice organization with respect to benefits 
                it offers under a Medicare+Choice plan under part C.
                    ``(B) Formulary determinations.--An eligible low-
                income beneficiary who is enrolled in a prescription 
                drug assistance card program offered by a prescription 
                drug card sponsor may appeal to obtain coverage for a 
                covered drug that is not on a formulary of the entity 
                if the prescribing physician determines that the 
                formulary drug for treatment of the same condition is 
                not as effective for the eligible low-income 
                beneficiary or has adverse effects for the eligible 
                low-income beneficiary.
                    ``(C) Appeals and exceptions to application.--The 
                prescription drug card sponsor must have, as part of 
the appeals process under this paragraph, a process for timely appeals 
for denials of coverage based on the application of the formulary.
    ``(d) Prescription Drug Benefits.--
            ``(1) In general.--Subject to paragraph (5), all the 
        benefits available under a prescription drug discount card 
        program offered by a prescription drug card sponsor and 
        endorsed under section 1807 shall be available to eligible low-
        income beneficiaries enrolled in a prescription drug assistance 
        card program offered by such sponsor.
            ``(2) Assistance for eligible low-income beneficiaries.--
                    ``(A) $600 annual assistance.--Subject to 
                subparagraphs (B) and (C) and paragraph (5), each 
                prescription drug card sponsor with a contract under 
                this section shall provide coverage for the first $600 
                of expenses for prescription drugs incurred during each 
                calendar year by an eligible low-income beneficiary 
                enrolled in a prescription drug assistance card program 
                offered by such sponsor.
                    ``(B) Coinsurance.--
                            ``(i) In general.--The prescription drug 
                        card sponsor shall determine an amount of 
                        coinsurance to collect from each eligible low-
                        income beneficiary enrolled in a prescription 
                        drug assistance card program offered by such 
                        sponsor for which coverage is available under 
                        subparagraph (A).
                            ``(ii) Amount.--The amount of coinsurance 
                        collected under clause (i) shall be at least 10 
                        percent of the negotiated price of each 
                        prescription drug dispensed to an eligible low-
                        income beneficiary.
                            ``(iii) Construction.--Amounts collected 
                        under clause (i) shall not be counted against 
                        the total amount of coverage available under 
                        subparagraph (A).
                    ``(C) Reduction for late enrollment.--For each 
                month during a calendar quarter in which an eligible 
                low-income beneficiary is not enrolled in a 
                prescription drug assistance card program offered by a 
                prescription drug card sponsor with a contract under 
                this section, the amount of assistance available under 
                subparagraph (A) shall be reduced by $50.
                    ``(D) Crediting of unused benefits toward future 
                years.--The dollar amount of coverage described in 
                subparagraph (A) shall be increased by any amount of 
                coverage described in such subparagraph that was not 
                used during the previous calendar year.
                    ``(E) Waiver to ensure provision of benefit.--The 
                Secretary may waive such requirements of this section 
                and section 1807 as may be necessary to ensure that 
                each eligible low-income beneficiaries has access to 
                the assistance described in subparagraph (A).
            ``(3) Additional discounts.--A prescription drug card 
        sponsor with a contract under this section shall provide each 
        eligible low-income beneficiary enrolled in a prescription drug 
        assistance program offered by the sponsor with access to 
        negotiated prices that reflect a minimum average discount of at 
        least 20 percent of the average wholesale price for 
        prescription drugs covered under that program.
            ``(4) Assistance cards.--Each prescription drug card 
        sponsor shall permit eligible low-income beneficiaries enrolled 
        in a prescription drug assistance card program offered by such 
        sponsor to use the discount card issued under section 
        1807(e)(4) to obtain benefits under the program.
            ``(5) Application of formulary restrictions.--A drug 
        prescribed for an eligible low-income beneficiary that would 
        otherwise be a covered drug under this section shall not be so 
        considered under a prescription drug assistance card program if 
        the program excludes the drug under a formulary and such 
        exclusion is not successfully resolved under paragraph (4), 
        (5), or (6) of subsection (c).
    ``(e) Requirements for Prescription Drug Card Sponsors That Offer 
Prescription Drug Assistance Card Programs.--
            ``(1) In general.--Each prescription drug card sponsor 
        shall--
                    ``(A) process claims made by eligible low-income 
                beneficiaries;
                    ``(B) negotiate with brand name and generic 
                prescription drug manufacturers and others for low 
                prices on prescription drugs;
                    ``(C) track individual beneficiary expenditures in 
                a format and periodicity specified by the Secretary; 
                and
                    ``(D) perform such other functions as the Secretary 
                may assign.
            ``(2) Data exchanges.--Each prescription drug card sponsor 
        shall receive data exchanges in a format specified by the 
        Secretary and shall maintain real-time beneficiary files.
            ``(3) Public disclosure of pharmaceutical prices for 
        equivalent drugs.--The prescription drug card sponsor offering 
        the prescription drug assistance card program shall provide 
        that each pharmacy or other dispenser that arranges for the 
        dispensing of a covered drug shall inform the eligible low-
        income beneficiary at the time of purchase of the drug of any 
        differential between the price of the prescribed drug to the 
        enrollee and the price of the lowest priced generic drug 
        covered under the plan that is therapeutically equivalent and 
        bioequivalent and available at such pharmacy or other 
        dispenser.
    ``(f) Submission of Bids and Awarding of Contracts.--
            ``(1) Submission of bids.--Each prescription drug card 
        sponsor that seeks to offer a prescription drug assistance card 
        program under this section shall submit to the Secretary, at 
        such time and in such manner as the Secretary may specify, such 
        information as the Secretary may require.
            ``(2) Awarding of contracts.--The Secretary shall review 
        the information submitted under paragraph (1) and shall 
        determine whether to award a contract to the prescription drug 
        card sponsor offering the program to which such information 
        relates. The Secretary may not approve a program unless the 
        program and prescription drug card sponsor offering the program 
        comply with the requirements under this section.
            ``(3) Number of contracts.--There shall be no limit on the 
        number of prescription drug card sponsors that may be awarded 
        contracts under paragraph (2).
            ``(4) Contract provisions.--
                    ``(A) Duration.--A contract awarded under paragraph 
                (2) shall be for the lifetime of the program under this 
                section.
                    ``(B) Withdrawal.--A prescription drug card sponsor 
                that desires to terminate the contract awarded under 
                paragraph (2) may terminate such contract without 
                penalty if such sponsor gives notice--
                            ``(i) to the Secretary 90 days prior to the 
                        termination of such contract; and
                            ``(ii) to each eligible low-income 
                        beneficiary that is enrolled in a prescription 
                        drug assistance card program offered by such 
                        sponsor 60 days prior to such termination.
                    ``(C) Service area.--The service area under the 
                contract shall be the same as the area served by the 
                prescription drug card sponsor under section 1807.
            ``(5) Simultaneous approval of discount card and assistance 
        programs.--A prescription drug card sponsor may submit an 
        application for endorsement under section 1807 as part of the 
        bid submitted under paragraph (1) and the Secretary may approve 
        such application at the same time as the Secretary awards a 
        contract under this section.
    ``(g) Payments to Prescription Drug Card Sponsors.--
            ``(1) In general.--The Secretary shall pay to each 
        prescription drug card sponsor offering a prescription drug 
        assistance card program in which an eligible low-income 
        beneficiary is enrolled an amount equal to the amount agreed to 
        by the Secretary and the sponsor in the contract awarded under 
        subsection (f)(2).
            ``(2) Payment from part b trust fund.--The costs of 
        providing benefits under this section shall be payable from the 
        Federal Supplementary Medical Insurance Trust Fund established 
        under section 1841.
    ``(h) Eligibility Determinations Made by States; Presumptive 
Eligibility.--States shall perform the functions described in section 
1935(a)(1).
    ``(i) Appropriations.--There are appropriated from the Federal 
Supplementary Medical Insurance Trust Fund established under section 
1841 such sums as may be necessary to carry out the program under this 
section.
    ``(j) Definitions.--In this section:
            ``(1) Eligible beneficiary; negotiated price; prescription 
        drug.--The terms `eligible beneficiary', `negotiated price', 
        and `prescription drug' have the meanings given those terms in 
        section 1807(i).
            ``(2) Eligible low-income beneficiary.--The term `eligible 
        low-income beneficiary' means an individual who--
                    ``(A) is an eligible beneficiary (as defined in 
                section 1807(i));
                    ``(B) is not a dual eligible beneficiary as defined 
                under section 1807(i)(1)(B); and
                    ``(C) is described in clause (iii) or (iv) of 
                section 1902(a)(10)(E) or in section 1905(p)(1).
            ``(3) Prescription drug card sponsor.--The term 
        `prescription drug card sponsor' has the meaning given that 
        term in section 1807(i), except that such sponsor shall also be 
        an entity that the Secretary determines--
                    ``(A) is appropriate to provide eligible low-income 
                beneficiaries with the benefits under a prescription 
                drug assistance card program under this section;
                    ``(B) is able to manage the monetary assistance 
                made available under subsection (d)(2);
                    ``(C) agrees to submit to audits by the Secretary; 
                and
                    ``(D) provides such other assurances as the 
                Secretary may require.
            ``(4) State.--The term `State' has the meaning given such 
        term for purposes of title XIX.''.
    (b) Exclusion of Prices From Determination of Best Price.--Section 
1927(c)(1)(C)(i) (42 U.S.C. 1396r-8(c)(1)(C)(i)) is amended--
            (1) by striking ``and'' at the end of subclause (III);
            (2) by striking the period at the end of subclause (IV) and 
        inserting ``; and''; and
            (3) by adding at the end the following new subclause:
                                    ``(V) any negotiated prices charged 
                                under the medicare prescription drug 
                                discount card endorsement program under 
                                section 1807 or under the transitional 
                                prescription drug assistance card 
                                program for eligible low-income 
                                beneficiaries under section 1807A.''.
    (c) Exclusion of Prescription Drug Assistance Card Costs From 
Determination of Part B Monthly Premium.--Section 1839(g) of the Social 
Security Act (42 U.S.C. 1395r(g)) is amended--
            (1) by striking ``attributable to the application of 
        section'' and inserting ``attributable to--
            ``(1) the application of section'';
            (2) by striking the period and inserting ``; and''; and
            (3) by adding at the end the following new paragraph:
            ``(2) the prescription drug assistance card program under 
        section 1807A.''.
    (d) Regulations.--
            (1) Authority for interim final regulations.--The Secretary 
        may promulgate initial regulations implementing sections 1807 
        and 1807A of the Social Security Act (as added by this section) 
in interim final form without prior opportunity for public comment.
            (2) Final regulations.--A final regulation reflecting 
        public comments must be published within 1 year of the interim 
        final regulation promulgated under paragraph (1).
            (3) Exemption from the paperwork reduction act.--The 
        promulgation of the regulations under this subsection and the 
        administration the programs established by sections 1807 and 
        1807A of the Social Security Act (as added by this section) 
        shall be made without regard to chapter 35 of title 44, United 
        States Code (commonly known as the ``Paperwork Reduction 
        Act'').
    (e) Implementation; Transition.--
            (1) Implementation.--The Secretary shall implement the 
        amendments made by this section in a manner that discounts are 
        available to eligible beneficiaries under section 1807 of the 
        Social Security Act and assistance is available to eligible 
        low-income beneficiaries under section 1807A of such Act not 
        later than January 1, 2004.
            (2) Transition.--The Secretary shall provide for an 
        appropriate transition and discontinuation of the programs 
        under section 1807 and 1807A of the Social Security Act. Such 
        transition and discontinuation shall ensure that such programs 
        continue to operate until the date on which the first 
        enrollment period under part D ends.

            Subtitle C--Standards for Electronic Prescribing

 SEC. 121. STANDARDS FOR ELECTRONIC PRESCRIBING.

    Title XI (42 U.S.C. 1301 et seq.) is amended by adding at the end 
the following new part:

                    ``Part D--Electronic Prescribing

                 ``standards for electronic prescribing

    ``Sec. 1180. (a) Standards.--
            ``(1) Development and Adoption.--
                    ``(A) In general.--The Secretary shall develop or 
                adopt standards for transactions and data elements for 
                such transactions (in this section referred to as 
                `standards') to enable the electronic transmission of 
                medication history, eligibility, benefit, and other 
                prescription information.
                    ``(B) Consultation.--In developing and adopting the 
                standards under subparagraph (A), the Secretary shall 
                consult with representatives of physicians, hospitals, 
                pharmacists, standard setting organizations, pharmacy 
                benefit managers, beneficiary information exchange 
                networks, technology experts, and representatives of 
                the Departments of Veterans Affairs and Defense and 
                other interested parties.
            ``(2) Objective.--Any standards developed or adopted under 
        this part shall be consistent with the objectives of 
        improving--
                    ``(A) patient safety; and
                    ``(B) the quality of care provided to patients.
            ``(3) Requirements.--Any standards developed or adopted 
        under this part shall comply with the following:
                    ``(A) Electronic transmittal of prescriptions.--
                            ``(i) In general.--Except as provided in 
                        clause (ii), the standards require that 
                        prescriptions be written and transmitted 
                        electronically.
                            ``(ii) Exceptions.--The standards shall not 
                        require a prescription to be written and 
                        transmitted electronically--
                                    ``(I) in emergency cases and other 
                                exceptional circumstances recognized by 
                                the Administrator; or
                                    ``(II) if the patient requests that 
                                the prescription not be transmitted 
                                electronically.
                        If a patient makes a request under subclause 
                        (II), no additional charges may be imposed on 
                        the patient for making such request.
                    ``(B) Patient-specific medication history, 
                eligibility, benefit, and other prescription 
                information.--
                            ``(i) In general.--The standards shall 
                        accommodate electronic transmittal of patient-
                        specific medication history, eligibility, 
                        benefit, and other prescription information 
                        among prescribing and dispensing professionals 
                        at the point of care.
                            ``(ii) Required information.--The 
                        information described in clause (i) shall 
                        include the following:
                                    ``(I) Information (to the extent 
                                available and feasible) on the drugs 
                                being prescribed for that patient and 
                                other information relating to the 
                                medication history of the patient that 
                                may be relevant to the appropriate 
                                prescription for that patient.
                                    ``(II) Cost-effective alternatives 
                                (if any) to the drug prescribed.
                                    ``(III) Information on eligibility 
                                and benefits, including the drugs 
                                included in the applicable formulary 
                                and any requirements for prior 
                                authorization.
                                    ``(IV) Information on potential 
                                interactions with drugs listed on the 
                                medication history, graded by severity 
                                of the potential interaction.
                                    ``(V) Other information to improve 
                                the quality of patient care and to 
                                reduce medical errors.
                    ``(C) Undue burden.--The standards shall be 
                designed so that, to the extent practicable, the 
                standards do not impose an undue administrative burden 
                on the practice of medicine, pharmacy, or other health 
                professions.
                    ``(D) Compatibility with administrative 
                simplification and privacy laws.--The standards shall 
                be--
                            ``(i) consistent with the Federal 
                        regulations (concerning the privacy of 
                        individually identifiable health information) 
                        promulgated under section 264(c) of the Health 
                        Insurance Portability and Accountability Act of 
                        1996; and
                            ``(ii) compatible with the standards 
                        adopted under part C.
            ``(4) Transfer of information.--The Secretary shall develop 
        and adopt standards for transferring among prescribing and 
        insurance entities and other necessary entities appropriate 
        standard data elements needed for the electronic exchange of 
        medication history, eligibility, benefit, and other 
        prescription drug information and other health information 
        determined appropriate in compliance with the standards adopted 
        or modified under this part.
    ``(b) Timetable for Adoption of Standards.--
            ``(1) In general.--The Secretary shall adopt the standards 
        under this part by January 1, 2006.
            ``(2) Additions and modifications to standards.--The 
        Secretary shall, in consultation with appropriate 
        representatives of interested parties, review the standards 
        developed or adopted under this part and adopt modifications to 
        the standards (including additions to the standards), as 
        determined appropriate. Any addition or modification to such 
        standards shall be completed in a manner which minimizes the 
        disruption and cost of compliance.
    ``(c) Compliance With Standards.--
            ``(1) Requirement for all individuals and entities that 
        transmit or receive prescriptions electronically.--
                    ``(A) In general.--Individuals or entities that 
                transmit or receive electronic medication history, 
                eligibility, benefit and prescription information, 
                shall comply with the standards adopted or modified 
                under this part.
                    ``(B) Relation to state laws.--The standards 
                adopted or modified under this part shall supersede any 
                State law or regulations pertaining to the electronic 
                transmission of medication history, eligibility, 
                benefit and prescription information.
            ``(2) Timetable for compliance.--
                    ``(A) Initial compliance.--
                            ``(i) In general.--Not later than 24 months 
                        after the date on which an initial standard is 
                        adopted under this part, each individual or 
                        entity to whom the standard applies shall 
                        comply with the standard.
                            ``(ii) Special rule for small health 
                        plans.--In the case of a small health plan, as 
                        defined by the Secretary for purposes of 
                        section 1175(b)(1)(B), clause (i) shall be 
                        applied by substituting `36 months' for `24 
                        months'.
    ``(d) Consultation With Attorney General.--The Secretary shall 
consult with the Attorney General before developing, adopting, or 
modifying a standard under this part to ensure that the standard 
accommodates secure electronic transmission of prescriptions for 
controlled substances in a manner that minimizes the possibility of 
violations under the Comprehensive Drug Abuse Prevention and Control 
Act of 1970 and related Federal laws.

``grants to health care providers to implement electronic prescription 
                                programs

    ``Sec. 1180A. (a) In General.--The Secretary is authorized to make 
grants to health care providers for the purpose of assisting such 
entities to implement electronic prescription programs that comply with 
the standards adopted or modified under this part.
    ``(b) Application.--No grant may be made under this section except 
pursuant to a grant application that is submitted in a time, manner, 
and form approved by the Secretary.
    ``(c) Authorization of Appropriations.--There are authorized to be 
appropriated for each of fiscal years 2006, 2007, and 2008, such sums 
as may be necessary to carry out this section.''.

                      Subtitle D--Other Provisions

SEC. 131. ADDITIONAL REQUIREMENTS FOR ANNUAL FINANCIAL REPORT AND 
              OVERSIGHT ON MEDICARE PROGRAM.

    (a) In General.--Section 1817 (42 U.S.C. 1395i) is amended by 
adding at the end the following new subsection:
    ``(l) Combined Report on Operation and Status of the Trust Fund and 
the Federal Supplementary Medical Insurance Trust Fund (Including the 
Prescription Drug Account).--In addition to the duty of the Board of 
Trustees to report to Congress under subsection (b), on the date the 
Board submits the report required under subsection (b)(2), the Board 
shall submit to Congress a report on the operation and status of the 
Trust Fund and the Federal Supplementary Medical Insurance Trust Fund 
established under section 1841 (including the Prescription Drug Account 
within such Trust Fund), in this subsection referred to as the `Trust 
Funds'. Such report shall include the following information:
            ``(1) Overall spending from the general fund of the 
        treasury.--A statement of total amounts obligated during the 
        preceding fiscal year from the General Revenues of the Treasury 
        to the Trust Funds, separately stated in terms of the total 
        amount and in terms of the percentage such amount bears to all 
        other amounts obligated from such General Revenues during such 
        fiscal year, for each of the following amounts:
                    ``(A) Medicare benefits.--The amount expended for 
                payment of benefits covered under this title.
                    ``(B) Administrative and other expenses.--The 
                amount expended for payments not related to the 
                benefits described in subparagraph (A).
            ``(2) Historical overview of spending.--From the date of 
        the inception of the program of insurance under this title 
        through the fiscal year involved, a statement of the total 
        amounts referred to in paragraph (1), separately stated for the 
        amounts described in subparagraphs (A) and (B) of such 
        paragraph.
            ``(3) 10-year and 50-year projections.--An estimate of 
        total amounts referred to in paragraph (1), separately stated 
        for the amounts described in subparagraphs (A) and (B) of such 
        paragraph, required to be obligated for payment for benefits 
        covered under this title for each of the 10 fiscal years 
        succeeding the fiscal year involved and for the 50-year period 
        beginning with the succeeding fiscal year.
            ``(4) Relation to other measures of growth.--A comparison 
        of the rate of growth of the total amounts referred to in 
        paragraph (1), separately stated for the amounts described in 
        subparagraphs (A) and (B) of such paragraph, to the rate of 
        growth for the same period in--
                    ``(A) the gross domestic product;
                    ``(B) health insurance costs in the private sector;
                    ``(C) employment-based health insurance costs in 
                the public and private sectors; and
                    ``(D) other areas as determined appropriate by the 
                Board of Trustees.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply with respect to fiscal years beginning on or after the date of 
enactment of this Act.
    (c) Congressional Hearings.--It is the sense of Congress that the 
committees of jurisdiction of Congress shall hold hearings on the 
reports submitted under section 1817(l) of the Social Security Act (as 
added by subsection (a)).

SEC. 132. TRUSTEES' REPORT ON MEDICARE'S UNFUNDED OBLIGATIONS.

    (a) Report.--The report submitted under sections 1817(b)(2) and 
1841(b)(2) of the Social Security Act (42 U.S.C. 1395i(b)(2) and 
1395t(b)(2)) during 2004 shall include an analysis of the total amount 
of the unfunded obligations of the Medicare program under title XVIII 
of the Social Security Act.
    (b) Matters Analyzed.--The analysis described in subsection (A) 
shall compare the long-term obligations of the Medicare program to the 
dedicated funding sources for that program (other than general revenue 
transfers), including the combined obligations of the Federal Hospital 
Insurance Trust Fund established under section 1817 of such Act (42 
U.S.C. 1395i) and the Federal Supplementary Medical Insurance Trust 
Fund established under section 1841 of such Act (42 U.S.C. 1395t).

                      TITLE II--MEDICAREADVANTAGE

               Subtitle A--MedicareAdvantage Competition

SEC. 201. ELIGIBILITY, ELECTION, AND ENROLLMENT.

    Section 1851 (42 U.S.C. 1395w-21) is amended to read as follows:

                ``eligibility, election, and enrollment

    ``Sec. 1851. (a) Choice of Medicare Benefits Through 
MedicareAdvantage Plans.--
            ``(1) In general.--Subject to the provisions of this 
        section, each MedicareAdvantage eligible individual (as defined 
        in paragraph (3)) is entitled to elect to receive benefits 
        under this title--
                    ``(A) through--
                            ``(i) the original Medicare fee-for-service 
                        program under parts A and B; and
                            ``(ii) the voluntary prescription drug 
                        delivery program under part D; or
                    ``(B) through enrollment in a MedicareAdvantage 
                plan under this part.
            ``(2) Types of medicareadvantage plans that may be 
        available.--A MedicareAdvantage plan may be any of the 
        following types of plans of health insurance:
                    ``(A) Coordinated care plans.--Coordinated care 
                plans which provide health care services, including 
                health maintenance organization plans (with or without 
                point of service options) and plans offered by 
                provider-sponsored organizations (as defined in section 
                1855(d)).
                    ``(B) Combination of msa plan and contributions to 
                medicareadvantage msa.--An MSA plan, as defined in 
                section 1859(b)(3), and a contribution into a 
                MedicareAdvantage medical savings account (MSA).
                    ``(C) Private fee-for-service plans.--A 
                MedicareAdvantage private fee-for-service plan, as 
                defined in section 1859(b)(2).
            ``(3) Medicareadvantage eligible individual.--
                    ``(A) In general.--Subject to subparagraph (B), in 
                this title, the term `MedicareAdvantage eligible 
                individual' means an individual who is entitled to (or 
                enrolled for) benefits under part A, enrolled under 
                part B, and enrolled under part D.
                    ``(B) Special rule for end-stage renal disease.--
                Such term shall not include an individual medically 
                determined to have end-stage renal disease, except 
                that--
                            ``(i) an individual who develops end-stage 
                        renal disease while enrolled in a 
                        Medicare+Choice or a MedicareAdvantage plan may 
                        continue to be enrolled in that plan; and
                            ``(ii) in the case of such an individual 
                        who is enrolled in a Medicare+Choice plan or a 
                        MedicareAdvantage plan under clause (i) (or 
                        subsequently under this clause), if the 
                        enrollment is discontinued under circumstances 
                        described in section 1851(e)(4)(A), then the 
                        individual will be treated as a 
                        `MedicareAdvantage eligible individual' for 
                        purposes of electing to continue enrollment in 
                        another MedicareAdvantage plan.
    ``(b) Special Rules.--
            ``(1) Residence requirement.--
                    ``(A) In general.--Except as the Secretary may 
                otherwise provide and except as provided in 
                subparagraph (C), an individual is eligible to elect a 
                MedicareAdvantage plan offered by a MedicareAdvantage 
                organization only if the plan serves the geographic 
                area in which the individual resides.
                    ``(B) Continuation of enrollment permitted.--
                Pursuant to rules specified by the Secretary, the 
                Secretary shall provide that a plan may offer to all 
                individuals residing in a geographic area the option to 
                continue enrollment in the plan, notwithstanding that 
                the individual no longer resides in the service area of 
                the plan, so long as the plan provides that individuals 
                exercising this option have, as part of the basic 
                benefits described in section 1852(a)(1)(A), reasonable 
                access within that geographic area to the full range of 
                basic benefits, subject to reasonable cost-sharing 
                liability in obtaining such benefits.
                    ``(C) Continuation of enrollment permitted where 
                service changed.--Notwithstanding subparagraph (A) and 
                in addition to subparagraph (B), if a MedicareAdvantage 
                organization eliminates from its service area a 
                MedicareAdvantage payment area that was previously 
                within its service area, the organization may elect to 
                offer individuals residing in all or portions of the 
                affected area who would otherwise be ineligible to 
                continue enrollment the option to continue enrollment 
                in a MedicareAdvantage plan it offers so long as--
                            ``(i) the enrollee agrees to receive the 
                        full range of basic benefits (excluding 
                        emergency and urgently needed care) exclusively 
                        at facilities designated by the organization 
                        within the plan service area; and
                            ``(ii) there is no other MedicareAdvantage 
                        plan offered in the area in which the enrollee 
                        resides at the time of the organization's 
                        election.
            ``(2) Special rule for certain individuals covered under 
        fehbp or eligible for veterans or military health benefits.--
                    ``(A) FEHBP.--An individual who is enrolled in a 
                health benefit plan under chapter 89 of title 5, United 
                States Code, is not eligible to enroll in an MSA plan 
                until such time as the Director of the Office of 
                Management and Budget certifies to the Secretary that 
                the Office of Personnel Management has adopted policies 
                which will ensure that the enrollment of such 
                individuals in such plans will not result in increased 
                expenditures for the Federal Government for health 
                benefit plans under such chapter.
                    ``(B) VA and dod.--The Secretary may apply rules 
                similar to the rules described in subparagraph (A) in 
                the case of individuals who are eligible for health 
                care benefits under chapter 55 of title 10, United 
                States Code, or under chapter 17 of title 38 of such 
                Code.
            ``(3) Limitation on eligibility of qualified medicare 
        beneficiaries and other medicaid beneficiaries to enroll in an 
        msa plan.--An individual who is a qualified medicare 
        beneficiary (as defined in section 1905(p)(1)), a qualified 
        disabled and working individual (described in section 1905(s)), 
        an individual described in section 1902(a)(10)(E)(iii), or 
        otherwise entitled to medicare cost-sharing under a State plan 
        under title XIX is not eligible to enroll in an MSA plan.
            ``(4) Coverage under msa plans on a demonstration basis.--
                    ``(A) In general.--An individual is not eligible to 
                enroll in an MSA plan under this part--
                            ``(i) on or after January 1, 2004, unless 
                        the enrollment is the continuation of such an 
                        enrollment in effect as of such date; or
                            ``(ii) as of any date if the number of such 
                        individuals so enrolled as of such date has 
                        reached 390,000.
                Under rules established by the Secretary, an individual 
                is not eligible to enroll (or continue enrollment) in 
                an MSA plan for a year unless the individual provides 
                assurances satisfactory to the Secretary that the 
                individual will reside in the United States for at 
                least 183 days during the year.
                    ``(B) Evaluation.--The Secretary shall regularly 
                evaluate the impact of permitting enrollment in MSA 
                plans under this part on selection (including adverse 
                selection), use of preventive care, access to care, and 
                the financial status of the Trust Funds under this 
                title.
                    ``(C) Reports.--The Secretary shall submit to 
                Congress periodic reports on the numbers of individuals 
                enrolled in such plans and on the evaluation being 
                conducted under subparagraph (B).
    ``(c) Process for Exercising Choice.--
            ``(1) In general.--The Secretary shall establish a process 
        through which elections described in subsection (a) are made 
        and changed, including the form and manner in which such 
        elections are made and changed. Such elections shall be made or 
        changed only during coverage election periods specified under 
        subsection (e) and shall become effective as provided in 
        subsection (f).
            ``(2) Coordination through medicareadvantage 
        organizations.--
                    ``(A) Enrollment.--Such process shall permit an 
                individual who wishes to elect a MedicareAdvantage plan 
                offered by a MedicareAdvantage organization to make 
                such election through the filing of an appropriate 
                election form with the organization.
                    ``(B) Disenrollment.--Such process shall permit an 
                individual, who has elected a MedicareAdvantage plan 
                offered by a MedicareAdvantage organization and who 
                wishes to terminate such election, to terminate such 
                election through the filing of an appropriate election 
                form with the organization.
            ``(3) Default.--
                    ``(A) Initial election.--
                            ``(i) In general.--Subject to clause (ii), 
                        an individual who fails to make an election 
                        during an initial election period under 
                        subsection (e)(1) is deemed to have chosen the 
                        original medicare fee-for-service program 
                        option.
                            ``(ii) Seamless continuation of coverage.--
                        The Secretary may establish procedures under 
                        which an individual who is enrolled in a 
                        Medicare+Choice plan or another health plan 
                        (other than a MedicareAdvantage plan) offered 
                        by a MedicareAdvantage organization at the time 
                        of the initial election period and who fails to 
                        elect to receive coverage other than through 
                        the organization is deemed to have elected the 
                        MedicareAdvantage plan offered by the 
                        organization (or, if the organization offers 
                        more than 1 such plan, such plan or plans as 
                        the Secretary identifies under such 
                        procedures).
                    ``(B) Continuing periods.--An individual who has 
                made (or is deemed to have made) an election under this 
                section is considered to have continued to make such 
                election until such time as--
                            ``(i) the individual changes the election 
                        under this section; or
                            ``(ii) the MedicareAdvantage plan with 
                        respect to which such election is in effect is 
                        discontinued or, subject to subsection 
                        (b)(1)(B), no longer serves the area in which 
                        the individual resides.
    ``(d) Providing Information To Promote Informed Choice.--
            ``(1) In general.--The Secretary shall provide for 
        activities under this subsection to broadly disseminate 
        information to medicare beneficiaries (and prospective medicare 
        beneficiaries) on the coverage options provided under this 
        section in order to promote an active, informed selection among 
        such options.
            ``(2) Provision of notice.--
                    ``(A) Open season notification.--At least 15 days 
                before the beginning of each annual, coordinated 
                election period (as defined in subsection (e)(3)(B)), 
                the Secretary shall mail to each MedicareAdvantage 
                eligible individual residing in an area the following:
                            ``(i) General information.--The general 
                        information described in paragraph (3).
                            ``(ii) List of plans and comparison of plan 
                        options.--A list identifying the 
                        MedicareAdvantage plans that are (or will be) 
                        available to residents of the area and 
                        information described in paragraph (4) 
                        concerning such plans. Such information shall 
                        be presented in a comparative form.
                            ``(iii) Additional information.--Any other 
                        information that the Secretary determines will 
                        assist the individual in making the election 
                        under this section.
                The mailing of such information shall be coordinated, 
                to the extent practicable, with the mailing of any 
                annual notice under section 1804.
                    ``(B) Notification to newly eligible 
                medicareadvantage eligible individuals.--To the extent 
                practicable, the Secretary shall, not later than 30 
                days before the beginning of the initial 
                MedicareAdvantage enrollment period for an individual 
                described in subsection (e)(1), mail to the individual 
                the information described in subparagraph (A).
                    ``(C) Form.--The information disseminated under 
                this paragraph shall be written and formatted using 
                language that is easily understandable by medicare 
                beneficiaries.
                    ``(D) Periodic updating.--The information described 
                in subparagraph (A) shall be updated on at least an 
                annual basis to reflect changes in the availability of 
                MedicareAdvantage plans, the benefits under such plans, 
                and the MedicareAdvantage monthly basic beneficiary 
                premium, MedicareAdvantage monthly beneficiary premium 
                for enhanced medical benefits, and MedicareAdvantage 
                monthly beneficiary obligation for qualified 
                prescription drug coverage for such plans.
            ``(3) General information.--General information under this 
        paragraph, with respect to coverage under this part during a 
        year, shall include the following:
                    ``(A) Benefits under the original medicare fee-for-
                service program option.--A general description of the 
                benefits covered under parts A and B of the original 
                medicare fee-for-service program, including--
                            ``(i) covered items and services;
                            ``(ii) beneficiary cost-sharing, such as 
                        deductibles, coinsurance, and copayment 
                        amounts; and
                            ``(iii) any beneficiary liability for 
                        balance billing.
                    ``(B) Catastrophic coverage and combined 
                deductible.--A description of the catastrophic coverage 
                and unified deductible applicable under the plan.
                    ``(C) Outpatient prescription drug coverage 
                benefits.--The information required under section 
                1860D-4 with respect to coverage for prescription drugs 
                under the plan.
                    ``(D) Election procedures.--Information and 
                instructions on how to exercise election options under 
                this section.
                    ``(E) Rights.--A general description of procedural 
                rights (including grievance and appeals procedures) of 
                beneficiaries under the original medicare fee-for-
                service program (including such rights under part D) 
                and the MedicareAdvantage program and the right to be 
                protected against discrimination based on health 
                status-related factors under section 1852(b).
                    ``(F) Information on medigap and medicare select.--
                A general description of the benefits, enrollment 
                rights, and other requirements applicable to medicare 
                supplemental policies under section 1882 and provisions 
                relating to medicare select policies described in 
                section 1882(t).
                    ``(G) Potential for contract termination.--The fact 
                that a MedicareAdvantage organization may terminate its 
                contract, refuse to renew its contract, or reduce the 
                service area included in its contract, under this part, 
                and the effect of such a termination, nonrenewal, or 
                service area reduction may have on individuals enrolled 
                with the MedicareAdvantage plan under this part.
            ``(4) Information comparing plan options.--Information 
        under this paragraph, with respect to a MedicareAdvantage plan 
        for a year, shall include the following:
                    ``(A) Benefits.--The benefits covered under the 
                plan, including the following:
                            ``(i) Covered items and services beyond 
                        those provided under the original medicare fee-
                        for-service program option.
                            ``(ii) Beneficiary cost-sharing for any 
                        items and services described in clause (i) and 
                        paragraph (3)(A)(i), including information on 
                        the unified deductible under section 
                        1852(a)(1)(C).
                            ``(iii) The maximum limitations on out-of-
                        pocket expenses under section 1852(a)(1)(C).
                            ``(iv) In the case of an MSA plan, 
                        differences in cost-sharing, premiums, and 
                        balance billing under such a plan compared to 
                        under other MedicareAdvantage plans.
                            ``(v) In the case of a MedicareAdvantage 
                        private fee-for-service plan, differences in 
                        cost-sharing, premiums, and balance billing 
                        under such a plan compared to under other 
                        MedicareAdvantage plans.
                            ``(vi) The extent to which an enrollee may 
                        obtain benefits through out-of-network health 
                        care providers.
                            ``(vii) The extent to which an enrollee may 
                        select among in-network providers and the types 
                        of providers participating in the plan's 
                        network.
                            ``(viii) The organization's coverage of 
                        emergency and urgently needed care.
                            ``(ix) The comparative information 
                        described in section 1860D-4(b)(2) relating to 
                        prescription drug coverage under the plan.
                    ``(B) Premiums.--
                            ``(i) In general.--The MedicareAdvantage 
                        monthly basic beneficiary premium and 
                        MedicareAdvantage monthly beneficiary premium 
                        for enhanced medical benefits, if any, for the 
                        plan or, in the case of an MSA plan, the 
                        MedicareAdvantage monthly MSA premium.
                            ``(ii) Reductions.--The reduction in part B 
                        premiums, if any.
                            ``(iii) Nature of the premium for enhanced 
                        medical benefits.--Whether the 
                        MedicareAdvantage monthly premium for enhanced 
                        benefits is optional or mandatory.
                    ``(C) Service area.--The service area of the plan.
                    ``(D) Quality and performance.--Plan quality and 
                performance indicators for the benefits under the plan 
                (and how such indicators compare to quality and 
                performance indicators under the original medicare fee-
                for-service program under parts A and B and under the 
                voluntary prescription drug delivery program under part 
                D in the area involved), including--
                            ``(i) disenrollment rates for medicare 
                        enrollees electing to receive benefits through 
                        the plan for the previous 2 years (excluding 
                        disenrollment due to death or moving outside 
                        the plan's service area);
                            ``(ii) information on medicare enrollee 
                        satisfaction;
                            ``(iii) information on health outcomes; and
                            ``(iv) the recent record regarding 
                        compliance of the plan with requirements of 
                        this part (as determined by the Secretary).
            ``(5) Maintaining a toll-free number and internet site.--
        The Secretary shall maintain a toll-free number for inquiries 
        regarding MedicareAdvantage options and the operation of this 
        part in all areas in which MedicareAdvantage plans are offered 
        and an Internet site through which individuals may 
        electronically obtain information on such options and 
        MedicareAdvantage plans.
            ``(6) Use of non-federal entities.--The Secretary may enter 
        into contracts with non-Federal entities to carry out 
        activities under this subsection.
            ``(7) Provision of information.--A MedicareAdvantage 
        organization shall provide the Secretary with such information 
        on the organization and each MedicareAdvantage plan it offers 
        as may be required for the preparation of the information 
        referred to in paragraph (2)(A).
    ``(e) Coverage Election Periods.--
            ``(1) Initial choice upon eligibility to make election if 
        medicareadvantage plans available to individual.--If, at the 
        time an individual first becomes eligible to elect to receive 
        benefits under part B or D (whichever is later), there is 1 or 
        more MedicareAdvantage plans offered in the area in which the 
        individual resides, the individual shall make the election 
        under this section during a period specified by the Secretary 
        such that if the individual elects a MedicareAdvantage plan 
        during the period, coverage under the plan becomes effective as 
        of the first date on which the individual may receive such 
        coverage.
            ``(2) Open enrollment and disenrollment opportunities.--
        Subject to paragraph (5), the following rules shall apply:
                    ``(A) Continuous open enrollment and disenrollment 
                through 2005.--At any time during the period beginning 
                January 1, 1998, and ending on December 31, 2005, a 
                Medicare+Choice eligible individual may change the 
                election under subsection (a)(1).
                    ``(B) Continuous open enrollment and disenrollment 
                for first 6 months during 2006.--
                            ``(i) In general.--Subject to clause (ii) 
                        and subparagraph (D), at any time during the 
                        first 6 months of 2006, or, if the individual 
                        first becomes a MedicareAdvantage eligible 
                        individual during 2006, during the first 6 
                        months during 2006 in which the individual is a 
                        MedicareAdvantage eligible individual, a 
                        MedicareAdvantage eligible individual may 
                        change the election under subsection (a)(1).
                            ``(ii) Limitation of 1 change.--An 
                        individual may exercise the right under clause 
                        (i) only once. The limitation under this clause 
                        shall not apply to changes in elections 
                        effected during an annual, coordinated election 
                        period under paragraph (3) or during a special 
                        enrollment period under the first sentence of 
                        paragraph (4).
                    ``(C) Continuous open enrollment and disenrollment 
                for first 3 months in subsequent years.--
                            ``(i) In general.--Subject to clause (ii) 
                        and subparagraph (D), at any time during the 
                        first 3 months of 2007 and each subsequent 
                        year, or, if the individual first becomes a 
                        MedicareAdvantage eligible individual during 
                        2007 or any subsequent year, during the first 3 
                        months of such year in which the individual is 
a MedicareAdvantage eligible individual, a MedicareAdvantage eligible 
individual may change the election under subsection (a)(1).
                            ``(ii) Limitation of 1 change during open 
                        enrollment period each year.--An individual may 
                        exercise the right under clause (i) only once 
                        during the applicable 3-month period described 
                        in such clause in each year. The limitation 
                        under this clause shall not apply to changes in 
                        elections effected during an annual, 
                        coordinated election period under paragraph (3) 
                        or during a special enrollment period under 
                        paragraph (4).
                    ``(D) Continuous open enrollment for 
                institutionalized individuals.--At any time during 2006 
                or any subsequent year, in the case of a 
                MedicareAdvantage eligible individual who is 
                institutionalized (as defined by the Secretary), the 
                individual may elect under subsection (a)(1)--
                            ``(i) to enroll in a MedicareAdvantage 
                        plan; or
                            ``(ii) to change the MedicareAdvantage plan 
                        in which the individual is enrolled.
            ``(3) Annual, coordinated election period.--
                    ``(A) In general.--Subject to paragraph (5), each 
                individual who is eligible to make an election under 
                this section may change such election during an annual, 
                coordinated election period.
                    ``(B) Annual, coordinated election period.--For 
                purposes of this section, the term `annual, coordinated 
                election period' means, with respect to a year before 
                2003 and after 2006, the month of November before such 
                year and with respect to 2003, 2004, 2005, and 2006, 
                the period beginning on November 15 and ending on 
                December 31 of the year before such year.
                    ``(C) Medicareadvantage health information fairs.--
                During the fall season of each year (beginning with 
                2006), in conjunction with the annual coordinated 
                election period defined in subparagraph (B), the 
                Secretary shall provide for a nationally coordinated 
                educational and publicity campaign to inform 
                MedicareAdvantage eligible individuals about 
                MedicareAdvantage plans and the election process 
                provided under this section.
                    ``(D) Special information campaign in 2005.--During 
                the period beginning on November 15, 2005, and ending 
                on December 31, 2005, the Secretary shall provide for 
                an educational and publicity campaign to inform 
                MedicareAdvantage eligible individuals about the 
                availability of MedicareAdvantage plans, and eligible 
                organizations with risk-sharing contracts under section 
                1876, offered in different areas and the election 
                process provided under this section.
            ``(4) Special election periods.--Effective on and after 
        January 1, 2006, an individual may discontinue an election of a 
        MedicareAdvantage plan offered by a MedicareAdvantage 
        organization other than during an annual, coordinated election 
        period and make a new election under this section if--
                    ``(A)(i) the certification of the organization or 
                plan under this part has been terminated, or the 
                organization or plan has notified the individual of an 
                impending termination of such certification; or
                    ``(ii) the organization has terminated or otherwise 
                discontinued providing the plan in the area in which 
                the individual resides, or has notified the individual 
                of an impending termination or discontinuation of such 
                plan;
                    ``(B) the individual is no longer eligible to elect 
                the plan because of a change in the individual's place 
                of residence or other change in circumstances 
                (specified by the Secretary, but not including 
                termination of the individual's enrollment on the basis 
                described in clause (i) or (ii) of subsection 
                (g)(3)(B));
                    ``(C) the individual demonstrates (in accordance 
                with guidelines established by the Secretary) that--
                            ``(i) the organization offering the plan 
                        substantially violated a material provision of 
                        the organization's contract under this part in 
                        relation to the individual (including the 
                        failure to provide an enrollee on a timely 
                        basis medically necessary care for which 
                        benefits are available under the plan or the 
                        failure to provide such covered care in 
                        accordance with applicable quality standards); 
                        or
                            ``(ii) the organization (or an agent or 
                        other entity acting on the organization's 
                        behalf) materially misrepresented the plan's 
                        provisions in marketing the plan to the 
                        individual; or
                    ``(D) the individual meets such other exceptional 
                conditions as the Secretary may provide.
        Effective on and after January 1, 2006, an individual who, upon 
        first becoming eligible for benefits under part A at age 65, 
        enrolls in a MedicareAdvantage plan under this part, the 
        individual may discontinue the election of such plan, and elect 
        coverage under the original fee-for-service plan, at any time 
        during the 12-month period beginning on the effective date of 
        such enrollment.
            ``(5) Special rules for msa plans.--Notwithstanding the 
        preceding provisions of this subsection, an individual--
                    ``(A) may elect an MSA plan only during--
                            ``(i) an initial open enrollment period 
                        described in paragraph (1);
                            ``(ii) an annual, coordinated election 
                        period described in paragraph (3)(B); or
                            ``(iii) the month of November 1998;
                    ``(B) subject to subparagraph (C), may not 
                discontinue an election of an MSA plan except during 
                the periods described in clause (ii) or (iii) of 
                subparagraph (A) and under the first sentence of 
                paragraph (4); and
                    ``(C) who elects an MSA plan during an annual, 
                coordinated election period, and who never previously 
                had elected such a plan, may revoke such election, in a 
                manner determined by the Secretary, by not later than 
                December 15 following the date of the election.
            ``(6) Open enrollment periods.--Subject to paragraph (5), a 
        MedicareAdvantage organization--
                    ``(A) shall accept elections or changes to 
                elections during the initial enrollment periods 
                described in paragraph (1), during the period beginning 
                on November 15, 2005, and ending on December 31, 2005, 
                and during the annual, coordinated election period 
                under paragraph (3) for each subsequent year, and 
                during special election periods described in the first 
                sentence of paragraph (4); and
                    ``(B) may accept other changes to elections at such 
                other times as the organization provides.
    ``(f) Effectiveness of Elections and Changes of Elections.--
            ``(1) During initial coverage election period.--An election 
        of coverage made during the initial coverage election period 
        under subsection (e)(1)(A) shall take effect upon the date the 
        individual becomes entitled to (or enrolled for) benefits under 
        part A, enrolled under part B, and enrolled under part D, 
        except as the Secretary may provide (consistent with sections 
        1838 and 1860D-2)) in order to prevent retroactive coverage.
            ``(2) During continuous open enrollment periods.--An 
        election or change of coverage made under subsection (e)(2) 
        shall take effect with the first day of the first calendar 
        month following the date on which the election or change is 
        made.
            ``(3) Annual, coordinated election period.--An election or 
        change of coverage made during an annual, coordinated election 
        period (as defined in subsection (e)(3)(B)) in a year shall 
        take effect as of the first day of the following year.
            ``(4) Other periods.--An election or change of coverage 
        made during any other period under subsection (e)(4) shall take 
        effect in such manner as the Secretary provides in a manner 
        consistent (to the extent practicable) with protecting 
        continuity of health benefit coverage.
    ``(g) Guaranteed Issue and Renewal.--
            ``(1) In general.--Except as provided in this subsection, a 
        MedicareAdvantage organization shall provide that at any time 
        during which elections are accepted under this section with 
        respect to a MedicareAdvantage plan offered by the 
        organization, the organization will accept without restrictions 
        individuals who are eligible to make such election.
            ``(2) Priority.--If the Secretary determines that a 
        MedicareAdvantage organization, in relation to a 
        MedicareAdvantage plan it offers, has a capacity limit and the 
        number of MedicareAdvantage eligible individuals who elect the 
        plan under this section exceeds the capacity limit, the 
        organization may limit the election of individuals of the plan 
        under this section but only if priority in election is 
        provided--
                    ``(A) first to such individuals as have elected the 
                plan at the time of the determination; and
                    ``(B) then to other such individuals in such a 
                manner that does not discriminate, on a basis described 
                in section 1852(b), among the individuals (who seek to 
                elect the plan).
        The preceding sentence shall not apply if it would result in 
        the enrollment of enrollees substantially nonrepresentative, as 
        determined in accordance with regulations of the Secretary, of 
        the medicare population in the service area of the plan.
            ``(3) Limitation on termination of election.--
                    ``(A) In general.--Subject to subparagraph (B), a 
                MedicareAdvantage organization may not for any reason 
                terminate the election of any individual under this 
                section for a MedicareAdvantage plan it offers.
                    ``(B) Basis for termination of election.--A 
                MedicareAdvantage organization may terminate an 
                individual's election under this section with respect 
                to a MedicareAdvantage plan it offers if--
                            ``(i) any MedicareAdvantage monthly basic 
                        beneficiary premium, MedicareAdvantage monthly 
                        beneficiary obligation for qualified 
                        prescription drug coverage, or 
                        MedicareAdvantage monthly beneficiary premium 
                        for required or optional enhanced medical 
                        benefits required with respect to such plan are 
                        not paid on a timely basis (consistent with 
                        standards under section 1856 that provide for a 
                        grace period for late payment of such 
                        premiums);
                            ``(ii) the individual has engaged in 
                        disruptive behavior (as specified in such 
                        standards); or
                            ``(iii) the plan is terminated with respect 
                        to all individuals under this part in the area 
                        in which the individual resides.
                    ``(C) Consequence of termination.--
                            ``(i) Terminations for cause.--Any 
                        individual whose election is terminated under 
                        clause (i) or (ii) of subparagraph (B) is 
                        deemed to have elected to receive benefits 
                        under the original medicare fee-for-service 
                        program option.
                            ``(ii) Termination based on plan 
                        termination or service area reduction.--Any 
                        individual whose election is terminated under 
                        subparagraph (B)(iii) shall have a special 
                        election period under subsection (e)(4)(A) in 
                        which to change coverage to coverage under 
                        another MedicareAdvantage plan. Such an 
                        individual who fails to make an election during 
                        such period is deemed to have chosen to change 
                        coverage to the original medicare fee-for-
                        service program option.
                    ``(D) Organization obligation with respect to 
                election forms.--Pursuant to a contract under section 
                1857858, each MedicareAdvantage organization receiving 
an election form under subsection (c)(2) shall transmit to the 
Secretary (at such time and in such manner as the Secretary may 
specify) a copy of such form or such other information respecting the 
election as the Secretary may specify.
    ``(h) Approval of Marketing Material and Application Forms.--
            ``(1) Submission.--No marketing material or application 
        form may be distributed by a MedicareAdvantage organization to 
        (or for the use of) MedicareAdvantage eligible individuals 
        unless--
                    ``(A) at least 45 days (or 10 days in the case 
                described in paragraph (5)) before the date of 
                distribution the organization has submitted the 
                material or form to the Secretary for review; and
                    ``(B) the Secretary has not disapproved the 
                distribution of such material or form.
            ``(2) Review.--The standards established under section 1856 
        shall include guidelines for the review of any material or form 
        submitted and under such guidelines the Secretary shall 
        disapprove (or later require the correction of) such material 
        or form if the material or form is materially inaccurate or 
        misleading or otherwise makes a material misrepresentation.
            ``(3) Deemed approval (1-stop shopping).--In the case of 
        material or form that is submitted under paragraph (1)(A) to 
        the Secretary or a regional office of the Department of Health 
        and Human Services and the Secretary or the office has not 
        disapproved the distribution of marketing material or form 
        under paragraph (1)(B) with respect to a MedicareAdvantage plan 
        in an area, the Secretary is deemed not to have disapproved 
        such distribution in all other areas covered by the plan and 
        organization except with regard to that portion of such 
        material or form that is specific only to an area involved.
            ``(4) Prohibition of certain marketing practices.--Each 
        MedicareAdvantage organization shall conform to fair marketing 
        standards, in relation to MedicareAdvantage plans offered under 
        this part, included in the standards established under section 
        1856. Such standards--
                    ``(A) shall not permit a MedicareAdvantage 
                organization to provide for cash or other monetary 
                rebates as an inducement for enrollment or otherwise 
                (other than as an additional benefit described in 
                section 1854(g)(1)(C)(i)); and
                    ``(B) may include a prohibition against a 
                MedicareAdvantage organization (or agent of such an 
                organization) completing any portion of any election 
                form used to carry out elections under this section on 
                behalf of any individual.
            ``(5) Special treatment of marketing material following 
        model marketing language.--In the case of marketing material of 
        an organization that uses, without modification, proposed model 
        language specified by the Secretary, the period specified in 
        paragraph (1)(A) shall be reduced from 45 days to 10 days.
    ``(i) Effect of Election of MedicareAdvantage Plan Option.--
            ``(1) Payments to organizations.--Subject to sections 
        1852(a)(5), 1853(h), 1853(i), 1886(d)(11), and 1886(h)(3)(D), 
        payments under a contract with a MedicareAdvantage organization 
        under section 1853(a) with respect to an individual electing a 
        MedicareAdvantage plan offered by the organization shall be 
        instead of the amounts which (in the absence of the contract) 
        would otherwise be payable under parts A, B, and D for items 
        and services furnished to the individual.
            ``(2) Only organization entitled to payment.--Subject to 
        sections 1853(f), 1853(h), 1853(i), 1857(f)(2), 1886(d)(11), 
        and 1886(h)(3)(D), only the MedicareAdvantage organization 
        shall be entitled to receive payments from the Secretary under 
        this title for services furnished to the individual.''.

SEC. 202. BENEFITS AND BENEFICIARY PROTECTIONS.

    Section 1852 (42 U.S.C. 1395w-22) is amended to read as follows:

                 ``benefits and beneficiary protections

    ``Sec. 1852. (a) Basic Benefits.--
            ``(1) In general.--Except as provided in section 1859(b)(3) 
        for MSA plans, each MedicareAdvantage plan shall provide to 
        members enrolled under this part, through providers and other 
        persons that meet the applicable requirements of this title and 
        part A of title XI--
                    ``(A) those items and services (other than hospice 
                care) for which benefits are available under parts A 
                and B to individuals residing in the area served by the 
                plan;
                    ``(B) except as provided in paragraph (2)(D), 
                qualified prescription drug coverage under part D to 
                individuals residing in the area served by the plan;
                    ``(C) a maximum limitation on out-of-pocket 
                expenses and a unified deductible; and
                    ``(D) additional benefits required under section 
                1854(d)(1).
            ``(2) Satisfaction of requirement.--
                    ``(A) In general.--A MedicareAdvantage plan (other 
                than an MSA plan) offered by a MedicareAdvantage 
                organization satisfies paragraph (1)(A), with respect 
                to benefits for items and services furnished other than 
                through a provider or other person that has a contract 
                with the organization offering the plan, if the plan 
                provides payment in an amount so that--
                            ``(i) the sum of such payment amount and 
                        any cost-sharing provided for under the plan; 
                        is equal to at least
                            ``(ii) the total dollar amount of payment 
                        for such items and services as would otherwise 
                        be authorized under parts A and B (including 
                        any balance billing permitted under such 
                        parts).
                    ``(B) Reference to related provisions.--For 
                provisions relating to--
                            ``(i) limitations on balance billing 
                        against MedicareAdvantage organizations for 
                        noncontract providers, see sections 1852(k) and 
                        1866(a)(1)(O); and
                            ``(ii) limiting actuarial value of enrollee 
                        liability for covered benefits, see section 
                        1854(f).
                    ``(C) Election of uniform coverage policy.--In the 
                case of a MedicareAdvantage organization that offers a 
                MedicareAdvantage plan in an area in which more than 1 
                local coverage policy is applied with respect to 
                different parts of the area, the organization may elect 
                to have the local coverage policy for the part of the 
                area that is most beneficial to MedicareAdvantage 
                enrollees (as identified by the Secretary) apply with 
                respect to all MedicareAdvantage enrollees enrolled in 
                the plan.
                    ``(D) Special rule for private fee-for-service 
                plans.--
                            ``(i) In general.--A private fee-for-
                        service plan may elect not to provide qualified 
                        prescription drug coverage under part D to 
                        individuals residing in the area served by the 
                        plan.
                            ``(ii) Availability of drug coverage for 
                        enrollees.--If a beneficiary enrolls in a plan 
                        making the election described in clause (i), 
                        the beneficiary may enroll for drug coverage 
                        under part D with an eligible entity under such 
                        part.
            ``(3) Enhanced medical benefits.--
                    ``(A) Benefits included subject to secretary's 
                approval.--Each MedicareAdvantage organization may 
                provide to individuals enrolled under this part, other 
                than under an MSA plan (without affording those 
                individuals an option to decline the coverage), 
                enhanced medical benefits that the Secretary may 
                approve. The Secretary shall approve any such 
enhanced medical benefits unless the Secretary determines that 
including such enhanced medical benefits would substantially discourage 
enrollment by MedicareAdvantage eligible individuals with the 
organization.
                    ``(B) At enrollees' option.--A MedicareAdvantage 
                organization may not provide, under an MSA plan, 
                enhanced medical benefits that cover the deductible 
                described in section 1859(b)(2)(B). In applying the 
                previous sentence, health benefits described in section 
                1882(u)(2)(B) shall not be treated as covering such 
                deductible.
                    ``(C) Application to medicareadvantage private fee-
                for-service plans.--Nothing in this paragraph shall be 
                construed as preventing a MedicareAdvantage private 
                fee-for-service plan from offering enhanced medical 
                benefits that include payment for some or all of the 
                balance billing amounts permitted consistent with 
                section 1852(k) and coverage of additional services 
                that the plan finds to be medically necessary.
                    ``(D) Rule for approval of medical and prescription 
                drug benefits.--Notwithstanding the preceding 
                provisions of this paragraph, the Secretary may not 
                approve any enhanced medical benefit that provides for 
                the coverage of any prescription drug (other than that 
                relating to prescription drugs covered under the 
                original medicare fee-for-service program option).
            ``(4) Organization as secondary payer.--Notwithstanding any 
        other provision of law, a MedicareAdvantage organization may 
        (in the case of the provision of items and services to an 
        individual under a MedicareAdvantage plan under circumstances 
        in which payment under this title is made secondary pursuant to 
        section 1862(b)(2)) charge or authorize the provider of such 
        services to charge, in accordance with the charges allowed 
        under a law, plan, or policy described in such section--
                    ``(A) the insurance carrier, employer, or other 
                entity which under such law, plan, or policy is to pay 
                for the provision of such services; or
                    ``(B) such individual to the extent that the 
                individual has been paid under such law, plan, or 
                policy for such services.
            ``(5) National coverage determinations and legislative 
        changes in benefits.--If there is a national coverage 
        determination or legislative change in benefits required to be 
        provided under this part made in the period beginning on the 
        date of an announcement under section 1853(b) and ending on the 
        date of the next announcement under such section and the 
        Secretary projects that the determination will result in a 
        significant change in the costs to a MedicareAdvantage 
        organization of providing the benefits that are the subject of 
        such national coverage determination and that such change in 
        costs was not incorporated in the determination of the 
        benchmark amount announced under section 1853(b)(1)(A) at the 
        beginning of such period, then, unless otherwise required by 
        law--
                    ``(A) such determination or legislative change in 
                benefits shall not apply to contracts under this part 
                until the first contract year that begins after the end 
                of such period; and
                    ``(B) if such coverage determination or legislative 
                change provides for coverage of additional benefits or 
                coverage under additional circumstances, section 
                1851(i)(1) shall not apply to payment for such 
                additional benefits or benefits provided under such 
                additional circumstances until the first contract year 
                that begins after the end of such period.
        The projection under the previous sentence shall be based on an 
        analysis by the Secretary of the actuarial costs associated 
        with the coverage determination or legislative change in 
        benefits.
            ``(6) Authority to prohibit risk selection.--The Secretary 
        shall have the authority to disapprove any MedicareAdvantage 
plan that the Secretary determines is designed to attract a population 
that is healthier than the average population residing in the service 
area of the plan.
            ``(7) Unified deductible defined.--In this part, the term 
        `unified deductible' means an annual deductible amount that is 
        applied in lieu of the inpatient hospital deductible under 
        section 1813(b)(1) and the deductible under section 1833(b). 
        Nothing in this part shall be construed as preventing a 
        MedicareAdvantage organization from requiring coinsurance or a 
        copayment for inpatient hospital services after the unified 
        deductible is satisfied, subject to the limitation on enrollee 
        liability under section 1854(f).
    ``(b) Antidiscrimination.--
            ``(1) Beneficiaries.--
                    ``(A) In general.--A MedicareAdvantage organization 
                may not deny, limit, or condition the coverage or 
                provision of benefits under this part, for individuals 
                permitted to be enrolled with the organization under 
                this part, based on any health status-related factor 
                described in section 2702(a)(1) of the Public Health 
                Service Act.
                    ``(B) Construction.--Except as provided under 
                section 1851(a)(3)(B), subparagraph (A) shall not be 
                construed as requiring a MedicareAdvantage organization 
                to enroll individuals who are determined to have end-
                stage renal disease.
            ``(2) Providers.--A MedicareAdvantage organization shall 
        not discriminate with respect to participation, reimbursement, 
        or indemnification as to any provider who is acting within the 
        scope of the provider's license or certification under 
        applicable State law, solely on the basis of such license or 
        certification. This paragraph shall not be construed to 
        prohibit a plan from including providers only to the extent 
        necessary to meet the needs of the plan's enrollees or from 
        establishing any measure designed to maintain quality and 
        control costs consistent with the responsibilities of the plan.
    ``(c) Disclosure Requirements.--
            ``(1) Detailed description of plan provisions.--A 
        MedicareAdvantage organization shall disclose, in clear, 
        accurate, and standardized form to each enrollee with a 
        MedicareAdvantage plan offered by the organization under this 
        part at the time of enrollment and at least annually 
        thereafter, the following information regarding such plan:
                    ``(A) Service area.--The plan's service area.
                    ``(B) Benefits.--Benefits offered under the plan, 
                including information described section 1852(a)(1) 
                (relating to benefits under the original medicare fee-
                for-service program option, the maximum limitation in 
                out-of-pocket expenses and the unified deductible, and 
                qualified prescription drug coverage under part D, 
                respectively) and exclusions from coverage and, if it 
                is an MSA plan, a comparison of benefits under such a 
                plan with benefits under other MedicareAdvantage plans.
                    ``(C) Access.--The number, mix, and distribution of 
                plan providers, out-of-network coverage (if any) 
                provided by the plan, and any point-of-service option 
                (including the MedicareAdvantage monthly beneficiary 
                premium for enhanced medical benefits for such option).
                    ``(D) Out-of-area coverage.--Out-of-area coverage 
                provided by the plan.
                    ``(E) Emergency coverage.--Coverage of emergency 
                services, including--
                            ``(i) the appropriate use of emergency 
                        services, including use of the 911 telephone 
                        system or its local equivalent in emergency 
                        situations and an explanation of what 
                        constitutes an emergency situation;
                            ``(ii) the process and procedures of the 
                        plan for obtaining emergency services; and
                            ``(iii) the locations of--
                                    ``(I) emergency departments; and
                                    ``(II) other settings, in which 
                                plan physicians and hospitals provide 
                                emergency services and post-
                                stabilization care.
                    ``(F) Enhanced medical benefits.--Enhanced medical 
                benefits available from the organization offering the 
                plan, including--
                            ``(i) whether the enhanced medical benefits 
                        are optional;
                            ``(ii) the enhanced medical benefits 
                        covered; and
                            ``(iii) the MedicareAdvantage monthly 
                        beneficiary premium for enhanced medical 
                        benefits.
                    ``(G) Prior authorization rules.--Rules regarding 
                prior authorization or other review requirements that 
                could result in nonpayment.
                    ``(H) Plan grievance and appeals procedures.--All 
                plan appeal or grievance rights and procedures.
                    ``(I) Quality assurance program.--A description of 
                the organization's quality assurance program under 
                subsection (e).
            ``(2) Disclosure upon request.--Upon request of a 
        MedicareAdvantage eligible individual, a MedicareAdvantage 
        organization must provide the following information to such 
        individual:
                    ``(A) The general coverage information and general 
                comparative plan information made available under 
                clauses (i) and (ii) of section 1851(d)(2)(A).
                    ``(B) Information on procedures used by the 
                organization to control utilization of services and 
                expenditures.
                    ``(C) Information on the number of grievances, 
                reconsiderations, and appeals and on the disposition in 
                the aggregate of such matters.
                    ``(D) An overall summary description as to the 
                method of compensation of participating physicians.
                    ``(E) The information described in subparagraphs 
                (A) through (C) in relation to the qualified 
                prescription drug coverage provided by the 
                organization.
    ``(d) Access to Services.--
            ``(1) In general.--A MedicareAdvantage organization 
        offering a MedicareAdvantage plan may select the providers from 
        whom the benefits under the plan are provided so long as--
                    ``(A) the organization makes such benefits 
                available and accessible to each individual electing 
                the plan within the plan service area with reasonable 
                promptness and in a manner which assures continuity in 
                the provision of benefits;
                    ``(B) when medically necessary the organization 
                makes such benefits available and accessible 24 hours a 
                day and 7 days a week;
                    ``(C) the plan provides for reimbursement with 
                respect to services which are covered under 
                subparagraphs (A) and (B) and which are provided to 
                such an individual other than through the organization, 
                if--
                            ``(i) the services were not emergency 
                        services (as defined in paragraph (3)), but--
                                    ``(I) the services were medically 
                                necessary and immediately required 
                                because of an unforeseen illness, 
                                injury, or condition; and
                                    ``(II) it was not reasonable given 
                                the circumstances to obtain the 
                                services through the organization;
                            ``(ii) the services were renal dialysis 
                        services and were provided other than through 
                        the organization because the individual was 
                        temporarily out of the plan's service area; or
                            ``(iii) the services are maintenance care 
                        or post-stabilization care covered under the 
                        guidelines established under paragraph (2);
                    ``(D) the organization provides access to 
                appropriate providers, including credentialed 
                specialists, for medically necessary treatment and 
                services; and
                    ``(E) coverage is provided for emergency services 
                (as defined in paragraph (3)) without regard to prior 
                authorization or the emergency care provider's 
                contractual relationship with the organization.
            ``(2) Guidelines respecting coordination of post-
        stabilization care.--A MedicareAdvantage plan shall comply with 
        such guidelines as the Secretary may prescribe relating to 
        promoting efficient and timely coordination of appropriate 
        maintenance and post-stabilization care of an enrollee after 
        the enrollee has been determined to be stable under section 
        1867.
            ``(3) Definition of emergency services.--In this 
        subsection--
                    ``(A) In general.--The term `emergency services' 
                means, with respect to an individual enrolled with an 
                organization, covered inpatient and outpatient services 
                that--
                            ``(i) are furnished by a provider that is 
                        qualified to furnish such services under this 
                        title; and
                            ``(ii) are needed to evaluate or stabilize 
                        an emergency medical condition (as defined in 
                        subparagraph (B)).
                    ``(B) Emergency medical condition based on prudent 
                layperson.--The term `emergency medical condition' 
                means a medical condition manifesting itself by acute 
                symptoms of sufficient severity (including severe pain) 
                such that a prudent layperson, who possesses an average 
                knowledge of health and medicine, could reasonably 
                expect the absence of immediate medical attention to 
                result in--
                            ``(i) placing the health of the individual 
                        (or, with respect to a pregnant woman, the 
                        health of the woman or her unborn child) in 
                        serious jeopardy;
                            ``(ii) serious impairment to bodily 
                        functions; or
                            ``(iii) serious dysfunction of any bodily 
                        organ or part.
                    ``(4) Assuring access to services in 
                medicareadvantage private fee-for-service plans.--In 
                addition to any other requirements under this part, in 
                the case of a MedicareAdvantage private fee-for-service 
                plan, the organization offering the plan must 
                demonstrate to the Secretary that the organization has 
                sufficient number and range of health care 
                professionals and providers willing to provide services 
                under the terms of the plan. The Secretary shall find 
                that an organization has met such requirement with 
                respect to any category of health care professional or 
                provider if, with respect to that category of 
                provider--
                            ``(A) the plan has established payment 
                        rates for covered services furnished by that 
                        category of provider that are not less than the 
                        payment rates provided for under part A, B, or 
                        D for such services; or
                            ``(B) the plan has contracts or agreements 
                        with a sufficient number and range of providers 
                        within such category to provide covered 
                        services under the terms of the plan,
                or a combination of both. The previous sentence shall 
                not be construed as restricting the persons from whom 
                enrollees under such a plan may obtain covered 
                benefits.
    ``(e) Quality Assurance Program.--
            ``(1) In general.--Each MedicareAdvantage organization must 
        have arrangements, consistent with any regulation, for an 
        ongoing quality assurance program for health care services it 
        provides to individuals enrolled with MedicareAdvantage plans 
        of the organization.
            ``(2) Elements of program.--
                    ``(A) In general.--The quality assurance program of 
                an organization with respect to a MedicareAdvantage 
plan (other than a MedicareAdvantage private fee-for-service plan or a 
nonnetwork MSA plan) it offers shall--
                            ``(i) stress health outcomes and provide 
                        for the collection, analysis, and reporting of 
                        data (in accordance with a quality measurement 
                        system that the Secretary recognizes) that will 
                        permit measurement of outcomes and other 
                        indices of the quality of MedicareAdvantage 
                        plans and organizations;
                            ``(ii) monitor and evaluate high volume and 
                        high risk services and the care of acute and 
                        chronic conditions;
                            ``(iii) provide access to disease 
                        management and chronic care services;
                            ``(iv) provide access to preventive 
                        benefits and information for enrollees on such 
                        benefits;
                            ``(v) evaluate the continuity and 
                        coordination of care that enrollees receive;
                            ``(vi) be evaluated on an ongoing basis as 
                        to its effectiveness;
                            ``(vii) include measures of consumer 
                        satisfaction;
                            ``(viii) provide the Secretary with such 
                        access to information collected as may be 
                        appropriate to monitor and ensure the quality 
                        of care provided under this part;
                            ``(ix) provide review by physicians and 
                        other health care professionals of the process 
                        followed in the provision of such health care 
                        services;
                            ``(x) provide for the establishment of 
                        written protocols for utilization review, based 
                        on current standards of medical practice;
                            ``(xi) have mechanisms to detect both 
                        underutilization and overutilization of 
                        services;
                            ``(xii) after identifying areas for 
                        improvement, establish or alter practice 
                        parameters;
                            ``(xiii) take action to improve quality and 
                        assesses the effectiveness of such action 
                        through systematic followup; and
                            ``(xiv) make available information on 
                        quality and outcomes measures to facilitate 
                        beneficiary comparison and choice of health 
                        coverage options (in such form and on such 
                        quality and outcomes measures as the Secretary 
                        determines to be appropriate).
                Such program shall include a separate focus (with 
                respect to all the elements described in this 
                subparagraph) on racial and ethnic minorities.
                    ``(B) Elements of program for organizations 
                offering medicareadvantage private fee-for-service 
                plans, and nonnetwork msa plans.--The quality assurance 
                program of an organization with respect to a 
                MedicareAdvantage private fee-for-service plan or a 
                nonnetwork MSA plan it offers shall--
                            ``(i) meet the requirements of clauses (i) 
                        through (viii) of subparagraph (A);
                            ``(ii) insofar as it provides for the 
                        establishment of written protocols for 
                        utilization review, base such protocols on 
                        current standards of medical practice; and
                            ``(iii) have mechanisms to evaluate 
                        utilization of services and inform providers 
                        and enrollees of the results of such 
                        evaluation.
                Such program shall include a separate focus (with 
                respect to all the elements described in this 
                subparagraph) on racial and ethnic minorities.
                    ``(C) Definition of nonnetwork msa plan.--In this 
                subsection, the term `nonnetwork MSA plan' means an MSA 
                plan offered by a MedicareAdvantage organization that 
                does not provide benefits required to be provided by 
                this part, in whole or in part, through a defined set 
                of providers under contract, or under another 
                arrangement, with the organization.
            ``(3) External review.--
                    ``(A) In general.--Each MedicareAdvantage 
                organization shall, for each MedicareAdvantage plan it 
                operates, have an agreement with an independent quality 
                review and improvement organization approved by the 
                Secretary to perform functions of the type described in 
                paragraphs (4)(B) and (14) of section 1154(a) with 
                respect to services furnished by MedicareAdvantage 
                plans for which payment is made under this title. The 
                previous sentence shall not apply to a 
                MedicareAdvantage private fee-for-service plan or a 
                nonnetwork MSA plan that does not employ utilization 
                review.
                    ``(B) Nonduplication of accreditation.--Except in 
                the case of the review of quality complaints, and 
                consistent with subparagraph (C), the Secretary shall 
                ensure that the external review activities conducted 
                under subparagraph (A) are not duplicative of review 
                activities conducted as part of the accreditation 
                process.
                    ``(C) Waiver authority.--The Secretary may waive 
                the requirement described in subparagraph (A) in the 
                case of an organization if the Secretary determines 
                that the organization has consistently maintained an 
                excellent record of quality assurance and compliance 
                with other requirements under this part.
            ``(4) Treatment of accreditation.--
                    ``(A) In general.--The Secretary shall provide that 
                a MedicareAdvantage organization is deemed to meet all 
                the requirements described in any specific clause of 
                subparagraph (B) if the organization is accredited (and 
                periodically reaccredited) by a private accrediting 
                organization under a process that the Secretary has 
                determined assures that the accrediting organization 
                applies and enforces standards that meet or exceed the 
                standards established under section 1856 to carry out 
                the requirements in such clause.
                    ``(B) Requirements described.--The provisions 
                described in this subparagraph are the following:
                            ``(i) Paragraphs (1) and (2) of this 
                        subsection (relating to quality assurance 
                        programs).
                            ``(ii) Subsection (b) (relating to 
                        antidiscrimination).
                            ``(iii) Subsection (d) (relating to access 
                        to services).
                            ``(iv) Subsection (h) (relating to 
                        confidentiality and accuracy of enrollee 
                        records).
                            ``(v) Subsection (i) (relating to 
                        information on advance directives).
                            ``(vi) Subsection (j) (relating to provider 
                        participation rules).
                    ``(C) Timely action on applications.--The Secretary 
                shall determine, within 210 days after the date the 
                Secretary receives an application by a private 
                accrediting organization and using the criteria 
                specified in section 1865(b)(2), whether the process of 
                the private accrediting organization meets the 
                requirements with respect to any specific clause in 
                subparagraph (B) with respect to which the application 
                is made. The Secretary may not deny such an application 
                on the basis that it seeks to meet the requirements 
                with respect to only one, or more than one, such 
                specific clause.
                    ``(D) Construction.--Nothing in this paragraph 
                shall be construed as limiting the authority of the 
                Secretary under section 1857, including the authority 
                to terminate contracts with MedicareAdvantage 
                organizations under subsection (c)(2) of such section.
            ``(5) Report to congress.--
                    ``(A) In general.--The Secretary shall submit to 
                Congress a biennial report regarding how quality 
                assurance programs conducted under this subsection 
                focus on racial and ethnic minorities.
                    ``(B) Contents of report.--Each such report shall 
                include the following:
                            ``(i) A description of the means by which 
                        such programs focus on such racial and ethnic 
                        minorities.
                            ``(ii) An evaluation of the impact of such 
                        programs on eliminating health disparities and 
                        on improving health outcomes, continuity and 
                        coordination of care, management of chronic 
                        conditions, and consumer satisfaction.
                            ``(iii) Recommendations on ways to reduce 
                        clinical outcome disparities among racial and 
                        ethnic minorities.
    ``(f) Grievance Mechanism.--Each MedicareAdvantage organization 
must provide meaningful procedures for hearing and resolving grievances 
between the organization (including any entity or individual through 
which the organization provides health care services) and enrollees 
with MedicareAdvantage plans of the organization under this part.
    ``(g) Coverage Determinations, Reconsiderations, and Appeals.--
            ``(1) Determinations by organization.--
                    ``(A) In general.--A MedicareAdvantage organization 
                shall have a procedure for making determinations 
                regarding whether an individual enrolled with the plan 
                of the organization under this part is entitled to 
                receive a health service under this section and the 
                amount (if any) that the individual is required to pay 
                with respect to such service. Subject to paragraph (3), 
                such procedures shall provide for such determination to 
                be made on a timely basis.
                    ``(B) Explanation of determination.--Such a 
                determination that denies coverage, in whole or in 
                part, shall be in writing and shall include a statement 
                in understandable language of the reasons for the 
                denial and a description of the reconsideration and 
                appeals processes.
            ``(2) Reconsiderations.--
                    ``(A) In general.--The organization shall provide 
                for reconsideration of a determination described in 
                paragraph (1)(B) upon request by the enrollee involved. 
                The reconsideration shall be within a time period 
                specified by the Secretary, but shall be made, subject 
                to paragraph (3), not later than 60 days after the date 
                of the receipt of the request for reconsideration.
                    ``(B) Physician decision on certain 
                reconsiderations.--A reconsideration relating to a 
                determination to deny coverage based on a lack of 
                medical necessity shall be made only by a physician 
                with appropriate expertise in the field of medicine 
                which necessitates treatment who is other than a 
                physician involved in the initial determination.
            ``(3) Expedited determinations and reconsiderations.--
                    ``(A) Receipt of requests.--
                            ``(i) Enrollee requests.--An enrollee in a 
                        MedicareAdvantage plan may request, either in 
                        writing or orally, an expedited determination 
                        under paragraph (1) or an expedited 
                        reconsideration under paragraph (2) by the 
                        MedicareAdvantage organization.
                            ``(ii) Physician requests.--A physician, 
                        regardless whether the physician is affiliated 
                        with the organization or not, may request, 
                        either in writing or orally, such an expedited 
                        determination or reconsideration.
                    ``(B) Organization procedures.--
                            ``(i) In general.--The MedicareAdvantage 
                        organization shall maintain procedures for 
                        expediting organization determinations and 
                        reconsiderations when, upon request of an 
                        enrollee, the organization determines that the 
                        application of the normal timeframe for making 
                        a determination (or a reconsideration involving 
                        a determination) could seriously jeopardize the 
                        life or health of the enrollee or the 
                        enrollee's ability to regain maximum function.
                            ``(ii) Expedition required for physician 
                        requests.--In the case of a request for an 
                        expedited determination or reconsideration made 
                        under subparagraph (A)(ii), the organization 
                        shall expedite the determination or 
                        reconsideration if the request indicates that 
                        the application of the normal timeframe for 
                        making a determination (or a reconsideration 
                        involving a determination) could seriously 
                        jeopardize the life or health of the 
enrollee or the enrollee's ability to regain maximum function.
                            ``(iii) Timely response.--In cases 
                        described in clauses (i) and (ii), the 
                        organization shall notify the enrollee (and the 
                        physician involved, as appropriate) of the 
                        determination or reconsideration under time 
                        limitations established by the Secretary, but 
                        not later than 72 hours of the time of receipt 
                        of the request for the determination or 
                        reconsideration (or receipt of the information 
                        necessary to make the determination or 
                        reconsideration), or such longer period as the 
                        Secretary may permit in specified cases.
            ``(4) Independent review of certain coverage denials.--The 
        Secretary shall contract with an independent, outside entity to 
        review and resolve in a timely manner reconsiderations that 
        affirm denial of coverage, in whole or in part. The provisions 
        of section 1869(c)(5) shall apply to independent outside 
        entities under contract with the Secretary under this 
        paragraph.
            ``(5) Appeals.--An enrollee with a MedicareAdvantage plan 
        of a MedicareAdvantage organization under this part who is 
        dissatisfied by reason of the enrollee's failure to receive any 
        health service to which the enrollee believes the enrollee is 
        entitled and at no greater charge than the enrollee believes 
        the enrollee is required to pay is entitled, if the amount in 
        controversy is $100 or more, to a hearing before the Secretary 
        to the same extent as is provided in section 205(b), and in any 
        such hearing the Secretary shall make the organization a party. 
        If the amount in controversy is $1,000 or more, the individual 
        or organization shall, upon notifying the other party, be 
        entitled to judicial review of the Secretary's final decision 
        as provided in section 205(g), and both the individual and the 
        organization shall be entitled to be parties to that judicial 
        review. In applying subsections (b) and (g) of section 205 as 
        provided in this paragraph, and in applying section 205(l) 
        thereto, any reference therein to the Commissioner of Social 
        Security or the Social Security Administration shall be 
        considered a reference to the Secretary or the Department of 
        Health and Human Services, respectively.
    ``(h) Confidentiality and Accuracy of Enrollee Records.--Insofar as 
a MedicareAdvantage organization maintains medical records or other 
health information regarding enrollees under this part, the 
MedicareAdvantage organization shall establish procedures--
            ``(1) to safeguard the privacy of any individually 
        identifiable enrollee information;
            ``(2) to maintain such records and information in a manner 
        that is accurate and timely; and
            ``(3) to assure timely access of enrollees to such records 
        and information.
    ``(i) Information on Advance Directives.--Each MedicareAdvantage 
organization shall meet the requirement of section 1866(f) (relating to 
maintaining written policies and procedures respecting advance 
directives).
    ``(j) Rules Regarding Provider Participation.--
            ``(1) Procedures.--Insofar as a MedicareAdvantage 
        organization offers benefits under a MedicareAdvantage plan 
        through agreements with physicians, the organization shall 
        establish reasonable procedures relating to the participation 
        (under an agreement between a physician and the organization) 
        of physicians under such a plan. Such procedures shall 
        include--
                    ``(A) providing notice of the rules regarding 
                participation;
                    ``(B) providing written notice of participation 
                decisions that are adverse to physicians; and
                    ``(C) providing a process within the organization 
                for appealing such adverse decisions, including the 
                presentation of information and views of the physician 
                regarding such decision.
            ``(2) Consultation in medical policies.--A 
        MedicareAdvantage organization shall consult with physicians 
        who have entered into participation agreements with the 
        organization regarding the organization's medical policy, 
        quality, and medical management procedures.
            ``(3) Prohibiting interference with provider advice to 
        enrollees.--
                    ``(A) In general.--Subject to subparagraphs (B) and 
                (C), a MedicareAdvantage organization (in relation to 
                an individual enrolled under a MedicareAdvantage plan 
                offered by the organization under this part) shall not 
                prohibit or otherwise restrict a covered health care 
                professional (as defined in subparagraph (D)) from 
                advising such an individual who is a patient of the 
                professional about the health status of the individual 
                or medical care or treatment for the individual's 
                condition or disease, regardless of whether benefits 
                for such care or treatment are provided under the plan, 
                if the professional is acting within the lawful scope 
                of practice.
                    ``(B) Conscience protection.--Subparagraph (A) 
                shall not be construed as requiring a MedicareAdvantage 
                plan to provide, reimburse for, or provide coverage of 
                a counseling or referral service if the 
                MedicareAdvantage organization offering the plan--
                            ``(i) objects to the provision of such 
                        service on moral or religious grounds; and
                            ``(ii) in the manner and through the 
                        written instrumentalities such 
                        MedicareAdvantage organization deems 
                        appropriate, makes available information on its 
                        policies regarding such service to prospective 
                        enrollees before or during enrollment and to 
                        enrollees within 90 days after the date that 
                        the organization or plan adopts a change in 
                        policy regarding such a counseling or referral 
                        service.
                    ``(C) Construction.--Nothing in subparagraph (B) 
                shall be construed to affect disclosure requirements 
                under State law or under the Employee Retirement Income 
                Security Act of 1974.
                    ``(D) Health care professional defined.--For 
                purposes of this paragraph, the term `health care 
                professional' means a physician (as defined in section 
                1861(r)) or other health care professional if coverage 
                for the professional's services is provided under the 
                MedicareAdvantage plan for the services of the 
                professional. Such term includes a podiatrist, 
                optometrist, chiropractor, psychologist, dentist, 
                licensed pharmacist, physician assistant, physical or 
                occupational therapist and therapy assistant, speech-
                language pathologist, audiologist, registered or 
                licensed practical nurse (including nurse practitioner, 
                clinical nurse specialist, certified registered nurse 
                anesthetist, and certified nurse-midwife), licensed 
                certified social worker, registered respiratory 
                therapist, and certified respiratory therapy 
                technician.
            ``(4) Limitations on physician incentive plans.--
                    ``(A) In general.--No MedicareAdvantage 
                organization may operate any physician incentive plan 
                (as defined in subparagraph (B)) unless the following 
                requirements are met:
                            ``(i) No specific payment is made directly 
                        or indirectly under the plan to a physician or 
                        physician group as an inducement to reduce or 
                        limit medically necessary services provided 
                        with respect to a specific individual enrolled 
                        with the organization.
                            ``(ii) If the plan places a physician or 
                        physician group at substantial financial risk 
                        (as determined by the Secretary) for services 
                        not provided by the physician or physician 
                        group, the organization--
                                    ``(I) provides stop-loss protection 
                                for the physician or group that is 
                                adequate and appropriate, based on 
                                standards developed by the Secretary 
                                that take into account the number of 
                                physicians placed at such substantial 
                                financial risk in the group or under 
                                the plan and the number of individuals 
                                enrolled with the organization who 
                                receive services from the physician or 
                                group; and
                                    ``(II) conducts periodic surveys of 
                                both individuals enrolled and 
                                individuals previously enrolled with 
                                the organization to determine the 
                                degree of access of such individuals to 
                                services provided by the organization 
                                and satisfaction with the quality of 
                                such services.
                            ``(iii) The organization provides the 
                        Secretary with descriptive information 
                        regarding the plan, sufficient to permit the 
                        Secretary to determine whether the plan is in 
                        compliance with the requirements of this 
                        subparagraph.
                    ``(B) Physician incentive plan defined.--In this 
                paragraph, the term `physician incentive plan' means 
                any compensation arrangement between a 
                MedicareAdvantage organization and a physician or 
                physician group that may directly or indirectly have 
                the effect of reducing or limiting services provided 
                with respect to individuals enrolled with the 
                organization under this part.
            ``(5) Limitation on provider indemnification.--A 
        MedicareAdvantage organization may not provide (directly or 
        indirectly) for a health care professional, provider of 
        services, or other entity providing health care services (or 
        group of such professionals, providers, or entities) to 
        indemnify the organization against any liability resulting from 
        a civil action brought for any damage caused to an enrollee 
        with a MedicareAdvantage plan of the organization under this 
        part by the organization's denial of medically necessary care.
            ``(6) Special rules for medicareadvantage private fee-for-
        service plans.--For purposes of applying this part (including 
        subsection (k)(1)) and section 1866(a)(1)(O), a hospital (or 
        other provider of services), a physician or other health care 
        professional, or other entity furnishing health care services 
        is treated as having an agreement or contract in effect with a 
        MedicareAdvantage organization (with respect to an individual 
        enrolled in a MedicareAdvantage private fee-for-service plan it 
        offers), if--
                    ``(A) the provider, professional, or other entity 
                furnishes services that are covered under the plan to 
                such an enrollee; and
                    ``(B) before providing such services, the provider, 
                professional, or other entity--
                            ``(i) has been informed of the individual's 
                        enrollment under the plan; and
                            ``(ii) either--
                                    ``(I) has been informed of the 
                                terms and conditions of payment for 
                                such services under the plan; or
                                    ``(II) is given a reasonable 
                                opportunity to obtain information 
                                concerning such terms and conditions,
                        in a manner reasonably designed to effect 
                        informed agreement by a provider.
        The previous sentence shall only apply in the absence of an 
        explicit agreement between such a provider, professional, or 
        other entity and the MedicareAdvantage organization.
    ``(k) Treatment of Services Furnished by Certain Providers.--
            ``(1) In general.--Except as provided in paragraph (2), a 
        physician or other entity (other than a provider of services) 
        that does not have a contract establishing payment amounts for 
        services furnished to an individual enrolled under this part 
        with a MedicareAdvantage organization described in section 
        1851(a)(2)(A) shall accept as payment in full for covered 
        services under this title that are furnished to such an 
        individual the amounts that the physician or other entity could 
        collect if the individual were not so enrolled. Any penalty or 
        other provision of law that applies to such a payment with 
        respect to an individual entitled to benefits under this title 
        (but not enrolled with a MedicareAdvantage organization under 
        this part) also applies with respect to an individual so 
        enrolled.
            ``(2) Application to medicareadvantage private fee-for-
        service plans.--
                    ``(A) Balance billing limits under 
                medicareadvantage private fee-for-service plans in case 
                of contract providers.--
                            ``(i) In general.--In the case of an 
                        individual enrolled in a MedicareAdvantage 
                        private fee-for-service plan under this part, a 
                        physician, provider of services, or other 
                        entity that has a contract (including through 
                        the operation of subsection (j)(6)) 
                        establishing a payment rate for services 
                        furnished to the enrollee shall accept as 
                        payment in full for covered services under this 
                        title that are furnished to such an individual 
                        an amount not to exceed (including any 
                        deductibles, coinsurance, copayments, or 
                        balance billing otherwise permitted under the 
                        plan) an amount equal to 115 percent of such 
                        payment rate.
                            ``(ii) Procedures to enforce limits.--The 
                        MedicareAdvantage organization that offers such 
                        a plan shall establish procedures, similar to 
                        the procedures described in section 
                        1848(g)(1)(A), in order to carry out clause 
                        (i).
                            ``(iii) Assuring enforcement.--If the 
                        MedicareAdvantage organization fails to 
                        establish and enforce procedures required under 
                        clause (ii), the organization is subject to 
                        intermediate sanctions under section 1857(g).
                    ``(B) Enrollee liability for noncontract 
                providers.--For provisions--
                            ``(i) establishing a minimum payment rate 
                        in the case of noncontract providers under a 
                        MedicareAdvantage private fee-for-service plan, 
                        see section 1852(a)(2); or
                            ``(ii) limiting enrollee liability in the 
                        case of covered services furnished by such 
                        providers, see paragraph (1) and section 
                        1866(a)(1)(O).
                    ``(C) Information on beneficiary liability.--
                            ``(i) In general.--Each MedicareAdvantage 
                        organization that offers a MedicareAdvantage 
                        private fee-for-service plan shall provide that 
                        enrollees under the plan who are furnished 
                        services for which payment is sought under the 
                        plan are provided an appropriate explanation of 
                        benefits (consistent with that provided under 
                        parts A, B, and D, and, if applicable, under 
                        medicare supplemental policies) that includes a 
                        clear statement of the amount of the enrollee's 
                        liability (including any liability for balance 
                        billing consistent with this subsection) with 
                        respect to payments for such services.
                            ``(ii) Advance notice before receipt of 
                        inpatient hospital services and certain other 
                        services.--In addition, such organization 
                        shall, in its terms and conditions of payments 
                        to hospitals for inpatient hospital services 
                        and for other services identified by the 
                        Secretary for which the amount of the balance 
                        billing under subparagraph (A) could be 
                        substantial, require the hospital to provide to 
                        the enrollee, before furnishing such services 
and if the hospital imposes balance billing under subparagraph (A)--
                                    ``(I) notice of the fact that 
                                balance billing is permitted under such 
                                subparagraph for such services; and
                                    ``(II) a good faith estimate of the 
                                likely amount of such balance billing 
                                (if any), with respect to such 
                                services, based upon the presenting 
                                condition of the enrollee.
    ``(l) Return to Home Skilled Nursing Facilities for Covered Post-
Hospital Extended Care Services.--
            ``(1) Ensuring return to home snf.--
                    ``(A) In general.--In providing coverage of post-
                hospital extended care services, a MedicareAdvantage 
plan shall provide for such coverage through a home skilled nursing 
facility if the following conditions are met:
                            ``(i) Enrollee election.--The enrollee 
                        elects to receive such coverage through such 
                        facility.
                            ``(ii) SNF agreement.--The facility has a 
                        contract with the MedicareAdvantage 
                        organization for the provision of such 
                        services, or the facility agrees to accept 
                        substantially similar payment under the same 
                        terms and conditions that apply to similarly 
                        situated skilled nursing facilities that are 
                        under contract with the MedicareAdvantage 
                        organization for the provision of such services 
                        and through which the enrollee would otherwise 
                        receive such services.
                    ``(B) Manner of payment to home snf.--The 
                organization shall provide payment to the home skilled 
                nursing facility consistent with the contract or the 
                agreement described in subparagraph (A)(ii), as the 
                case may be.
            ``(2) No less favorable coverage.--The coverage provided 
        under paragraph (1) (including scope of services, cost-sharing, 
        and other criteria of coverage) shall be no less favorable to 
        the enrollee than the coverage that would be provided to the 
        enrollee with respect to a skilled nursing facility the post-
        hospital extended care services of which are otherwise covered 
        under the MedicareAdvantage plan.
            ``(3) Rule of construction.--Nothing in this subsection 
        shall be construed to do the following:
                    ``(A) To require coverage through a skilled nursing 
                facility that is not otherwise qualified to provide 
                benefits under part A for medicare beneficiaries not 
                enrolled in a MedicareAdvantage plan.
                    ``(B) To prevent a skilled nursing facility from 
                refusing to accept, or imposing conditions upon the 
                acceptance of, an enrollee for the receipt of post-
                hospital extended care services.
            ``(4) Definitions.--In this subsection:
                    ``(A) Home skilled nursing facility.--The term 
                `home skilled nursing facility' means, with respect to 
                an enrollee who is entitled to receive post-hospital 
                extended care services under a MedicareAdvantage plan, 
                any of the following skilled nursing facilities:
                            ``(i) SNF residence at time of admission.--
                        The skilled nursing facility in which the 
                        enrollee resided at the time of admission to 
                        the hospital preceding the receipt of such 
                        post-hospital extended care services.
                            ``(ii) SNF in continuing care retirement 
                        community.--A skilled nursing facility that is 
                        providing such services through a continuing 
                        care retirement community (as defined in 
                        subparagraph (B)) which provided residence to 
                        the enrollee at the time of such admission.
                            ``(iii) SNF residence of spouse at time of 
                        discharge.--The skilled nursing facility in 
                        which the spouse of the enrollee is residing at 
                        the time of discharge from such hospital.
                    ``(B) Continuing care retirement community.--The 
                term `continuing care retirement community' means, with 
                respect to an enrollee in a MedicareAdvantage plan, an 
                arrangement under which housing and health-related 
                services are provided (or arranged) through an 
                organization for the enrollee under an agreement that 
                is effective for the life of the enrollee or for a 
                specified period.''.

SEC. 203. PAYMENTS TO MEDICAREADVANTAGE ORGANIZATIONS.

    Section 1853 (42 U.S.C. 1395w-23) is amended to read as follows:

             ``payments to medicareadvantage organizations

    ``Sec. 1853. (a) Payments to Organizations.--
            ``(1) Monthly payments.--
                    ``(A) In general.--Under a contract under section 
                1857 and subject to subsections (f), (h), and (j) and 
                section 1859(e)(4), the Secretary shall make, to each 
                MedicareAdvantage organization, with respect to 
                coverage of an individual for a month under this part 
                in a MedicareAdvantage payment area, separate monthly 
                payments with respect to--
                            ``(i) benefits under the original medicare 
                        fee-for-service program under parts A and B in 
                        accordance with subsection (d); and
                            ``(ii) benefits under the voluntary 
                        prescription drug program under part D in 
                        accordance with section 1858A and the other 
                        provisions of this part.
                    ``(B) Special rule for end-stage renal disease.--
                The Secretary shall establish separate rates of payment 
                to a MedicareAdvantage organization with respect to 
                classes of individuals determined to have end-stage 
                renal disease and enrolled in a MedicareAdvantage plan 
                of the organization. Such rates of payment shall be 
                actuarially equivalent to rates paid to other enrollees 
                in the MedicareAdvantage payment area (or such other 
                area as specified by the Secretary). In accordance with 
                regulations, the Secretary shall provide for the 
                application of the seventh sentence of section 
1881(b)(7) to payments under this section covering the provision of 
renal dialysis treatment in the same manner as such sentence applies to 
composite rate payments described in such sentence. In establishing 
such rates, the Secretary shall provide for appropriate adjustments to 
increase each rate to reflect the demonstration rate (including the 
risk adjustment methodology associated with such rate) of the social 
health maintenance organization end-stage renal disease capitation 
demonstrations (established by section 2355 of the Deficit Reduction 
Act of 1984, as amended by section 13567(b) of the Omnibus Budget 
Reconciliation Act of 1993), and shall compute such rates by taking 
into account such factors as renal treatment modality, age, and the 
underlying cause of the end-stage renal disease.
            ``(2) Adjustment to reflect number of enrollees.--
                    ``(A) In general.--The amount of payment under this 
                subsection may be retroactively adjusted to take into 
                account any difference between the actual number of 
                individuals enrolled with an organization under this 
                part and the number of such individuals estimated to be 
                so enrolled in determining the amount of the advance 
                payment.
                    ``(B) Special rule for certain enrollees.--
                            ``(i) In general.--Subject to clause (ii), 
                        the Secretary may make retroactive adjustments 
                        under subparagraph (A) to take into account 
                        individuals enrolled during the period 
                        beginning on the date on which the individual 
                        enrolls with a MedicareAdvantage organization 
                        under a plan operated, sponsored, or 
                        contributed to by the individual's employer or 
                        former employer (or the employer or former 
                        employer of the individual's spouse) and ending 
                        on the date on which the individual is enrolled 
                        in the organization under this part, except 
                        that for purposes of making such retroactive 
                        adjustments under this subparagraph, such 
                        period may not exceed 90 days.
                            ``(ii) Exception.--No adjustment may be 
                        made under clause (i) with respect to any 
                        individual who does not certify that the 
                        organization provided the individual with the 
                        disclosure statement described in section 
                        1852(c) at the time the individual enrolled 
                        with the organization.
                    ``(C) Equalization of federal contribution.--In 
                applying subparagraph (A), the Secretary shall ensure 
                that the payment to the MedicareAdvantage organization 
                for each individual enrolled with the organization 
                shall equal the MedicareAdvantage benchmark amount for 
                the payment area in which that individual resides (as 
                determined under paragraph (4)), as adjusted--
                            ``(i) by multiplying the benchmark amount 
                        for that payment area by the ratio of--
                                    ``(I) the payment amount determined 
                                under subsection (d)(4); to
                                    ``(II) the weighted service area 
                                benchmark amount determined under 
                                subsection (d)(2); and
                            ``(ii) using such risk adjustment factor as 
                        specified by the Secretary under subsection 
                        (b)(1)(B).
            ``(3) Comprehensive risk adjustment methodology.--
                    ``(A) Application of methodology.--The Secretary 
                shall apply the comprehensive risk adjustment 
                methodology described in subparagraph (B) to 100 
                percent of the amount of payments to plans under 
                subsection (d)(4)(B).
                    ``(B) Comprehensive risk adjustment methodology 
                described.--The comprehensive risk adjustment 
                methodology described in this subparagraph is the risk 
adjustment methodology that would apply with respect to 
MedicareAdvantage plans offered by MedicareAdvantage organizations in 
2005, except that if such methodology does not apply to groups of 
beneficiaries who are aged or disabled and groups of beneficiaries who 
have end-stage renal disease, the Secretary shall revise such 
methodology to apply to such groups.
                    ``(C) Uniform application to all types of plans.--
                Subject to section 1859(e)(4), the comprehensive risk 
                adjustment methodology established under this paragraph 
                shall be applied uniformly without regard to the type 
                of plan.
                    ``(D) Data collection.--In order to carry out this 
                paragraph, the Secretary shall require 
                MedicareAdvantage organizations to submit such data and 
                other information as the Secretary deems necessary.
                    ``(E) Improvement of payment accuracy.--
                Notwithstanding any other provision of this paragraph, 
                the Secretary may revise the comprehensive risk 
                adjustment methodology described in subparagraph (B) 
                from time to time to improve payment accuracy.
            ``(4) Annual calculation of benchmark amounts.--For each 
        year, the Secretary shall calculate a benchmark amount for each 
        MedicareAdvantage payment area for each month for such year 
with respect to coverage of the benefits available under the original 
medicare fee-for-service program option equal to the greater of the 
following amounts (adjusted as appropriate for the application of the 
risk adjustment methodology under paragraph (3)):
                    ``(A) Minimum amount.--\1/12\ of the annual 
                Medicare+Choice capitation rate determined under 
                subsection (c)(1)(B) for the payment area for the year.
                    ``(B) Local fee-for-service rate.--The local fee-
                for-service rate for such area for the year (as 
                calculated under paragraph (5)).
            ``(5) Annual calculation of local fee-for-service rates.--
                    ``(A) In general.--Subject to subparagraph (B), the 
                term `local fee-for-service rate' means the amount of 
                payment for a month in a MedicareAdvantage payment area 
                for benefits under this title and associated claims 
                processing costs for an individual who has elected to 
                receive benefits under the original medicare fee-for-
                service program option and not enrolled in a 
                MedicareAdvantage plan under this part. The Secretary 
                shall annually calculate such amount in a manner 
                similar to the manner in which the Secretary calculated 
                the adjusted average per capita cost under section 
                1876.
                    ``(B) Removal of medical education costs from 
                calculation of local fee-for-service rate.--
                            ``(i) In general.--In calculating the local 
                        fee-for-service rate under subparagraph (A) for 
                        a year, the amount of payment described in such 
                        subparagraph shall be adjusted to exclude from 
                        such payment the payment adjustments described 
                        in clause (ii).
                            ``(ii) Payment adjustments described.--
                                    ``(I) In general.--Subject to 
                                subclause (II), the payment adjustments 
                                described in this subparagraph are 
                                payment adjustments which the Secretary 
                                estimates are payable during the year--
                                            ``(aa) for the indirect 
                                        costs of medical education 
                                        under section 1886(d)(5)(B); 
                                        and
                                            ``(bb) for direct graduate 
                                        medical education costs under 
                                        section 1886(h).
                                    ``(II) Treatment of payments 
                                covered under state hospital 
                                reimbursement system.--To the extent 
                                that the Secretary estimates that the 
                                amount of the local fee-for-service 
                                rates reflects payments to hospitals 
                                reimbursed under section 1814(b)(3), 
                                the Secretary shall estimate a payment 
                                adjustment that is comparable to the 
                                payment adjustment that would have been 
                                made under clause (i) if the hospitals 
                                had not been reimbursed under such 
                                section.
    ``(b) Annual Announcement of Payment Factors.--
            ``(1) Annual announcement.--Beginning in 2005, at the same 
        time as the Secretary publishes the risk adjusters under 
        section 1860D-11, the Secretary shall annually announce (in a 
        manner intended to provide notice to interested parties) the 
        following payment factors:
                    ``(A) The benchmark amount for each 
                MedicareAdvantage payment area (as calculated under 
                subsection (a)(4)) for the year.
                    ``(B) The factors to be used for adjusting payments 
                under the comprehensive risk adjustment methodology 
                described in subsection (a)(3)(B) with respect to each 
                MedicareAdvantage payment area for the year.
            ``(2) Advance notice of methodological changes.--At least 
        45 days before making the announcement under paragraph (1) for 
        a year, the Secretary shall--
                    ``(A) provide for notice to MedicareAdvantage 
                organizations of proposed changes to be made in the 
                methodology from the methodology and assumptions used 
                in the previous announcement; and
                    ``(B) provide such organizations with an 
                opportunity to comment on such proposed changes.
            ``(3) Explanation of assumptions.--In each announcement 
        made under paragraph (1), the Secretary shall include an 
        explanation of the assumptions and changes in methodology used 
        in the announcement in sufficient detail so that 
        MedicareAdvantage organizations can compute each payment factor 
        described in paragraph (1).
    ``(c) Calculation of Annual Medicare+Choice Capitation Rates.--
            ``(1) In general.--For purposes of making payments under 
        this part for years before 2006 and for purposes of calculating 
        the annual Medicare+Choice capitation rates under paragraph (7) 
        beginning with such year, subject to paragraph (6)(C), each 
        annual Medicare+Choice capitation rate, for a Medicare+Choice 
        payment area before 2006 or a MedicareAdvantage payment area 
        beginning with such year for a contract year consisting of a 
        calendar year, is equal to the largest of the amounts specified 
        in the following subparagraph (A), (B), or (C):
                    ``(A) Blended capitation rate.--The sum of--
                            ``(i) the area-specific percentage (as 
                        specified under paragraph (2) for the year) of 
                        the annual area-specific Medicare+Choice 
                        capitation rate for the MedicareAdvantage 
                        payment area, as determined under paragraph (3) 
                        for the year; and
                            ``(ii) the national percentage (as 
                        specified under paragraph (2) for the year) of 
                        the input-price-adjusted annual national 
                        Medicare+Choice capitation rate, as determined 
                        under paragraph (4) for the year,
                multiplied by the budget neutrality adjustment factor 
                determined under paragraph (5).
                    ``(B) Minimum amount.--12 multiplied by the 
                following amount:
                            ``(i) For 1998, $367 (but not to exceed, in 
                        the case of an area outside the 50 States and 
                        the District of Columbia, 150 percent of the 
                        annual per capita rate of payment for 1997 
                        determined under section 1876(a)(1)(C) for the 
                        area).
                            ``(ii) For 1999 and 2000, the minimum 
                        amount determined under clause (i) or this 
                        clause, respectively, for the preceding year, 
                        increased by the national per capita 
                        Medicare+Choice growth percentage described in 
                        paragraph (6)(A) applicable to 1999 or 2000, 
                        respectively.
                            ``(iii)(I) Subject to subclause (II), for 
                        2001, for any area in a Metropolitan 
                        Statistical Area with a population of more than 
                        250,000, $525, and for any other area $475.
                            ``(II) In the case of an area outside the 
                        50 States and the District of Columbia, the 
                        amount specified in this clause shall not 
                        exceed 120 percent of the amount determined 
                        under clause (ii) for such area for 2000.
                            ``(iv) For 2002 through 2013, the minimum 
                        amount specified in this clause (or clause 
                        (iii)) for the preceding year increased by the 
                        national per capita Medicare+Choice growth 
                        percentage, described in paragraph (6)(A) for 
                        that succeeding year.
                            ``(v) For 2014 and each succeeding year, 
                        the minimum amount specified in this clause (or 
                        clause (iv)) for the preceding year increased 
                        by the percentage increase in the Consumer 
                        Price Index for all urban consumers (U.S. urban 
                        average) for the 12-month period ending with 
                        June of the previous year.
                    ``(C) Minimum percentage increase.--
                            ``(i) For 1998, 102 percent of the annual 
                        per capita rate of payment for 1997 determined 
                        under section 1876(a)(1)(C) for the 
                        Medicare+Choice payment area.
                            ``(ii) For 1999 and 2000, 102 percent of 
                        the annual Medicare+Choice capitation rate 
                        under this paragraph for the area for the 
                        previous year.
                            ``(iii) For 2001, 103 percent of the annual 
                        Medicare+Choice capitation rate under this 
                        paragraph for the area for 2000.
                            ``(iv) For 2002 and each succeeding year, 
                        102 percent of the annual Medicare+Choice 
                        capitation rate under this paragraph for the 
                        area for the previous year.
            ``(2) Area-specific and national percentages.--For purposes 
        of paragraph (1)(A)--
                    ``(A) for 1998, the `area-specific percentage' is 
                90 percent and the `national percentage' is 10 percent;
                    ``(B) for 1999, the `area-specific percentage' is 
                82 percent and the `national percentage' is 18 percent;
                    ``(C) for 2000, the `area-specific percentage' is 
                74 percent and the `national percentage' is 26 percent;
                    ``(D) for 2001, the `area-specific percentage' is 
                66 percent and the `national percentage' is 34 percent;
                    ``(E) for 2002, the `area-specific percentage' is 
                58 percent and the `national percentage' is 42 percent; 
                and
                    ``(F) for a year after 2002, the `area-specific 
                percentage' is 50 percent and the `national percentage' 
                is 50 percent.
            ``(3) Annual area-specific medicare+ choice capitation 
        rate.--
                    ``(A) In general.--For purposes of paragraph 
                (1)(A), subject to subparagraph (B), the annual area-
                specific Medicare+Choice capitation rate for a 
                Medicare+Choice payment area--
                            ``(i) for 1998 is, subject to subparagraph 
                        (D), the annual per capita rate of payment for 
                        1997 determined under section 1876(a)(1)(C) for 
                        the area, increased by the national per capita 
                        Medicare+Choice growth percentage for 1998 
                        (described in paragraph (6)(A)); or
                            ``(ii) for a subsequent year is the annual 
                        area-specific Medicare+Choice capitation rate 
                        for the previous year determined under this 
                        paragraph for the area, increased by the 
                        national per capita Medicare+Choice growth 
                        percentage for such subsequent year.
                    ``(B) Removal of medical education from calculation 
                of adjusted average per capita cost.--
                            ``(i) In general.--In determining the area-
                        specific Medicare+Choice capitation rate under 
                        subparagraph (A) for a year (beginning with 
                        1998), the annual per capita rate of payment 
                        for 1997 determined under section 1876(a)(1)(C) 
                        shall be adjusted to exclude from the rate the 
                        applicable percent (specified in clause (ii)) 
                        of the payment adjustments described in 
                        subparagraph (C).
                            ``(ii) Applicable percent.--For purposes of 
                        clause (i), the applicable percent for--
                                    ``(I) 1998 is 20 percent;
                                    ``(II) 1999 is 40 percent;
                                    ``(III) 2000 is 60 percent;
                                    ``(IV) 2001 is 80 percent; and
                                    ``(V) a succeeding year is 100 
                                percent.
                    ``(C) Payment adjustment.--
                            ``(i) In general.--Subject to clause (ii), 
                        the payment adjustments described in this 
                        subparagraph are payment adjustments which the 
                        Secretary estimates were payable during 1997--
                                    ``(I) for the indirect costs of 
                                medical education under section 
                                1886(d)(5)(B); and
                                    ``(II) for direct graduate medical 
                                education costs under section 1886(h).
                            ``(ii) Treatment of payments covered under 
                        state hospital reimbursement system.--To the 
                        extent that the Secretary estimates that an 
                        annual per capita rate of payment for 1997 
                        described in clause (i) reflects payments to 
                        hospitals reimbursed under section 1814(b)(3), 
                        the Secretary shall estimate a payment 
                        adjustment that is comparable to the payment 
                        adjustment that would have been made under 
                        clause (i) if the hospitals had not been 
                        reimbursed under such section.
                    ``(D) Treatment of areas with highly variable 
                payment rates.--In the case of a Medicare+Choice 
                payment area for which the annual per capita rate of 
payment determined under section 1876(a)(1)(C) for 1997 varies by more 
than 20 percent from such rate for 1996, for purposes of this 
subsection the Secretary may substitute for such rate for 1997 a rate 
that is more representative of the costs of the enrollees in the area.
            ``(4) Input-price-adjusted annual national medicare+choice 
        capitation rate.--
                    ``(A) In general.--For purposes of paragraph 
                (1)(A), the input-price-adjusted annual national 
                Medicare+Choice capitation rate for a Medicare+Choice 
                payment area for a year is equal to the sum, for all 
                the types of medicare services (as classified by the 
                Secretary), of the product (for each such type of 
                service) of--
                            ``(i) the national standardized annual 
                        Medicare+Choice capitation rate (determined 
                        under subparagraph (B)) for the year;
                            ``(ii) the proportion of such rate for the 
                        year which is attributable to such type of 
                        services; and
                            ``(iii) an index that reflects (for that 
                        year and that type of services) the relative 
                        input price of such services in the area 
                        compared to the national average input price of 
                        such services.
                In applying clause (iii), the Secretary may, subject to 
                subparagraph (C), apply those indices under this title 
                that are used in applying (or updating) national 
                payment rates for specific areas and localities.
                    ``(B) National standardized annual medicare+choice 
                capitation rate.--In subparagraph (A)(i), the `national 
                standardized annual Medicare+Choice capitation rate' 
                for a year is equal to--
                            ``(i) the sum (for all Medicare+Choice 
                        payment areas) of the product of--
                                    ``(I) the annual area-specific 
                                Medicare+Choice capitation rate for 
                                that year for the area under paragraph 
                                (3); and
                                    ``(II) the average number of 
                                medicare beneficiaries residing in that 
                                area in the year, multiplied by the 
                                average of the risk factor weights used 
                                to adjust payments under subsection 
                                (a)(1)(A) for such beneficiaries in 
                                such area; divided by
                            ``(ii) the sum of the products described in 
                        clause (i)(II) for all areas for that year.
            ``(5) Payment adjustment budget neutrality factor.--For 
        purposes of paragraph (1)(A), for each year, the Secretary 
        shall determine a budget neutrality adjustment factor so that 
        the aggregate of the payments under this part (other than those 
        attributable to subsections (a)(3)(C)(iii) and (i)) shall equal 
        the aggregate payments that would have been made under this 
        part if payment were based entirely on area-specific capitation 
        rates.
            ``(6) National per capita medicare+ choice growth 
        percentage defined.--
                    ``(A) In general.--In this part, the `national per 
                capita Medicare+Choice growth percentage' for a year is 
                the percentage determined by the Secretary, by March 
                1st before the beginning of the year involved, to 
                reflect the Secretary's estimate of the projected per 
                capita rate of growth in expenditures under this title 
                for an individual entitled to (or enrolled for) 
                benefits under part A and enrolled under part B, 
                reduced by the number of percentage points specified in 
                subparagraph (B) for the year. Separate determinations 
                may be made for aged enrollees, disabled enrollees, and 
                enrollees with end-stage renal disease.
                    ``(B) Adjustment.--The number of percentage points 
                specified in this subparagraph is--
                            ``(i) for 1998, 0.8 percentage points;
                            ``(ii) for 1999, 0.5 percentage points;
                            ``(iii) for 2000, 0.5 percentage points;
                            ``(iv) for 2001, 0.5 percentage points;
                            ``(v) for 2002, 0.3 percentage points; and
                            ``(vi) for a year after 2002, 0 percentage 
                        points.
                    ``(C) Adjustment for over or under projection of 
                national per capita medicare+choice growth 
                percentage.--Beginning with rates calculated for 1999, 
                before computing rates for a year as described in 
                paragraph (1), the Secretary shall adjust all area-
                specific and national Medicare+Choice capitation rates 
                (and beginning in 2000, the minimum amount) for the 
                previous year for the differences between the 
                projections of the national per capita Medicare+Choice 
                growth percentage for that year and previous years and 
                the current estimate of such percentage for such years.
            ``(7) Transition to medicareadvantage competition.--
                    ``(A) In general.--For each year (beginning with 
                2006) payments to MedicareAdvantage plans shall not be 
                computed under this subsection, but instead shall be 
                based on the payment amount determined under subsection 
                (d).
                    ``(B) Continued calculation of capitation rates.--
                For each year (beginning with 2006) the Secretary shall 
                calculate and publish the annual Medicare+Choice 
                capitation rates under this subsection and shall use 
                the annual Medicare+Choice capitation rate determined 
                under subsection (c)(1) for purposes of determining the 
                benchmark amount under subsection (a)(4).
    ``(d) Secretary's Determination of Payment Amount.--
            ``(1) Review of plan bids.--The Secretary shall review each 
        plan bid submitted under section 1854(a) for the coverage of 
        benefits under the original medicare fee-for-service program 
        option to ensure that such bids are consistent with the 
        requirements under this part an are based on the assumptions 
        described in section 1854(a)(2)(A)(iii).
            ``(2) Determination of weighted service area benchmark 
        amounts.--The Secretary shall calculate a weighted service area 
        benchmark amount for the benefits under the original medicare 
        fee-for-service program option for each plan equal to the 
        weighted average of the benchmark amounts for benefits under 
        such original medicare fee-for-service program option for the 
        payment areas included in the service area of the plan using 
        the assumptions described in section 1854(a)(2)(A)(iii).
            ``(3) Comparison to benchmark.--The Secretary shall 
        determine the difference between each plan bid (as adjusted 
        under paragraph (1)) and the weighted service area benchmark 
        amount (as determined under paragraph (2)) for purposes of 
        determining--
                    ``(A) the payment amount under paragraph (4); and
                    ``(B) the additional benefits required and 
                MedicareAdvantage monthly basic beneficiary premiums.
            ``(4) Determination of payment amount for original medicare 
        fee-for-service benefits.--
                    ``(A) In general.--Subject to subparagraph (B), the 
                Secretary shall determine the payment amount for 
                MedicareAdvantage plans for the benefits under the 
                original medicare fee-for-service program option as 
                follows:
                            ``(i) Bids that equal or exceed the 
                        benchmark.--In the case of a plan bid that 
                        equals or exceeds the weighted service area 
                        benchmark amount, the amount of each monthly 
                        payment to a MedicareAdvantage organization 
                        with respect to each individual enrolled in a 
                        plan shall be the weighted service area 
                        benchmark amount.
                            ``(ii) Bids below the benchmark.--In the 
                        case of a plan bid that is less than the 
                        weighted service area benchmark amount, the 
                        amount of each monthly payment to a 
                        MedicareAdvantage organization with respect to 
                        each individual enrolled in a plan shall be the 
                        weighted service area benchmark amount reduced 
                        by the amount of any premium reduction elected 
                        by the plan under section 1854(d)(1)(A)(i).
                    ``(B) Application of comprehensive risk adjustment 
                methodology.--The Secretary shall adjust the amounts 
                determined under subparagraph (A) using the 
                comprehensive risk adjustment methodology applicable 
                under subsection (a)(3).
            ``(6) Adjustment for national coverage determinations and 
        legislative changes in benefits.--If the Secretary makes a 
        determination with respect to coverage under this title or 
        there is a change in benefits required to be provided under 
        this part that the Secretary projects will result in a 
        significant increase in the costs to MedicareAdvantage 
        organizations of providing benefits under contracts under this 
        part (for periods after any period described in section 
        1852(a)(5)), the Secretary shall appropriately adjust the 
        benchmark amounts or payment amounts (as determined by the 
        Secretary). Such projection and adjustment shall be based on an 
        analysis by the Secretary of the actuarial costs associated 
        with the new benefits.
            ``(7) Benefits under the original medicare fee-for-service 
        program option defined.--For purposes of this part, the term 
        `benefits under the original medicare fee-for-service program 
        option' means those items and services (other than hospice 
        care) for which benefits are available under parts A and B to 
        individuals entitled to, or enrolled for, benefits under part A 
        and enrolled under part B, with cost-sharing for those services 
        as required under parts A and B or an actuarially equivalent 
        level of cost-sharing as determined in this part.
    ``(e) MedicareAdvantage Payment Area Defined.--
            ``(1) In general.--In this part, except as provided in 
        paragraph (3), the term `MedicareAdvantage payment area' means 
        a county, or equivalent area specified by the Secretary.
            ``(2) Rule for esrd beneficiaries.--In the case of 
        individuals who are determined to have end stage renal disease, 
        the MedicareAdvantage payment area shall be a State or such 
        other payment area as the Secretary specifies.
            ``(3) Geographic adjustment.--
                    ``(A) In general.--Upon written request of the 
                chief executive officer of a State for a contract year 
                (beginning after 2005) made by not later than February 
                1 of the previous year, the Secretary shall make a 
                geographic adjustment to a MedicareAdvantage payment 
                area in the State otherwise determined under paragraph 
                (1)--
                            ``(i) to a single statewide 
                        MedicareAdvantage payment area;
                            ``(ii) to the metropolitan based system 
                        described in subparagraph (C); or
                            ``(iii) to consolidating into a single 
                        MedicareAdvantage payment area noncontiguous 
                        counties (or equivalent areas described in 
                        paragraph (1)) within a State.
                Such adjustment shall be effective for payments for 
                months beginning with January of the year following the 
                year in which the request is received.
                    ``(B) Budget neutrality adjustment.--In the case of 
                a State requesting an adjustment under this paragraph, 
                the Secretary shall initially (and annually thereafter) 
                adjust the payment rates otherwise established under 
                this section for MedicareAdvantage payment areas in the 
                State in a manner so that the aggregate of the payments 
                under this section in the State shall not exceed the 
aggregate payments that would have been made under this section for 
MedicareAdvantage payment areas in the State in the absence of the 
adjustment under this paragraph.
                    ``(C) Metropolitan based system.--The metropolitan 
                based system described in this subparagraph is one in 
                which--
                            ``(i) all the portions of each metropolitan 
                        statistical area in the State or in the case of 
                        a consolidated metropolitan statistical area, 
                        all of the portions of each primary 
                        metropolitan statistical area within the 
                        consolidated area within the State, are treated 
                        as a single MedicareAdvantage payment area; and
                            ``(ii) all areas in the State that do not 
                        fall within a metropolitan statistical area are 
                        treated as a single MedicareAdvantage payment 
                        area.
                    ``(D) Areas.--In subparagraph (C), the terms 
                `metropolitan statistical area', `consolidated 
                metropolitan statistical area', and `primary 
                metropolitan statistical area' mean any area designated 
                as such by the Secretary of Commerce.
    ``(f) Special Rules for Individuals Electing MSA Plans.--
            ``(1) In general.--If the amount of the MedicareAdvantage 
        monthly MSA premium (as defined in section 1854(b)(2)(D)) for 
        an MSA plan for a year is less than \1/12\ of the annual 
        Medicare+Choice capitation rate applied under this section for 
        the area and year involved, the Secretary shall deposit an 
        amount equal to 100 percent of such difference in a 
        MedicareAdvantage MSA established (and, if applicable, 
        designated) by the individual under paragraph (2).
            ``(2) Establishment and designation of medicareadvantage 
        medical savings account as requirement for payment of 
        contribution.--In the case of an individual who has elected 
        coverage under an MSA plan, no payment shall be made under 
        paragraph (1) on behalf of an individual for a month unless the 
        individual--
                    ``(A) has established before the beginning of the 
                month (or by such other deadline as the Secretary may 
                specify) a MedicareAdvantage MSA (as defined in section 
                138(b)(2) of the Internal Revenue Code of 1986); and
                    ``(B) if the individual has established more than 1 
                such MedicareAdvantage MSA, has designated 1 of such 
                accounts as the individual's MedicareAdvantage MSA for 
                purposes of this part.
        Under rules under this section, such an individual may change 
        the designation of such account under subparagraph (B) for 
        purposes of this part.
            ``(3) Lump-sum deposit of medical savings account 
        contribution.--In the case of an individual electing an MSA 
        plan effective beginning with a month in a year, the amount of 
        the contribution to the MedicareAdvantage MSA on behalf of the 
        individual for that month and all successive months in the year 
        shall be deposited during that first month. In the case of a 
        termination of such an election as of a month before the end of 
        a year, the Secretary shall provide for a procedure for the 
        recovery of deposits attributable to the remaining months in 
        the year.
    ``(g) Payments From Trust Funds.--Except as provided in section 
1858A(c) (relating to payments for qualified prescription drug 
coverage), the payment to a MedicareAdvantage organization under this 
section for individuals enrolled under this part with the organization 
and payments to a MedicareAdvantage MSA under subsection (e)(1) shall 
be made from the Federal Hospital Insurance Trust Fund and the Federal 
Supplementary Medical Insurance Trust Fund in such proportion as the 
Secretary determines reflects the relative weight that benefits under 
part A and under part B represents of the actuarial value of the total 
benefits under this title. Monthly payments otherwise payable under 
this section for October 2000 shall be paid on the first business day 
of such month. Monthly payments otherwise payable under this section 
for October 2001 shall be paid on the last business day of September 
2001. Monthly payments otherwise payable under this section for October 
2006 shall be paid on the first business day of October 2006.
    ``(h) Special Rule for Certain Inpatient Hospital Stays.--In the 
case of an individual who is receiving inpatient hospital services from 
a subsection (d) hospital (as defined in section 1886(d)(1)(B)) as of 
the effective date of the individual's--
            ``(1) election under this part of a MedicareAdvantage plan 
        offered by a MedicareAdvantage organization--
                    ``(A) payment for such services until the date of 
                the individual's discharge shall be made under this 
                title through the MedicareAdvantage plan or the 
                original medicare fee-for-service program option (as 
                the case may be) elected before the election with such 
                organization,
                    ``(B) the elected organization shall not be 
                financially responsible for payment for such services 
                until the date after the date of the individual's 
                discharge; and
                    ``(C) the organization shall nonetheless be paid 
                the full amount otherwise payable to the organization 
                under this part; or
            ``(2) termination of election with respect to a 
        MedicareAdvantage organization under this part--
                    ``(A) the organization shall be financially 
                responsible for payment for such services after such 
                date and until the date of the individual's discharge;
                    ``(B) payment for such services during the stay 
                shall not be made under section 1886(d) or by any 
                succeeding MedicareAdvantage organization; and
                    ``(C) the terminated organization shall not receive 
                any payment with respect to the individual under this 
                part during the period the individual is not enrolled.
    ``(i) Special Rule for Hospice Care.--
            ``(1) Information.--A contract under this part shall 
        require the MedicareAdvantage organization to inform each 
        individual enrolled under this part with a MedicareAdvantage 
        plan offered by the organization about the availability of 
        hospice care if--
                    ``(A) a hospice program participating under this 
                title is located within the organization's service 
                area; or
                    ``(B) it is common practice to refer patients to 
                hospice programs outside such service area.
            ``(2) Payment.--If an individual who is enrolled with a 
        MedicareAdvantage organization under this part makes an 
        election under section 1812(d)(1) to receive hospice care from 
        a particular hospice program--
                    ``(A) payment for the hospice care furnished to the 
                individual shall be made to the hospice program elected 
                by the individual by the Secretary;
                    ``(B) payment for other services for which the 
                individual is eligible notwithstanding the individual's 
                election of hospice care under section 1812(d)(1), 
                including services not related to the individual's 
                terminal illness, shall be made by the Secretary to the 
                MedicareAdvantage organization or the provider or 
                supplier of the service instead of payments calculated 
                under subsection (a); and
                    ``(C) the Secretary shall continue to make monthly 
                payments to the MedicareAdvantage organization in an 
                amount equal to the value of the additional benefits 
                required under section 1854(f)(1)(A).''.

SEC. 204. SUBMISSION OF BIDS; PREMIUMS.

    Section 1854 (42 U.S.C. 1395w-24) is amended to read as follows:

                     ``submission of bids; premiums

    ``Sec. 1854. (a) Submission of Bids by MedicareAdvantage 
Organizations.--
            ``(1) In general.--Not later than the second Monday in 
        September and except as provided in paragraph (3), each 
        MedicareAdvantage organization shall submit to the Secretary, 
        in such form and manner as the Secretary may specify, for each 
        MedicareAdvantage plan that the organization intends to offer 
        in a service area in the following year--
                    ``(A) notice of such intent and information on the 
                service area of the plan;
                    ``(B) the plan type for each plan;
                    ``(C) if the MedicareAdvantage plan is a 
                coordinated care plan (as described in section 
                1851(a)(2)(A)) or a private fee-for-service plan (as 
                described in section 1851(a)(2)(C)), the information 
                described in paragraph (2) with respect to each payment 
                area;
                    ``(D) the enrollment capacity (if any) in relation 
                to the plan and each payment area;
                    ``(E) the expected mix, by health status, of 
                enrolled individuals; and
                    ``(F) such other information as the Secretary may 
                specify.
            ``(2) Information required for coordinated care plans and 
        private fee-for-service plans.--For a MedicareAdvantage plan 
        that is a coordinated care plan (as described in section 
        1851(a)(2)(A)) or a private fee-for-service plan (as described 
        in section 1851(a)(2)(C)), the information described in this 
        paragraph is as follows:
                    ``(A) Information required with respect to benefits 
                under the original medicare fee-for-service program 
                option.--Information relating to the coverage of 
                benefits under the original medicare fee-for-service 
                program option as follows:
                            ``(i) The plan bid, which shall consist of 
                        a dollar amount that represents the total 
                        amount that the plan is willing to accept (not 
                        taking into account the application of the 
                        comprehensive risk adjustment methodology under 
                        section 1853(a)(3)) for providing coverage of 
                        the benefits under the original medicare fee-
                        for-service program option to an individual 
                        enrolled in the plan that resides in the 
                        service area of the plan for a month.
                            ``(ii) For the enhanced medical benefits 
                        package offered--
                                    ``(I) the adjusted community rate 
                                (as defined in subsection (g)(3)) of 
                                the package;
                                    ``(II) the portion of the actuarial 
                                value of such benefits package (if any) 
                                that will be applied toward satisfying 
                                the requirement for additional benefits 
                                under subsection (g);
                                    ``(III) the MedicareAdvantage 
                                monthly beneficiary premium for 
                                enhanced medical benefits (as defined 
                                in subsection (b)(2)(C));
                                    ``(IV) a description of any cost-
                                sharing;
                                    ``(V) a description of whether the 
                                amount of the unified deductible has 
                                been lowered or the maximum limitations 
                                on out-of-pocket expenses have been 
                                decreased (relative to the levels used 
                                in calculating the plan bid); and
                                    ``(VI) such other information as 
                                the Secretary considers necessary.
                            ``(iii) The assumptions that the 
                        MedicareAdvantage organization used in 
                        preparing the plan bid with respect to numbers, 
                        in each payment area, of enrolled individuals 
                        and the mix, by health status, of such 
                        individuals.
                    ``(B) Information required with respect to part 
                d.--The information required to be submitted by an 
                eligible entity under section 1860D-12, including the 
                monthly premiums for standard coverage and any other 
                qualified prescription drug coverage available to 
                individuals enrolled under part D.
                    ``(C) Determining plan costs included in plan 
                bid.--For purposes of submitting its plan bid under 
                subparagraph (A)(i) a MedicareAdvantage plan offered by 
                a MedicareAdvantage organization satisfies 
                subparagraphs (A) and (C) of section 1852(a)(1) if the 
                actuarial value of the deductibles, coinsurance, and 
                copayments applicable on average to individuals 
                enrolled in such plan under this part with respect to 
                benefits under the original medicare fee-for-service 
                program option on which that bid is based (ignoring any 
                reduction in cost-sharing offered by such plan as 
                enhanced medical benefits under paragraph (2)(A)(ii) or 
                required under clause (ii) or (iii) of subsection 
                (g)(1)(C)) equals the amount specified in subsection 
                (f)(1)(B).
            ``(3) Requirements for msa plans.--For an MSA plan 
        described in section 1851(a)(2)(B), the information described 
        in this paragraph is the information that such a plan would 
        have been required to submit under this part if the 
        Prescription Drug and Medicare Improvements Act of 2003 had not 
        been enacted.
            ``(4) Review.--
                    ``(A) In general.--Subject to subparagraph (B), the 
                Secretary shall review the adjusted community rates (as 
                defined in section 1854(g)(3)), the amounts of the 
                MedicareAdvantage monthly basic premium and the 
                MedicareAdvantage monthly beneficiary premium for 
                enhanced medical benefits filed under this subsection 
                and shall approve or disapprove such rates and amounts 
                so submitted. The Secretary shall review the actuarial 
                assumptions and data used by the MedicareAdvantage 
                organization with respect to such rates and amounts so 
                submitted to determine the appropriateness of such 
                assumptions and data.
                    ``(B) MSA exception.--The Secretary shall not 
                review, approve, or disapprove the amounts submitted 
                under paragraph (3).
                    ``(C) Clarification of authority regarding 
                disapproval of unreasonable beneficiary cost-sharing.--
                Under the authority under subparagraph (A), the 
                Secretary may disapprove the bid if the Secretary 
                determines that the deductibles, coinsurance, or 
                copayments applicable under the plan discourage access 
                to covered services or are likely to result in 
                favorable selection of MedicareAdvantage eligible 
                individuals.
            ``(5) Application of fehbp standard; prohibition on price 
        gouging.--Each bid amount submitted under paragraph (1) for a 
        MedicareAdvantage plan must reasonably and equitably reflect 
        the cost of benefits provided under that plan.
    ``(b) Monthly Premiums Charged.--
            ``(1) In general.--
                    ``(A) Coordinated care and private fee-for-service 
                plans.--The monthly amount of the premium charged to an 
                individual enrolled in a MedicareAdvantage plan (other 
                than an MSA plan) offered by a MedicareAdvantage 
                organization shall be equal to the sum of the 
                following:
                            ``(i) The MedicareAdvantage monthly basic 
                        beneficiary premium (if any).
                            ``(ii) The MedicareAdvantage monthly 
                        beneficiary premium for enhanced medical 
                        benefits (if any).
                            ``(iii) The MedicareAdvantage monthly 
                        obligation for qualified prescription drug 
                        coverage (if any).
                    ``(B) MSA plans.--The rules under this section that 
                would have applied with respect to an MSA plan if the 
                Prescription Drug and Medicare Improvements Act of 2003 
                had not been enacted shall continue to apply to MSA 
                plans after the date of enactment of such Act.
            ``(2) Premium terminology.--For purposes of this part:
                    ``(A) Medicareadvantage monthly basic beneficiary 
                premium.--The term `MedicareAdvantage monthly basic 
                beneficiary premium' means, with respect to a 
                MedicareAdvantage plan, the amount required to be 
                charged under subsection (d)(2) for the plan.
                    ``(B) Medicareadvantage monthly beneficiary 
                obligation for qualified prescription drug coverage.--
                The term `MedicareAdvantage monthly beneficiary 
                obligation for qualified prescription drug coverage' 
                means, with respect to a MedicareAdvantage plan, the 
                amount determined under section 1858A(d).
                    ``(C) Medicareadvantage monthly beneficiary premium 
                for enhanced medical benefits.--The term 
                `MedicareAdvantage monthly beneficiary premium for 
                enhanced medical benefits' means, with respect to a 
                MedicareAdvantage plan, the amount required to be 
                charged under subsection (f)(2) for the plan, or, in 
                the case of an MSA plan, the amount filed under 
                subsection (a)(3).
                    ``(D) Medicareadvantage monthly msa premium.--The 
                term `MedicareAdvantage monthly MSA premium' means, 
                with respect to a MedicareAdvantage plan, the amount of 
                such premium filed under subsection (a)(3) for the 
                plan.
    ``(c) Uniform Premium.--The MedicareAdvantage monthly basic 
beneficiary premium, the MedicareAdvantage monthly beneficiary 
obligation for qualified prescription drug coverage, the 
MedicareAdvantage monthly beneficiary premium for enhanced medical 
benefits, and the MedicareAdvantage monthly MSA premium charged under 
subsection (b) of a MedicareAdvantage organization under this part may 
not vary among individuals enrolled in the plan.
    ``(d) Determination of Premium Reductions, Reduced Cost-Sharing, 
Additional Benefits, and Beneficiary Premiums.--
            ``(1) Bids below the benchmark.--If the Secretary 
        determines under section 1853(d)(3) that the weighted service 
        area benchmark amount exceeds the plan bid, the Secretary shall 
        require the plan to provide additional benefits in accordance 
        with subsection (g).
            ``(2) Bids above the benchmark.--If the Secretary 
        determines under section 1853(d)(3) that the plan bid exceeds 
        the weighted service area benchmark amount (determined under 
        section 1853(d)(2)), the amount of such excess shall be the 
        MedicareAdvantage monthly basic beneficiary premium (as defined 
        in section 1854(b)(2)(A)).
    ``(e) Terms and Conditions of Imposing Premiums.--Each 
MedicareAdvantage organization shall permit the payment of any 
MedicareAdvantage monthly basic premium, the MedicareAdvantage monthly 
beneficiary obligation for qualified prescription drug coverage, and 
the MedicareAdvantage monthly beneficiary premium for enhanced medical 
benefits on a monthly basis, may terminate election of individuals for 
a MedicareAdvantage plan for failure to make premium payments only in 
accordance with section 1851(g)(3)(B)(i), and may not provide for cash 
or other monetary rebates as an inducement for enrollment or otherwise 
(other than as an additional benefit described in subsection 
(g)(1)(C)(i)).
    ``(f) Limitation on Enrollee Liability.--
            ``(1) For benefits under the original medicare fee-for-
        service program option.--The sum of--
                    ``(A) the MedicareAdvantage monthly basic 
                beneficiary premium (multiplied by 12) and the 
                actuarial value of the deductibles, coinsurance, and 
                copayments (determined on the same basis as used in 
                determining the plan's bid under paragraph (2)(C)) 
                applicable on average to individuals enrolled under 
                this part with a MedicareAdvantage plan described in 
                subparagraph (A) or (C) of section 1851(a)(2) of an 
                organization with respect to required benefits 
                described in section 1852(a)(1)(A); must equal
                    ``(B) the actuarial value of the deductibles, 
                coinsurance, and copayments that would be applicable on 
                average to individuals who have elected to receive 
                benefits under the original medicare fee-for-service 
                program option if such individuals were not members of 
                a MedicareAdvantage organization for the year (adjusted 
                as determined appropriate by the Secretary to account 
                for geographic differences and for plan cost and 
                utilization differences).
            ``(2) For enhanced medical benefits.--If the 
        MedicareAdvantage organization provides to its members enrolled 
        under this part in a MedicareAdvantage plan described in 
        subparagraph (A) or (C) of section 1851(a)(2) with respect to 
        enhanced medical benefits relating to benefits under the 
        original medicare fee-for-service program option, the sum of 
        the MedicareAdvantage monthly beneficiary premium for enhanced 
        medical benefits (multiplied by 12) charged and the actuarial 
        value of its deductibles, coinsurance, and copayments charged 
        with respect to such benefits for a year must equal the 
        adjusted community rate (as defined in subsection (g)(3)) for 
        such benefits for the year minus the actuarial value of any 
        additional benefits pursuant to clause (ii), (iii), or (iv) of 
        subsection (g)(2)(C) that the plan specified under subsection 
        (a)(2)(i)(II).
            ``(3) Determination on other basis.--If the Secretary 
        determines that adequate data are not available to determine 
        the actuarial value under paragraph (1)(A) or (2), the 
        Secretary may determine such amount with respect to all 
        individuals in the same geographic area, the State, or in the 
        United States, eligible to enroll in the MedicareAdvantage plan 
        involved under this part or on the basis of other appropriate 
        data.
            ``(4) Special rule for private fee-for-service plans.--With 
        respect to a MedicareAdvantage private fee-for-service plan 
        (other than a plan that is an MSA plan), in no event may--
                    ``(A) the actuarial value of the deductibles, 
                coinsurance, and copayments applicable on average to 
                individuals enrolled under this part with such a plan 
                of an organization with respect to required benefits 
                described in subparagraphs (A), (C), and (D) of section 
                1852(a)(1); exceed
                    ``(B) the actuarial value of the deductibles, 
                coinsurance, and copayments that would be applicable on 
                average to individuals entitled to (or enrolled for) 
                benefits under part A and enrolled under part B if they 
                were not members of a MedicareAdvantage organization 
                for the year.
    ``(g) Requirement for Additional Benefits.--
            ``(1) Requirement.--
                    ``(A) In general.--Each MedicareAdvantage 
                organization (in relation to a MedicareAdvantage plan, 
                other than an MSA plan, it offers) shall provide that 
                if there is an excess amount (as defined in 
                subparagraph (B)) for the plan for a contract year, 
                subject to the succeeding provisions of this 
                subsection, the organization shall provide to 
                individuals such additional benefits described in 
                subparagraph (C) as the organization may specify in a 
                value which the Secretary determines is at least equal 
                to the adjusted excess amount (as defined in 
                subparagraph (D)).
                    ``(B) Excess amount.--For purposes of this 
                paragraph, the term `excess amount' means, for an 
                organization for a plan, is 100 percent of the amount 
                (if any) by which the weighted service area benchmark 
                amount (determined under section 1853(d)(2)) exceeds 
                the plan bid (as adjusted under section 1853(d)(1)).
                    ``(C) Additional benefits described.--The 
                additional benefits described in this subparagraph are 
                as follows:
                            ``(i) Subject to subparagraph (F), a 
                        monthly part B premium reduction for 
                        individuals enrolled in the plan.
                            ``(ii) Lowering the amount of the unified 
                        deductible and decreasing the maximum 
                        limitations on out-of-pocket expenses for 
                        individuals enrolled in the plan.
                            ``(iii) A reduction in the actuarial value 
                        of plan cost-sharing for plan enrollees.
                            ``(iv) Subject to subparagraph (E), such 
                        additional benefits as the organization may 
                        specify.
                            ``(v) Contributing to the stabilization 
                        fund under paragraph (2).
                            ``(vi) Any combination of the reductions 
                        and benefits described in clauses (i) through 
                        (v).
                    ``(D) Adjusted excess amount.--For purposes of this 
                paragraph, the term `adjusted excess amount' means, for 
                an organization for a plan, is the excess amount 
                reduced to reflect any amount withheld and reserved for 
                the organization for the year under paragraph (2).
                    ``(E) Rule for approval of medical and prescription 
                drug benefits.--An organization may not specify any 
                additional benefit that provides for the coverage of 
                any prescription drug (other than that relating to 
                prescription drugs covered under the original medicare 
                fee-for-service program option).
                    ``(F) Premium reductions.--
                            ``(i) In general.--Subject to clause (ii), 
                        as part of providing any additional benefits 
                        required under subparagraph (A), a 
                        MedicareAdvantage organization may elect a 
                        reduction in its payments under section 
                        1853(a)(1)(A)(i) with respect to a 
                        MedicareAdvantage plan and the Secretary shall 
                        apply such reduction to reduce the premium 
                        under section 1839 of each enrollee in such 
                        plan as provided in section 1840(i).
                            ``(ii) Amount of reduction.--The amount of 
                        the reduction under clause (i) with respect to 
                        any enrollee in a MedicareAdvantage plan--
                                    ``(I) may not exceed 125 percent of 
                                the premium described under section 
                                1839(a)(3); and
                                    ``(II) shall apply uniformly to 
                                each enrollee of the MedicareAdvantage 
                                plan to which such reduction applies.
                    ``(G) Uniform application.--This paragraph shall be 
                applied uniformly for all enrollees for a plan.
                    ``(H) Construction.--Nothing in this subsection 
                shall be construed as preventing a MedicareAdvantage 
                organization from providing enhanced medical benefits 
                (described in section 1852(a)(3)) that are in addition 
                to the health care benefits otherwise required to be 
                provided under this paragraph and from imposing a 
                premium for such enhanced medical benefits.
            ``(2) Stabilization fund.--A MedicareAdvantage organization 
        may provide that a part of the value of an excess amount 
        described in paragraph (1) be withheld and reserved in the 
        Federal Hospital Insurance Trust Fund and in the Federal 
        Supplementary Medical Insurance Trust Fund (in such proportions 
        as the Secretary determines to be appropriate) by the Secretary 
        for subsequent annual contract periods, to the extent required 
        to prevent undue fluctuations in the additional benefits 
        offered in those subsequent periods by the organization in 
        accordance with such paragraph. Any of such value of the amount 
        reserved which is not provided as additional benefits described 
        in paragraph (1)(A) to individuals electing the 
        MedicareAdvantage plan of the organization in accordance with 
        such paragraph prior to the end of such periods, shall revert 
        for the use of such Trust Funds.
            ``(3) Adjusted community rate.--For purposes of this 
        subsection, subject to paragraph (4), the term `adjusted 
        community rate' for a service or services means, at the 
        election of a MedicareAdvantage organization, either--
                    ``(A) the rate of payment for that service or 
                services which the Secretary annually determines 
would apply to an individual electing a MedicareAdvantage plan under 
this part if the rate of payment were determined under a `community 
rating system' (as defined in section 1302(8) of the Public Health 
Service Act, other than subparagraph (C)); or
                    ``(B) such portion of the weighted aggregate 
                premium, which the Secretary annually estimates would 
                apply to such an individual, as the Secretary annually 
                estimates is attributable to that service or services,
        but adjusted for differences between the utilization 
        characteristics of the individuals electing coverage under this 
        part and the utilization characteristics of the other enrollees 
        with the plan (or, if the Secretary finds that adequate data 
        are not available to adjust for those differences, the 
        differences between the utilization characteristics of 
        individuals selecting other MedicareAdvantage coverage, or 
        MedicareAdvantage eligible individuals in the area, in the 
        State, or in the United States, eligible to elect 
        MedicareAdvantage coverage under this part and the utilization 
        characteristics of the rest of the population in the area, in 
        the State, or in the United States, respectively).
            ``(4) Determination based on insufficient data.--For 
        purposes of this subsection, if the Secretary finds that there 
        is insufficient enrollment experience to determine the average 
        amount of payments to be made under this part at the beginning 
        of a contract period or to determine (in the case of a newly 
        operated provider-sponsored organization or other new 
        organization) the adjusted community rate for the organization, 
        the Secretary may determine such an average based on the 
        enrollment experience of other contracts entered into under 
        this part and may determine such a rate using data in the 
        general commercial marketplace.
    ``(h) Prohibition of State Imposition of Premium Taxes.--No State 
may impose a premium tax or similar tax with respect to payments to 
MedicareAdvantage organizations under section 1853.
    ``(i) Permitting Use of Segments of Service Areas.--The Secretary 
shall permit a MedicareAdvantage organization to elect to apply the 
provisions of this section uniformly to separate segments of a service 
area (rather than uniformly to an entire service area) as long as such 
segments are composed of 1 or more MedicareAdvantage payment areas.''.
    (b) Study and Report on Clarification of Authority Regarding 
Disapproval of Unreasonable Beneficiary Cost-Sharing.--
            (1) Study.--The Secretary, in consultation with 
        beneficiaries, consumer groups, employers, and Medicare+Choice 
        organizations, shall conduct a study to determine the extent to 
        which the cost-sharing structures under Medicare+Choice plans 
        under part C of title XVIII of the Social Security Act 
        discourage access to covered services or discriminate based on 
        the health status of Medicare+Choice eligible individuals (as 
        defined in section 1851(a)(3) of the Social Security Act (42 
        U.S.C. 1395w-21(a)(3))).
            (2) Report.--Not later than December 31, 2004, the 
        Secretary shall submit a report to Congress on the study 
        conducted under paragraph (1) together with recommendations for 
        such legislation and administrative actions as the Secretary 
        considers appropriate.

SEC. 205. SPECIAL RULES FOR PRESCRIPTION DRUG BENEFITS.

    (a) Part C of title XVIII (42 U.S.C. 1395w-21 et seq.) is amended 
by inserting after section 1857 the following new section:

             ``special rules for prescription drug benefits

    ``Sec. 1858A. (a) Availability.--
            ``(1) Plans required to provide qualified prescription drug 
        coverage to enrollees.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), on and after January 1, 2006, a 
                MedicareAdvantage organization offering a 
                MedicareAdvantage plan (except for an MSA plan) shall 
make available qualified prescription drug coverage that meets the 
requirements for such coverage under this part and part D to each 
enrollee of the plan.
                    ``(B) Private fee-for-service plans may, but are 
                not required to, provide qualified prescription drug 
                coverage.--Pursuant to section 1852(a)(2)(D), a private 
                fee-for-service plan may elect not to provide qualified 
                prescription drug coverage under part D to individuals 
                residing in the area served by the plan.
            ``(2) Reference to provision permitting additional 
        prescription drug coverage.--For the provisions of part D, made 
        applicable to this part pursuant to paragraph (1), that permit 
        a plan to make available qualified prescription drug coverage 
        that includes coverage of covered drugs that exceeds the 
        coverage required under paragraph (1) of section 1860D-6 in an 
        area, but only if the MedicareAdvantage organization offering 
        the plan also offers a MedicareAdvantage plan in the area that 
        only provides the coverage that is required under such 
        paragraph (1), see paragraph (2) of such section.
            ``(3) Rule for approval of medical and prescription drug 
        benefits.--Pursuant to sections 1854(g)(1)(F) and 
        1852(a)(3)(D), a MedicareAdvantage organization offering a 
        MedicareAdvantage plan that provides qualified prescription 
        drug coverage may not make available coverage of any 
        prescription drugs (other than that relating to prescription 
        drugs covered under the original medicare fee-for-service 
        program option) to an enrollee as an additional benefit or as 
        an enhanced medical benefit.
    ``(b) Compliance With Additional Beneficiary Protections.--With 
respect to the offering of qualified prescription drug coverage by a 
MedicareAdvantage organization under a MedicareAdvantage plan, the 
organization and plan shall meet the requirements of section 1860D-5, 
including requirements relating to information dissemination and 
grievance and appeals, and such other requirements under part D that 
the Secretary determines appropriate in the same manner as such 
requirements apply to an eligible entity and a Medicare Prescription 
Drug plan under part D. The Secretary shall waive such requirements to 
the extent the Secretary determines that such requirements duplicate 
requirements otherwise applicable to the organization or the plan under 
this part.
    ``(c) Payments for Prescription Drugs.--
            ``(1) Payment of full amount of premium to organizations 
        for qualified prescription drug coverage.--
                    ``(A) In general.--For each year (beginning with 
                2006), the Secretary shall pay to each 
                MedicareAdvantage organization offering a 
                MedicareAdvantage plan that provides qualified 
                prescription drug coverage, an amount equal to the full 
                amount of the monthly premium submitted under section 
                1854(a)(2)(B) for the year, as adjusted using the risk 
                adjusters that apply to the standard prescription drug 
                coverage published under section 1860D-11.
                    ``(B) Application of part d risk corridor, 
                stabilization reserve fund, and administrative expenses 
                provisions.--The provisions of subsections (b), (c), 
                and (d) of section 1860D-16 shall apply to a 
                MedicareAdvantage organization offering a 
                MedicareAdvantage plan that provides qualified 
                prescription drug coverage and payments made to such 
                organization under subparagraph (A) in the same manner 
                as such provisions apply to an eligible entity offering 
                a Medicare Prescription Drug plan and payments made to 
                such entity under subsection (a) of section 1860D-16.
            ``(2) Payment from prescription drug account.--Payment made 
        to MedicareAdvantage organizations under this subsection shall 
        be made from the Prescription Drug Account in the Federal 
        Supplementary Medical Insurance Trust Fund under section 1841.
    ``(d) Computation of MedicareAdvantage Monthly Beneficiary 
Obligation for Qualified Prescription Drug Coverage.--In the case of a 
MedicareAdvantage eligible individual receiving qualified prescription 
drug coverage under a MedicareAdvantage plan during a year after 2005, 
the MedicareAdvantage monthly beneficiary obligation for qualified 
prescription drug coverage of such individual in the year shall be 
determined in the same manner as the monthly beneficiary obligation is 
determined under section 1860D-17 for eligible beneficiaries enrolled 
in a Medicare Prescription Drug plan, except that, for purposes of this 
subparagraph, any reference to the monthly plan premium approved by the 
Secretary under section 1860D-13 shall be treated as a reference to the 
monthly premium for qualified prescription drug coverage submitted by 
the MedicareAdvantage organization offering the plan under section 
1854(a)(2)(A) and approved by the Secretary.
    ``(e) Collection of MedicareAdvantage Monthly Beneficiary 
Obligation for Qualified Prescription Drug Coverage.--The provisions of 
section 1860D-18, including subsection (b) of such section, shall apply 
to the amount of the MedicareAdvantage monthly beneficiary obligation 
for qualified prescription drug coverage (as determined under 
subsection (d)) required to be paid by a MedicareAdvantage eligible 
individual enrolled in a MedicareAdvantage plan in the same manner as 
such provisions apply to the amount of the monthly beneficiary 
obligation required to be paid by an eligible beneficiary enrolled in a 
Medicare Prescription Drug plan under part D.
    ``(f) Availability of Premium Subsidy and Cost-Sharing Reductions 
for Low-Income Enrollees and Reinsurance Payments.--For provisions--
            ``(1) providing premium subsidies and cost-sharing 
        reductions for low-income individuals receiving qualified 
        prescription drug coverage through a MedicareAdvantage plan, 
        see section 1860D-19; and
            ``(2) providing a MedicareAdvantage organization with 
        reinsurance payments for certain expenses incurred in providing 
        qualified prescription drug coverage through a 
        MedicareAdvantage plan, see section 1860D-20.''.
    (b) Treatment of Reduction for Purposes of Determining Government 
Contribution Under Part B.--Section 1844(c) (42 U.S.C. 1395w) is 
amended by striking ``section 1854(f)(1)(E)'' and inserting ``section 
1854(d)(1)(A)(i)''.

SEC. 206. FACILITATING EMPLOYER PARTICIPATION.

    Section 1858(h) (as added by section 211) is amended by inserting 
``(including subsection (i) of such section)'' after ``section 1857''.

SEC. 207. ADMINISTRATION BY THE CENTER FOR MEDICARE CHOICES.

    On and after January 1, 2006, the MedicareAdvantage program under 
part C of title XVIII of the Social Security Act shall be administered 
by the Center for Medicare Choices established under section 1808 such 
title (as added by section 301), and each reference to the Secretary 
made in such part shall be deemed to be a reference to the 
Administrator of the Center for Medicare Choices.

SEC. 208. CONFORMING AMENDMENTS.

    (a) Organizational and Financial Requirements for MedicareAdvantage 
Organizations; Provider-Sponsored Organizations.--Section 1855 (42 
U.S.C. 1395w-25) is amended--
            (1) in subsection (b), in the matter preceding paragraph 
        (1), by inserting ``subparagraphs (A), (B), and (D) of'' before 
        ``section 1852(A)(1)''; and
            (2) by striking ``Medicare+Choice'' and inserting 
        ``MedicareAdvantage'' each place it appears.
    (b) Establishment of PSO Standards.--Section 1856 (42 U.S.C. 1395w-
26) is amended by striking ``Medicare+Choice'' and inserting 
``MedicareAdvantage'' each place it appears.
    (c) Contracts With MedicareAdvantage Organizations.--Section 1857 
(42 U.S.C. 1395w-27) is amended--
            (1) in subsection (g)(1)--
                    (A) in subparagraph (B), by striking ``amount of 
                the Medicare+Choice monthly basic and supplemental 
                beneficiary premiums'' and inserting ``amounts of the 
                MedicareAdvantage monthly basic premium and 
                MedicareAdvantage monthly beneficiary premium for 
                enhanced medical benefits'';
                    (B) in subparagraph (F), by striking ``or'' after 
                the semicolon at the end;
                    (C) in subparagraph (G), by adding ``or'' after the 
                semicolon at the end; and
                    (D) by inserting after subparagraph (G) the 
                following new subparagraph:
                    ``(H)(i) charges any individual an amount in excess 
                of the MedicareAdvantage monthly beneficiary obligation 
                for qualified prescription drug coverage under section 
                1858A(d);
                    ``(ii) provides coverage for prescription drugs 
                that is not qualified prescription drug coverage;
                    ``(iii) offers prescription drug coverage, but does 
                not make standard prescription drug coverage available; 
                or
                    ``(iv) provides coverage for prescription drugs 
                (other than that relating to prescription drugs covered 
                under the original medicare fee-for-service program 
                option described in section 1851(a)(1)(A)(i)) as an 
                enhanced medical benefit under section 1852(a)(3)(D) or 
                as an additional benefit under section 
                1854(g)(1)(F),''; and
            (2) by striking ``Medicare+Choice'' and inserting 
        ``MedicareAdvantage'' each place it appears.
    (d) Definitions; Miscellaneous Provisions.--Section 1859 (42 U.S.C. 
1395w-28) is amended--
            (1) by striking subsection (c) and inserting the following 
        new subsection:
    ``(c) Other References to Other Terms.--
            ``(1) Enhanced medical benefits.--The term `enhanced 
        medical benefits' is defined in section 1852(a)(3)(E).
            ``(2) Medicareadvantage eligible individual.--The term 
        `MedicareAdvantage eligible individual' is defined in section 
        1851(a)(3).
            ``(3) Medicareadvantage payment area.--The term 
        `MedicareAdvantage payment area' is defined in section 1853(d).
            ``(4) National per capita medicare+choice growth 
        percentage.--The `national per capita Medicare+Choice growth 
        percentage' is defined in section 1853(c)(6).
            ``(5) Medicareadvantage monthly basic beneficiary premium; 
        medicareadvantage monthly beneficiary obligation for qualified 
        prescription drug coverage; medicareadvantage monthly 
        beneficiary premium for enhanced medical benefits.--The terms 
        `MedicareAdvantage monthly basic beneficiary premium', 
        `MedicareAdvantage monthly beneficiary obligation for qualified 
        prescription drug coverage', and `MedicareAdvantage monthly 
        beneficiary premium for enhanced medical benefits' are defined 
        in section 1854(b)(2).
            ``(6) Qualified prescription drug coverage.--The term 
        `qualified prescription drug coverage' has the meaning given 
        such term in section 1860D(9).
            ``(7) Standard prescription drug coverage.--The term 
        `standard prescription drug coverage' has the meaning given 
        such term in section 1860D(10).''; and
            (2) by striking ``Medicare+Choice'' and inserting 
        ``MedicareAdvantage'' each place it appears.
    (e) Conforming Amendments Effective Before 2006.--
            (1) Extension of MSAs.--Section 1851(b)(4) (42 U.S.C. 
        1395w-21(b)(4)) is amended by striking ``January 1, 2003'' and 
        inserting ``January 1, 2004''.
            (2) Continuous open enrollment and disenrollment through 
        2005.--Section 1851(e) of the Social Security Act (42 U.S.C. 
        1395w-21(e)) is amended--
                    (A) in paragraph (2)(A), by striking ``through 
                2004'' and ``December 31, 2004'' and inserting 
                ``through 2005'' and ``December 31, 2005'', 
                respectively;
                    (B) in the heading of paragraph (2)(B), by striking 
                ``during 2005'' and inserting ``during 2006'';
                    (C) in paragraphs (2)(B)(i) and (2)(C)(i), by 
                striking ``2005'' and inserting ``2006'' each place it 
                appears;
                    (D) in paragraph (2)(D), by striking ``2004'' and 
                inserting ``2005''; and
                    (E) in paragraph (4), by striking ``2005'' and 
                inserting ``2006'' each place it appears.
            (3) Effective date.--The amendments made by this subsection 
        shall take effect on the date of enactment of this Act.
    (f) Other Conforming Amendments.--
            (1) Conforming medicare cross-references.--
                    (A) Section 1839(a)(2) (42 U.S.C. 1395r(a)(2)) is 
                amended by striking ``section 1854(f)(1)(E)'' and 
                inserting ``section 1854(g)(1)(C)(i)''.
                    (B) Section 1840(i) (42 U.S.C. 1395s(i)) is amended 
                by striking ``section 1854(f)(1)(E)'' and inserting 
                ``section 1854(g)(1)(C)(i)''.
                    (C) Section 1844(c) (42 U.S.C. 1395w(c)) is amended 
                by striking ``section 1854(f)(1)(E)'' and inserting 
                ``section 1854(g)(1)(C)(i)''.
                    (D) Section 1876(k)(3)(A) (42 U.S.C. 
                1395mm(k)(3)(A)) is amended by inserting ``(as in 
                effect immediately before the enactment of the 
                Prescription Drug and Medicare Improvements Act of 
                2003)'' after section 1853(a).
                    (E) Section 1876(k)(4) (42 U.S.C. 1395mm(k)(4)(A)) 
                is amended--
                            (i) in subparagraph (A), by striking 
                        ``section 1853(a)(3)(B)'' and inserting 
                        ``section 1853(a)(3)(D)''; and
                            (ii) in subparagraph (B), by striking 
                        ``section 1854(g)'' and inserting ``section 
                        1854(h)''.
                    (F) Section 1876(k)(4)(C) (42 U.S.C. 
                1395mm(k)(4)(C)) is amended by inserting ``(as in 
                effect immediately before the enactment of the 
                Prescription Drug and Medicare Improvements Act of 
                2003)'' after ``section 1851(e)(6)''.
                    (G) Section 1894(d) (42 U.S.C. 1395eee(d)) is 
                amended by adding at the end the following new 
                paragraph:
            ``(3) Application of provisions.--For purposes of 
        paragraphs (1) and (2), the references to section 1853 and 
        subsection (a)(2) of such section in such paragraphs shall be 
        deemed to be references to those provisions as in effect 
        immediately before the enactment of the Prescription Drug and 
        Medicare Improvements Act of 2003.''.
            (2) Conforming medicare terminology.--Title XVIII (42 
        U.S.C. 1395 et seq.), except for part C of such title (42 
        U.S.C. 1395w-21 et seq.), and title XIX (42 U.S.C. 1396 et 
        seq.) are each amended by striking ``Medicare+Choice'' and 
        inserting ``MedicareAdvantage'' each place it appears.

SEC. 209. EFFECTIVE DATE.

    (a) In General.--Except as provided in section 208(d)(3) and 
subsection (b), the amendments made by this title shall apply with 
respect to plan years beginning on and after January 1, 2006.
    (b) MedicareAdvantage MSA Plans.--Notwithstanding any provision of 
this title, the Secretary shall apply the payment and other rules that 
apply with respect to an MSA plan described in section 1851(a)(2)(B) of 
the Social Security Act (42 U.S.C. 1395w-21(a)(2)(B)) as if this title 
had not been enacted.

              Subtitle B--Preferred Provider Organizations

SEC. 211. ESTABLISHMENT OF MEDICAREADVANTAGE PREFERRED PROVIDER PROGRAM 
              OPTION.

    (a) Establishment of Preferred Provider Program Option.--Section 
1851(a)(2) is amended by adding at the end the following new 
subparagraph:
                    ``(D) Preferred provider organization plans.--A 
                MedicareAdvantage preferred provider organization plan 
                under the program established under section 1858.''.
    (b) Program specifications.--Part C of title XVIII (42 U.S.C. 
1395w-21 et seq.) is amended by inserting after section 1857 the 
following new section:

                   ``preferred provider organizations

    ``Sec. 1858. (a) Establishment of Program.--
            ``(1) In general.--Beginning on January 1, 2006, there is 
        established a preferred provider program under which preferred 
        provider organization plans offered by preferred provider 
        organizations are offered to MedicareAdvantage eligible 
        individuals in preferred provider regions.
            ``(2) Definitions.--
                    ``(A) Preferred provider organization.--The term 
                `preferred provider organization' means an entity with 
                a contract under section 1857 that meets the 
                requirements of this section applicable with respect to 
                preferred provider organizations.
                    ``(B) Preferred provider organization plan.--The 
                term `preferred provider organization plan' means a 
                MedicareAdvantage plan that--
                            ``(i) has a network of providers that have 
                        agreed to a contractually specified 
                        reimbursement for covered benefits with the 
                        organization offering the plan;
                            ``(ii) provides for reimbursement for all 
                        covered benefits regardless of whether such 
                        benefits are provided within such network of 
                        providers; and
                            ``(iii) is offered by a preferred provider 
                        organization.
                    ``(C) Preferred provider region.--The term 
                `preferred provider region' means--
                            ``(i) a region established under paragraph 
                        (3); and
                            ``(ii) a region that consists of the entire 
                        United States.
            ``(3) Preferred provider regions.--For purposes of this 
        part the Secretary shall establish preferred provider regions 
        as follows:
                    ``(A) There shall be at least 10 regions.
                    ``(B) Each region must include at least 1 State.
                    ``(C) The Secretary may not divide States so that 
                portions of the State are in different regions.
                    ``(D) To the extent possible, the Secretary shall 
                include multistate metropolitan statistical areas in a 
                single region. The Secretary may divide metropolitan 
                statistical areas where it is necessary to establish 
                regions of such size and geography as to maximize the 
                participation of preferred provider organization plans.
                    ``(E) The Secretary may conform the preferred 
                provider regions to the service areas established under 
                section 1860D-10.
    ``(b) Eligibility, Election, and Enrollment; Benefits and 
Beneficiary Protections.--
            ``(1) In general.--Except as provided in the succeeding 
        provisions of this subsection, the provisions of sections 1851 
        and 1852 that apply with respect to coordinated care plans 
        shall apply to preferred provider organization plans offered by 
        a preferred provider organization.
            ``(2) Service area.--The service area of a preferred 
        provider organization plan shall be a preferred provider 
        region.
            ``(3) Availability.--Each preferred provider organization 
        plan must be offered to each MedicareAdvantage eligible 
        individual who resides in the service area of the plan.
            ``(4) Authority to prohibit risk selection.--The provisions 
        of section 1852(a)(6) shall apply to preferred provider 
        organization plans.
            ``(5) Assuring access to services in preferred provider 
        organization plans.--
                    ``(A) In general.--In addition to any other 
                requirements under this section, in the case of a 
                preferred provider organization plan, the organization 
                offering the plan must demonstrate to the Secretary 
                that the organization has sufficient number and range 
                of health care professionals and providers willing to 
                provide services under the terms of the plan.
                    ``(B) Determination of sufficient access.--The 
                Secretary shall find that an organization has met the 
                requirement under subparagraph (A) with respect to any 
                category of health care professional or provider if, 
                with respect to that category of provider the plan has 
                contracts or agreements with a sufficient number and 
                range of providers within such category to provide 
                covered services under the terms of the plan.
                    ``(C) Construction.--Subparagraph (B) shall not be 
                construed as restricting the persons from whom 
                enrollees under such a plan may obtain covered 
                benefits.
    ``(c) Payments to Preferred Provider Organizations.--
            ``(1) Payments to organizations.--
                    ``(A) Monthly payments.--
                            ``(i) In general.--Under a contract under 
                        section 1857 and subject to paragraph (5), 
                        subsection (e), and section 1859(e)(4), the 
                        Secretary shall make, to each preferred 
                        provider organization, with respect to coverage 
                        of an individual for a month under this part in 
                        a preferred provider region, separate monthly 
                        payments with respect to--
                                    ``(I) benefits under the original 
                                medicare fee-for-service program under 
                                parts A and B in accordance with 
                                paragraph (4); and
                                    ``(II) benefits under the voluntary 
                                prescription drug program under part D 
                                in accordance with section 1858A and 
                                the other provisions of this part.
                            ``(ii) Special rule for end-stage renal 
                        disease.--The Secretary shall establish 
                        separate rates of payment applicable with 
                        respect to classes of individuals determined to 
                        have end-stage renal disease and enrolled in a 
                        preferred provider organization plan under this 
                        clause that are similar to the separate rates 
                        of payment described in section 1853(a)(1)(B).
                    ``(B) Adjustment to reflect number of enrollees.--
                The Secretary may retroactively adjust the amount of 
                payment under this paragraph in a manner that is 
                similar to the manner in which payment amounts may be 
                retroactively adjusted under section 1853(a)(2).
                    ``(C) Comprehensive risk adjustment methodology.--
                The Secretary shall apply the comprehensive risk 
                adjustment methodology described in section 
                1853(a)(3)(B) to 100 percent of the amount of payments 
                to plans under paragraph (4)(D)(ii).
                    ``(D) Adjustment for spending variations within a 
                region.--The Secretary shall establish a methodology 
                for adjusting the amount of payments to plans under 
                paragraph (4)(D)(ii) that achieves the same objective 
                as the adjustment described in paragraph 1853(a)(2)(C).
            ``(2) Annual calculation of benchmark amounts for preferred 
        provider regions.--For each year (beginning in 2006), the 
        Secretary shall calculate a benchmark amount for each preferred 
provider region for each month for such year with respect to coverage 
of the benefits available under the original medicare fee-for-service 
program option equal to the average of each benchmark amount calculated 
under section 1853(a)(4) for each MedicareAdvantage payment area for 
the year within such region, weighted by the number of 
MedicareAdvantage eligible individuals residing in each such payment 
area for the year.
            ``(3) Annual announcement of payment factors.--
                    ``(A) Annual announcement.--Beginning in 2005, at 
                the same time as the Secretary publishes the risk 
                adjusters under section 1860D-11, the Secretary shall 
                annually announce (in a manner intended to provide 
                notice to interested parties) the following payment 
                factors:
                            ``(i) The benchmark amount for each 
                        preferred provider region (as calculated under 
                        paragraph (2)(A)) for the year.
                            ``(ii) The factors to be used for adjusting 
                        payments described under--
                                    ``(I) the comprehensive risk 
                                adjustment methodology described in 
                                paragraph (1)(C) with respect to each 
                                preferred provider region for the year; 
                                and
                                    ``(II) the methodology used for 
                                adjustment for geographic variations 
                                within such region established under 
                                paragraph (1)(D).
                    ``(B) Advance notice of methodological changes.--At 
                least 45 days before making the announcement under 
                subparagraph (A) for a year, the Secretary shall--
                            ``(i) provide for notice to preferred 
                        provider organizations of proposed changes to 
                        be made in the methodology from the methodology 
                        and assumptions used in the previous 
                        announcement; and
                            ``(ii) provide such organizations with an 
                        opportunity to comment on such proposed 
                        changes.
                    ``(C) Explanation of assumptions.--In each 
                announcement made under subparagraph (A), the Secretary 
                shall include an explanation of the assumptions and 
                changes in methodology used in the announcement in 
                sufficient detail so that preferred provider 
                organizations can compute each payment factor described 
                in such subparagraph.
            ``(4) Secretary's determination of payment amount for 
        benefits under the original medicare fee-for-service program.--
        The Secretary shall determine the payment amount for plans as 
        follows:
                    ``(A) Review of plan bids.--The Secretary shall 
                review each plan bid submitted under subsection (d)(1) 
                for the coverage of benefits under the original 
                medicare fee-for-service program option to ensure that 
                such bids are consistent with the requirements under 
                this part and are based on the assumptions described in 
                section 1854(a)(2)(A)(iii) that the plan used with 
                respect to numbers of enrolled individuals.
                    ``(B) Determination of preferred provider regional 
                benchmark amounts.--The Secretary shall calculate a 
                preferred provider regional benchmark amount for that 
                plan for the benefits under the original medicare fee-
                for-service program option for each plan equal to the 
                regional benchmark adjusted by using the assumptions 
                described in section 1854(a)(2)(A)(iii) that the plan 
                used with respect to numbers of enrolled individuals.
                    ``(C) Comparison to benchmark.--The Secretary shall 
                determine the difference between each plan bid (as 
                adjusted under subparagraph (A)) and the preferred 
                provider regional benchmark amount (as determined under 
                subparagraph (B)) for purposes of determining--
                            ``(i) the payment amount under subparagraph 
                        (D); and
                            ``(ii) the additional benefits required and 
                        MedicareAdvantage monthly basic beneficiary 
                        premiums.
                    ``(D) Determination of payment amount.--
                            ``(i) In general.--Subject to clause (ii), 
                        the Secretary shall determine the payment 
                        amount to a preferred provider organization for 
                        a preferred provider organization plan as 
                        follows:
                                    ``(I) Bids that equal or exceed the 
                                benchmark.--In the case of a plan bid 
                                that equals or exceeds the preferred 
                                provider regional benchmark amount, the 
                                amount of each monthly payment to the 
                                organization with respect to each 
                                individual enrolled in a plan shall be 
                                the preferred provider regional 
                                benchmark amount.
                                    ``(II) Bids below the benchmark.--
                                In the case of a plan bid that is less 
                                than the preferred provider regional 
                                benchmark amount, the amount of each 
                                monthly payment to the organization 
                                with respect to each individual 
                                enrolled in a plan shall be the 
                                preferred provider regional benchmark 
                                amount reduced by the amount of any 
                                premium reduction elected by the plan 
                                under section 1854(d)(1)(A)(i).
                            ``(ii) Application of adjustment 
                        methodologies.--The Secretary shall adjust the 
                        amounts determined under subparagraph (A) using 
                        the factors described in paragraph (3)(A)(ii).
                    ``(E) Factors used in adjusting bids and benchmarks 
                for preferred provider organizations and in determining 
                enrollee premiums.--Subject to subparagraph (F), in 
                addition to the factors used to adjust payments to 
                plans described in section 1853(d)(6), the Secretary 
                shall use the adjustment for geographic variation 
                within the region established under paragraph (1)(D).
                    ``(F) Adjustment for national coverage 
                determinations and legislative changes in benefits.--
                The Secretary shall provide for adjustments for 
                national coverage determinations and legislative 
                changes in benefits applicable with respect to 
                preferred provider organizations in the same manner as 
                the Secretary provides for adjustments under section 
                1853(d)(7).
            ``(5) Payments from trust fund.--The payment to a preferred 
        provider organization under this section shall be made from the 
        Federal Hospital Insurance Trust Fund and the Federal 
        Supplementary Medical Insurance Trust Fund in a manner similar 
        to the manner described in section 1853(g).
            ``(6) Special rule for certain inpatient hospital stays.--
        Rules similar to the rules applicable under section 1853(h) 
        shall apply with respect to preferred provider organizations.
            ``(7) Special rule for hospice care.--Rules similar to the 
        rules applicable under section 1853(i) shall apply with respect 
        to preferred provider organizations.
    ``(d) Submission of Bids by PPOs; Premiums.--
            ``(1) Submission of bids by preferred provider 
        organizations.--
                    ``(A) In general.--For the requirements on 
                submissions by MedicareAdvantage preferred provider 
organization plans, see section 1854(a)(1).
                    ``(B) Uniform premiums.--Each bid amount submitted 
                under subparagraph (A) for a preferred provider 
                organization plan in a preferred provider region may 
                not vary among MedicareAdvantage eligible individuals 
                residing in such preferred provider region.
                    ``(C) Application of fehbp standard; prohibition on 
                price gouging.--Each bid amount submitted under 
                subparagraph (A) for a preferred provider organization 
plan must reasonably and equitably reflect the cost of benefits 
provided under that plan.
                    ``(D) Review.--The Secretary shall review the 
                adjusted community rates (as defined in section 
                1854(g)(3)), the amounts of the MedicareAdvantage 
                monthly basic premium and the MedicareAdvantage monthly 
                beneficiary premium for enhanced medical benefits filed 
                under this paragraph and shall approve or disapprove 
                such rates and amounts so submitted. The Secretary 
                shall review the actuarial assumptions and data used by 
                the preferred provider organization with respect to 
                such rates and amounts so submitted to determine the 
                appropriateness of such assumptions and data.
                    ``(E) Authority to limit number of plans in a 
                region.--If there are bids for more than 3 preferred 
                provider organization plans in a preferred provider 
                region, the Secretary shall accept only the 3 lowest-
                cost credible bids for that region that meet or exceed 
                the quality and minimum standards applicable under this 
                section.
            ``(2) Monthly premiums charged.--The amount of the monthly 
        premium charged to an individual enrolled in a preferred 
        provider organization plan offered by a preferred provider 
        organization shall be equal to the sum of the following:
                    ``(A) The MedicareAdvantage monthly basic 
                beneficiary premium, as defined in section 
                1854(b)(2)(A) (if any).
                    ``(B) The MedicareAdvantage monthly beneficiary 
                premium for enhanced medical benefits, as defined in 
                section 1854(b)(2)(C) (if any).
                    ``(C) The MedicareAdvantage monthly obligation for 
                qualified prescription drug coverage, as defined in 
                section 1854(b)(2)(B) (if any).
            ``(3) Determination of premium reductions, reduced cost-
        sharing, additional benefits, and beneficiary premiums.--The 
        rules for determining premium reductions, reduced cost-sharing, 
        additional benefits, and beneficiary premiums under section 
        1854(d) shall apply with respect to preferred provider 
        organizations.
            ``(4) Prohibition of segmenting preferred provider 
        regions.--The Secretary may not permit a preferred provider 
        organization to elect to apply the provisions of this section 
        uniformly to separate segments of a preferred provider region 
        (rather than uniformly to an entire preferred provider region).
    ``(e) Portion of Total Payments to an Organization Subject to Risk 
for 2 Years.--
            ``(1) Notification of spending under the plan.--
                    ``(A) In general.--For 2007 and 2008, the preferred 
                provider organization offering a preferred provider 
                organization plan shall notify the Secretary of the 
                total amount of costs that the organization incurred in 
                providing benefits covered under parts A and B of the 
                original medicare fee-for-service program for all 
                enrollees under the plan in the previous year.
                    ``(B) Certain expenses not included.--The total 
                amount of costs specified in subparagraph (A) may not 
                include--
                            ``(i) subject to subparagraph (C), 
                        administrative expenses incurred in providing 
                        the benefits described in such subparagraph; or
                            ``(ii) amounts expended on providing 
                        enhanced medical benefits under section 
                        1852(a)(3)(D).
                    ``(C) Establishment of allowable administrative 
                expenses.--For purposes of applying subparagraph 
                (B)(i), the administrative expenses incurred in 
                providing benefits described in subparagraph (A) under 
                a preferred provider organization plan may not exceed 
                an amount determined appropriate by the Administrator.
            ``(2) Adjustment of payment.--
                    ``(A) No adjustment if costs within risk 
                corridor.--If the total amount of costs specified in 
                paragraph (1)(A) for the plan for the year are not more 
                than the first threshold upper limit of the risk 
                corridor (specified in paragraph (3)(A)(iii)) and are 
                not less than the first threshold lower limit of the 
                risk corridor (specified in paragraph (3)(A)(i)) for 
                the plan for the year, then no additional payments 
                shall be made by the Secretary and no reduced payments 
                shall be made to the preferred provider organization 
                offering the plan.
                    ``(B) Increase in payment if costs above upper 
                limit of risk corridor.--
                            ``(i) In general.--If the total amount of 
                        costs specified in paragraph (1)(A) for the 
                        plan for the year are more than the first 
                        threshold upper limit of the risk corridor for 
                        the plan for the year, then the Secretary shall 
                        increase the total of the monthly payments made 
                        to the preferred provider organization offering 
                        the plan for the year under subsection 
                        (c)(1)(A) by an amount equal to the sum of--
                                    ``(I) 50 percent of the amount of 
                                such total costs which are more than 
                                such first threshold upper limit of the 
                                risk corridor and not more than the 
                                second threshold upper limit of the 
                                risk corridor for the plan for the year 
                                (as specified under paragraph 
                                (3)(A)(iv)); and
                                    ``(II) 90 percent of the amount of 
                                such total costs which are more than 
                                such second threshold upper limit of 
                                the risk corridor.
                    ``(C) Reduction in payment if costs below lower 
                limit of risk corridor.--If the total amount of costs 
                specified in paragraph (1)(A) for the plan for the year 
                are less than the first threshold lower limit of the 
                risk corridor for the plan for the year, then the 
                Secretary shall reduce the total of the monthly 
                payments made to the preferred provider organization 
                offering the plan for the year under subsection 
                (c)(1)(A) by an amount (or otherwise recover from the 
                plan an amount) equal to--
                            ``(i) 50 percent of the amount of such 
                        total costs which are less than such first 
                        threshold lower limit of the risk corridor and 
                        not less than the second threshold lower limit 
                        of the risk corridor for the plan for the year 
                        (as specified under paragraph (3)(A)(ii)); and
                            ``(ii) 90 percent of the amount of such 
                        total costs which are less than such second 
                        threshold lower limit of the risk corridor.
            ``(3) Establishment of risk corridors.--
                    ``(A) In general.--For 2006 and 2007, the Secretary 
                shall establish a risk corridor for each preferred 
                provider organization plan. The risk corridor for a 
                plan for a year shall be equal to a range as follows:
                            ``(i) First threshold lower limit.--The 
                        first threshold lower limit of such corridor 
                        shall be equal to--
                                    ``(I) the target amount described 
                                in subparagraph (B) for the plan; minus
                                    ``(II) an amount equal to 5 percent 
                                of such target amount.
                            ``(ii) Second threshold lower limit.--The 
                        second threshold lower limit of such corridor 
                        shall be equal to--
                                    ``(I) the target amount described 
                                in subparagraph (B) for the plan; minus
                                    ``(II) an amount equal to 10 
                                percent of such target amount.
                            ``(iii) First threshold upper limit.--The 
                        first threshold upper limit of such corridor 
                        shall be equal to the sum of--
                                    ``(I) such target amount; and
                                    ``(II) the amount described in 
                                clause (i)(II).
                            ``(iv) Second threshold upper limit.--The 
                        second threshold upper limit of such corridor 
                        shall be equal to the sum of--
                                    ``(I) such target amount; and
                                    ``(II) the amount described in 
                                clause (ii)(II).
                    ``(B) Target amount described.--The target amount 
                described in this paragraph is, with respect to a 
                preferred provider organization plan offered by a 
                preferred provider organization in a year, an amount 
                equal to the sum of--
                            ``(i) the total monthly payments made to 
                        the organization for enrollees in the plan for 
                        the year under subsection (c)(1)(A); and
                            ``(ii) the total MedicareAdvantage basic 
                        beneficiary premiums collected for such 
                        enrollees for the year under subsection 
                        (d)(2)(A).
            ``(4) Plans at risk for entire amount of enhanced medical 
        benefits.--A preferred provider organization that offers a 
        preferred provider organization plan that provides enhanced 
        medical benefits under section 1852(a)(3)(D) shall be at full 
        financial risk for the provision of such benefits.
            ``(5) No effect on eligible beneficiaries.--No change in 
        payments made by reason of this subsection shall affect the 
        amount of the MedicareAdvantage basic beneficiary premium that 
        a beneficiary is otherwise required to pay under the plan for 
        the year under subsection (d)(2)(A).
            ``(6) Disclosure of information.--The provisions of section 
        1860D-16(b)(7), including subparagraph (B) of such section, 
        shall apply to a preferred provider organization and a 
        preferred provider organization plan in the same manner as such 
        provisions apply to an eligible entity and a Medicare 
        Prescription Drug plan under part D.
    ``(f) Organizational and Financial Requirements for Preferred 
Provider Organizations.--A preferred provider organization shall be 
organized and licensed under State law as a risk-bearing entity 
eligible to offer health insurance or health benefits coverage in each 
State within the preferred provider region in which it offers a 
preferred provider organization plan.
    ``(g) Inapplicability of Provider-Sponsored Organization Solvency 
Standards.--The requirements of section 1856 shall not apply with 
respect to preferred provider organizations.
    ``(h) Contracts With Preferred Provider Organizations.--The 
provisions of section 1857 shall apply to a preferred provider 
organization plan offered by a preferred provider organization under 
this section.''.
    (c) Preferred Provider Terminology Defined.--Section 1859(a) is 
amended by adding at the end the following new paragraph:
            ``(3) Preferred provider organization; preferred provider 
        organization plan; preferred provider region.--The terms 
        `preferred provider organization', `preferred provider 
        organization plan', and `preferred provider region' have the 
        meaning given such terms in section 1858(a)(2).''.

                 Subtitle C--Other Managed Care Reforms

SEC. 221. EXTENSION OF REASONABLE COST CONTRACTS.

    (a) Five-Year Extension.--Section 1876(h)(5)(C) (42 U.S.C. 
1395mm(h)(5)(C)) is amended by striking ``2004'' and inserting 
``2009''.
    (b) Application of Certain Medicare+Choice Requirements to Cost 
Contracts Extended or Renewed After 2003.--Section 1876(h) (42 U.S.C. 
1395mm(h)(5)), as amended by subsection (a), is amended--
            (1) by redesignating paragraph (5) as paragraph (6); and
            (2) by inserting after paragraph (4) the following new 
        paragraph:
    ``(5) Any reasonable cost reimbursement contract with an eligible 
organization under this subsection that is extended or renewed on or 
after the date of enactment of the Prescription Drug and Medicare 
Improvements Act of 2003 for plan years beginning on or after January 
1, 2004, shall provide that the following provisions of the 
Medicare+Choice program under part C (and, on and after January 1, 
2006, the provisions of the MedicareAdvantage program under such part) 
shall apply to such organization and such contract in a substantially 
similar manner as such provisions apply to Medicare+Choice 
organizations and Medicare+Choice plans (or, on and after January 1, 
2006, MedicareAdvantage organizations and MedicareAdvantage plans, 
respectively) under such part:
            ``(A) Paragraph (1) of section 1852(e) (relating to the 
        requirement of having an ongoing quality assurance program) and 
        paragraph (2)(B) of such section (relating to the required 
        elements for such a program).
            ``(B) Section 1852(j)(4) (relating to limitations on 
        physician incentive plans).
            ``(C) Section 1854(c) (relating to the requirement of 
        uniform premiums among individuals enrolled in the plan).
            ``(D) Section 1854(g), or, on and after January 1, 2006, 
        section 1854(h) (relating to restrictions on imposition of 
        premium taxes with respect to payments to organizations).
            ``(E) Section 1856(b) (regarding compliance with the 
        standards established by regulation pursuant to such section, 
        including the provisions of paragraph (3) of such section 
        relating to relation to State laws).
            ``(F) Section 1852(a)(3)(A) (regarding the authority of 
        organizations to include supplemental health care benefits and, 
        on and after January 1, 2006, enhanced medical benefits under 
        the plan subject to the approval of the Secretary).
            ``(G) The provisions of part C relating to timelines for 
        benefit filings, contract renewal, and beneficiary 
        notification.
            ``(H) Section 1854(e), or, on and after January 1, 2006, 
        section 1854(f) (relating to proposed cost-sharing under the 
        contract being subject to review by the Secretary).''.
    (c) Permitting dedicated group practice health maintenance 
organizations to participate in the medicare cost contract program.--
Section 1876(h)(6) of the Social Security Act (42 U.S.C. 1395mm(h)(6)), 
as redesignated and amended by subsections (a) and (b), is amended--
            (1) in subparagraph (A), by striking ``After the date of 
        the enactment'' and inserting ``Except as provided in 
        subparagraph (C), after the date of the enactment'';
            (2) in subparagraph (B), by striking ``subparagraph (C)'' 
        and inserting ``subparagraph (D)'';
            (3) by redesignating subparagraph (C) as subparagraph (D); 
        and
            (4) by inserting after subparagraph (B), the following new 
        subparagraph:
    ``(C) Subject to paragraph (5) and subparagraph (D), the Secretary 
shall approve an application to enter into a reasonable cost contract 
under this section if--
            ``(i) the application is submitted to the Secretary by a 
        health maintenance organization (as defined in section 1301(a) 
        of the Public Health Service Act) that, as of January 1, 2004, 
        and except as provided in section 1301(b)(3)(B) of such Act, 
        provides at least 85 percent of the services of a physician 
        which are provided as basic health services through a medical 
        group (or groups), as defined in section 1302(4) of such Act; 
        and
            ``(ii) the Secretary determines that the organization meets 
        the requirements applicable to such organizations and contracts 
        under this section.''.

SEC. 222. SPECIALIZED MEDICARE+CHOICE PLANS FOR SPECIAL NEEDS 
              BENEFICIARIES.

    (a) Treatment as Coordinated Care Plan.--Section 1851(a)(2)(A) (42 
U.S.C. 1395w-21(a)(2)(A)) is amended by adding at the end the following 
new sentence: ``Specialized Medicare+Choice plans for special needs 
beneficiaries (as defined in section 1859(b)(4)) may be any type of 
coordinated care plan.''.
    (b) Specialized Medicare+Choice Plan for Special Needs 
Beneficiaries Defined.--Section 1859(b) (42 U.S.C. 1395w-28(b)) is 
amended by adding at the end the following new paragraph:
            ``(4) Specialized medicare+choice plans for special needs 
        beneficiaries.--
                    ``(A) In general.--The term `specialized 
                Medicare+Choice plan for special needs beneficiaries' 
                means a Medicare+Choice plan that exclusively serves 
                special needs beneficiaries (as defined in subparagraph 
                (B)).
                    ``(B) Special needs beneficiary.--The term `special 
                needs beneficiary' means a Medicare+Choice eligible 
                individual who--
                            ``(i) is institutionalized (as defined by 
                        the Secretary);
                            ``(ii) is entitled to medical assistance 
                        under a State plan under title XIX; or
                            ``(iii) meets such requirements as the 
                        Secretary may determine would benefit from 
                        enrollment in such a specialized 
                        Medicare+Choice plan described in subparagraph 
                        (A) for individuals with severe or disabling 
                        chronic conditions.''.
    (c) Restriction on Enrollment Permitted.--Section 1859 (42 U.S.C. 
1395w-28) is amended by adding at the end the following new subsection:
    ``(f) Restriction on Enrollment for Specialized Medicare+Choice 
Plans for Special Needs Beneficiaries.--In the case of a specialized 
Medicare+Choice plan (as defined in subsection (b)(4)), notwithstanding 
any other provision of this part and in accordance with regulations of 
the Secretary and for periods before January 1, 2008, the plan may 
restrict the enrollment of individuals under the plan to individuals 
who are within 1 or more classes of special needs beneficiaries.''.
    (d) Report to Congress.--Not later than December 31, 2006, the 
Secretary shall submit to Congress a report that assesses the impact of 
specialized Medicare+Choice plans for special needs beneficiaries on 
the cost and quality of services provided to enrollees. Such report 
shall include an assessment of the costs and savings to the medicare 
program as a result of amendments made by subsections (a), (b), and 
(c).
    (e) Effective Dates.--
            (1) In general.--The amendments made by subsections (a), 
        (b), and (c) shall take effect on the date of enactment of this 
        Act.
            (2) Deadline for issuance of requirements for special needs 
        beneficiaries; transition.--No later than 1 year after the date 
        of enactment of this Act, the Secretary shall issue final 
        regulations to establish requirements for special needs 
        beneficiaries under section 1859(b)(4)(B)(iii) of the Social 
        Security Act, as added by subsection (b).

SEC. 223. PAYMENT BY PACE PROVIDERS FOR MEDICARE AND MEDICAID SERVICES 
              FURNISHED BY NONCONTRACT PROVIDERS.

    (a) Medicare Services.--
            (1) Medicare services furnished by providers of services.--
        Section 1866(a)(1)(O) (42 U.S.C. 1395cc(a)(1)(O)) is amended--
                    (A) by striking ``part C or'' and inserting ``part 
                C, with a PACE provider under section 1894 or 1934, 
                or'';
                    (B) by striking ``(i)'';
                    (C) by striking ``and (ii)''; and
                    (D) by striking ``members of the organization'' and 
                inserting ``members of the organization or PACE program 
                eligible individuals enrolled with the PACE 
                provider,''.
            (2) Medicare services furnished by physicians and other 
        entities.--Section 1894(b) (42 U.S.C. 1395eee(b)) is amended by 
        adding at the end the following new paragraphs:
            ``(3) Treatment of medicare services furnished by 
        noncontract physicians and other entities.--
                    ``(A) Application of medicare+choice requirement 
                with respect to medicare services furnished by 
                noncontract physicians and other entities.--Section 
                1852(k)(1) (relating to limitations on balance billing 
                against Medicare+Choice organizations for noncontract 
                physicians and other entities with respect to services 
                covered under this title) shall apply to PACE 
                providers, PACE program eligible individuals enrolled 
                with such PACE providers, and physicians and other 
                entities that do not have a contract establishing 
                payment amounts for services furnished to such an 
individual in the same manner as such section applies to 
Medicare+Choice organizations, individuals enrolled with such 
organizations, and physicians and other entities referred to in such 
section.
                    ``(B) Reference to related provision for 
                noncontract providers of services.--For the provision 
                relating to limitations on balance billing against PACE 
                providers for services covered under this title 
                furnished by noncontract providers of services, see 
                section 1866(a)(1)(O).
            ``(4) Reference to related provision for services covered 
        under title xix but not under this title.--For provisions 
        relating to limitations on payments to providers participating 
        under the State plan under title XIX that do not have a 
        contract with a PACE provider establishing payment amounts for 
        services covered under such plan (but not under this title) 
        when such services are furnished to enrollees of that PACE 
        provider, see section 1902(a)(66).''.
    (b) Medicaid Services.--
            (1) Requirement under state plan.--Section 1902(a) (42 
        U.S.C. 1396a(a)) is amended--
                    (A) in paragraph (64), by striking ``and'' at the 
                end;
                    (B) in paragraph (65), by striking the period at 
                the end and inserting ``; and''; and
                    (C) by inserting after paragraph (65) the following 
                new paragraph:
                    ``(66) provide, with respect to services covered 
                under the State plan (but not under title XVIII) that 
                are furnished to a PACE program eligible individual 
                enrolled with a PACE provider by a provider 
                participating under the State plan that does not have a 
                contract with the PACE provider that establishes 
                payment amounts for such services, that such 
                participating provider may not require the PACE 
                provider to pay the participating provider an amount 
                greater than the amount that would otherwise be payable 
                for the service to the participating provider under the 
                State plan for the State where the PACE provider is 
                located (in accordance with regulations issued by the 
                Secretary).''.
            (2) Reference in medicaid statute.--Section 1934(b) (42 
        U.S.C. 1396u-4(b)) is amended by adding at the end the 
        following new paragraphs:
            ``(3) Treatment of medicare services furnished by 
        noncontract physicians and other entities.--
                    ``(A) Application of medicare+choice requirement 
                with respect to medicare services furnished by 
                noncontract physicians and other entities.--Section 
                1852(k)(1) (relating to limitations on balance billing 
                against Medicare+Choice organizations for noncontract 
                physicians and other entities with respect to services 
                covered under title XVIII) shall apply to PACE 
                providers, PACE program eligible individuals enrolled 
                with such PACE providers, and physicians and other 
                entities that do not have a contract establishing 
                payment amounts for services furnished to such an 
                individual in the same manner as such section applies 
                to Medicare+Choice organizations, individuals enrolled 
                with such organizations, and physicians and other 
                entities referred to in such section.
                    ``(B) Reference to related provision for 
                noncontract providers of services.--For the provision 
                relating to limitations on balance billing against PACE 
                providers for services covered under title XVIII 
                furnished by noncontract providers of services, see 
                section 1866(a)(1)(O).
            ``(4) Reference to related provision for services covered 
        under this title but not under title xviii.--For provisions 
        relating to limitations on payments to providers participating 
        under the State plan under this title that do not have a 
        contract with a PACE provider establishing payment amounts for 
        services covered under such plan (but not under title XVIII) 
        when such services are furnished to enrollees of that PACE 
        provider, see section 1902(a)(66).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to services furnished on or after January 1, 2004.

SEC. 224. INSTITUTE OF MEDICINE EVALUATION AND REPORT ON HEALTH CARE 
              PERFORMANCE MEASURES.

    (a) Evaluation.--
            (1) In general.--Not later than the date that is 2 months 
        after the date of enactment of this Act, the Secretary of 
        Health and Human Services shall enter into an arrangement under 
        which the Institute of Medicine of the National Academy of 
        Sciences (in this section referred to as the ``Institute'') 
        shall conduct an evaluation of leading health care performance 
        measures and options to implement policies that align 
        performance with payment under the medicare program under title 
        XVIII of the Social Security Act (42 U.S.C. 1395 et seq.).
            (2) Specific matters evaluated.--In conducting the 
        evaluation under paragraph (1), the Institute shall--
                    (A) catalogue, review, and evaluate the validity of 
                leading health care performance measures;
                    (B) catalogue and evaluate the success and utility 
                of alternative performance incentive programs in public 
                or private sector settings; and
                    (C) identify and prioritize options to implement 
                policies that align performance with payment under the 
                medicare program that indicate--
                            (i) the performance measurement set to be 
                        used and how that measurement set will be 
                        updated;
                            (ii) the payment policy that will reward 
                        performance; and
                            (iii) the key implementation issues (such 
                        as data and information technology 
                        requirements) that must be addressed.
            (3) Scope of health care performance measures.--The health 
        care performance measures described in paragraph (2)(A) shall 
        encompass a variety of perspectives, including physicians, 
        hospitals, health plans, purchasers, and consumers.
            (4) Consultation with medpac.--In evaluating the matters 
        described in paragraph (2)(C), the Institute shall consult with 
        the Medicare Payment Advisory Commission established under 
        section 1805 of the Social Security Act (42 U.S.C. 1395b-6).
    (b) Report.--Not later than the date that is 18 months after the 
date of enactment of this Act, the Institute shall submit to the 
Secretary of Health and Human Services, the Committees on Ways and 
Means and Energy and Commerce of the House of Representatives, and the 
Committee on Finance of the Senate a report on the evaluation conducted 
under subsection (a)(1) describing the findings of such evaluation and 
recommendations for an overall strategy and approach for aligning 
payment with performance in the original medicare fee-for-service 
program under parts A and B of title XVIII of the Social Security Act, 
the Medicare+Choice program under part C of such title, and any other 
programs under such title XVIII.
    (c) Authorization of Appropriations.--There are authorized to be 
appropriated $1,000,000 for purposes of conducting the evaluation and 
preparing the report required by this section.

SEC. 225. EXPANDING THE WORK OF MEDICARE QUALITY IMPROVEMENT 
              ORGANIZATIONS TO INCLUDE PARTS C AND D.

    (a) Application to Medicare Managed Care and Prescription Drug 
Coverage.--Section 1154(a)(1) (42 U.S.C. 1320c-3(a)(1)) is amended by 
inserting ``, Medicare+Choice organizations and MedicareAdvantage 
organizations under part C, and prescription drug card sponsors and 
eligible entities under part D'' after ``under section 1876''.
    (b) Prescription Drug Therapy Quality Improvement.--Section 1154(a) 
(42 U.S.C. 1320c-3(a)) is amended by adding at the end the following 
new paragraph:
            ``(17) The organization shall execute its responsibilities 
        under subparagraphs (A) and (B) of paragraph (1) by offering to 
        providers, practitioners, prescription drug card sponsors and 
        eligible entities under part D, and Medicare+Choice and 
        MedicareAdvantage plans under part C quality improvement 
        assistance pertaining to prescription drug therapy. For 
        purposes of this part and title XVIII, the functions described 
        in this paragraph shall be treated as a review function.''.
    (c) Effective Date.--The amendments made by this section shall 
apply on and after January 1, 2004.

                 TITLE III--CENTER FOR MEDICARE CHOICES

SEC. 301. ESTABLISHMENT OF THE CENTER FOR MEDICARE CHOICES.

    (a) In General.--Title XVIII (42 U.S.C. 1395 et seq.), as amended 
by section 111, is amended by inserting after 1806 the following new 
section:

           ``establishment of the center for medicare choices

    ``Sec. 1808. (a) Establishment.--By not later than March 1, 2004, 
the Secretary shall establish within the Department of Health and Human 
Services the Center for Medicare Choices, which shall be separate from 
the Centers for Medicare and Medicaid Services.
    ``(b) Administrator and Deputy Administrator.--
            ``(1) Administrator.--
                    ``(A) In general.--The Center for Medicare Choices 
                shall be headed by an Administrator (in this section 
                referred to as the `Administrator') who shall be 
                appointed by the President, by and with the advice and 
                consent of the Senate. The Administrator shall report 
                directly to the Secretary.
                    ``(B) Compensation.--The Administrator shall be 
                paid at the rate of basic pay payable for level III of 
                the Executive Schedule under section 5314 of title 5, 
                United States Code.
                    ``(C) Term of office.--The Administrator shall be 
                appointed for a term of 5 years. In any case in which a 
                successor does not take office at the end of an 
                Administrator's term of office, that Administrator may 
                continue in office until the entry upon office of such 
                a successor. An Administrator appointed to a term of 
                office after the commencement of such term may serve 
                under such appointment only for the remainder of such 
                term.
                    ``(D) General authority.--The Administrator shall 
                be responsible for the exercise of all powers and the 
                discharge of all duties of the Center for Medicare 
                Choices, and shall have authority and control over all 
                personnel and activities thereof.
                    ``(E) Rulemaking authority.--The Administrator may 
                prescribe such rules and regulations as the 
                Administrator determines necessary or appropriate to 
                carry out the functions of the Center for Medicare 
                Choices. The regulations prescribed by the 
                Administrator shall be subject to the rulemaking 
                procedures established under section 553 of title 5, 
                United States Code.
                    ``(F) Authority to establish organizational 
                units.--The Administrator may establish, alter, 
                consolidate, or discontinue such organizational units 
                or components within the Center for Medicare Choices as 
                the Administrator considers necessary or appropriate, 
                except that this subparagraph shall not apply with 
                respect to any unit, component, or provision provided 
                for by this section.
                    ``(G) Authority to delegate.--The Administrator may 
                assign duties, and delegate, or authorize successive 
                redelegations of, authority to act and to render 
                decisions, to such officers and employees of the Center 
                for Medicare Choices as the Administrator may find 
                necessary. Within the limitations of such delegations, 
                redelegations, or assignments, all official acts and 
                decisions of such officers and employees shall have the 
                same force and effect as though performed or rendered 
                by the Administrator.
            ``(2) Deputy administrator.--
                    ``(A) In general.--There shall be a Deputy 
                Administrator of the Center for Medicare Choices who 
                shall be appointed by the Administrator.
                    ``(B) Compensation.--The Deputy Administrator shall 
                be paid at the rate of basic pay payable for level IV 
                of the Executive Schedule under section 5315 of title 
                5, United States Code.
                    ``(C) Term of office.--The Deputy Administrator 
                shall be appointed for a term of 5 years. In any case 
                in which a successor does not take office at the end of 
                a Deputy Administrator's term of office, such Deputy 
                Administrator may continue in office until the entry 
                upon office of such a successor. A Deputy Administrator 
                appointed to a term of office after the commencement of 
                such term may serve under such appointment only for the 
                remainder of such term.
                    ``(D) Duties.--The Deputy Administrator shall 
                perform such duties and exercise such powers as the 
                Administrator shall from time to time assign or 
                delegate. The Deputy Administrator shall be the Acting 
                Administrator of the Center for Medicare Choices during 
                the absence or disability of the Administrator and, 
                unless the President designates another officer of the 
                Government as Acting Administrator, in the event of a 
                vacancy in the office of the Administrator.
            ``(3) Secretarial coordination of program administration.--
        The Secretary shall ensure appropriate coordination between the 
        Administrator and the Administrator of the Centers for Medicare 
        and Medicaid Services in carrying out the programs under this 
        title.
    ``(c) Duties; Administrative Provisions.--
            ``(1) Duties.--
                    ``(A) General duties.--The Administrator shall 
                carry out parts C and D, including--
                            ``(i) negotiating, entering into, and 
                        enforcing, contracts with plans for the 
                        offering of MedicareAdvantage plans under part 
                        C, including the offering of qualified 
                        prescription drug coverage under such plans; 
                        and
                            ``(ii) negotiating, entering into, and 
                        enforcing, contracts with eligible entities for 
                        the offering of Medicare Prescription Drug 
                        plans under part D.
                    ``(B) Other duties.--The Administrator shall carry 
                out any duty provided for under part C or D, including 
                duties relating to--
                            ``(i) reasonable cost contracts with 
                        eligible organizations under section 1876(h); 
                        and
                            ``(ii) demonstration projects carried out 
                        in part or in whole under such parts, including 
                        the demonstration project carried out through a 
                        MedicareAdvantage (formerly Medicare+Choice) 
                        project that demonstrates the application of 
                        capitation payment rates for frail elderly 
                        medicare beneficiaries through the use of an 
                        interdisciplinary team and through the 
                        provision of primary care services to such 
                        beneficiaries by means of such a team at the 
                        nursing facility involved.
                    ``(C) Noninterference.--In order to promote 
                competition under parts C and D, the Administrator, in 
                carrying out the duties required under this section, 
                may not, to the extent possible, interfere in any way 
                with negotiations between eligible entities, 
                MedicareAdvantage organizations, hospitals, physicians, 
                other entities or individuals furnishing items and 
                services under this title (including contractors for 
                such items and services), and drug manufacturers, 
                wholesalers, or other suppliers of covered drugs.
                    ``(D) Annual reports.--Not later than March 31 of 
                each year, the Administrator shall submit to Congress 
                and the President a report on the administration of the 
                voluntary prescription drug delivery program under this 
                part during the previous fiscal year.
            ``(2) Management staff.--
                    ``(A) In general.--The Administrator, with the 
                approval of the Secretary, may employ, such management 
                staff as determined appropriate. Any such manager shall 
                be required to have demonstrated, by their education 
                and experience (either in the public or private 
                sector), superior expertise in the following areas:
                            ``(i) The review, negotiation, and 
                        administration of health care contracts.
                            ``(ii) The design of health care benefit 
                        plans.
                            ``(iii) Actuarial sciences.
                            ``(iv) Compliance with health plan 
                        contracts.
                            ``(v) Consumer education and decision 
                        making.
                    ``(B) Compensation.--
                            ``(i) In general.--Subject to clause (ii), 
                        the Administrator shall establish the rate of 
                        pay for an individual employed under 
                        subparagraph (A).
                            ``(ii) Maximum rate.--In no case may the 
                        rate of compensation determined under clause 
                        (i) exceed the highest rate of basic pay for 
                        the Senior Executive Service under section 
                        5382(b) of title 5, United States Code.
            ``(3) Redelegation of certain functions of the centers for 
        medicare and medicaid services.--
                    ``(A) In general.--The Secretary, the Administrator 
                of the Center for Medicare Choices, and the 
                Administrator of the Centers for Medicare and Medicaid 
                Services shall establish an appropriate transition of 
                responsibility in order to redelegate the 
                administration of part C from the Secretary and the 
                Administrator of the Centers for Medicare and Medicaid 
                Services to the Administrator of the Center for 
                Medicare Choices as is appropriate to carry out the 
                purposes of this section.
                    ``(B) Transfer of data and information.--The 
                Secretary shall ensure that the Administrator of the 
                Centers for Medicare and Medicaid Services transfers to 
                the Administrator such information and data in the 
                possession of the Administrator of the Centers for 
                Medicare and Medicaid Services as the Administrator 
                requires to carry out the duties described in paragraph 
                (1).
                    ``(C) Construction.--Insofar as a responsibility of 
                the Secretary or the Administrator of the Centers for 
                Medicare and Medicaid Services is redelegated to the 
                Administrator under this section, any reference to the 
                Secretary or the Administrator of the Centers for 
                Medicare and Medicaid Services in this title or title 
                XI with respect to such responsibility is deemed to be 
                a reference to the Administrator.
    ``(d) Office of Beneficiary Assistance.--
            ``(1) Establishment.--The Secretary shall establish within 
        the Center for Medicare Choices an Office of Beneficiary 
        Assistance to carry out functions relating to medicare 
        beneficiaries under this title, including making determinations 
        of eligibility of individuals for benefits under this title, 
        providing for enrollment of medicare beneficiaries under this 
        title, and the functions described in paragraph (2). The Office 
        shall be a separate operating division within the Center for 
        Medicare Choices.
            ``(2) Dissemination of information on benefits and appeals 
        rights.--
                    ``(A) Dissemination of benefits information.--The 
                Office of Beneficiary Assistance shall disseminate to 
                medicare beneficiaries, by mail, by posting on the 
                Internet site of the Center for Medicare Choices, and 
                through the toll-free telephone number provided for 
                under section 1804(b), information with respect to the 
                following:
                            ``(i) Benefits, and limitations on payment 
                        (including cost-sharing, stop-loss provisions, 
                        and formulary restrictions) under parts C and 
                        D.
                            ``(ii) Benefits, and limitations on payment 
                        under parts A, and B, including information on 
                        medicare supplemental policies under section 
                        1882.
                            ``(iii) Other areas determined to be 
                        appropriate by the Administrator.
                Such information shall be presented in a manner so that 
                medicare beneficiaries may compare benefits under parts 
                A, B, and D, and medicare supplemental policies with 
                benefits under MedicareAdvantage plans under part C.
                    ``(B) Dissemination of appeals rights 
                information.--The Office of Beneficiary Assistance 
                shall disseminate to medicare beneficiaries in the 
                manner provided under subparagraph (A) a description of 
                procedural rights (including grievance and appeals 
                procedures) of beneficiaries under the original 
                medicare fee-for-service program under parts A and B, 
                the MedicareAdvantage program under part C, and the 
                voluntary prescription drug delivery program under part 
                D.
            ``(3) Medicare ombudsman.--
                    ``(A) In general.--Within the Office of Beneficiary 
                Assistance, there shall be a Medicare Ombudsman, 
                appointed by the Secretary from among individuals with 
                expertise and experience in the fields of health care 
                and advocacy, to carry out the duties described in 
                subparagraph (B).
                    ``(B) Duties.--The Medicare Ombudsman shall--
                            ``(i) receive complaints, grievances, and 
                        requests for information submitted by a 
                        medicare beneficiary, with respect to any 
                        aspect of the medicare program;
                            ``(ii) provide assistance with respect to 
                        complaints, grievances, and requests referred 
                        to in clause (i), including--
                                    ``(I) assistance in collecting 
                                relevant information for such 
                                beneficiaries, to seek an appeal of a 
                                decision or determination made by a 
                                fiscal intermediary, carrier, Medicare-
                                Ad-van-tage organization, an eligible 
                                entity under part D, or the Secretary; 
                                and
                                    ``(II) assistance to such 
                                beneficiaries with any problems arising 
                                from disenrollment from a 
                                MedicareAdvantage plan under part C or 
                                a prescription drug plan under part D; 
                                and
                            ``(iii) submit annual reports to Congress, 
                        the Secretary, and the Medicare Competitive 
                        Policy Advisory Board describing the activities 
                        of the Office, and including such 
                        recommendations for improvement in the 
                        administration of this title as the Ombudsman 
                        determines appropriate.
                    ``(C) Coordination with state ombudsman programs 
                and consumer organizations.--The Medicare Ombudsman 
                shall, to the extent appropriate, coordinate with State 
                medical Ombudsman programs, and with State- and 
                community-based consumer organizations, to--
                            ``(i) provide information about the 
                        medicare program; and
                            ``(ii) conduct outreach to educate medicare 
                        beneficiaries with respect to manners in which 
                        problems under the medicare program may be 
                        resolved or avoided.
    ``(e) Medicare Competitive Policy Advisory Board.--
            ``(1) Establishment.--There is established within the 
        Center for Medicare Choices the Medicare Competitive Policy 
        Advisory Board (in this section referred to as the `Board'). 
        The Board shall advise, consult with, and make recommendations 
        to the Administrator with respect to the administration of 
        parts C and D, including the review of payment policies under 
        such parts.
            ``(2) Reports.--
                    ``(A) In general.--With respect to matters of the 
                administration of parts C and D, the Board shall submit 
                to Congress and to the Administrator such reports as 
                the Board determines appropriate. Each such report may 
                contain such recommendations as the Board determines 
                appropriate for legislative or administrative changes 
                to improve the administration of such parts, including 
                the stability and solvency of the programs under such 
                parts and the topics described in subparagraph (B). 
                Each such report shall be published in the Federal 
                Register.
                    ``(B) Topics described.--Reports required under 
                subparagraph (A) may include the following topics:
                            ``(i) Fostering competition.--
                        Recommendations or proposals to increase 
                        competition under parts C and D for services 
                        furnished to medicare beneficiaries.
                            ``(ii) Education and enrollment.--
                        Recommendations for the improvement of efforts 
                        to provide medicare beneficiaries information 
                        and education on the program under this title, 
                        and specifically parts C and D, and the program 
                        for enrollment under the title.
                            ``(iii) Quality.--Recommendations on ways 
                        to improve the quality of benefits provided 
                        under plans under parts C and D.
                            ``(iv) Disease management programs.--
                        Recommendations on the incorporation of disease 
                        management programs under parts C and D.
                            ``(v) Rural access.--Recommendations to 
                        improve competition and access to plans under 
                        parts C and D in rural areas.
                    ``(C) Maintaining independence of board.--The Board 
                shall directly submit to Congress reports required 
                under subparagraph (A). No officer or agency of the 
                United States may require the Board to submit to any 
                officer or agency of the United States for approval, 
                comments, or review, prior to the submission to 
                Congress of such reports.
            ``(3) Duty of administrator.--With respect to any report 
        submitted by the Board under paragraph (2)(A), not later than 
        90 days after the report is submitted, the Administrator shall 
        submit to Congress and the President an analysis of 
        recommendations made by the Board in such report. Each such 
        analysis shall be published in the Federal Register.
            ``(4) Membership.--
                    ``(A) Appointment.--Subject to the succeeding 
                provisions of this paragraph, the Board shall consist 
                of 7 members to be appointed as follows:
                            ``(i) Three members shall be appointed by 
                        the President.
                            ``(ii) Two members shall be appointed by 
                        the Speaker of the House of Representatives, 
                        with the advice of the chairman and the ranking 
                        minority member of the Committees on Ways and 
                        Means and on Energy and Commerce of the House 
                        of Representatives.
                            ``(iii) Two members shall be appointed by 
                        the President pro tempore of the Senate with 
                        the advice of the chairman and the ranking 
                        minority member of the Committee on Finance of 
                        the Senate.
                    ``(B) Qualifications.--The members shall be chosen 
                on the basis of their integrity, impartiality, and good 
                judgment, and shall be individuals who are, by reason 
                of their education and experience in health care 
                benefits management, exceptionally qualified to perform 
                the duties of members of the Board.
                    ``(C) Prohibition on inclusion of federal 
                employees.--No officer or employee of the United States 
                may serve as a member of the Board.
            ``(5) Compensation.--Members of the Board shall receive, 
        for each day (including travel time) they are engaged in the 
        performance of the functions of the Board, compensation at 
        rates not to exceed the daily equivalent to the annual rate in 
        effect for level IV of the Executive Schedule under section 
        5315 of title 5, United States Code.
            ``(6) Terms of office.--
                    ``(A) In general.--The term of office of members of 
                the Board shall be 3 years.
                    ``(B) Terms of initial appointees.--As designated 
                by the President at the time of appointment, of the 
                members first appointed--
                            ``(i) one shall be appointed for a term of 
                        1 year;
                            ``(ii) three shall be appointed for terms 
                        of 2 years; and
                            ``(iii) three shall be appointed for terms 
                        of 3 years.
                    ``(C) Reappointments.--Any person appointed as a 
                member of the Board may not serve for more than 8 
                years.
                    ``(D) Vacancy.--Any member appointed to fill a 
                vacancy occurring before the expiration of the term for 
                which the member's predecessor was appointed shall be 
                appointed only for the remainder of that term. A member 
                may serve after  the expiration of that member's term 
until a successor has taken office. A vacancy in the Board shall be 
filled in the manner in which the original appointment was made.
            ``(7) Chair.--The Chair of the Board shall be elected by 
        the members. The term of office of the Chair shall be 3 years.
            ``(8) Meetings.--The Board shall meet at the call of the 
        Chair, but in no event less than 3 times during each fiscal 
        year.
            ``(9) Director and staff.--
                    ``(A) Appointment of director.--The Board shall 
                have a Director who shall be appointed by the Chair.
                    ``(B) In general.--With the approval of the Board, 
                the Director may appoint such additional personnel as 
                the Director considers appropriate.
                    ``(C) Assistance from the administrator.--The 
                Administrator shall make available to the Board such 
                information and other assistance as it may require to 
                carry out its functions.
            ``(10) Contract authority.--The Board may contract with and 
        compensate government and private agencies or persons to carry 
        out its duties under this subsection, without regard to section 
        3709 of the Revised Statutes (41 U.S.C. 5).
    ``(f) Funding.--There is authorized to be appropriated, in 
appropriate part from the Federal Hospital Insurance Trust Fund and 
from the Federal Supplementary Medical Insurance Trust Fund (including 
the Prescription Drug Account), such sums as are necessary to carry out 
this section.''.
    (b) Use of Central, Toll-Free Number (1-800-MEDICARE).--Section 
1804(b) (42 U.S.C. 1395b-2(b)) is amended by adding at the end the 
following: ``By not later than 1 year after the date of the enactment 
of the Prescription Drug and Medicare Improvement Act of 2003, the 
Secretary shall provide, through the toll-free number 1-800-MEDICARE, 
for a means by which individuals seeking information about, or 
assistance with, such programs who phone such toll-free number are 
transferred (without charge) to appropriate entities for the provision 
of such information or assistance. Such toll-free number shall be the 
toll-free number listed for general information and assistance in the 
annual notice under subsection (a) instead of the listing of numbers of 
individual contractors.''.

SEC. 302. MISCELLANEOUS ADMINISTRATIVE PROVISIONS.

    (a) Administrator as Member and Co-Secretary of the Board of 
Trustees of the Medicare Trust Funds.--The fifth sentence of sections 
1817(b) and 1841(b) (42 U.S.C. 1395i(b), 1395t(b)) are each amended by 
striking ``shall serve as the Secretary'' and inserting ``and the 
Administrator of the Center for Medicare Choices shall serve as the Co-
Secretaries''.
    (b) Increase in Grade to Executive Level III for the Administrator 
of the Centers for Medicare and Medicaid Services.--
            (1) In general.--Section 5314 of title 5, United States 
        Code, is amended by adding at the end the following:
            ``Administrator of the Centers for Medicare and Medicaid 
        Services.''.
            (2) Conforming amendment.--Section 5315 of such title is 
        amended by striking ``Administrator of the Health Care 
        Financing Administration.''.
            (3) Effective date.--The amendments made by this subsection 
        take effect on March 1, 2004.

            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.

    (a) In General.--Section 1886(d)(3)(A)(iv) (42 U.S.C. 
1395ww(d)(3)(A)(iv)) is amended--
            (1) by striking ``(iv) For discharges'' and inserting 
        ``(iv)(I) Subject to the succeeding provisions of this clause, 
        for discharges''; and
            (2) by adding at the end the following new subclauses:
            ``(II) For discharges occurring during fiscal year 2004, 
        the operating standardized amount for hospitals located other 
        than in a large urban area shall be increased by \1/2\ of the 
        difference between the operating standardized amount determined 
        under subclause (I) for hospitals located in large urban areas 
        for such fiscal year and such amount determined (without regard 
        to this subclause) for other hospitals for such fiscal year.
            ``(III) For discharges occurring in a fiscal year beginning 
        with fiscal year 2005, the Secretary shall compute an operating 
        standardized amount for hospitals located in any area within 
        the United States and within each region equal to the operating 
        standardized amount computed for the previous fiscal year under 
        this subparagraph for hospitals located in a large urban area 
        (or, beginning with fiscal year 2006, applicable for all 
        hospitals in the previous fiscal year) increased by the 
        applicable percentage increase under subsection (b)(3)(B)(i) 
        for the fiscal year involved.''.
    (b) Conforming Amendments.--
            (1) Computing drg-specific rates.--Section 1886(d)(3)(D) 
        (42 U.S.C. 1395ww(d)(3)(D)) is amended--
                    (A) in the heading, by striking ``in different 
                areas'';
                    (B) in the matter preceding clause (i), by striking 
                ``each of which is'';
                    (C) in clause (i)--
                            (i) in the matter preceding subclause (I), 
                        by inserting ``for fiscal years before fiscal 
                        year 2005,'' before ``for hospitals''; and
                            (ii) in subclause (II), by striking ``and'' 
                        after the semicolon at the end;
                    (D) in clause (ii)--
                            (i) in the matter preceding subclause (I), 
                        by inserting ``for fiscal years before fiscal 
                        year 2005,'' before ``for hospitals''; and
                            (ii) in subclause (II), by striking the 
                        period at the end and inserting ``; and''; and
                    (E) by adding at the end the following new clause:
                    ``(iii) for a fiscal year beginning after fiscal 
                year 2004, for hospitals located in all areas, to the 
                product of--
                            ``(I) the applicable operating standardized 
                        amount (computed under subparagraph (A)), 
                        reduced under subparagraph (B), and adjusted or 
                        reduced under subparagraph (C) for the fiscal 
                        year; and
                            ``(II) the weighting factor (determined 
                        under paragraph (4)(B)) for that diagnosis-
                        related group.''.
            (2) Technical conforming sunset.--Section 1886(d)(3) (42 
        U.S.C. 1395ww(d)(3)) is amended--
                    (A) in the matter preceding subparagraph (A), by 
                inserting ``, for fiscal years before fiscal year 
                1997,'' before ``a regional adjusted DRG prospective 
                payment rate''; and
                    (B) in subparagraph (D), in the matter preceding 
                clause (i), by inserting ``, for fiscal years before 
                fiscal year 1997,'' before ``a regional DRG prospective 
                payment rate for each region,''.

SEC. 402. ADJUSTMENT TO THE MEDICARE INPATIENT HOSPITAL PPS WAGE INDEX 
              TO REVISE THE LABOR-RELATED SHARE OF SUCH INDEX.

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

SEC. 403. MEDICARE INPATIENT HOSPITAL PAYMENT ADJUSTMENT FOR LOW-VOLUME 
              HOSPITALS.

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

SEC. 404. FAIRNESS IN THE MEDICARE DISPROPORTIONATE SHARE HOSPITAL 
              (DSH) ADJUSTMENT FOR RURAL HOSPITALS.

    (a) Equalizing DSH Payment Amounts.--
            (1) In general.--Section 1886(d)(5)(F)(vii) (42 U.S.C. 
        1395ww(d)(5)(F)(vii)) is amended by inserting ``, and, after 
        October 1, 2003, for any other hospital described in clause 
        (iv),'' after ``clause (iv)(I)'' in the matter preceding 
        subclause (I).
            (2) Conforming amendments.--Section 1886(d)(5)(F) (42 
        U.S.C. 1395ww(d)(5)(F)) is amended--
                    (A) in clause (iv)--
                            (i) in subclause (II)--
                                    (I) by inserting ``and before 
                                October 1, 2003,'' after ``April 1, 
                                2001,''; and
                                    (II) by inserting ``or, for 
                                discharges occurring on or after 
                                October 1, 2003, is equal to the 
                                percent determined in accordance with 
                                the applicable formula described in 
                                clause (vii)'' after ``clause (xiii)'';
                            (ii) in subclause (III)--
                                    (I) by inserting ``and before 
                                October 1, 2003,'' after ``April 1, 
                                2001,''; and
                                    (II) by inserting ``or, for 
                                discharges occurring on or after 
                                October 1, 2003, is equal to the 
                                percent determined in accordance with 
                                the applicable formula described in 
                                clause (vii)'' after ``clause (xii)'';
                            (iii) in subclause (IV)--
                                    (I) by inserting ``and before 
                                October 1, 2003,'' after ``April 1, 
                                2001,''; and
                                    (II) by inserting ``or, for 
                                discharges occurring on or after 
                                October 1, 2003, is equal to the 
                                percent determined in accordance with 
                                the applicable formula described in 
                                clause (vii)'' after ``clause (x) or 
                                (xi)'';
                            (iv) in subclause (V)--
                                    (I) by inserting ``and before 
                                October 1, 2003,'' after ``April 1, 
                                2001,''; and
                                    (II) by inserting ``or, for 
                                discharges occurring on or after 
                                October 1, 2003, is equal to the 
                                percent determined in accordance with 
                                the applicable formula described in 
                                clause (vii)'' after ``clause (xi)''; 
                                and
                            (v) in subclause (VI)--
                                    (I) by inserting ``and before 
                                October 1, 2003,'' after ``April 1, 
                                2001,''; and
                                    (II) by inserting ``or, for 
                                discharges occurring on or after 
                                October 1, 2003, is equal to the 
percent determined in accordance with the applicable formula described 
in clause (vii)'' after ``clause (x)'';
                    (B) in clause (viii), by striking ``The formula'' 
                and inserting ``For discharges occurring before October 
                1, 2003, the formula''; and
                    (C) in each of clauses (x), (xi), (xii), and 
                (xiii), by striking ``For purposes'' and inserting 
                ``With respect to discharges occurring before October 
                1, 2004, for purposes''.
    (b) Effective Date.--The amendments made by this section shall 
apply to discharges occurring on or after October 1, 2003.

SEC. 405. CRITICAL ACCESS HOSPITAL (CAH) IMPROVEMENTS.

    (a) Permitting CAHs To Allocate Swing Beds and Acute Care Inpatient 
Beds Subject to a Total Limit of 25 Beds.--
            (1) In general.--Section 1820(c)(2)(B)(iii) (42 U.S.C. 
        1395i-4(c)(2)(B)(iii)) is amended to read as follows:
                            ``(iii) provides not more than a total of 
                        25 extended care service beds (pursuant to an 
                        agreement under subsection (f)) and acute care 
                        inpatient beds (meeting such standards as the 
                        Secretary may establish) for providing 
                        inpatient care for a period that does not 
                        exceed, as determined on an annual, average 
                        basis, 96 hours per patient;''.
            (2) Conforming amendment.--Section 1820(f) (42 U.S.C. 
        1395i-4(f)) is amended by striking ``and the number of beds 
        used at any time for acute care inpatient services does not 
        exceed 15 beds''.
            (3) Effective date.--The amendments made by this subsection 
        shall with respect to designations made on or after October 1, 
        2003.
    (b) Elimination of the Isolation Test for Cost-Based CAH Ambulance 
Services.--
            (1) Elimination.--
                    (A) In general.--Section 1834(l)(8) (42 U.S.C. 
                1395m(l)(8)), as added by section 205(a) of BIPA (114 
                Stat. 2763A-482), is amended by striking the comma at 
                the end of subparagraph (B) and all that follows and 
                inserting a period.
                    (B) Effective date.--The amendment made by 
                subparagraph (A) shall apply to services furnished on 
                or after January 1, 2004.
            (2) Technical correction.--Section 1834(l) (42 U.S.C. 
        1395m(l)) is amended by redesignating paragraph (8), as added 
        by section 221(a) of BIPA (114 Stat. 2763A-486), as paragraph 
        (9).
    (c) Coverage of Costs for Certain Emergency Room On-Call 
Providers.--
            (1) In general.--Section 1834(g)(5) (42 U.S.C. 1395m(g)(5)) 
        is amended--
                    (A) in the heading--
                            (i) by inserting ``certain'' before 
                        ``emergency''; and
                            (ii) by striking ``physicians'' and 
                        inserting ``providers'';
                    (B) by striking ``emergency room physicians who are 
                on-call (as defined by the Secretary)'' and inserting 
                ``physicians, physician assistants, nurse 
                practitioners, and clinical nurse specialists who are 
                on-call (as defined by the Secretary) to provide 
                emergency services''; and
                    (C) by striking ``physicians' services'' and 
                inserting ``services covered under this title''.
            (2) Effective date.--The amendments made by paragraph (1) 
        shall apply to costs incurred for services provided on or after 
        January 1, 2004.
    (d) Authorization of Periodic Interim Payment (PIP).--
            (1) In general.--Section 1815(e)(2) (42 U.S.C. 1395g(e)(2)) 
        is amended--
                    (A) in subparagraph (C), by striking ``and'' after 
                the semicolon at the end;
                    (B) in subparagraph (D), by adding ``and'' after 
                the semicolon at the end; and
                    (C) by inserting after subparagraph (D) the 
                following new subparagraph:
            ``(E) inpatient critical access hospital services;''.
            (2) Effective date.--The amendments made by paragraph (1) 
        shall apply to payments for inpatient critical access facility 
        services furnished on or after January 1, 2004.
    (e) Exclusion of New CAHs From PPS Hospital Wage Index 
Calculation.--Section 1886(d)(3)(E)(i) (42 U.S.C. 1395ww(d)(3)(E)(i)), 
as amended by section 402, is amended by inserting after the first 
sentence the following new sentence: ``In calculating the hospital wage 
levels under the preceding sentence applicable with respect to cost 
reporting periods beginning on or after January 1, 2003, the Secretary 
shall exclude the wage levels of any facility that became a critical 
access hospital prior to the cost reporting period for which such 
hospital wage levels are calculated.''.
    (f) Provisions Related to Certain Rural Grants.--
            (1) Small rural hospital improvement program.--Section 
        1820(g) (42 U.S.C. 1395i-4(g)) is amended--
                    (A) by redesignating paragraph (3)(F) as paragraph 
                (5) and redesignating and indenting appropriately; and
                    (B) by inserting after paragraph (3) the following 
                new paragraph:
            ``(4) Small rural hospital improvement program.--
                    ``(A) Grants to hospitals.--The Secretary may award 
                grants to hospitals that have submitted applications in 
                accordance with subparagraph (B) to assist eligible 
                small rural hospitals (as defined in paragraph (3)(B)) 
                in meeting the costs of reducing medical errors, 
                increasing patient safety, protecting patient privacy, 
                and improving hospital quality and performance.
                    ``(B) Application.--A hospital seeking a grant 
                under this paragraph shall submit an application to the 
                Secretary on or before such date and in such form and 
                manner as the Secretary specifies.
                    ``(C) Amount of grant.--A grant to a hospital under 
                this paragraph may not exceed $50,000.
                    ``(D) Use of funds.--A hospital receiving a grant 
                under this paragraph may use the funds for the purchase 
                of computer software and hardware, the education and 
                training of hospital staff, and obtaining technical 
                assistance.''.
            (2) Authorization for appropriations.--Section 1820(j) (42 
        U.S.C. 1395i-4(j)) is amended to read as follows:
    ``(j) Authorization of Appropriations.--
            ``(1) HI trust fund.--There are authorized to be 
        appropriated from the Federal Hospital Insurance Trust Fund for 
        making grants to all States under--
                    ``(A) subsection (g), $25,000,000 in each of the 
                fiscal years 1998 through 2002; and
                    ``(B) paragraphs (1) and (2) of subsection (g), 
                $40,000,000 in each of the fiscal years 2004 through 
                2008.
            ``(2) General revenues.--There are authorized to be 
        appropriated from amounts in the Treasury not otherwise 
        appropriated for making grants to all States under subsection 
        (g)(4), $25,000,000 in each of the fiscal years 2004 through 
        2008.''.
            (3) Requirement that states awarded grants consult with the 
        state hospital association and rural hospitals on the most 
        appropriate ways to use such grants.--
                    (A) In general.--Section 1820(g) (42 U.S.C. 1395i-
                4(g)), as amended by paragraph (1), is amended by 
                adding at the end the following new paragraph:
            ``(6) Required consultation for states awarded grants.--A 
        State awarded a grant under paragraph (1) or (2) shall consult 
        with the hospital association of such State and rural hospitals 
        located in such State on the most appropriate ways to use the 
        funds under such grant.''.
                    (B) Effective date and application.--The amendment 
                made by subparagraph (A) shall take effect on the date 
                of enactment of this Act and shall apply to grants 
                awarded on or after such date and to grants awarded 
                prior to such date to the extent that funds under such 
                grants have not been obligated as of such date.

SEC. 406. AUTHORIZING USE OF ARRANGEMENTS TO PROVIDE CORE HOSPICE 
              SERVICES IN CERTAIN CIRCUMSTANCES.

    (a) In General.--Section 1861(dd)(5) (42 U.S.C. 1395x(dd)(5)) is 
amended by adding at the end the following:
    ``(D) In extraordinary, exigent, or other non-routine 
circumstances, such as unanticipated periods of high patient loads, 
staffing shortages due to illness or other events, or temporary travel 
of a patient outside a hospice program's service area, a hospice 
program may enter into arrangements with another hospice program for 
the provision by that other program of services described in paragraph 
(2)(A)(ii)(I). The provisions of paragraph (2)(A)(ii)(II) shall apply 
with respect to the services provided under such arrangements.
    ``(E) A hospice program may provide services described in paragraph 
(1)(A) other than directly by the program if the services are highly 
specialized services of a registered professional nurse and are 
provided non-routinely and so infrequently so that the provision of 
such services directly would be impracticable and prohibitively 
expensive.''.
    (b) Conforming Payment Provision.--Section 1814(i) (42 U.S.C. 
1395f(i)) is amended by adding at the end the following new paragraph:
    ``(4) In the case of hospice care provided by a hospice program 
under arrangements under section 1861(dd)(5)(D) made by another hospice 
program, the hospice program that made the arrangements shall bill and 
be paid for the hospice care.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to hospice care provided on or after October 1, 2003.

SEC. 407. SERVICES PROVIDED TO HOSPICE PATIENTS BY NURSE PRACTITIONERS, 
              CLINICAL NURSE SPECIALISTS, AND PHYSICIAN ASSISTANTS.

    (a) In General.--Section 1812(d)(2)(A) (42 U.S.C. 1395d(d)(2)(A) in 
the matter following clause (i)(II), is amended--
            (1) by inserting ``or services described in section 
        1861(s)(2)(K)'' after ``except that clause (i) shall not apply 
        to physicians' services''; and
            (2) by inserting ``, or by a physician assistant, nurse 
        practitioner, or clinical nurse specialist who is not an 
        employee of the hospice program, and who the individual 
        identifies as the health care provider having the most 
        significant role in the determination and delivery of medical 
        care to the individual at the time the individual makes an 
        election to receive hospice care,'' after the ``(if not an 
        employee of the hospice program)''.
    (b) Effective Date.--The amendments made by subsection (a) shall 
apply to hospice care furnished on or after October 1, 2003.

SEC. 408. AUTHORITY TO INCLUDE COSTS OF TRAINING OF PSYCHOLOGISTS IN 
              PAYMENTS TO HOSPITALS UNDER MEDICARE.

    Effective for cost reporting periods beginning on or after October 
1, 2004, for purposes of payments to hospitals under the medicare 
program under title XVIII of the Social Security Act for costs of 
approved educational activities (as defined in section 413.85 of title 
42 of the Code of Federal Regulations), such approved educational 
activities shall include professional educational training programs, 
recognized by the Secretary, for psychologists.

SEC. 409. REVISION OF FEDERAL RATE FOR HOSPITALS IN PUERTO RICO.

    Section 1886(d)(9) (42 U.S.C. 1395ww(d)(9)) is amended--
            (1) in subparagraph (A)--
                    (A) in clause (i), by striking ``for discharges 
                beginning on or after October 1, 1997, 50 percent (and 
                for discharges between October 1, 1987, and September 
                30, 1997, 75 percent)'' and inserting ``the applicable 
                Puerto Rico percentage (specified in subparagraph 
                (E))''; and
                    (B) in clause (ii), by striking ``for discharges 
                beginning in a fiscal year beginning on or after 
                October 1, 1997, 50 percent (and for discharges between 
                October 1, 1987, and September 30, 1997, 25 percent)'' 
                and inserting ``the applicable Federal percentage 
                (specified in subparagraph (E))''; and
            (2) by adding at the end the following new subparagraph:
    ``(E) For purposes of subparagraph (A), for discharges occurring--
            ``(i) between October 1, 1987, and September 30, 1997, the 
        applicable Puerto Rico percentage is 75 percent and the 
        applicable Federal percentage is 25 percent;
            ``(ii) on or after October 1, 1997, and before October 1, 
        2004, the applicable Puerto Rico percentage is 50 percent and 
        the applicable Federal percentage is 50 percent;
            ``(iii) on or after October 1, 2004, and before October 1, 
        2009, the applicable Puerto Rico percentage is 0 percent and 
        the applicable Federal percentage is 100 percent; and
            ``(iv) on or after October 1, 2009, the applicable Puerto 
        Rico percentage is 50 percent and the applicable Federal 
        percentage is 50 percent.''.

SEC. 410. AUTHORITY REGARDING GERIATRIC FELLOWSHIPS.

    The Secretary shall have the authority to clarify that geriatric 
training programs are eligible for 2 years of fellowship support for 
purposes of making payments for direct graduate medical education under 
subsection (h) of section 1886 of the Social Security Act (42 U.S.C. 
1395ww) and indirect medical education under subsection (d)(5)(B) of 
such section on or after October 1, 2003.

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.

    (a) Clarification of Requirements for Counting Residents Training 
in Nonprovider Setting.--
            (1) D-GME.--Section 1886(h)(4)(E) (42 U.S.C. 
        1395ww(h)(4)(E)) is amended by adding at the end the following 
        new sentence: For purposes of the preceding sentence time shall 
        only be counted from the effective date of a written agreement 
        between the hospital and the entity owning or operating a 
        nonprovider setting. The effective date of such written 
        agreement shall be determined in accordance with generally 
        accepted accounting principles. All, or substantially all, of 
        the costs for the training program in that setting shall be 
        defined as the residents' stipends and benefits and other 
        costs, if any, as determined by the parties.''.
            (2) IME.--Section 1886(d)(5)(B)(iv) (42 U.S.C. 
        1395ww(d)(5)(B)(iv)) is amended by adding at the end the 
        following new sentence: For purposes of the preceding sentence 
        time shall only be counted from the effective date of a written 
        agreement between the hospital and the entity owning or 
        operating a nonprovider setting. The effective date of such 
        written agreement shall be determined in accordance with 
        generally accepted accounting principles. All, or substantially 
        all, of the costs for the training program in that setting 
        shall be defined as the residents' stipends and benefits and 
        other costs, if any, as determined by the parties.''.
    (b) Limiting One-Year Lag in the Indirect Medical Education (IME) 
Ratio and Three-Year Rolling Average in Resident Count for IME and for 
Direct Graduate Medical Education (D-GME) To Medical Residency 
Programs.--
            (1) IME ratio and ime rolling average.--Section 
        1886(d)(5)(B)(vi) of the Social Security Act (42 U.S.C. 
        1395ww(d)(5)(B)(vi)) is amended by adding at the end the 
        following new sentence: ``For cost reporting periods beginning 
        during fiscal years beginning on or after October 1, 2003, 
        subclauses (I) and (II) shall be applied only with respect to a 
        hospital's approved medical residency training programs in the 
        fields of allopathic and osteopathic medicine.''.
            (2) D-GME rolling average.--Section 1886(h)(4)(G) of the 
        Social Security Act (42 U.S.C. 1395ww(h)(4)(G)) is amended by 
        adding at the end the following new clause:
                            ``(iv) Application for fiscal year 2004 and 
                        subsequent years.--For cost reporting periods 
                        beginning during fiscal years beginning on or 
                        after October 1, 2003, clauses (i) through 
                        (iii) shall be applied only with respect to a 
                        hospital's approved medical residency training 
                        program in the fields of allopathic and 
                        osteopathic medicine.''.

SEC. 412. LIMITATION ON CHARGES FOR INPATIENT HOSPITAL CONTRACT HEALTH 
              SERVICES PROVIDED TO INDIANS BY MEDICARE PARTICIPATING 
              HOSPITALS.

    (a) In General.--Section 1866(a)(1) (42 U.S.C. 1395cc(a)(1)) is 
amended--
            (1) in subparagraph (R), by striking ``and'' at the end;
            (2) in subparagraph (S), by striking the period and 
        inserting ``, and''; and
            (3) by adding at the end the following new subparagraph:
                    ``(T) in the case of hospitals which furnish 
                inpatient hospital services for which payment may be 
                made under this title, to be a participating provider 
of medical care--
                            ``(i) under the contract health services 
                        program funded by the Indian Health Service and 
                        operated by the Indian Health Service, an 
                        Indian tribe, or tribal organization (as those 
                        terms are defined in section 4 of the Indian 
                        Health Care Improvement Act), with respect to 
                        items and services that are covered under such 
                        program and furnished to an individual eligible 
                        for such items and services under such program; 
                        and
                            ``(ii) under a program funded by the Indian 
                        Health Service and operated by an urban Indian 
                        organization with respect to the purchase of 
                        items and services for an eligible urban Indian 
                        (as those terms are defined in such section 4),
                in accordance with regulations promulgated by the 
                Secretary regarding admission practices, payment 
                methodology, and rates of payment (including the 
                acceptance of no more than such payment rate as payment 
                in full for such items and services).''.
    (b) Effective Date.--The amendments made by this section shall 
apply as of a date specified by the Secretary of Health and Human 
Services (but in no case later than 6 months after the date of 
enactment of this Act) to medicare participation agreements in effect 
(or entered into) on or after such date.

SEC. 413. GAO STUDY AND REPORT ON APPROPRIATENESS OF PAYMENTS UNDER THE 
              PROSPECTIVE PAYMENT SYSTEM FOR INPATIENT HOSPITAL 
              SERVICES.

    (a) Study.--The Comptroller General of the United States, using the 
most current data available, shall conduct a study to determine--
            (1) the appropriate level and distribution of payments in 
        relation to costs under the prospective payment system under 
        section 1886 of the Social Security Act (42 U.S.C. 1395ww) for 
        inpatient hospital services furnished by subsection (d) 
        hospitals (as defined in subsection (d)(1)(B) of such section); 
        and
            (2) whether there is a need to adjust such payments under 
        such system to reflect legitimate differences in costs across 
        different geographic areas, kinds of hospitals, and types of 
        cases.
    (b) Report.--Not later than 24 months after the date of enactment 
of this Act, the Comptroller General of the United States shall submit 
to Congress a report on the study conducted under subsection (a) 
together with such recommendations for legislative and administrative 
action as the Comptroller General determines appropriate.

               Subtitle B--Provisions Relating to Part B

SEC. 421. ESTABLISHMENT OF FLOOR ON GEOGRAPHIC ADJUSTMENTS OF PAYMENTS 
              FOR PHYSICIANS' SERVICES.

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

SEC. 422. MEDICARE INCENTIVE PAYMENT PROGRAM IMPROVEMENTS.

    (a) Procedures for Secretary, and Not Physicians, To Determine When 
Bonus Payments Under Medicare Incentive Payment Program Should Be 
Made.--Section 1833(m) (42 U.S.C. 1395l(m)) is amended--
            (1) by inserting ``(1)'' after ``(m)''; and
            (2) by adding at the end the following new paragraph:
    ``(2) The Secretary shall establish procedures under which the 
Secretary, and not the physician furnishing the service, is responsible 
for determining when a payment is required to be made under paragraph 
(1).''.
    (b) Educational Program Regarding the Medicare Incentive Payment 
Program.--The Secretary shall establish and implement an ongoing 
educational program to provide education to physicians under the 
medicare program on the medicare incentive payment program under 
section 1833(m) of the Social Security Act (42 U.S.C. 1395l(m)).
    (c) Ongoing GAO Study and Annual Report on the Medicare Incentive 
Payment Program.--
            (1) Ongoing study.--The Comptroller General of the United 
        States shall conduct an ongoing study on the medicare incentive 
        payment program under section 1833(m) of the Social Security 
        Act (42 U.S.C. 1395l(m)). Such study shall focus on whether 
        such program increases the access of medicare beneficiaries who 
        reside in an area that is designated (under section 
        332(a)(1)(A) of the Public Health Service Act (42 U.S.C. 
        254e(a)(1)(A))) as a health professional shortage area to 
        physicians' services under the medicare program.
            (2) Annual reports.--Not later than 1 year after the date 
        of enactment of this Act, and annually thereafter, the 
        Comptroller General of the United States shall submit to 
        Congress a report on the study conducted under paragraph (1), 
        together with recommendations as the Comptroller General 
        considers appropriate.

SEC. 423. INCREASE IN RENAL DIALYSIS COMPOSITE RATE.

    Notwithstanding any other provision of law, with respect to payment 
under part B of title XVIII of the Social Security Act for renal 
dialysis services furnished in 2005 and 2006, the composite rate for 
such services shall be increased by 1.6 percent under section 
1881(b)(12) of such Act (42 U.S.C. 1395rr(b)(7)), as added by section 
433(b)(5).

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.

    (a) Small Rural Hospitals.--Section 1833(t)(7)(D)(i) (42 U.S.C. 
1395l(t)(7)(D)(i)) is amended by striking ``2004'' and inserting 
``2006''.
    (b) Sole Community Hospitals.--Section 1833(t)(7)(D) (42 U.S.C. 
1395l(t)(7)(D)) is amended by adding at the end the following:
                            ``(iii) Temporary treatment for sole 
                        community hospitals.--In the case of a sole 
                        community hospital (as defined in section 
                        1886(d)(5)(D)(iii)) located in a rural area, 
                        for covered OPD services furnished in 2004, 
                        2005, or 2006, for which the PPS amount is less 
                        than the pre-BBA amount, the amount of payment 
                        under this subsection shall be increased by the 
amount of such difference.''.

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.

    (a) Increase.--
            (1) In general.--In the case of an applicable covered OPD 
        service (as defined in paragraph (2)) that is furnished by a 
        hospital described in clause (i) or (iii) of paragraph (7)(D) 
        of section 1833(t) of the Social Security Act (42 U.S.C. 
        1395l(t)), as amended by section 424, on or after January 1, 
        2004, and before January 1, 2008, the Secretary shall increase 
        the medicare OPD fee schedule amount (as determined under 
        paragraph (4)(A) of such section) that is applicable for such 
        service in that year (determined without regard to any increase 
        under this section in a previous year) by 5 percent.
            (2) Applicable covered opd services defined.--For purposes 
        of this section, the term ``applicable covered OPD service'' 
        means a covered clinic or emergency room visit that is 
        classified within the groups of covered OPD services (as 
        defined in paragraph (1)(B) of section 1833(t) of the Social 
        Security Act (42 U.S.C. 1395l(t))) established under paragraph 
        (2)(B) of such section.
    (b) No Effect on Copayment Amount.--The Secretary shall compute the 
copayment amount for applicable covered OPD services under section 
1833(t)(8)(A) of the Social Security Act (42 U.S.C. 1395l(t)(8)(A)) as 
if this section had not been enacted.
    (c) No Effect on Increase Under Hold Harmless or Outlier 
Provisions.--The Secretary shall apply the temporary hold harmless 
provision under clause (i) and (iii) of paragraph (7)(D) of section 
1833(t) of the Social Security Act (42 U.S.C. 1395l(t)) and the outlier 
provision under paragraph (5) of such section as if this section had 
not been enacted.
    (d) Waiving Budget Neutrality and No Revision or Adjustments.--The 
Secretary shall not make any revision or adjustment under subparagraph 
(A), (B), or (C) of section 1833(t)(9) of the Social Security Act (42 
U.S.C. 1395l(t)(9)) because of the application of subsection (a)(1).
    (e) No Effect on Payments After Increase Period Ends.--The 
Secretary shall not take into account any payment increase provided 
under subsection (a)(1) in determining payments for covered OPD 
services (as defined in paragraph (1)(B) of section 1833(t) of the 
Social Security Act (42 U.S.C. 1395l(t))) under such section that are 
furnished after January 1, 2008.
    (f) Technical Amendment.--Section 1833(t)(2)(B) (42 U.S.C. 
1395l(t)(2)(B)) is amended by inserting ``(and periodically revise such 
groups pursuant to paragraph (9)(A))'' after ``establish groups''.

SEC. 426. INCREASE FOR GROUND AMBULANCE SERVICES FURNISHED IN A RURAL 
              AREA.

    Section 1834(l) (42 U.S.C. 1395m(l)), as amended by section 
405(b)(2), is amended by adding at the end the following new paragraph:
            ``(10) Temporary increase for ground ambulance services 
        furnished in a rural area.--
                    ``(A) In general.--Notwithstanding any other 
                provision of this subsection, in the case of ground 
                ambulance services furnished on or after January 1, 
                2004, and before January 1, 2008, for which the 
                transportation originates in a rural area described in 
                paragraph (9) or in a rural census tract described in 
                such paragraph, the fee schedule established under this 
                section, with respect to both the payment rate for 
                service and the payment rate for mileage, shall provide 
                that such rates otherwise established, after 
                application of any increase under such paragraph, shall 
                be increased by 5 percent.
                    ``(B) Application of increased payments after 
                2007.--The increased payments under subparagraph (A) 
                shall not be taken into account in calculating payments 
                for services furnished on or after the period specified 
                in such subparagraph.''.

SEC. 427. ENSURING APPROPRIATE COVERAGE OF AIR AMBULANCE SERVICES UNDER 
              AMBULANCE FEE SCHEDULE.

    (a) Coverage.--Section 1834(l) (42 U.S.C. 1395m(l)), as amended by 
section 426, is amended by adding at the end the following new 
paragraph:
            ``(11) Ensuring appropriate coverage of air ambulance 
        services.--
                    ``(A) In general.--The regulations described in 
                section 1861(s)(7) shall ensure that air ambulance 
                services (as defined in subparagraph (C)) are 
                reimbursed under this subsection at the air ambulance 
                rate if the air ambulance service--
                            ``(i) is medically necessary based on the 
                        health condition of the individual 
being transported at or immediately prior to the time of the transport; 
and
                            ``(ii) complies with equipment and crew 
                        requirements established by the Secretary.
                    ``(B) Medically necessary.--An air ambulance 
                service shall be considered to be medically necessary 
                for purposes of subparagraph (A)(i) if such service is 
                requested--
                            ``(i) by a physician or a hospital in 
                        accordance with the physician's or hospital's 
                        responsibilities under section 1867 (commonly 
                        known as the Emergency Medical Treatment and 
                        Active Labor Act);
                            ``(ii) as a result of a protocol 
                        established by a State or regional emergency 
                        medical service (EMS) agency;
                            ``(iii) by a physician, nurse practitioner, 
                        physician assistant, registered nurse, or 
                        emergency medical responder who reasonably 
                        determines or certifies that the patient's 
                        condition is such that the time needed to 
                        transport the individual by land or the lack of 
                        an appropriate ground ambulance, significantly 
                        increases the medical risks for the individual; 
                        or
                            ``(iv) by a Federal or State agency to 
                        relocate patients following a natural disaster, 
                        an act of war, or a terrorist attack.
                    ``(C) Air ambulance services defined.--For purposes 
                of this paragraph, the term `air ambulance service' 
                means fixed wing and rotary wing air ambulance 
                services.''.
    (b) Conforming Amendment.--Section 1861(s)(7) (42 U.S.C. 
1395x(s)(7)) is amended by inserting ``, subject to section 
1834(l)(11),'' after ``but''.
    (c) Effective Date.--The amendments made by this section shall 
apply to services furnished on or after January 1, 2004.

SEC. 428. TREATMENT OF CERTAIN CLINICAL DIAGNOSTIC LABORATORY TESTS 
              FURNISHED BY A SOLE COMMUNITY HOSPITAL.

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

SEC. 429. IMPROVEMENT IN RURAL HEALTH CLINIC REIMBURSEMENT.

    Section 1833(f) (42 U.S.C. 1395l(f)) is amended--
            (1) in paragraph (1), by striking ``, and'' at the end and 
        inserting a semicolon;
            (2) in paragraph (2)--
                    (A) by striking ``in a subsequent year'' and 
                inserting ``in 1989 through 2003''; and
                    (B) by striking the period at the end and inserting 
                a semicolon; and
            (3) by adding at the end the following new paragraphs:
            ``(3) in 2004, at $80 per visit; and
            ``(4) in a subsequent year, at the limit established under 
        this subsection for the previous year increased by the 
        percentage increase in the MEI (as so defined) applicable to 
        primary care services (as so defined) furnished as of the first 
        day of that year.''.

SEC. 430. ELIMINATION OF CONSOLIDATED BILLING FOR CERTAIN SERVICES 
              UNDER THE MEDICARE PPS FOR SKILLED NURSING FACILITY 
              SERVICES.

    (a) Certain Rural Health Clinic and Federally Qualified Health 
Center Services.--Section 1888(e) (42 U.S.C. 1395yy(e)) is amended--
            (1) in paragraph (2)(A)(i)(II), by striking ``clauses (ii) 
        and (iii)'' and inserting ``clauses (ii), (iii), and (iv)''; 
        and
            (2) by adding at the end of paragraph (2)(A) the following 
        new clause:
                            ``(iv) Exclusion of certain rural health 
                        clinic and federally qualified health center 
                        services.--Services described in this clause 
                        are--
                                    ``(I) rural health clinic services 
                                (as defined in paragraph (1) of section 
                                1861(aa)); and
                                    ``(II) Federally qualified health 
                                center services (as defined in 
                                paragraph (3) of such section);
                that would be described in clause (ii) if such services 
                were furnished by a physician or practitioner not 
                affiliated with a rural health clinic or a Federally 
                qualified health center.''.
    (b) Certain Services Furnished by an Entity Jointly Owned by 
Hospitals and Critical Access Hospitals.--For purposes of applying 
section 411.15(p)-(3)(iii) of title 42 of the Code of Federal 
Regulations, the Secretary shall treat an entity that is 100 percent 
owned as a joint venture by 2 Medicare-participating hospitals or 
critical access hospitals as a Medicare-participating hospital or a 
critical access hospital.
    (c) Technical Amendments.--Sections 1842(b)(6)(E) and 
1866(a)(1)(H)(ii) (42 U.S.C. 1395u(b)(6)(E); 1395cc(a)(1)(H)(ii)) are 
each amended by striking ``section 1888(e)(2)(A)(ii)'' and inserting 
``clauses (ii), (iii), and (iv) of section 1888(e)(2)(A)''.
    (d) Effective Date.--The amendments made by this section and the 
provision of subsection (b) shall apply to services furnished on or 
after January 1, 2004.

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.

    (a) Freeze for DME.--Section 1834(a)(14) (42 U.S.C. 1395m(a)(14)) 
is amended--
            (1) in subparagraph (E), by striking ``and'' at the end;
            (2) in subparagraph (F)--
                    (A) by striking ``a subsequent year'' and inserting 
                ``2003''; and
                    (B) by striking ``the previous year.'' and 
                inserting ``2002;''; and
            (3) by adding at the end the following new subparagraphs:
                    ``(G) for each of the years 2004 through 2010--
                            ``(i) in the case of class III medical 
                        devices described in section 513(a)(1)(C) of 
                        the Federal Food, Drug, and Cosmetic Act (21 
                        U.S.C. 360(c)(1)(C)), the percentage increase 
                        described in subparagraph (B) for the year 
                        involved; and
                            ``(ii) in the case of covered items not 
                        described in clause (i), 0 percentage points; 
                        and
                    ``(H) for a subsequent year, the percentage 
                increase described in subparagraph (B) for the year 
                involved.''.
    (b) Freeze for Off-the-Shelf Orthotics.--Section 1834(h)(4)(A) of 
the Social Security Act (42 U.S.C. 1395m(h)(4)(A)) is amended--
            (1) in clause (vii), by striking ``and'' at the end;
            (2) in clause (viii), by striking ``a subsequent year'' and 
        inserting ``2003''; and
            (3) by adding at the end the following new clauses:
                            ``(ix) for each of the years 2004 through 
                        2010--
                                    ``(I) in the case of orthotics that 
                                have not been custom-fabricated, 0 
                                percent; and
                                    ``(II) in the case of prosthetics, 
                                prosthetic devices, and custom-
                                fabricated orthotics, the percentage 
                                increase described in clause (viii) for 
                                the year involved; and
                            ``(x) for 2011 and each subsequent year, 
                        the percentage increase described in clause 
                        (viii) for the year involved;''.
    (c) Establishment of Quality Standards and Accreditation 
Requirements for Durable Medical Equipment Providers.--Section 1834(a) 
(42 U.S.C. 1395m(a)) is amended--
            (1) by redesignating paragraph (17), as added by section 
        4551(c)(1) of the Balanced Budget Act of 1997 (111 Stat. 458), 
        as paragraph (19); and
            (2) by adding at the end the following new paragraph:
            ``(20) Identification of quality standards.--
                    ``(A) In general.--Subject to subparagraph (C), the 
                Secretary shall establish and implement 
quality standards for providers of durable medical equipment throughout 
the United States that are developed by recognized independent 
accreditation organizations (as designated under subparagraph (B)(i)) 
and with which such providers shall be required to comply in order to--
                            ``(i) participate in the program under this 
                        title;
                            ``(ii) furnish any item or service 
                        described in subparagraph (D) for which payment 
                        is made under this part; and
                            ``(iii) receive or retain a provider or 
                        supplier number used to submit claims for 
                        reimbursement for any item or service described 
                        in subparagraph (D) for which payment may be 
                        made under this title.
                    ``(B) Designation of independent accreditation 
                organizations.--
                            ``(i) In general.--Not later that the date 
                        that is 6 months after the date of enactment of 
                        the Prescription Drug and Medicare Improvement 
                        Act of 2003, the Secretary shall designate 
                        independent accreditation organizations for 
                        purposes of subparagraph (A).
                            ``(ii) Consultation.--In determining which 
                        independent accreditation organizations to 
                        designate under clause (i), the Secretary shall 
                        consult with an expert outside advisory panel 
                        composed of an appropriate selection of 
                        representatives of physicians, practitioners, 
                        suppliers, and manufacturers to review (and 
                        advise the Secretary concerning) selection of 
                        accrediting organizations and the quality 
                        standards of such organizations.
                    ``(C) Quality standards.--The quality standards 
                described in subparagraph (A) may not be less stringent 
                than the quality standards that would otherwise apply 
                if this paragraph did not apply and shall include 
                consumer services standards.
                    ``(D) Items and services described.--The items and 
                services described in this subparagraph are covered 
                items (as defined in paragraph (13)) for which payment 
                may otherwise be made under this subsection, other than 
                items used in infusion, and inhalation drugs used in 
                conjunction with durable medical equipment.
                    ``(E) Phased-in implementation.--The application of 
                the quality standards described in subparagraph (A) 
                shall be phased-in over a period that does not exceed 3 
                years.''.

SEC. 432. APPLICATION OF COINSURANCE AND DEDUCTIBLE FOR CLINICAL 
              DIAGNOSTIC LABORATORY TESTS.

    (a) Coinsurance.--
            (1) In general.--Section 1833(a) (42 U.S.C. 1395l(a)) is 
        amended--
                    (A) in paragraph (1)(D)(i), by striking ``(or 100 
                percent, in the case of such tests for which payment is 
                made on an assignment-related basis)''; and
                    (B) in paragraph (2)(D)(i), by striking ``(or 100 
                percent, in the case of such tests for which payment is 
                made on an assignment-related basis or to a provider 
                having an agreement under section 1866)''.
            (2) Conforming amendment.--The third sentence of section 
        1866(a)(2)(A) of the Social Security Act (42 U.S.C. 
        1395cc(a)(2)(A) is amended by striking ``and with respect to 
        clinical diagnostic laboratory tests for which payment is made 
        under part B''.
    (b) Deductible.--Section 1833(b) of the Social Security Act (42 
U.S.C. 1395l(b)) is amended--
            (1) by striking paragraph (3); and
            (2) by redesignating paragraphs (4), (5), and (6) as 
        paragraphs (3), (4), and (5), respectively.
    (c) Effective Date.--The amendments made by this section shall 
apply to tests furnished on or after January 1, 2004.

SEC. 433. BASING MEDICARE PAYMENTS FOR COVERED OUTPATIENT DRUGS ON 
              MARKET PRICES.

    (a) Medicare Market Based Payment Amount.--Section 1842(o) (42 
U.S.C. 1395u(o)) is amended--
            (1) in paragraph (1), by striking ``equal to 95 percent of 
        the average wholesale price.'' and inserting ``equal to--
            ``(A) in the case of a drug or biological furnished prior 
        to January 1, 2004, 95 percent of the average wholesale price; 
        and
            ``(B) in the case of a drug or biological furnished on or 
        after January 1, 2004, the payment amount specified in--
                    ``(i) in the case of such a drug or biological that 
                is first available for payment under this part on or 
                before April 1, 2003, paragraph (4); and
                    ``(ii) in the case of such a drug or biological 
                that is first available for payment under this part 
                after such date, paragraph (5).''; and
            (2) by adding at the end the following new paragraphs:
    ``(4)(A) Subject to subparagraph (C), the payment amount specified 
in this paragraph for a year for a drug or biological is an amount 
equal to the lesser of--
            ``(i) the average wholesale price for the drug or 
        biological; or
            ``(ii) the amount determined under subparagraph (B)
    ``(B)(i) Subject to clause (ii), the amount determined under this 
subparagraph is an amount equal to--
            ``(I) in the case of a drug or biological furnished in 
        2004, 85 percent of the average wholesale price for the drug or 
        biological (determined as of April 1, 2003); and
            ``(II) in the case of a drug or biological furnished in 
        2005 or a subsequent year, the amount determined under this 
        subparagraph for the previous year increased by the percentage 
        increase in the consumer price index for medical care for the 
        12-month period ending with June of the previous year.
    ``(ii) In the case of a vaccine described in subparagraph (A) or 
(B) of section 1861(s)(10), the amount determined under this 
subparagraph is an amount equal to the average wholesale price for the 
drug or biological.
    ``(C)(i) The Secretary shall establish a process under which the 
Secretary determines, for such drugs or biologicals as the Secretary 
determines appropriate, whether the widely available market price to 
physicians or suppliers for the drug or biological furnished in a year 
is different from the payment amount established under subparagraph (B) 
for the year. Such determination shall be based on the information 
described in clause (ii) as the Secretary determines appropriate.
    ``(ii) The information described in this clause is the following 
information:
            ``(I) Any report on drug or biological market prices by the 
        Inspector General of the Department of Health and Human 
        Services or the Comptroller General of the United States that 
        is made available after December 31, 1999.
            ``(II) A review of drug or biological market prices by the 
        Secretary, which may include information on such market prices 
        from insurers, private health plans, manufacturers, 
        wholesalers, distributors, physician supply houses, specialty 
        pharmacies, group purchasing arrangements, physicians, 
        suppliers, or any other source the Secretary determines 
        appropriate.
            ``(III) Data and information submitted by the manufacturer 
        of the drug or biological or by another entity.
            ``(IV) Other data and information as determined appropriate 
        by the Secretary.
    ``(iii) If the Secretary makes a determination under clause (i) 
with respect to the widely available market price for a drug or 
biological for a year, the following provisions shall apply:
            ``(I) Subject to clause (iv), the amount determined under 
        this subparagraph shall be substituted for the amount 
determined under subparagraph (B) for purposes of applying subparagraph 
(A)(ii)(I) for the year and all subsequent years.
            ``(II) The Secretary may make subsequent determinations 
        under clause (i) with respect to the widely available market 
        price for the drug or biological.
            ``(III) If the Secretary does not make a subsequent 
        determination under clause (i) with respect to the widely 
        available market price for the drug or biological for a year, 
        the amount determined under this subparagraph shall be an 
        amount equal to the amount determined under this subparagraph 
        for the previous year increased by the percentage increase 
        described in subparagraph (B)(i)(II) for the year involved.
    ``(iv) If the first determination made under clause (i) with 
respect to the widely available market price for a drug or biological 
would result in a payment amount in a year that is more than 15 percent 
less than the amount determined under subparagraph (B) for the drug or 
biological for the previous year (or, for 2004, the payment amount 
determined under paragraph (1)(A), determined as of April 1, 2003), the 
Secretary shall provide for a transition to the amount determined under 
clause (i) so that the payment amount is reduced in annual increments 
equal to 15 percent of the payment amount in such previous year until 
the payment amount is equal to the amount determined under clause (i), 
as increased each year by the percentage increase described in 
subparagraph (B)(i)(II) for the year. The preceding sentence shall not 
apply to a drug or biological where a generic version of the drug or 
biological first enters the market on or after January 1, 2004 (even if 
the generic version of the drug or biological is not marketed under the 
chemical name of such drug or biological).
    ``(5) In the case of a drug or biological that is first available 
for payment under this part after April 1, 2003, the following rules 
shall apply:
            ``(A) As a condition of obtaining a code to report such new 
        drug or biological and to receive payment under this part, a 
        manufacturer shall provide the Secretary (in a time, manner, 
        and form approved by the Secretary) with data and information 
        on prices at which the manufacturer estimates physicians and 
        suppliers will be able to routinely obtain the drug or 
        biological in the market during the first year that the drug or 
        biological is available for payment under this part and such 
        additional information that the manufacturer determines 
        appropriate.
            ``(B) During the year that the drug or biological is first 
        available for payment under this part, the manufacturer of the 
        drug or biological shall provide the Secretary (in a time, 
        manner, and form approved by the Secretary) with updated 
        information on the actual market prices paid by such physicians 
        or suppliers for the drug or biological in the year.
            ``(C) The amount specified in this paragraph for a drug or 
        biological for the year described in subparagraph (B) is equal 
        to an amount determined by the Secretary based on the 
        information provided under subparagraph (A) and other 
        information that the Secretary determines appropriate.
            ``(D) The amount specified in this paragraph for a drug or 
        biological for the year after the year described in 
        subparagraph (B) is equal to an amount determined by the 
        Secretary based on the information provided under subparagraph 
        (B) and other information that the Secretary determines 
        appropriate.
            ``(E) The amount specified in this paragraph for a drug or 
        biological for the year beginning after the year described in 
        subparagraph (D) and each subsequent year is equal to the 
        lesser of--
                    ``(i) the average wholesale price for the drug or 
                biological; or
                    ``(ii) the amount determined--
                            ``(I) by the Secretary under paragraph 
                        (4)(C)(i) with respect to the widely available 
                        market price for the drug or biological for the 
                        year, if such paragraph was applied by 
substituting `the payment determined under paragraph (5)(E)(ii)(II) for 
the year' for `established under subparagraph (B) for the year'; and
                            ``(II) if no determination described in 
                        subclause (I) is made for the drug or 
                        biological for the year, under this 
                        subparagraph with respect to the drug or 
                        biological for the previous year increased by 
                        the percentage increase described in paragraph 
                        (4)(B)(i)(II) for the year involved.''.
    (b) Adjustments to Payment Amounts for Administration of Drugs and 
Biologicals.--
            (1) Adjustment in physician practice expense relative value 
        units.--Section 1848(c)(2) (42 U.S.C. 1395w-4(c)(2)) is 
        amended--
                    (A) in subparagraph (B)--
                            (i) in clause (ii)(II), by striking ``The 
                        adjustments'' and inserting ``Subject to clause 
                        (iv), the adjustments''; and
                            (ii) by adding at the end the following new 
                        clause:
                            ``(iv) Exemption from budget neutrality in 
                        2004.--Any additional expenditures under this 
                        part that are attributable to subparagraph (H) 
                        shall not be taken into account in applying 
                        clause (ii)(II) for 2004.''; and
                    (B) by adding at the end the following new 
                subparagraph:
                    ``(H) Adjustments in practice expense relative 
                value units for drug administration services for 
                2004.--In establishing the physician fee schedule under 
                subsection (b) with respect to payments for services 
                furnished in 2004, the Secretary shall, in determining 
                practice expense relative value units under this 
                subsection, utilize a survey submitted to the Secretary 
                as of January 1, 2003, by a physician specialty 
                organization pursuant to section 212 of the Medicare, 
                Medicaid, and SCHIP Balanced Budget Refinement Act of 
                1999 if the survey--
                            ``(i) covers practice expenses for oncology 
                        administration services; and
                            ``(ii) meets criteria established by the 
                        Secretary for acceptance of such surveys.''.
            (2) Payment for multiple chemotherapy agents furnished on a 
        single day through the push technique.--
                    (A) Review of policy.--The Secretary shall review 
                the policy, as in effect on the date of enactment of 
                this Act, with respect to payment under section 1848 of 
                the Social Security Act (42 U.S.C. 1395w-4) for the 
                administration of more than 1 anticancer 
                chemotherapeutic agent to an individual on a single day 
                through the push technique.
                    (B) Modification of policy.--After conducting the 
                review under subparagraph (A), the Secretary shall 
                modify such payment policy if the Secretary determines 
                such modification to be appropriate.
                    (C) Exemption from budget neutrality under 
                physician fee schedule.--If the Secretary modifies such 
                payment policy pursuant to subparagraph (B), any 
                increased expenditures under title XVIII of the Social 
                Security Act resulting from such modification shall be 
                treated as additional expenditures attributable to 
                subparagraph (H) of section 1848(c)(2) of the Social 
                Security Act (42 U.S.C. 1395w-4(c)(2)), as added by 
                paragraph (1)(B), for purposes of applying the 
                exemption to budget neutrality under subparagraph 
                (B)(iv) of such section, as added by paragraph (1)(A).
            (3) Treatment of other services currently in the 
        nonphysician work pool.--The Secretary shall make adjustments 
        to the nonphysician work pool methodology (as such term is used 
        in the final rule promulgated by the Secretary in the Federal 
        Register on December 31, 2002 (67 Fed. Reg. 251)), for the 
        determination of practice expense relative value units under 
        the physician fee schedule under section 1848(c)(2)(C)(ii) of 
        the Social Security Act (42 U.S.C. 1395w-4(c)(2)(C)(ii)), so 
        that the practice expense relative value units for services 
        determined under such methodology are not disproportionately 
        reduced relative to the practice expense relative value units 
        of services not determined under such methodology, as a result 
        of the amendments to such Act made by paragraph (1).
            (4) Administration of blood clotting factors.--Section 
        1842(o) (42 U.S.C. 1395u(o)), as amended by subsection (a)(2), 
        is amended by adding at the end the following new paragraph:
    ``(6)(A) Subject to subparagraph (B), in the case of clotting 
factors furnished on or after January 1, 2004, the Secretary shall, 
after reviewing the January 2003 report to Congress by the Comptroller 
General of the United States entitled `Payment for Blood Clotting 
Factor Exceeds Providers Acquisition Cost' (GAO-03-184), provide for a 
separate payment for the administration of such blood clotting factors 
in an amount that the Secretary determines to be appropriate.
    ``(B) In determining the separate payment amount under subparagraph 
(A) for blood clotting factors furnished in 2004, the Secretary shall 
ensure that the total amount of payments under this part (as estimated 
by the Secretary) for such factors under paragraphs (4) and (5) and 
such separate payments for such factors does not exceed the total 
amount of payments that would have been made for such factors under 
this part (as estimated by the Secretary) if the amendments made by 
section 433 of the Prescription Drug and Medicare Improvement Act of 
2003 had not been enacted.
    ``(C) The separate payment amount under this subparagraph for blood 
clotting factors furnished in 2005 or a subsequent year shall be equal 
to the separate payment amount determined under this paragraph for the 
previous year increased by the percentage increase described in 
paragraph (4)(B)(i)(II) for the year involved.''.
            (5) Increase in composite rate for end stage renal disease 
        facilities.--Section 1881(b) (42 U.S.C. 1395rr(b) is amended--
                    (A) in paragraph (7), by adding at the end the 
                following new sentence: ``In the case of dialysis 
                services furnished in 2004 or a subsequent year, the 
                composite rate for such services shall be determined 
                under paragraph (12).''; and
                    (B) by adding at the end the following new 
                paragraph:
    ``(12)(A) In the case of dialysis services furnished during 2004, 
the composite rate for such services shall be the composite rate that 
would otherwise apply under paragraph (7) for the year increased by an 
amount to ensure (as estimated by the Secretary) that--
            ``(i) the sum of the total amount of--
                    ``(I) the composite rate payments for such services 
                for the year, as increased under this paragraph; and
                    ``(II) the payments for drugs and biologicals 
                (other than erythropoetin) furnished in connection with 
                the furnishing of renal dialysis services and 
                separately billed by renal dialysis facilities under 
                paragraphs (4) and (5) of section 1842(o) for the year; 
                is equal to
            ``(ii) the sum of the total amount of the composite rate 
        payments under paragraph (7) for the year and the payments for 
        the separately billed drugs and biologicals described in clause 
        (i)(II) that would have been made if the amendments made by 
        section 433 of the Prescription Drug and Medicare Improvement 
        Act of 2003 had not been enacted.
    ``(B) Subject to subparagraph (E), in the case of dialysis services 
furnished in 2005, the composite rate for such services shall be an 
amount equal to the composite rate established under subparagraph (A), 
increased by 0.05 percent and further increased pursuant to section 423 
of the Prescription Drug and Medicare Improvement Act of 2003.
    ``(C) Subject to subparagraph (E), in the case of dialysis services 
furnished in 2006, the composite rate for such services shall be an 
amount equal to the composite rate established under subparagraph (B), 
increased by 0.05 percent.
    ``(D) Subject to subparagraph (E), in the case of dialysis services 
furnished in 2007 or a subsequent year, the composite rate for such 
services shall be an amount equal to the composite rate established 
under this paragraph for the previous year (determined as if such 
section 423 had not been enacted), increased by 0.05 percent.
    ``(E) If the Secretary implements a reduction in the payment amount 
under paragraph (4)(C) or (5) for a drug or biological described in 
subparagraph (A)(i)(II) for a year after 2004, the Secretary shall, as 
estimated by the Secretary--
            ``(i) increase the composite rate for dialysis services 
        furnished in such year in the same manner that the composite 
        rate for such services for 2004 was increased under 
        subparagraph (A); and
            ``(ii) increase the percentage increase under subparagraph 
        (C) or (D) (as applicable) for years after the year described 
        in clause (i) to ensure that such increased percentage would 
        result in expenditures equal to the sum of the total composite 
        rate payments for such services for such years and the total 
        payments for drugs and biologicals described in subparagraph 
        (A)(i)(II) is equal to the sum of the total amount of the 
        composite rate payments under this paragraph for such years and 
        the payments for the drugs and biologicals described in 
        subparagraph (A)(i)(II) that would have been made if the 
        reduction in payment amount described in subparagraph had not 
        been made.
    ``(F) There shall be no administrative or judicial review under 
section 1869, section 1878, or otherwise, of determinations of payment 
amounts, methods, or adjustments under this paragraph.''.
            (6) Home infusion drugs.--Section 1842(o) (42 U.S.C. 
        1395u(o)), as amended by subsection (a)(2) and paragraph (4), 
is amended by adding at the end the following new paragraph:
    ``(7)(A) Subject to subparagraph (B), in the case of infusion drugs 
and biologicals furnished through an item of durable medical equipment 
covered under section 1861(n) on or after January 1, 2004, the 
Secretary may make separate payments for furnishing such drugs and 
biologicals in an amount determined by the Secretary if the Secretary 
determines such separate payment to be appropriate.
    ``(B) In determining the amount of any separate payment under 
subparagraph (A) for a year, the Secretary shall ensure that the total 
amount of payments under this part for such infusion drugs and 
biologicals for the year and such separate payments for the year does 
not exceed the total amount of payments that would have been made under 
this part for the year for such infusion drugs and biologicals if 
section 433 of the Prescription Drug and Medicare Improvement Act of 
2003 had not been enacted.''.
            (7) Inhalation drugs.--Section 1842(o) (42 U.S.C. 
        1395u(o)), as amended by subsection (a)(2) and paragraphs (4) 
        and (6), is amended by adding at the end the following new 
        paragraph:
    ``(8)(A) Subject to subparagraph (B), in the case of inhalation 
drugs and biologicals furnished through durable medical equipment 
covered under section 1861(n) on or after January 1, 2004, the 
Secretary may increase payments for such equipment under section 
1834(a) and may make separate payments for furnishing such drugs and 
biologicals if the Secretary determines such increased or separate 
payments are necessary to appropriately furnish such equipment and 
drugs and biologicals to beneficiaries.
    ``(B) The total amount of any increased payments and separate 
payments under subparagraph (A) for a year may not exceed an amount 
equal to 10 percent of the amount (as estimated by the Secretary) by 
which--
            ``(i) the total amount of payments that would have been 
        made for such drugs and biologicals for the year if section 433 
        of the Prescription Drug and Medicare Improvement Act of 2003 
        had not been enacted; exceeds
            ``(ii) the total amount of payments for such drugs and 
        biologicals under paragraphs (4) and (5).''.
            (8) Pharmacy dispensing fee for certain drugs and 
        biologicals.--Section 1842(o)(2) (42 U.S.C. 1395u(o)(2)) is 
        amended to read as follows:
    ``(2) If payment for a drug or biological is made to a licensed 
pharmacy approved to dispense drugs or biologicals under this part, the 
Secretary--
            ``(A) in the case of an immunosuppressive drug described in 
        subparagraph (J) of section 1861(s)(2) and an oral drug 
        described in subparagraph (Q) or (T) of such section, shall pay 
        a dispensing fee determined appropriate by the Secretary (less 
        the applicable deductible and coinsurance amounts) to the 
        pharmacy; and
            ``(B) in the case of a drug or biological not described in 
        subparagraph (A), may pay a dispensing fee determined 
        appropriate by the Secretary (less the applicable deductible 
        and coinsurance amounts) to the pharmacy.''.
            (9) Payment for Chemotherapy Drugs Purchased but not 
        Administered by Physicians.--Section 1842(o) (42 U.S.C. 
        1395u(o)), as amended by subsection (a)(2) and paragraphs (4), 
        (6) and (7), is amended by adding at the end the following new 
        paragraph:
            ``(9)(A) Subject to subparagraph (B), the Secretary may 
        increase (in an amount determined appropriate) the amount of 
        payments to physicians for anticancer chemotherapeutic drugs or 
        biologicals that would otherwise be made under this part in 
        order to compensate such physicians for anticancer 
        chemotherapeutic drugs or biologicals that are purchased by 
        physicians with a reasonable intent to administer to an 
        individual enrolled under this part but which cannot be 
        administered to such individual despite the reasonable efforts 
        of the physician.
            ``(B) The total amount of increased payments made under 
        subparagraph (A) in a year (as estimated by the Secretary) may 
        not exceed an amount equal to 1 percent of the total amount of 
        payments made under paragraphs (4) and (5) for such anticancer 
        chemotherapeutic drugs or biologicals furnished by physicians 
        in such year (as estimated by the Secretary).''.
    (c) Linkage of Revised Drug Payments and Increases for Drug 
Administration.--The Secretary shall not implement the revisions in 
payment amounts for a category of drug or biological as a result of the 
amendments made by subsection (a) unless the Secretary concurrently 
implements the adjustments to payment amounts for administration of 
such category of drug or biological for which the Secretary is required 
to make an adjustment, as specified in the amendments made by, and 
provisions of, subsection (b).
    (d) Prohibition of Administrative and Judicial Review.--
            (1) Drugs.--Section 1842(o) (42 U.S.C. 1395u(o)), as 
        amended by subsection (a)(2) and paragraphs (4), (6), (7), and 
        (9) of subsection (b), is amended by adding at the end the 
        following new paragraph:
    ``(10) There shall be no administrative or judicial review under 
section 1869, section 1878, or otherwise, of determinations of payment 
amounts, methods, or adjustments under paragraph (2) or paragraphs (4) 
through (9).''.
            (2) Physician fee schedule.--Section 1848(i)(1) (42 U.S.C. 
        1395w-4(i)(1)) is amended--
                    (A) in subparagraph (D), by striking ``and'' at the 
                end;
                    (B) in subparagraph (E), by striking the period at 
                the end and inserting ``, and''; and
                    (C) by adding at the end the following new 
                subparagraph:
                    ``(F) adjustments in practice expense relative 
                value units under subsection (c)(2)(H).''.
            (3) Multiple chemotherapy agents and other services 
        currently on the non-physician work pool.--There shall be no 
        administrative or judicial review under section 1869, section 
1878, or otherwise, of determinations of payment amounts, methods, or 
adjustments under paragraphs (2) and (3) of subsection (b).
    (e) Studies and Reports.--
            (1) GAO study and report on beneficiary access to drugs and 
        biologicals.--
                    (A) Study.--The Comptroller General of the United 
                States shall conduct a study that examines the impact 
                the provisions of, and the amendments made by, this 
                section have on access by medicare beneficiaries to 
                drugs and biologicals covered under the medicare 
                program.
                    (B) Report.--Not later than January 1, 2006, the 
                Comptroller General shall submit a report to Congress 
                on the study conducted under subparagraph (A) together 
                with such recommendations as the Comptroller General 
                determines to be appropriate.
            (2) Study and report by the hhs inspector general on market 
        prices of drugs and biologicals.--
                    (A) Study.--The Inspector General of the Department 
                of Health and Human Services shall conduct 1 or more 
                studies that--
                            (i) examine the market prices that drugs 
                        and biologicals covered under the medicare 
                        program are widely available to physicians and 
                        suppliers; and
                            (ii) compare such widely available market 
                        prices to the payment amount for such drugs and 
                        biologicals under section 1842(o) of the Social 
                        Security Act (42 U.S.C. 1395u(o).
                    (B) Requirement.--In conducting the study under 
                subparagraph (A), the Inspector General shall focus on 
                those drugs and biologicals that represent the largest 
                portions of expenditures under the medicare program for 
                drugs and biologicals.
                    (C) Report.--The Inspector General shall prepare a 
                report on any study conducted under subparagraph (A).

SEC. 434. INDEXING PART B DEDUCTIBLE TO INFLATION.

    The first sentence of section 1833(b) (42 U.S.C. 1395l(b)) is 
amended by striking ``and $100 for 1991 and subsequent years'' and 
inserting the following: ``, $100 for 1991 through 2005, $125 for 2006, 
and for 2007 and thereafter, the amount in effect for the previous 
year, increase by the percentage increase in the consumer price index 
for all urban consumers (U.S. city average) for the 12-month period 
ending with June of the previous year, rounded to the nearest dollar''.

SEC. 435. REVISIONS TO REASSIGNMENT PROVISIONS.

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

SEC. 436. EXTENSION OF TREATMENT OF CERTAIN PHYSICIAN PATHOLOGY 
              SERVICES UNDER MEDICARE.

    Section 542(c) of BIPA (114 Stat. 2763A-551) is amended by 
inserting ``, and for services furnished during 2004 or 2005'' before 
the period at the end.

SEC. 437. ADEQUATE REIMBURSEMENT FOR OUTPATIENT PHARMACY THERAPY UNDER 
              THE HOSPITAL OUTPATIENT PPS.

    (a) Special Rules for Drugs and Biologicals.--Section 1833(t) (42 
U.S.C. 1395(t)) is amended--
            (1) by redesignating paragraph (13) as paragraph (14); and
            (2) by inserting after paragraph (12) the following new 
        paragraph:
            ``(13) Special rules for certain drugs and biologicals.--
                    ``(A) Before 2007.--
                            ``(i) In general.--Notwithstanding 
                        paragraph (6), but subject to clause (ii), with 
                        respect to a separately payable drug or 
                        biological described in subparagraph (D) 
                        furnished on or after January 1, 2005, and 
                        before January 1, 2007, hospitals shall be 
                        reimbursed as follows:
                                    ``(I) Drugs and biologicals 
                                furnished as part of a current opd 
                                service.--The amount of payment for a 
                                drug or biological described in 
                                subparagraph (D) provided as a part of 
                                a service that was a covered OPD 
                                service on May 1, 2003, shall be the 
                                applicable percentage (as defined in 
                                subparagraph (C)) of the average 
                                wholesale price for the drug or 
                                biological that would have been 
                                determined under section 1842(o) on 
                                such date.
                                    ``(II) Drugs and biologicals 
                                furnished as part of other opd 
                                services.--The amount of payment for a 
                                drug or biological described in 
                                subparagraph (D) provided as part of 
                                any other covered OPD service shall be 
                                the applicable percentage (as defined 
                                in subparagraph (C)) of the average 
                                wholesale price that would have been 
                                determined under section 1842(o) on May 
                                1, 2003, if payment for such a drug or 
                                biological could have been made under 
                                this part on that date.
                            ``(ii) Update for 2006.--For 2006, the 
                        amounts determined under clauses (i) and (ii) 
                        shall be the amount established for 2005 
                        increased by the percentage increase in the 
                        Consumer Price Index for all urban consumers 
                        (U.S. urban average) for the 12-month period 
                        ending with June of the previous year.
                    ``(B) After 2007.--
                            ``(i) Ongoing study and reports on adequate 
                        reimbursements.--
                                    ``(I) Study.--The Secretary shall 
                                contract with an eligible organization 
                                (as defined in subclause (IV)) to 
                                conduct a study to determine the 
                                hospital acquisition and handling costs 
                                for each individual drug or biological 
                                described in subparagraph (D).
                                    ``(II) Study requirements.--The 
                                study conducted under subclause (I) 
                                shall--
                                            ``(aa) be accurate to 
                                        within 3 percent of true mean 
                                        hospital acquisition and 
                                        handling costs for each drug 
                                        and biological at the 95 
                                        percent confidence level;
                                            ``(bb) begin not later than 
                                        January 1, 2005; and
                                            ``(cc) be updated annually 
                                        for changes in hospital costs 
                                        and the addition of newly 
                                        marketed products.
                                    ``(III) Reports.--Not later than 
                                January 1 of each year (beginning with 
                                2006), the Secretary shall submit to 
                                Congress a report on the study 
                                conducted under clause (i) together 
                                with recommendations for such 
                                legislative or administrative action as 
                                the Secretary determines to be 
                                appropriate.
                                    ``(IV) Eligible organization 
                                defined.--In this clause, the term 
                                `eligible organization' means a 
                                private, nonprofit organization within 
                                the meaning of section 501(c) of the 
                                Internal Revenue Code.
                            ``(ii) Establishment of payment 
                        methodology.--Notwithstanding paragraph (6), 
                        the Secretary, in establishing a payment 
                        methodology on or after the date of enactment 
                        of the Prescription Drug and Medicare 
                        Improvement Act of 2003, shall take into 
                        consideration the findings of the study 
                        conducted under clause (i)(I) in determining 
                        payment amounts for each drug and biological 
                        provided as part of a covered OPD service 
                        furnished on or after January 1, 2007.
                    ``(C) Applicable percentage defined.--In this 
                paragraph, the term `applicable percentage' means--
                            ``(i) with respect to a biological product 
                        (approved under a biologics license application 
                        under section 351 of the Public Health Service 
                        Act), a single source drug (as defined in 
                        section 1927(k)(7)(A)(iv)), or an orphan 
                        product designated under section 526 of the 
                        Food, Drug, and Cosmetic Act to which the 
                        prospective payment system established under 
                        this subsection did not apply under the final 
                        rule for 2003 payments under such system, 94 
                        percent;
                            ``(ii) with respect to an innovator 
                        multiple source drug (as defined in section 
                        1927(k)(7)(A)(ii)), 91 percent; and
                            ``(iii) with respect to a noninnovator 
                        multiple source drug (as defined in section 
                        1927(k)(7)(A)(iii)), 71 percent.
                    ``(D) Drugs and biologicals described.--A drug or 
                biological described in this paragraph is any drug or 
                biological--
                            ``(i) for which the amount of payment was 
                        determined under paragraph (6) prior to January 
                        1, 2005;
                            ``(ii) which is assigned to a drug specific 
                        ambulatory payment classification on or after 
                        the date of enactment of the Prescription Drug 
                        and Medicare Improvement Act of 2003; and
                            ``(iii) that would have been reimbursed 
                        under paragraph (6) but for the application of 
                        this paragraph.''.
    (b) Exceptions to Budget Neutrality Requirement.--Section 
1833(t)(9)(B) (42 U.S.C. 1395l(t)(9)(B)) is amended by adding at the 
end the following: ``In determining the budget neutrality adjustment 
required by the preceding sentence for fiscal years 2005 and 2006, the 
Secretary shall not take into account any expenditures that would not 
have been made but for the application of paragraph (13).''.

SEC. 438. LIMITATION OF APPLICATION OF FUNCTIONAL EQUIVALENCE STANDARD.

    Section 1833(t)(6) (42 U.S.C. 1395l(t)(6)) is amended by adding at 
the end the following new subparagraph:
                    ``(F) Limitation of application of functional 
                equivalence standard.--
                            ``(i) In general.--The Secretary may not 
                        publish regulations that apply a functional 
                        equivalence standard to a drug or biological 
                        under this paragraph.
                            ``(ii) Application.--Paragraph (1) shall 
                        apply to the application of a functional 
                        equivalence standard to a drug or biological on 
                        or after the date of enactment of the 
                        Prescription Drug and Medicare Improvement Act 
                        of 2003 unless--
                                    ``(I) such application was being 
                                made to such drug or biological prior 
                                to such date of enactment; and
                                    ``(II) the Secretary applies such 
                                standard to such drug or biological 
                                only for the purpose of determining 
eligibility of such drug or biological for additional payments under 
this paragraph and not for the purpose of any other payments under this 
title.
                            ``(iii) Rule of construction.--Nothing in 
                        this subparagraph shall be construed to affect 
                        the Secretary's authority to deem a particular 
                        drug to be identical to another drug if the 2 
                        products are pharmaceutically equivalent and 
                        bioequvalent, as determined by the Commissioner 
                        of Food and Drugs.''.

SEC. 439. MEDICARE COVERAGE OF ROUTINE COSTS ASSOCIATED WITH CERTAIN 
              CLINICAL TRIALS.

    (a) In General.--With respect to the coverage of routine costs of 
care for beneficiaries participating in a qualifying clinical trial, as 
set forth on the date of the enactment of this Act in National Coverage 
Determination 30-1 of the Medicare Coverage Issues Manual, the 
Secretary shall deem clinical trials conducted in accordance with an 
investigational device exemption approved under section 520(g) of the 
Federal Food, Drug, and Cosmetic Act (42 U.S.C. 360j(g)) to be 
automatically qualified for such coverage.
    (b) Rule of Construction.--Nothing in this section shall be 
construed as authorizing or requiring the Secretary to modify the 
regulations set forth on the date of the enactment of this Act at 
subpart B of part 405 of title 42, Code of Federal Regulations, or 
subpart A of part 411 of such title, relating to coverage of, and 
payment for, a medical device that is the subject of an investigational 
device exemption by the Food and Drug Administration (except as may be 
necessary to implement subsection (a)).
    (c) Effective Date.--This section shall apply to clinical trials 
begun on or after January 1, 2005.

SEC. 440. WAIVER OF PART B LATE ENROLLMENT PENALTY FOR CERTAIN MILITARY 
              RETIREES; SPECIAL ENROLLMENT PERIOD.

    (a) Waiver of Penalty.--
            (1) In general.--Section 1839(b) (42 U.S.C. 1395r(b)) is 
        amended by adding at the end the following new sentence: ``No 
        increase in the premium shall be effected for a month in the 
        case of an individual who is 65 years of age or older, who 
        enrolls under this part during 2002, 2003, 2004, or 2005 and 
        who demonstrates to the Secretary before December 31, 2005, 
        that the individual is a covered beneficiary (as defined in 
        section 1072(5) of title 10, United States Code). The Secretary 
        shall consult with the Secretary of Defense in identifying 
        individuals described in the previous sentence.''.
            (2) Effective date.--The amendment made by paragraph (1) 
        shall apply to premiums for months beginning with January 2005. 
        The Secretary shall establish a method for providing rebates of 
        premium penalties paid for months on or after January 2005 for 
        which a penalty does not apply under such amendment but for 
        which a penalty was previously collected.
    (b) Medicare Part B Special Enrollment Period.--
            (1) In general.--In the case of any individual who, as of 
        the date of enactment of this Act, is 65 years of age or older, 
        is eligible to enroll but is not enrolled under part B of title 
        XVIII of the Social Security Act, and is a covered beneficiary 
        (as defined in section 1072(5) of title 10, United States 
        Code), the Secretary shall provide for a special enrollment 
        period during which the individual may enroll under such part. 
        Such period shall begin 1 year after the date of the enactment 
        of this Act and shall end on December 31, 2005.
            (2) Coverage period.--In the case of an individual who 
        enrolls during the special enrollment period provided under 
        paragraph (1), the coverage period under part B of title XVIII 
        of the Social Security Act shall begin on the first day of the 
        month following the month in which the individual enrolls.

SEC. 441. DEMONSTRATION OF COVERAGE OF CHIROPRACTIC SERVICES UNDER 
              MEDICARE.

    (a) Definitions.--In this section:
            (1) Chiropractic services.--The term ``chiropractic 
        services'' has the meaning given that term by the Secretary for 
        purposes of the demonstration projects, but shall include, at a 
        minimum--
                    (A) care for neuromusculoskeletal conditions 
                typical among eligible beneficiaries; and
                    (B) diagnostic and other services that a 
                chiropractor is legally authorized to perform by the 
                State or jurisdiction in which such treatment is 
                provided.
            (2) Demonstration project.--The term ``demonstration 
        project'' means a demonstration project established by the 
        Secretary under subsection (b)(1).
            (3) Eligible beneficiary.--The term ``eligible 
        beneficiary'' means an individual who is enrolled under part B 
        of the medicare program.
            (4) Medicare program.--The term ``medicare program'' means 
        the health benefits program under title XVIII of the Social 
        Security Act (42 U.S.C. 1395 et seq.).
    (b) Demonstration of Coverage of Chiropractic Services Under 
Medicare.--
            (1) Establishment.--The Secretary shall establish 
        demonstration projects in accordance with the provisions of 
        this section for the purpose of evaluating the feasibility and 
        advisability of covering chiropractic services under the 
        medicare program (in addition to the coverage provided for 
        services consisting of treatment by means of manual 
        manipulation of the spine to correct a subluxation described in 
        section 1861(r)(5) of the Social Security Act (42 U.S.C. 
        1395x(r)(5))).
            (2) No physician approval required.--In establishing the 
        demonstration projects, the Secretary shall ensure that an 
        eligible beneficiary who participates in a demonstration 
        project, including an eligible beneficiary who is enrolled for 
        coverage under a Medicare+Choice plan (or, on and after January 
        1, 2006, under a MedicareAdvantage plan), is not required to 
        receive approval from a physician or other health care provider 
        in order to receive a chiropractic service under a 
        demonstration project.
            (3) Consultation.--In establishing the demonstration 
        projects, the Secretary shall consult with chiropractors, 
        organizations representing chiropractors, eligible 
        beneficiaries, and organizations representing eligible 
        beneficiaries.
            (4) Participation.--Any eligible beneficiary may 
        participate in the demonstration projects on a voluntary basis.
    (c) Conduct of Demonstration Projects.--
            (1) Demonstration sites.--
                    (A) Selection of demonstration sites.--The 
                Secretary shall conduct demonstration projects at 6 
                demonstration sites.
                    (B) Geographic diversity.--Of the sites described 
                in subparagraph (A)--
                            (i) 3 shall be in rural areas; and
                            (ii) 3 shall be in urban areas.
                    (C) Sites located in hpsas.--At least 1 site 
                described in clause (i) of subparagraph (B) and at 
                least 1 site described in clause (ii) of such 
                subparagraph shall be located in an area that is 
                designated under section 332(a)(1)(A) of the Public 
                Health Service Act (42 U.S.C. 254e(a)(1)(A)) as a 
                health professional shortage area.
            (2) Implementation; duration.--
                    (A) Implementation.--The Secretary shall not 
                implement the demonstration projects before October 1, 
                2004.
                    (B) Duration.--The Secretary shall complete the 
                demonstration projects by the date that is 3 years 
                after the date on which the first demonstration project 
                is implemented.
    (d) Evaluation and Report.--
            (1) Evaluation.--The Secretary shall conduct an evaluation 
        of the demonstration projects--
                    (A) to determine whether eligible beneficiaries who 
                use chiropractic services use a lesser overall amount 
                of items and services for which payment is made under 
                the medicare program than eligible beneficiaries who do 
                not use such services;
                    (B) to determine the cost of providing payment for 
                chiropractic services under the medicare program;
                    (C) to determine the satisfaction of eligible 
                beneficiaries participating in the demonstration 
                projects and the quality of care received by such 
                beneficiaries; and
                    (D) to evaluate such other matters as the Secretary 
                determines is appropriate.
            (2) Report.--Not later than the date that is 1 year after 
        the date on which the demonstration projects conclude, the 
        Secretary shall submit to Congress a report on the evaluation 
        conducted under paragraph (1) together with such 
        recommendations for legislation or administrative action as the 
        Secretary determines is appropriate.
    (e) Waiver of Medicare Requirements.--The Secretary shall waive 
compliance with such requirements of the medicare program to the extent 
and for the period the Secretary finds necessary to conduct the 
demonstration projects.
    (f) Funding.--
            (1) Demonstration projects.--
                    (A) In general.--Subject to subparagraph (B) and 
                paragraph (2), the Secretary shall provide for the 
                transfer from the Federal Supplementary Insurance Trust 
                Fund under section 1841 of the Social Security Act (42 
                U.S.C. 1395t) of such funds as are necessary for the 
                costs of carrying out the demonstration projects under 
                this section.
                    (B) Limitation.--In conducting the demonstration 
                projects under this section, the Secretary shall ensure 
                that the aggregate payments made by the Secretary under 
                the medicare program do not exceed the amount which the 
                Secretary would have paid under the medicare program if 
                the demonstration projects under this section were not 
                implemented.
            (2) Evaluation and report.--There are authorized to be 
        appropriated such sums as are necessary for the purpose of 
        developing and submitting the report to Congress under 
        subsection (d).

SEC. 442. MEDICARE HEALTH CARE QUALITY DEMONSTRATION PROGRAMS.

    Title XVIII (42 U.S.C. 1395 et seq.) is amended by inserting after 
section 1866B the following new section:

              ``health care quality demonstration program

    ``Sec. 1866C. (a) Definitions.--In this section:
            ``(1) Beneficiary.--The term `beneficiary' means a 
        beneficiary who is enrolled in the original medicare fee-for-
        service program under parts A and B or a beneficiary in a staff 
        model or dedicated group model health maintenance organization 
        under the Medicare+Choice program (or, on and after January 1, 
        2006, under the MedicareAdvantage program) under part C.
            ``(2) Health care group.--
                    ``(A) In general.--The term `health care group' 
                means--
                            ``(i) a group of physicians that is 
                        organized at least in part for the purpose of 
                        providing physician's services under this 
                        title;
                            ``(ii) an integrated health care delivery 
                        system that delivers care through coordinated 
                        hospitals, clinics, home health agencies, 
                        ambulatory surgery centers, skilled nursing 
                        facilities, rehabilitation facilities and 
                        clinics, and employed, independent, or 
                        contracted physicians; or
                            ``(iii) an organization representing 
                        regional coalitions of groups or systems 
                        described in clause (i) or (ii).
                    ``(B) Inclusion.--As the Secretary determines 
                appropriate, a health care group may include a 
hospital or any other individual or entity furnishing items or services 
for which payment may be made under this title that is affiliated with 
the health care group under an arrangement structured so that such 
hospital, individual, or entity participates in a demonstration project 
under this section.
            ``(3) Physician.--Except as otherwise provided for by the 
        Secretary, the term `physician' means any individual who 
        furnishes services that may be paid for as physicians' services 
        under this title.
    ``(b) Demonstration Projects.--The Secretary shall establish a 5-
year demonstration program under which the Secretary shall approve 
demonstration projects that examine health delivery factors that 
encourage the delivery of improved quality in patient care, including--
            ``(1) the provision of incentives to improve the safety of 
        care provided to beneficiaries;
            ``(2) the appropriate use of best practice guidelines by 
        providers and services by beneficiaries;
            ``(3) reduced scientific uncertainty in the delivery of 
        care through the examination of variations in the utilization 
        and allocation of services, and outcomes measurement and 
        research;
            ``(4) encourage shared decision making between providers 
        and patients;
            ``(5) the provision of incentives for improving the quality 
        and safety of care and achieving the efficient allocation of 
        resources;
            ``(6) the appropriate use of culturally and ethnically 
        sensitive health care delivery; and
            ``(7) the financial effects on the health care marketplace 
        of altering the incentives for care delivery and changing the 
        allocation of resources.
    ``(c) Administration by Contract.--
            ``(1) In general.--Except as otherwise provided in this 
        section, the Secretary may administer the demonstration program 
        established under this section in a manner that is similar to 
        the manner in which the demonstration program established under 
        section 1866A is administered in accordance with section 1866B.
            ``(2) Alternative payment systems.--A health care group 
        that receives assistance under this section may, with respect 
        to the demonstration project to be carried out with such 
        assistance, include proposals for the use of alternative 
        payment systems for items and services provided to 
        beneficiaries by the group that are designed to--
                    ``(A) encourage the delivery of high quality care 
                while accomplishing the objectives described in 
                subsection (b); and
                    ``(B) streamline documentation and reporting 
                requirements otherwise required under this title.
            ``(3) Benefits.--A health care group that receives 
        assistance under this section may, with respect to the 
        demonstration project to be carried out with such assistance, 
        include modifications to the package of benefits available 
        under the traditional fee-for-service program under parts A and 
        B or the package of benefits available through a staff model or 
        a dedicated group model health maintenance organization under 
        part C. The criteria employed under the demonstration program 
        under this section to evaluate outcomes and determine best 
        practice guidelines and incentives shall not be used as a basis 
        for the denial of medicare benefits under the demonstration 
        program to patients against their wishes (or if the patient is 
        incompetent, against the wishes of the patient's surrogate) on 
        the basis of the patient's age or expected length of life or of 
        the patient's present or predicted disability, degree of 
        medical dependency, or quality of life.
    ``(d) Eligibility Criteria.--To be eligible to receive assistance 
under this section, an entity shall--
            ``(1) be a health care group;
            ``(2) meet quality standards established by the Secretary, 
        including--
                    ``(A) the implementation of continuous quality 
                improvement mechanisms that are aimed at integrating 
                community-based support services, primary care, and 
                referral care;
                    ``(B) the implementation of activities to increase 
                the delivery of effective care to beneficiaries;
                    ``(C) encouraging patient participation in 
                preference-based decisions;
                    ``(D) the implementation of activities to encourage 
                the coordination and integration of medical service 
                delivery; and
                    ``(E) the implementation of activities to measure 
                and document the financial impact on the health care 
                marketplace of altering the incentives of health care 
                delivery and changing the allocation of resources; and
            ``(3) meet such other requirements as the Secretary may 
        establish.
    ``(e) Waiver Authority.--The Secretary may waive such requirements 
of titles XI and XVIII as may be necessary to carry out the purposes of 
the demonstration program established under this section.
    ``(f) Budget Neutrality.--With respect to the 5-year period of the 
demonstration program under subsection (b), the aggregate expenditures 
under this title for such period shall not exceed the aggregate 
expenditures that would have been expended under this title if the 
program established under this section had not been implemented.
    ``(g) Notice Requirements.--In the case of an individual that 
receives health care items or services under a demonstration program 
carried out under this section, the Secretary shall ensure that such 
individual is notified of any waivers of coverage or payment rules that 
are applicable to such individual under this title as a result of the 
participation of the individual in such program.
    ``(h) Participation and Support by Federal Agencies.--In carrying 
out the demonstration program under this section, the Secretary may 
direct--
            ``(1) the Director of the National Institutes of Health to 
        expand the efforts of the Institutes to evaluate current 
        medical technologies and improve the foundation for evidence-
        based practice;
            ``(2) the Administrator of the Agency for Healthcare 
        Research and Quality to, where possible and appropriate, use 
        the program under this section as a laboratory for the study of 
        quality improvement strategies and to evaluate, monitor, and 
        disseminate information relevant to such program; and
            ``(3) the Administrator of the Centers for Medicare and 
        Medicaid Services and the Administrator of the Center for 
        Medicare Choices to support linkages of relevant medicare data 
        to registry information from participating health care groups 
        for the beneficiary populations served by the participating 
        groups, for analysis supporting the purposes of the 
        demonstration program, consistent with the applicable 
        provisions of the Health Insurance Portability and 
        Accountability Act of 1996.
    ``(i) Implementation.--The Secretary shall not implement the 
demonstration program before October 1, 2004.''.

SEC. 443. MEDICARE COMPLEX CLINICAL CARE MANAGEMENT PAYMENT 
              DEMONSTRATION.

    (a) Establishment.--
            (1) In general.--The Secretary shall establish a 
        demonstration program to make the medicare program more 
        responsive to needs of eligible beneficiaries by promoting 
        continuity of care, helping stabilize medical conditions, 
        preventing or minimizing acute exacerbations of chronic 
        conditions, and reducing adverse health outcomes, such as 
        adverse drug interactions related to polypharmacy.
            (2) Sites.--The Secretary shall designate 6 sites at which 
        to conduct the demonstration program under this section, of 
        which at least 3 shall be in an urban area and at least 1 shall 
        be in a rural area. One of the sites shall be located in the 
        State of Arkansas.
            (3) Duration.--The Secretary shall conduct the 
        demonstration program under this section for a 3-year period.
            (4) Implementation.--The Secretary shall not implement the 
        demonstration program before October 1, 2004.
    (b) Participants.--Any eligible beneficiary who resides in an area 
designated by the Secretary as a demonstration site under subsection 
(a)(2) may participate in the demonstration program under this section 
if such beneficiary identifies a principal care physician who agrees to 
manage the complex clinical care of the eligible beneficiary under the 
demonstration program.
    (c) Principal Care Physician Responsibilities.--The Secretary shall 
enter into an agreement with each principal care physician who agrees 
to manage the complex clinical care of an eligible beneficiary under 
subsection (b) under which the principal care physician shall--
            (1) serve as the primary contact of the eligible 
        beneficiary in accessing items and services for which payment 
        may be made under the medicare program;
            (2) maintain medical information related to care provided 
        by other health care providers who provide health care items 
        and services to the eligible beneficiary, including clinical 
        reports, medication and treatments prescribed by other 
        physicians, hospital and hospital outpatient services, skilled 
        nursing home care, home health care, and medical equipment 
        services;
            (3) monitor and advocate for the continuity of care of the 
        eligible beneficiary and the use of evidence-based guidelines;
            (4) promote self-care and family caregiver involvement 
        where appropriate;
            (5) have appropriate staffing arrangements to conduct 
        patient self-management and other care coordination activities 
        as specified by the Secretary;
            (6) refer the eligible beneficiary to community services 
        organizations and coordinate the services of such organizations 
        with the care provided by health care providers; and
            (7) meet such other complex care management requirements as 
        the Secretary may specify.
    (d) Complex Clinical Care Management Fee.--
            (1) Payment.--Under an agreement entered into under 
        subsection (c), the Secretary shall pay to each principal care 
        physician, on behalf of each eligible beneficiary under the 
        care of that physician, the complex clinical care management 
        fee developed by the Secretary under paragraph (2).
            (2) Development of fee.--The Secretary shall develop a 
        complex care management fee under this paragraph that is paid 
        on a monthly basis and which shall be payment in full for all 
        the functions performed by the principal care physician under 
        the demonstration program, including any functions performed by 
        other qualified practitioners acting on behalf of the 
        physician, appropriate staff under the supervision of the 
        physician, and any other person under a contract with the 
        physician, including any person who conducts patient self-
        management and caregiver education under subsection (c)(4).
    (e) Funding.--
            (1) In general.--The Secretary shall provide for the 
        transfer from the Federal Supplementary Insurance Trust Fund 
        established under section 1841 of the Social Security Act (42 
        U.S.C. 1395t) of such funds as are necessary for the costs of 
        carrying out the demonstration program under this section.
            (2) Budget neutrality.--In conducting the demonstration 
        program under this section, the Secretary shall ensure that the 
        aggregate payments made by the Secretary do not exceed the 
        amount which the Secretary would have paid if the demonstration 
        program under this section was not implemented.
    (f) Waiver Authority.--The Secretary may waive such requirements of 
titles XI and XVIII of the Social Security Act (42 U.S.C. 1301 et seq.; 
1395 et seq.) as may be necessary for the purpose of carrying out the 
demonstration program under this section.
    (g) Report.--Not later than 6 months after the completion of the 
demonstration program under this section, the Secretary shall submit to 
Congress a report on such program, together with recommendations for 
such legislation and administrative action as the Secretary determines 
to be appropriate.
    (h) Definitions.--In this section:
            (1) Activity of daily living.--The term ``activity of daily 
        living'' means eating, toiling, transferring, bathing, 
        dressing, and continence.
            (2) Chronic condition.--The term ``chronic condition'' 
        means a biological, physical, or mental condition that is 
        likely to last a year or more, for which there is no known 
        cure, for which there is a need for ongoing medical care, and 
        which may affect an individual's ability to carry out 
        activities of daily living or instrumental activities of daily 
        living, or both.
            (3) Eligible beneficiary.--The term ``eligible 
        beneficiary'' means any individual who--
                    (A) is enrolled for benefits under part B of the 
                medicare program;
                    (B) has at least 4 complex medical conditions (one 
                of which may be cognitive impairment); and
                    (C) has--
                            (i) an inability to self-manage their care; 
                        or
                            (ii) a functional limitation defined as an 
                        impairment in 1 or more activity of daily 
                        living or instrumental activity of daily 
                        living.
            (4) Instrumental activity of daily living.--The term 
        ``instrumental activity of daily living'' means meal 
        preparation, shopping, housekeeping, laundry, money management, 
        telephone use, and transportation use.
            (5) Medicare program.--The term ``medicare program'' means 
        the health care program under title XVIII of the Social 
        Security Act (42 U.S.C. 1395 et seq.).
            (6) Principal care physician.--The term ``principal care 
        physician'' means the physician with primary responsibility for 
        overall coordination of the care of an eligible beneficiary (as 
        specified in a written plan of care) who may be a primary care 
        physician or a specialist.

SEC. 444. MEDICARE FEE-FOR-SERVICE CARE COORDINATION DEMONSTRATION 
              PROGRAM.

    (a) Establishment.--
            (1) In general.--The Secretary shall establish a 
        demonstration program to contract with qualified care 
        management organizations to provide health risk assessment and 
        care management services to eligible beneficiaries who receive 
        care under the original medicare fee-for-service program under 
        parts A and B of title XVIII of the Social Security Act to 
        eligible beneficiaries.
            (2) Sites.--The Secretary shall designate 6 sites at which 
        to conduct the demonstration program under this section. In 
        selecting sites under this paragraph, the Secretary shall give 
        preference to sites located in rural areas.
            (3) Duration.--The Secretary shall conduct the 
        demonstration program under this section for a 5-year period.
            (4) Implementation.--The Secretary shall not implement the 
        demonstration program before October 1, 2004.
    (b) Participants.--Any eligible beneficiary who resides in an area 
designated by the Secretary as a demonstration site under subsection 
(a)(2) may participate in the demonstration program under this section 
if such beneficiary identifies a care management organization who 
agrees to furnish care management services to the eligible beneficiary 
under the demonstration program.
    (c) Contracts With CMOs.--
            (1) In general.--The Secretary shall enter into a contract 
        with care management organizations to provide care management 
services to eligible beneficiaries residing in the area served by the 
care management organization.
            (2) Cancellation.--The Secretary may cancel a contract 
        entered into under paragraph (1) if the care management 
        organization does not meet negotiated savings or quality 
        outcomes targets for the year.
            (3) Number of cmos.--The Secretary may contract with more 
        than 1 care management organization in a geographic area.
    (d) Payment to CMOs.--
            (1) Payment.--Under an contract entered into under 
        subsection (c), the Secretary shall pay care management 
        organizations a fee for which the care management organization 
        is partially at risk based on bids submitted by care management 
        organizations.
            (2) Portion of payment at risk.--The Secretary shall 
        establish a benchmark for quality and cost against which the 
        results of the care management organization are to be measured. 
        The Secretary may not pay a care management organization the 
        portion of the fee described in paragraph (1) that is at risk 
        unless the Secretary determines that the care management 
        organization has met the agreed upon savings and outcomes 
        targets for the year.
    (e) Funding.--
            (1) In general.--The Secretary shall provide for the 
        transfer from the Federal Hospital Insurance Trust Fund under 
        section 1817 of the Social Security Act (42 U.S.C. 1395i) and 
        the Federal Supplementary Insurance Trust Fund established 
        under section 1841 of such Act (42 U.S.C. 1395t), in such 
        proportion as the Secretary determines to be appropriate, of 
        such funds as are necessary for the costs of carrying out the 
        demonstration program under this section.
            (2) Budget neutrality.--In conducting the demonstration 
        program under this section, the Secretary shall ensure that the 
        aggregate payments made by the Secretary do not exceed the 
        amount which the Secretary would have paid if the demonstration 
        program under this section was not implemented.
    (f) Waiver Authority.--
            (1) In general.--The Secretary may waive such requirements 
        of titles XI and XVIII of the Social Security Act (42 U.S.C. 
        1301 et seq.; 1395 et seq.) as may be necessary for the purpose 
        of carrying out the demonstration program under this section.
            (2) Waiver of medigap preemptions.--The Secretary shall 
        waive any provision of section 1882 of the Social Security Act 
        that would prevent an insurance carrier described in subsection 
        (h)(3)(D) from participating in the demonstration program under 
        this section.
    (g) Report.--Not later than 6 months after the completion of the 
demonstration program under this section, the Secretary shall submit to 
Congress a report on such program, together with recommendations for 
such legislation and administrative action as the Secretary determines 
to be appropriate.
    (h) Definitions.--In this section:
            (1) Care management services.--The term ``care management 
        services'' means services that are furnished to an eligible 
        beneficiary (as defined in paragraph (2)) by a care management 
        organization (as defined in paragraph (3)) in accordance with 
        guidelines established by the Secretary that are consistent 
        with guidelines established by the American Geriatrics Society.
            (2) Eligible beneficiary.--The term ``eligible 
        beneficiary'' means an individual who is--
                    (A) entitled to (or enrolled for) benefits under 
                part A and enrolled for benefits under part B of the 
                Social Security Act (42 U.S.C. 1395c et seq.; 1395j et 
                seq.);
                    (B) not enrolled with a Medicare+Choice plan or a 
                MedicareAdvantage plan under part C; and
                    (C) at high-risk (as defined by the Secretary, but 
                including eligible beneficiaries with multiple 
                sclerosis or another disabling chronic condition, 
                eligible beneficiaries residing in a nursing home or at 
                risk for nursing home placement, or eligible 
beneficiaries eligible for assistance under a State plan under title 
XIX).
            (3) Care management organization.--The term ``care 
        management organization'' means an organization that meets such 
        qualifications as the Secretary may specify and includes any of 
        the following:
                    (A) A physician group practice, hospital, home 
                health agency, or hospice program.
                    (B) A disease management organization.
                    (C) A Medicare+Choice or MedicareAdvantage 
                organization.
                    (D) Insurance carriers offering medicare 
                supplemental policies under section 1882 of the Social 
                Security Act (42 U.S.C. 1395ss).
                    (E) Such other entity as the Secretary determines 
                to be appropriate.

SEC. 445. GAO STUDY OF GEOGRAPHIC DIFFERENCES IN PAYMENTS FOR 
              PHYSICIANS' SERVICES.

    (a) Study.--The Comptroller General of the United States shall 
conduct a study of differences in payment amounts under the physician 
fee schedule under section 1848 of the Social Security Act (42 U.S.C. 
1395w-4) for physicians' services in different geographic areas. Such 
study shall include--
            (1) an assessment of the validity of the geographic 
        adjustment factors used for each component of the fee schedule;
            (2) an evaluation of the measures used for such adjustment, 
        including the frequency of revisions;
            (3) an evaluation of the methods used to determine 
        professional liability insurance costs used in computing the 
        malpractice component, including a review of increases in 
        professional liability insurance premiums and variation in such 
        increases by State and physician specialty and methods used to 
        update the geographic cost of practice index and relative 
        weights for the malpractice component;
            (4) an evaluation of whether there is a sound economic 
        basis for the implementation of the adjustment under 
        subparagraphs (E) and (F) of section 1848(e)(1) of the Social 
        Security Act (42 U.S.C. 1395w-4(e)(1)), as added by section 
        421, in those areas in which the adjustment applies;
            (5) an evaluation of the effect of such adjustment on 
        physician location and retention in areas affected by such 
        adjustment, taking into account--
                    (A) differences in recruitment costs and retention 
                rates for physicians, including specialists, between 
                large urban areas and other areas; and
                    (B) the mobility of physicians, including 
                specialists, over the last decade; and
            (6) an evaluation of appropriateness of extending such 
        adjustment or making such adjustment permanent.
    (b) Report.--Not later than 1 year after the date of enactment of 
this Act, the Comptroller General of the United States shall submit to 
Congress a report on the study conducted under subsection (a). The 
report shall include recommendations regarding the use of more current 
data in computing geographic cost of practice indices as well as the 
use of data directly representative of physicians' costs (rather than 
proxy measures of such costs).

            Subtitle C--Provisions Relating to Parts A and B

SEC. 451. INCREASE FOR HOME HEALTH SERVICES FURNISHED IN A RURAL AREA.

    (a) In General.--In the case of home health services furnished in a 
rural area (as defined in section 1886(d)(2)(D) of the Social Security 
Act (42 U.S.C. 1395ww(d)(2)(D))) on or after October 1, 2003, and 
before October 1, 2005, the Secretary shall increase the payment amount 
otherwise made under section 1895 of such Act (42 U.S.C. 1395fff) for 
such services by 5 percent.
    (b) Waiving Budget Neutrality.--The Secretary shall not reduce the 
standard prospective payment amount (or amounts) under section 1895 of 
the Social Security Act (42 U.S.C. 1395fff) applicable to home health 
services furnished during a period to offset the increase in payments 
resulting from the application of subsection (a).
    (c) No Effect on Subsequent Periods.--The payment increase provided 
under subsection (a) for a period under such subsection--
            (1) shall not apply to episodes and visits ending after 
        such period; and
            (2) shall not be taken into account in calculating the 
        payment amounts applicable for episodes and visits occurring 
        after such period.

SEC. 452. LIMITATION ON REDUCTION IN AREA WAGE ADJUSTMENT FACTORS UNDER 
              THE PROSPECTIVE PAYMENT SYSTEM FOR HOME HEALTH SERVICES.

    Section 1895(b)(4)(C) (42 U.S.C. 1395fff(b)(4)(C)) is amended--
            (1) by striking ``factors.--The Secretary'' and inserting 
        ``factors.--
                            ``(i) In general.--Subject to clause (ii), 
                        the Secretary''; and
            (2) by adding at the end the following new clause:
                            ``(ii) Limitation on reduction in fiscal 
                        year 2005 and 2006.--For fiscal years 2004, 
                        2005, and 2006, the area wage adjustment factor 
                        applicable to home health services furnished in 
                        an area in the fiscal year may not be more that 
                        3 percent less than the area wage adjustment 
                        factor applicable to home health services for 
                        the area for the previous year.''.

SEC. 453. CLARIFICATIONS TO CERTAIN EXCEPTIONS TO MEDICARE LIMITS ON 
              PHYSICIAN REFERRALS.

    (a) Limits on Physician Referrals.--
            (1) Ownership and investment interests in whole 
        hospitals.--
                    (A) In general.--Section 1877(d)(3) (42 U.S.C. 
                1395nn(d)(3)) is amended--
                            (i) by striking ``and'' at the end of 
                        subparagraph (A); and
                            (ii) by redesignating subparagraph (B) as 
                        subparagraph (C) and inserting after 
                        subparagraph (A) the following:
                    ``(B) the hospital is not a specialty hospital (as 
                defined in subsection (h)(7)); and''.
                    (B) Definition.--Section 1877(h) (42 U.S.C. 
                1395nn(h)) is amended by adding at the end the 
                following:
            ``(7) Specialty hospital.--
                    ``(A) In general.--For purposes of this section, 
                except as provided in subparagraph (B), the term 
                `specialty hospital' means a hospital that is primarily 
                or exclusively engaged in the care and treatment of one 
                of the following:
                            ``(i) patients with a cardiac condition;
                            ``(ii) patients with an orthopedic 
                        condition;
                            ``(iii) patients receiving a surgical 
                        procedure; or
                            ``(iv) any other specialized category of 
                        patients or cases that the Secretary designates 
                        as inconsistent with the purpose of permitting 
                        physician ownership and investment interests in 
                        a hospital under this section.
                    ``(B) Exception.--For purposes of this section, the 
                term `specialty hospital' does not include any 
                hospital--
                            ``(i) determined by the Secretary--
                                    ``(I) to be in operation before 
                                June 12, 2003; or
                                    ``(II) under development as of such 
                                date;
                            ``(ii) for which the number of beds and the 
                        number of physician investors at any time on or 
                        after such date is no greater than the number 
                        of such beds or investors as of such date; and
                            ``(iii) that meets such other requirements 
                        as the Secretary may specify.''.
            (2) Ownership and investment interests in a rural 
        provider.--Section 1877(d)(2) (42 U.S.C. 1395nn(d)(2)) is 
        amended to read as follows:
            ``(2) Rural providers.--In the case of designated health 
        services furnished in a rural area (as defined in section 
        1886(d)(2)(D)) by an entity, if--
                    ``(A) substantially all of the designated health 
                services furnished by the entity are furnished to 
                individuals residing in such a rural area;
                    ``(B) the entity is not a specialty hospital (as 
                defined in subsection (h)(7)); and
                    ``(C) the Secretary determines, with respect to 
                such entity, that such services would not be available 
                in such area but for the ownership or investment 
                interest.''.
    (b) Effective Date.--Subject to paragraph (2), the amendments made 
by this section shall apply to referrals made for designated health 
services on or after January 1, 2004.
    (c) Application of Exception for Hospitals Under Development.--For 
purposes of section 1877(h)(7)(B)(i)(II) of the Social Security Act, as 
added by subsection (a)(1)(B), in determining whether a hospital is 
under development as of June 12, 2003, the Secretary shall consider--
            (1) whether architectural plans have been completed, 
        funding has been received, zoning requirements have been met, 
        and necessary approvals from appropriate State agencies have 
        been received; and
            (2) any other evidence the Secretary determines would 
        indicate whether a hospital is under development as of such 
        date.

SEC. 454. DEMONSTRATION PROGRAM FOR SUBSTITUTE ADULT DAY SERVICES.

    (a) Establishment.--The Secretary shall establish a demonstration 
program (in this section referred to as the ``demonstration program'') 
under which the Secretary provides eligible medicare beneficiaries with 
coverage under the medicare program of substitute adult day services 
furnished by an adult day services facility.
    (b) Payment Rate for Substitute Adult Day Services.--
            (1) Payment rate.--For purposes of making payments to an 
        adult day services facility for substitute adult day services 
        under the demonstration program, the following rules shall 
        apply:
                    (A) Estimation of payment amount.--The Secretary 
                shall estimate the amount that would otherwise be 
                payable to a home health agency under section 1895 of 
                the Social Security Act (42 U.S.C. 1395fff) for all 
                home health services described in subsection 
                (i)(4)(B)(i) under the plan of care.
                    (B) Amount of payment.--Subject to paragraph 
                (3)(B), the total amount payable for substitute adult 
                day services under the plan of care is equal to 95 
                percent of the amount estimated to be payable under 
                subparagraph (A).
            (2) Limitation on balance billing.--Under the demonstration 
        program, an adult day services facility shall accept as payment 
        in full for substitute adult day services (including those 
        services described in clauses (ii) through (iv) of subsection 
        (i)(4)(B)) furnished by the facility to an eligible medicare 
        beneficiary the amount of payment provided under the 
        demonstration program for home health services consisting of 
        substitute adult services.
            (3) Adjustment in case of overutilization of substitute 
        adult day services to ensure budget neutrality.--The Secretary 
        shall monitor the expenditures under the demonstration program 
        and under title XVIII of the Social Security Act for home 
        health services. If the Secretary estimates that the total 
        expenditures under the demonstration program and under such 
        title XVIII for home health services for a period determined by 
        the Secretary exceed expenditures that would have been 
made under such title XVIII for home health services for such period if 
the demonstration program had not been conducted, the Secretary shall 
adjust the rate of payment to adult day services facilities under 
paragraph (1)(B) in order to eliminate such excess.
    (c) Demonstration Program Sites.--The demonstration program shall 
be conducted in not more than 3 sites selected by the Secretary.
    (d) Duration; Implementation.--
            (1) Duration.--The Secretary shall conduct the 
        demonstration program for a period of 3 years.
            (2) Implementation.--The Secretary may not implement the 
        demonstration program before October 1, 2004.
    (e) Voluntary Participation.--Participation of eligible medicare 
beneficiaries in the demonstration program shall be voluntary.
    (f) Waiver Authority.--
            (1) In general.--Except as provided in paragraph (2), the 
        Secretary may waive such requirements of titles XI and XVIII of 
        the Social Security Act (42 U.S.C. 1301 et seq.; 1395 et seq.) 
        as may be necessary for the purposes of carrying out the 
        demonstration program.
            (2) May not waive eligibility requirements for home health 
        services.--The Secretary may not waive the beneficiary 
        eligibility requirements for home health services under title 
        XVIII of the Social Security Act.
    (g) Evaluation and Report.--
            (1) Evaluation.--The Secretary shall conduct an evaluation 
        of the clinical and cost effectiveness of the demonstration 
        program.
            (2) Report.--Not later than 30 months after the 
        commencement of the demonstration program, the Secretary shall 
        submit to Congress a report on the evaluation conducted under 
        paragraph (1) and shall include in the report the following:
                    (A) An analysis of the patient outcomes and costs 
                of furnishing care to the eligible medicare 
                beneficiaries participating in the demonstration 
                program as compared to such outcomes and costs to such 
                beneficiaries receiving only home health services under 
                title XVIII of the Social Security Act for the same 
                health conditions.
                    (B) Such recommendations regarding the extension, 
                expansion, or termination of the program as the 
                Secretary determines appropriate.
    (i) Definitions.--In this section:
            (1) Adult day services facility.--
                    (A) In general.--Except as provided in 
                subparagraphs (B) and (C), the term ``adult day 
                services facility'' means a public agency or private 
                organization, or a subdivision of such an agency or 
                organization, that--
                            (i) is engaged in providing skilled nursing 
                        services and other therapeutic services 
                        directly or under arrangement with a home 
                        health agency;
                            (ii) provides the items and services 
                        described in paragraph (4)(B); and
                            (iii) meets the requirements of paragraphs 
                        (2) through (8) of subsection (o).
                    (B) Inclusion.--Notwithstanding subparagraph (A), 
                the term ``adult day services facility'' shall include 
                a home health agency in which the items and services 
                described in clauses (ii) through (iv) of paragraph 
                (4)(B) are provided--
                            (i) by an adult day services program that 
                        is licensed or certified by a State, or 
                        accredited, to furnish such items and services 
                        in the State; and
                            (ii) under arrangements with that program 
                        made by such agency.
                    (C) Waiver of surety bond.--The Secretary may waive 
                the requirement of a surety bond under section 
                1861(o)(7) of the Social Security Act (42 U.S.C. 
                1395x(o)(7)) in the case of an agency or organization 
                that provides a comparable surety bond under State law.
            (2) Eligible medicare beneficiary.--The term ``eligible 
        medicare beneficiary'' means an individual eligible for home 
        health services under title XVIII of the Social Security Act.
            (3) Home health agency.--The term ``home health agency'' 
        has the meaning given such term in section 1861(o) of the 
        Social Security Act (42 U.S.C. 1395x(o)).
            (4) Substitute adult day services.--
                    (A) In general.--The term ``substitute adult day 
                services'' means the items and services described in 
                subparagraph (B) that are furnished to an individual by 
                an adult day services facility as a part of a plan 
                under section 1861(m) of the Social Security Act (42 
                U.S.C. 1395x(m)) that substitutes such services for 
                some or all of the items and services described in 
                subparagraph (B)(i) furnished by a home health agency 
                under the plan, as determined by the physician 
                establishing the plan.
                    (B) Items and services described.--The items and 
                services described in this subparagraph are the 
                following items and services:
                            (i) Items and services described in 
                        paragraphs (1) through (7) of such section 
                        1861(m).
                            (ii) Meals.
                            (iii) A program of supervised activities 
                        designed to promote physical and mental health 
                        and furnished to the individual by the adult 
                        day services facility in a group setting for a 
                        period of not fewer than 4 and not greater than 
                        12 hours per day.
                            (iv) A medication management program (as 
                        defined in subparagraph (C)).
                    (C) Medication management program.--For purposes of 
                subparagraph (B)(iv), the term ``medication management 
                program'' means a program of services, including 
                medicine screening and patient and health care provider 
                education programs, that provides services to 
                minimize--
                            (i) unnecessary or inappropriate use of 
                        prescription drugs; and
                            (ii) adverse events due to unintended 
                        prescription drug-to-drug interactions.

SEC. 455. MEDICARE SECONDARY PAYOR (MSP) PROVISIONS.

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

  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.

    (a) In General.--Section 1871(a) (42 U.S.C. 1395hh(a)) is amended 
by adding at the end the following new paragraph:
    ``(3)(A) With respect to the publication of a final regulation 
based on the previous publication of an interim final regulation--
            ``(i) subject to subparagraph (B), the Secretary shall 
        publish the final regulation within the 12-month period that 
        begins on the date of publication of the interim final 
        regulation;
            ``(ii) if a final regulation is not published by the 
        deadline established under this paragraph, the interim final 
        regulation shall not continue in effect unless the 
Secretary publishes a notice described in subparagraph (B) by such 
deadline; and
            ``(iii) the final regulation shall include responses to 
        comments submitted in response to the interim final regulation.
    ``(B) If the Secretary determines before the deadline otherwise 
established in this paragraph that there is good cause, specified in a 
notice published before such deadline, for delaying the deadline 
otherwise applicable under this paragraph, the deadline otherwise 
established under this paragraph shall be extended for such period (not 
to exceed 12 months) as the Secretary specifies in such notice.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
take effect on the date of enactment of this Act and shall apply to 
interim final regulations published on or after such date.
    (c) Status of Pending Interim Final Regulations.--Not later than 6 
months after the date of enactment of this Act, the Secretary shall 
publish a notice in the Federal Register that provides the status of 
each interim final regulation that was published on or before the date 
of enactment of this Act and for which no final regulation has been 
published. Such notice shall include the date by which the Secretary 
plans to publish the final regulation that is based on the interim 
final regulation.

SEC. 502. COMPLIANCE WITH CHANGES IN REGULATIONS AND POLICIES.

    (a) No Retroactive Application of Substantive Changes.--
            (1) In general.--Section 1871 (42 U.S.C. 1395hh) is amended 
        by adding at the end the following new subsection:
    ``(d)(1)(A) A substantive change in regulations, manual 
instructions, interpretative rules, statements of policy, or guidelines 
of general applicability under this title shall not be applied (by 
extrapolation or otherwise) retroactively to items and services 
furnished before the effective date of the change, unless the Secretary 
determines that--
            ``(i) such retroactive application is necessary to comply 
        with statutory requirements; or
            ``(ii) failure to apply the change retroactively would be 
        contrary to the public interest.''.
            (2) Effective date.--The amendment made by paragraph (1) 
        shall apply to substantive changes issued on or after the date 
        of enactment of this Act.
    (b) Timeline for Compliance With Substantive Changes After 
Notice.--
            (1) In general.--Section 1871(d)(1), as added by subsection 
        (a), is amended by adding at the end the following:
    ``(B) A compliance action may be made against a provider of 
services, physician, practitioner, or other supplier with respect to 
noncompliance with such a substantive change only for items and 
services furnished on or after the effective date of the change.
    ``(C)(i) Except as provided in clause (ii), a substantive change 
may not take effect before the date that is the end of the 30-day 
period that begins on the date that the Secretary has issued or 
published, as the case may be, the substantive change.
    ``(ii) The Secretary may provide for a substantive change to take 
effect on a date that precedes the end of the 30-day period under 
clause (i) if the Secretary finds that waiver of such 30-day period is 
necessary to comply with statutory requirements or that the application 
of such 30-day period is contrary to the public interest. If the 
Secretary provides for an earlier effective date pursuant to this 
clause, the Secretary shall include in the issuance or publication of 
the substantive change a finding described in the first sentence, and a 
brief statement of the reasons for such finding.''.
            (2) Effective date.--The amendment made by paragraph (1) 
        shall apply to compliance actions undertaken on or after the 
        date of enactment of this Act.

SEC. 503. REPORT ON LEGAL AND REGULATORY INCONSISTENCIES.

    Section 1871 (42 U.S.C. 1395hh), as amended by section 502(a)(1), 
is amended by adding at the end the following new subsection:
    ``(e)(1) Not later than 2 years after the date of enactment of this 
subsection, and every 3 years thereafter, the Secretary shall submit to 
Congress a report with respect to the administration of this title and 
areas of inconsistency or conflict among the various provisions under 
law and regulation.
    ``(2) In preparing a report under paragraph (1), the Secretary 
shall collect--
            ``(A) information from beneficiaries, providers of 
        services, physicians, practitioners, and other suppliers with 
        respect to such areas of inconsistency and conflict; and
            ``(B) information from medicare contractors that tracks the 
        nature of all communications and correspondence.
    ``(3) A report under paragraph (1) shall include a description of 
efforts by the Secretary to reduce such inconsistency or conflicts, and 
recommendations for legislation or administrative action that the 
Secretary determines appropriate to further reduce such inconsistency 
or conflicts.''.

                   Subtitle B--Appeals Process Reform

SEC. 511. SUBMISSION OF PLAN FOR TRANSFER OF RESPONSIBILITY FOR 
              MEDICARE APPEALS.

    (a) Submission of Transition Plan.--
            (1) In general.--Not later than April 1, 2004, the 
        Commissioner of Social Security and the Secretary shall develop 
        and transmit to Congress and the Comptroller General of the 
        United States a plan under which the functions of 
        administrative law judges responsible for hearing cases under 
        title XVIII of the Social Security Act (and related provisions 
        in title XI of such Act) are transferred from the 
        responsibility of the Commissioner and the Social Security 
        Administration to the Secretary and the Department of Health 
        and Human Services.
            (2) Contents.--The plan shall include information on the 
        following:
                    (A) Workload.--The number of such administrative 
                law judges and support staff required now and in the 
                future to hear and decide such cases in a timely 
                manner, taking into account the current and anticipated 
                claims volume, appeals, number of beneficiaries, and 
                statutory changes.
                    (B) Cost projections and financing.--Funding levels 
                required for fiscal year 2005 and subsequent fiscal 
                years to carry out the functions transferred under the 
                plan and how such transfer should be financed.
                    (C) Transition timetable.--A timetable for the 
                transition.
                    (D) Regulations.--The establishment of specific 
                regulations to govern the appeals process.
                    (E) Case tracking.--The development of a unified 
                case tracking system that will facilitate the 
                maintenance and transfer of case specific data across 
                both the fee-for-service and managed care components of 
                the medicare program.
                    (F) Feasibility of precedential authority.--The 
                feasibility of developing a process to give decisions 
                of the Departmental Appeals Board in the Department of 
                Health and Human Services addressing broad legal issues 
                binding, precedential authority.
                    (G) Access to administrative law judges.--The 
                feasibility of--
                            (i) filing appeals with administrative law 
                        judges electronically; and
                            (ii) conducting hearings using tele- or 
                        video-conference technologies.
                    (H) Independence of administrative law judges.--The 
                steps that should be taken to ensure the independence 
                of administrative law judges, including ensuring that 
                such judges are in an office that is functionally and 
                operationally separate from the Centers for Medicare 
                and Medicaid Services and the Center for Medicare 
                Choices.
                    (I) Geographic distribution.--The steps that should 
                be taken to provide for an appropriate geographic 
                distribution of administrative law judges throughout 
                the United States to ensure timely access to such 
                judges.
                    (J) Hiring.--The steps that should be taken to hire 
                administrative law judges (and support staff).
                    (K) Performance standards.--The establishment of 
                performance standards for administrative law judges 
                with respect to timelines for decisions in cases under 
                title XVIII of the Social Security Act.
                    (L) Shared resources.--The feasibility of the 
                Secretary entering into such arrangements with the 
                Commissioner of Social Security as may be appropriate 
                with respect to transferred functions under the plan to 
                share office space, support staff, and other resources, 
                with appropriate reimbursement.
                    (M) Training.--The training that should be provided 
                to administrative law judges with respect to laws and 
                regulations under title XVIII of the Social Security 
                Act.
            (3) Additional information.--The plan may also include 
        recommendations for further congressional action, including 
        modifications to the requirements and deadlines established 
        under section 1869 of the Social Security Act (as amended by 
        sections 521 and 522 of BIPA (114 Stat. 2763A-534) and this 
        Act).
    (b) GAO Evaluation.--The Comptroller General of the United States 
shall--
            (1) evaluate the plan submitted under subsection (a); and
            (2) not later than 6 months after such submission, submit 
        to Congress, the Commissioner of Social Security, and the 
        Secretary a report on such evaluation.
    (c) Submission of GAO Report Required Before Plan Implementation.--
The Commissioner of Social Security and the Secretary may not implement 
the plan developed under subsection (a) before the date that is 6 
months after the date the report required under subsection (b)(2) is 
submitted to the Commissioner and the Secretary.

SEC. 512. EXPEDITED ACCESS TO JUDICIAL REVIEW.

    (a) In General.--Section 1869(b) (42 U.S.C. 1395ff(b)) is amended--
            (1) in paragraph (1)(A), by inserting ``, subject to 
        paragraph (2),'' before ``to judicial review of the Secretary's 
        final decision''; and
            (2) by adding at the end the following new paragraph:
            ``(2) Expedited access to judicial review.--
                    ``(A) In general.--The Secretary shall establish a 
                process under which a provider of services or supplier 
                that furnishes an item or service or a beneficiary who 
                has filed an appeal under paragraph (1) (other than an 
                appeal filed under paragraph (1)(F)(i)) may obtain 
                access to judicial review when a review entity 
                (described in subparagraph (D)), on its own motion or 
                at the request of the appellant, determines that the 
                Departmental Appeals Board does not have the authority 
                to decide the question of law or regulation relevant to 
                the matters in controversy and that there is no 
                material issue of fact in dispute. The appellant may 
                make such request only once with respect to a question 
                of law or regulation for a specific matter in dispute 
                in a case of an appeal.
                    ``(B) Prompt determinations.--If, after or 
                coincident with appropriately filing a request for an 
                administrative hearing, the appellant requests a 
                determination by the appropriate review entity that the 
                Departmental Appeals Board does not have the authority 
                to decide the question of law or regulations relevant 
                to the matters in controversy and that there is no 
                material issue of fact in dispute, and if such request 
                is accompanied by the documents and materials as the 
                appropriate review entity shall require for purposes of 
                making such determination, such review entity shall 
                make a determination on the request in writing within 
                60 days after the date such review entity receives the 
                request and such accompanying documents and materials. 
                Such a determination by such review entity shall be 
                considered a final decision and not subject to review 
                by the Secretary.
                    ``(C) Access to judicial review.--
                            ``(i) In general.--If the appropriate 
                        review entity--
                                    ``(I) determines that there are no 
                                material issues of fact in dispute and 
                                that the only issues to be adjudicated 
                                are ones of law or regulation that the 
                                Departmental Appeals Board does not 
                                have authority to decide; or
                                    ``(II) fails to make such 
                                determination within the period 
                                provided under subparagraph (B);
                        then the appellant may bring a civil action as 
                        described in this subparagraph.
                            ``(ii) Deadline for filing.--Such action 
                        shall be filed, in the case described in--
                                    ``(I) clause (i)(I), within 60 days 
                                of the date of the determination 
                                described in such clause; or
                                    ``(II) clause (i)(II), within 60 
                                days of the end of the period provided 
                                under subparagraph (B) for the 
                                determination.
                            ``(iii) Venue.--Such action shall be 
                        brought in the district court of the United 
                        States for the judicial district in which the 
                        appellant is located (or, in the case of an 
                        action brought jointly by more than 1 
                        applicant, the judicial district in which the 
                        greatest number of applicants are located) or 
                        in the District Court for the District of 
                        Columbia.
                            ``(iv) Interest on any amounts in 
                        controversy.--Where a provider of services or 
                        supplier is granted judicial review pursuant to 
                        this paragraph, the amount in controversy (if 
                        any) shall be subject to annual interest 
                        beginning on the first day of the first month 
                        beginning after the 60-day period as determined 
                        pursuant to clause (ii) and equal to the rate 
                        of interest on obligations issued for purchase 
                        by the Federal Supplementary Medical Insurance 
                        Trust Fund for the month in which the civil 
                        action authorized under this paragraph is 
                        commenced, to be awarded by the reviewing court 
                        in favor of the prevailing party. No interest 
                        awarded pursuant to the preceding sentence 
                        shall be deemed income or cost for the purposes 
                        of determining reimbursement due providers of 
                        services, physicians, practitioners, and other 
                        suppliers under this Act.
                    ``(D) Review entity defined.--For purposes of this 
                subsection, a `review entity' is a panel of no more 
                than 3 members from the Departmental Appeals Board, 
                selected for the purpose of making determinations under 
                this paragraph.''.
    (b) Application to Provider Agreement Determinations.--Section 
1866(h)(1) (42 U.S.C. 1395cc(h)(1)) is amended--
            (1) by inserting ``(A)'' after ``(h)(1)''; and
            (2) by adding at the end the following new subparagraph:
    ``(B) An institution or agency described in subparagraph (A) that 
has filed for a hearing under subparagraph (A) shall have expedited 
access to judicial review under this subparagraph in the same manner as 
providers of services, suppliers, and beneficiaries may obtain 
expedited access to judicial review under the process established under 
section 1869(b)(2). Nothing in this subparagraph shall be construed to 
affect the application of any remedy imposed under section 1819 during 
the pendency of an appeal under this subparagraph.''.
    (c) GAO Study and Report on Access to Judicial Review.--
            (1) Study.--The Comptroller General of the United States 
        shall conduct a study on the access of medicare beneficiaries 
        and health care providers to judicial review of actions of the 
        Secretary and the Department of Health and Human Services with 
        respect to items and services under title XVIII of the Social 
        Security Act subsequent to February 29, 2000, the date of the 
        decision of Shalala, Secretary of Health and Human Services, et 
        al. v. Illinois Council on Long Term Care, Inc. (529 U.S. 1 
        (2000)).
            (2) Report.--Not later than 1 year after the date of 
        enactment of this Act, the Comptroller General shall submit to 
        Congress a report on the study conducted under paragraph (1) 
        together with such recommendations as the Comptroller General 
        determines to be appropriate.
    (d) Conforming Amendment.--Section 1869(b)(1)(F)(ii) (42 U.S.C. 
1395ff(b)(1)(F)(ii)) is amended to read as follows:
                            ``(ii) Reference to expedited access to 
                        judicial review.--For the provision relating to 
                        expedited access to judicial review, see 
                        paragraph (2).''.
    (e) Effective Date.--The amendments made by this section shall 
apply to appeals filed on or after October 1, 2004.

SEC. 513. EXPEDITED REVIEW OF CERTAIN PROVIDER AGREEMENT 
              DETERMINATIONS.

    (a) Termination and Certain Other Immediate Remedies.--
            (1) In general.--The Secretary shall develop and implement 
        a process to expedite proceedings under sections 1866(h) of the 
        Social Security Act (42 U.S.C. 1395cc(h)) in which--
                    (A) the remedy of termination of participation has 
                been imposed;
                    (B) a sanction described in clause (i) or (iii) of 
                section 1819(h)(2)(B) of such Act (42 U.S.C. 1395i-
                3(h)(2)(B)) has been imposed, but only if such sanction 
                has been imposed on an immediate basis; or
                    (C) the Secretary has required a skilled nursing 
                facility to suspend operations of a nurse aide training 
                program.
            (2) Priority for cases of termination.--Under the process 
        described in paragraph (1), priority shall be provided in cases 
        of termination described in subparagraph (A) of such paragraph.
    (b) Increased Financial Support.--In addition to any amounts 
otherwise appropriated, to reduce by 50 percent the average time for 
administrative determinations on appeals under section 1866(h) of the 
Social Security Act (42 U.S.C. 1395cc(h)), there are authorized to be 
appropriated (in appropriate part from the Federal Hospital Insurance 
Trust Fund and the Federal Supplementary Medical Insurance Trust Fund) 
to the Secretary such sums for fiscal year 2004 and each subsequent 
fiscal year as may be necessary to increase the number of 
administrative law judges (and their staffs) at the Departmental 
Appeals Board of the Department of Health and Human Services and to 
educate such judges and staff on long-term care issues.

SEC. 514. REVISIONS TO MEDICARE APPEALS PROCESS.

    (a) Timeframes for the Completion of the Record.--Section 1869(b) 
(42 U.S.C. 1395ff(b)), as amended by section 512(a)(2), is amended by 
adding at the end the following new paragraph:
            ``(3) Timely completion of the record.--
                    ``(A) Deadline.--Subject to subparagraph (B), the 
                deadline to complete the record in a hearing before an 
                administrative law judge or a review by the 
                Departmental Appeals Board is 90 days after the date 
                the request for the review or hearing is filed.
                    ``(B) Extensions for good cause.--The person filing 
                a request under subparagraph (A) may request an 
                extension of such deadline for good cause. The 
                administrative law judge, in the case of a hearing, and 
                the Departmental Appeals Board, in the case of a 
                review, may extend such deadline based upon a finding 
                of good cause to a date specified by the judge or 
                Board, as the case may be.
                    ``(C) Delay in decision deadlines until completion 
                of record.--Notwithstanding any other provision of this 
                section, the deadlines otherwise established under 
                subsection (d) for the making of determinations in 
                hearings or review under this section are 90 days after 
                the date on which the record is complete.
                    ``(D) Complete record described.--For purposes of 
                this paragraph, a record is complete when the 
                administrative law judge, in the case of a hearing, or 
                the Departmental Appeals Board, in the case of a 
                review, has received--
                            ``(i) written or testimonial evidence, or 
                        both, submitted by the person filing the 
                        request,
                            ``(ii) written or oral argument, or both,
                            ``(iii) the decision of, and the record 
                        for, the prior level of appeal, and
                            ``(iv) such other evidence as such judge or 
                        Board, as the case may be, determines is 
                        required to make a determination on the 
                        request.''.
    (b) Use of Patients' Medical Records.--Section 1869(c)(3)(B)(i) (42 
U.S.C. 1395ff(c)(3)(B)(i)) is amended by inserting ``(including the 
medical records of the individual involved)'' after ``clinical 
experience''.
    (c) Notice Requirements for Medicare Appeals.--
            (1) Initial determinations and redeterminations.--Section 
        1869(a) (42 U.S.C. 1395ff(a)) is amended by adding at the end 
        the following new paragraph:
            ``(4) Requirements of notice of determinations and 
        redeterminations.--A written notice of a determination on an 
        initial determination or on a redetermination, insofar as such 
        determination or redetermination results in a denial of a claim 
        for benefits, shall be provided in printed form and written in 
        a manner to be understood by the beneficiary and shall 
        include--
                    ``(A) the reasons for the determination, including, 
                as appropriate--
                            ``(i) upon request in the case of an 
                        initial determination, the provision of the 
                        policy, manual, or regulation that resulted in 
                        the denial; and
                            ``(ii) in the case of a redetermination, a 
                        summary of the clinical or scientific evidence 
                        used in making the determination (as 
                        appropriate);
                    ``(B) the procedures for obtaining additional 
                information concerning the determination or 
                redetermination; and
                    ``(C) notification of the right to seek a 
                redetermination or otherwise appeal the determination 
                and instructions on how to initiate such a 
                redetermination or appeal under this section.''.
            (2) Reconsiderations.--Section 1869(c)(3)(E) (42 U.S.C. 
        1395ff(c)(3)(E)) is amended to read as follows:
                    ``(E) Explanation of decision.--Any decision with 
                respect to a reconsideration of a qualified independent 
                contractor shall be in writing in a manner to be 
                understood by the beneficiary and shall include--
                            ``(i) to the extent appropriate, a detailed 
                        explanation of the decision as well as a 
                        discussion of the pertinent facts and 
                        applicable regulations applied in making such 
                        decision;
                            ``(ii) a notification of the right to 
                        appeal such determination and instructions on 
                        how to initiate such appeal under this section; 
                        and
                            ``(iii) in the case of a determination of 
                        whether an item or service is reasonable and 
                        necessary for the diagnosis or treatment of 
                        illness or injury (under section 1862(a)(1)(A)) 
                        an explanation of the medical or scientific 
                        rationale for the decision.''.
            (3) Appeals.--Section 1869(d) (42 U.S.C. 1395ff(d)) is 
        amended--
                    (A) in the heading, by inserting ``; Notice'' after 
                ``Secretary''; and
                    (B) by adding at the end the following new 
                paragraph:
            ``(4) Notice.--Notice of the decision of an administrative 
        law judge shall be in writing in a manner to be understood by 
        the beneficiary and shall include--
                    ``(A) the specific reasons for the determination 
                (including, to the extent appropriate, a summary of the 
                clinical or scientific evidence used in making the 
                determination);
                    ``(B) the procedures for obtaining additional 
                information concerning the decision; and
                    ``(C) notification of the right to appeal the 
                decision and instructions on how to initiate such an 
                appeal under this section.''.
            (4) Preparation of record for appeal.--Section 
        1869(c)(3)(J) (42 U.S.C. 1395ff(c)(3)(J)) is amended by 
        striking ``such information as is required for an appeal'' and 
        inserting ``the record for the appeal''.
    (d) Qualified Independent Contractors.--
            (1) Eligibility requirements of qualified independent 
        contractors.--Section 1869(c) (42 U.S.C. 1395ff(c)) is 
        amended--
                    (A) in paragraph (2)--
                            (i) by inserting ``(except in the case of a 
                        utilization and quality control peer review 
                        organization, as defined in section 1152)'' 
                        after ``means an entity or organization that''; 
                        and
                            (ii) by striking the period at the end and 
                        inserting the following: ``and meets the 
                        following requirements:
                    ``(A) General requirements.--
                            ``(i) The entity or organization has 
                        (directly or through contracts or other 
                        arrangements) sufficient medical, legal, and 
                        other expertise (including knowledge of the 
                        program under this title) and sufficient 
                        staffing to carry out duties of a qualified 
                        independent contractor under this section on a 
                        timely basis.
                            ``(ii) The entity or organization has 
                        provided assurances that it will conduct 
                        activities consistent with the applicable 
                        requirements of this section, including that it 
                        will not conduct any activities in a case 
                        unless the independence requirements of 
                        subparagraph (B) are met with respect to the 
                        case.
                            ``(iii) The entity or organization meets 
                        such other requirements as the Secretary 
                        provides by regulation.
                    ``(B) Independence requirements.--
                            ``(i) In general.--Subject to clause (ii), 
                        an entity or organization meets the 
                        independence requirements of this subparagraph 
                        with respect to any case if the entity--
                                    ``(I) is not a related party (as 
                                defined in subsection (g)(5));
                                    ``(II) does not have a material 
                                familial, financial, or professional 
                                relationship with such a party in 
                                relation to such case; and
                                    ``(III) does not otherwise have a 
                                conflict of interest with such a party 
                                (as determined under regulations).
                            ``(ii) Exception for compensation.--Nothing 
                        in clause (i) shall be construed to prohibit 
                        receipt by a qualified independent contractor 
                        of compensation from the Secretary for the 
                        conduct of activities under this section if the 
                        compensation is provided consistent with clause 
                        (iii).
                            ``(iii) Limitations on entity 
                        compensation.--Compensation provided by the 
                        Secretary to a qualified independent contractor 
                        in connection with reviews under this section 
                        shall not be contingent on any decision 
                        rendered by the contractor or by any reviewing 
                        professional.''; and
                    (B) in paragraph (3)(A), by striking ``, and shall 
                have sufficient training and expertise in medical 
                science and legal matters to make reconsiderations 
                under this subsection''.
            (2) Eligibility requirements for reviewers.--Section 1869 
        (42 U.S.C. 1395ff) is amended--
                    (A) by amending subsection (c)(3)(D) to read as 
                follows:
                    ``(D) Qualifications of reviewers.--The 
                requirements of subsection (g) shall be met (relating 
                to qualifications of reviewing professionals).''; and
                    (B) by adding at the end the following new 
                subsection:
    ``(g) Qualifications of Reviewers.--
            ``(1) In general.--In reviewing determinations under this 
        section, a qualified independent contractor shall assure that--
                    ``(A) each individual conducting a review shall 
                meet the qualifications of paragraph (2);
                    ``(B) compensation provided by the contractor to 
                each such reviewer is consistent with paragraph (3); 
                and
                    ``(C) in the case of a review by a panel described 
                in subsection (c)(3)(B) composed of physicians or other 
                health care professionals (each in this subsection 
                referred to as a `reviewing professional'), each 
                reviewing professional meets the qualifications 
                described in paragraph (4).
            ``(2) Independence.--
                    ``(A) In general.--Subject to subparagraph (B), 
                each individual conducting a review in a case shall--
                            ``(i) not be a related party (as defined in 
                        paragraph (5));
                            ``(ii) not have a material familial, 
                        financial, or professional relationship with 
                        such a party in the case under review; and
                            ``(iii) not otherwise have a conflict of 
                        interest with such a party (as determined under 
                        regulations).
                    ``(B) Exception.--Nothing in subparagraph (A) shall 
                be construed to--
                            ``(i) prohibit an individual, solely on the 
                        basis of affiliation with a fiscal 
                        intermediary, carrier, or other contractor, 
                        from serving as a reviewing professional if--
                                    ``(I) a nonaffiliated individual is 
                                not reasonably available;
                                    ``(II) the affiliated individual is 
                                not involved in the provision of items 
                                or services in the case under review;
                                    ``(III) the fact of such an 
                                affiliation is disclosed to the 
                                Secretary and the beneficiary (or 
                                authorized representative) and neither 
                                party objects; and
                                    ``(IV) the affiliated individual is 
                                not an employee of the intermediary, 
                                carrier, or contractor and does not 
                                provide services exclusively or 
                                primarily to or on behalf of such 
                                intermediary, carrier, or contractor;
                            ``(ii) prohibit an individual who has staff 
                        privileges at the institution where the 
                        treatment involved takes place from serving as 
                        a reviewer merely on the basis of such 
                        affiliation if the affiliation is disclosed to 
                        the Secretary and the beneficiary (or 
                        authorized representative), and neither party 
                        objects; or
                            ``(iii) prohibit receipt of compensation by 
                        a reviewing professional from a contractor if 
                        the compensation is provided consistent with 
                        paragraph (3).
            ``(3) Limitations on reviewer compensation.--Compensation 
        provided by a qualified independent contractor to a reviewer in 
        connection with a review under this section shall not be 
        contingent on the decision rendered by the reviewer.
            ``(4) Licensure and expertise.--Each reviewing professional 
        shall be a physician (allopathic or osteopathic) or health care 
        professional who--
                    ``(A) is appropriately credentialed or licensed in 
                1 or more States to deliver health care services; and
                    ``(B) has medical expertise in the field of 
                practice that is appropriate for the items or services 
                at issue.
            ``(5) Related party defined.--For purposes of this section, 
        the term `related party' means, with respect to a case under 
        this title involving an individual beneficiary, any of the 
        following:
                    ``(A) The Secretary, the medicare administrative 
                contractor involved, or any fiduciary, officer, 
                director, or employee of the Department of Health and 
                Human Services, or of such contractor.
                    ``(B) The individual (or authorized 
                representative).
                    ``(C) The health care professional that provides 
                the items or services involved in the case.
                    ``(D) The institution at which the items or 
                services (or treatment) involved in the case are 
                provided.
                    ``(E) The manufacturer of any drug or other item 
                that is included in the items or services involved in 
                the case.
                    ``(F) Any other party determined under any 
                regulations to have a substantial interest in the case 
                involved.''.
            (3) Number of qualified independent contractors.--Section 
        1869(c)(4) (42 U.S.C. 1395ff(c)(4)) is amended by striking 
        ``12'' and inserting ``4''.
    (e) Implementation of Certain BIPA Reforms.--
            (1) Delay in certain bipa reforms.--Section 521(d) of BIPA 
        (114 Stat. 2763A-543) is amended to read as follows:
    ``(d) Effective Date.--
            ``(1) In general.--Except as specified in paragraph (2), 
        the amendments made by this section shall apply with respect to 
        initial determinations made on or after December 1, 2004.
            ``(2) Expedited proceedings and reconsideration 
        requirements.--For the following provisions, the amendments 
        made by subsection (a) shall apply with respect to initial 
        determinations made on or after October 1, 2003:
                    ``(A) Subsection (b)(1)(F)(i) of section 1869 of 
                the Social Security Act.
                    ``(B) Subsection (c)(3)(C)(iii) of such section.
                    ``(C) Subsection (c)(3)(C)(iv) of such section to 
                the extent that it applies to expedited 
                reconsiderations under subsection (c)(3)(C)(iii) of 
                such section.
            ``(3) Transitional use of peer review organizations to 
        conduct expedited reconsiderations until qics are 
        operational.--Expedited reconsiderations of initial 
        determinations under section 1869(c)(3)(C)(iii) of the Social 
        Security Act shall be made by peer review organizations until 
        qualified independent contractors are available for such 
        expedited reconsiderations.''.
            (2) Conforming amendments.--Section 521(c) of BIPA (114 
        Stat. 2763A-543) and section 1869(c)(3)(C)(iii)(III) of the 
        Social Security Act (42 U.S.C. 1395ff(c)(3)(C)(iii)(III)), as 
        added by section 521 of BIPA, are repealed.
    (f) Effective Date.--The amendments made by this section shall be 
effective as if included in the enactment of the respective provisions 
of subtitle C of title V of BIPA, 114 Stat. 2763A-534.
    (g) Transition.--In applying section 1869(g) of the Social Security 
Act (as added by subsection (d)(2)), any reference to a medicare 
administrative contractor shall be deemed to include a reference to a 
fiscal intermediary under section 1816 of the Social Security Act (42 
U.S.C. 1395h) and a carrier under section 1842 of such Act (42 U.S.C. 
1395u).

SEC. 515. HEARING RIGHTS RELATED TO DECISIONS BY THE SECRETARY TO DENY 
              OR NOT RENEW A MEDICARE ENROLLMENT AGREEMENT; 
              CONSULTATION BEFORE CHANGING PROVIDER ENROLLMENT FORMS.

    (a) Hearing Rights.--
            (1) In general.--Section 1866 (42 U.S.C. 1395cc) is amended 
        by adding at the end the following new subsection:
    ``(j) Hearing Rights in Cases of Denial or Nonrenewal.--The 
Secretary shall establish by regulation procedures under which--
            ``(1) there are deadlines for actions on applications for 
        enrollment (and, if applicable, renewal of enrollment); and
            ``(2) providers of services, physicians, practitioners, and 
        suppliers whose application to enroll (or, if applicable, to 
        renew enrollment) are denied are provided a mechanism to appeal 
        such denial and a deadline for consideration of such 
        appeals.''.
            (2) Effective date.--The Secretary shall provide for the 
        establishment of the procedures under the amendment made by 
        paragraph (1) within 18 months after the date of enactment of 
        this Act.
    (b) Consultation Before Changing Provider Enrollment Forms.--
Section 1871 (42 U.S.C. 1395hh), as amended by sections 502 and 503, is 
amended by adding at the end the following new subsection:
    ``(f) The Secretary shall consult with providers of services, 
physicians, practitioners, and suppliers before making changes in the 
provider enrollment forms required of such providers, physicians, 
practitioners, and suppliers to be eligible to submit claims for which 
payment may be made under this title.''.

SEC. 516. APPEALS BY PROVIDERS WHEN THERE IS NO OTHER PARTY AVAILABLE.

    (a) In General.--Section 1870 (42 U.S.C. 1395gg) is amended by 
adding at the end the following new subsection:
    ``(h) Notwithstanding subsection (f) or any other provision of law, 
the Secretary shall permit a provider of services, physician, 
practitioner, or other supplier to appeal any determination of the 
Secretary under this title relating to services rendered under this 
title to an individual who subsequently dies if there is no other party 
available to appeal such determination.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
take effect on the date of enactment of this Act and shall apply to 
items and services furnished on or after such date.

SEC. 517. PROVIDER ACCESS TO REVIEW OF LOCAL COVERAGE DETERMINATIONS.

    (a) Provider Access to Review of Local Coverage Determinations.--
Section 1869(f)(5) (42 U.S.C. 1395ff(f)(5)) is amended to read as 
follows:
            ``(5) Aggrieved party defined.--In this section, the term 
        `aggrieved party' means--
                    ``(A) with respect to a national coverage 
                determination, an individual entitled to benefits under 
                part A, or enrolled under part B, or both, who is in 
                need of the items or services that are the subject of 
                the coverage determination; and
                    ``(B) with respect to a local coverage 
                determination--
                            ``(i) an individual who is entitled to 
                        benefits under part A, or enrolled under part 
                        B, or both, who is adversely affected by such a 
                        determination; or
                            ``(ii) a provider of services, physician, 
                        practitioner, or supplier that is adversely 
                        affected by such a determination.''.
    (b) Clarification of Local Coverage Determination Definition.--
Section 1869(f)(2)(B) (42 U.S.C. 1395ff(f)(2)(B)) is amended by 
inserting ``, including, where appropriate, the specific requirements 
and clinical indications relating to the medical necessity of an item 
or service'' before the period at the end.
    (c) Request for Local Coverage Determinations by Providers.--
Section 1869 (42 U.S.C. 1395ff), as amended by section 514(d)(2)(B), is 
amended by adding at the end the following new subsection:
    ``(h) Request for Local Coverage Determinations by Providers.--
            ``(1) Establishment of process.--The Secretary shall 
        establish a process under which a provider of services, 
        physician, practitioner, or supplier who certifies that they 
        meet the requirements established in paragraph (3) may request 
        a local coverage determination in accordance with the 
        succeeding provisions of this subsection.
            ``(2) Provider local coverage determination request 
        defined.--In this subsection, the term `provider local coverage 
        determination request' means a request, filed with the 
        Secretary, at such time and in such form and manner as the 
        Secretary may specify, that the Secretary, pursuant to 
        paragraph (4)(A), require a fiscal intermediary, carrier, or 
        program safeguard contractor to make or revise a local coverage 
        determination under this section with respect to an item or 
        service.
            ``(3) Request requirements.--Under the process established 
        under paragraph (1), by not later than 30 days after the date 
        on which a provider local coverage determination request is 
        filed under paragraph (1), the Secretary shall determine 
        whether such request establishes that--
                    ``(A) there have been at least 5 reversals of 
                redeterminations made by a fiscal intermediary or 
                carrier after a hearing before an administrative law 
                judge on claims submitted by the provider in at least 2 
                different cases before an administrative law judge;
                    ``(B) each reversal described in subparagraph (A) 
                involves substantially similar material facts;
                    ``(C) each reversal described in subparagraph (A) 
                involves the same medical necessity issue; and
                    ``(D) at least 50 percent of the total number of 
                claims submitted by such provider within the past year 
                involving the substantially similar material facts 
                described in subparagraph (B) and the same medical 
                necessity issue described in subparagraph (C) have been 
                denied and have been reversed by an administrative law 
                judge.
            ``(4) Approval or rejection of request.--
                    ``(A) Approval of request.--If the Secretary 
                determines that subparagraphs (A) through (D) of 
                paragraph (3) have been satisfied, the Secretary shall 
                require the fiscal intermediary, carrier, or program 
                safeguard contractor identified in the provider local 
                coverage determination request, to make or revise a 
                local coverage determination with respect to the item 
                or service that is the subject of the request not later 
                than the date that is 210 days after the date on which 
                the Secretary makes the determination. Such fiscal 
                intermediary, carrier, or program safeguard contractor 
                shall retain the discretion to determine whether or 
                not, and/or the circumstances under which, to cover the 
                item or service for which a local coverage 
                determination is requested. Nothing in this subsection 
                shall be construed to require a fiscal intermediary, 
                carrier or program safeguard contractor to develop a 
                local coverage determination that is inconsistent with 
                any national coverage determination, or any coverage 
                provision in this title or in regulation, manual, or 
                interpretive guidance of the Secretary.
                    ``(B) Rejection of request.--If the Secretary 
                determines that subparagraphs (A) through (D) of 
                paragraph (3) have not been satisfied, the Secretary 
                shall reject the provider local coverage determination 
                request and shall notify the provider of services, 
                physician, practitioner, or supplier that filed the 
                request of the reason for such rejection and no further 
                proceedings in relation to such request shall be 
                conducted.''.
    (d) Study and Report on the Use of Contractors To Monitor Medicare 
Appeals.--
            (1) Study.--The Secretary shall conduct a study on the 
        feasibility and advisability of requiring fiscal intermediaries 
        and carriers to monitor and track--
                    (A) the subject matter and status of claims denied 
                by the fiscal intermediary or carrier (as applicable) 
                that are appealed under section 1869 of the Social 
                Security Act (42 U.S.C. 1395ff), as added by section 
                522 of BIPA (114 Stat. 2763A-543) and amended by this 
                Act; and
                    (B) any final determination made with respect to 
                such claims.
            (2) Report.--Not later than the date that is 1 year after 
        the date of enactment of this Act, the Secretary shall submit 
        to Congress a report on the study conducted under paragraph (1) 
        together with such recommendations for legislation and 
        administrative action as the Commission determines appropriate.
    (e) Authorization of Appropriations.--There are authorized to be 
appropriated such sums as are necessary to carry out the amendments 
made by subsections (a), (b), and (c).
    (f) Effective Dates.--
            (1) Provider access to review of local coverage 
        determinations.--The amendments made by subsections (a) and (b) 
        shall apply to--
                    (A) any review of any local coverage determination 
                filed on or after October 1, 2003;
                    (B) any request to make such a determination made 
                on or after such date; or
                    (C) any local coverage determination made on or 
                after such date.
            (2) Provider local coverage determination requests.--The 
        amendment made by subsection (c) shall apply with respect to 
        provider local coverage determination requests (as defined in 
        section 1869(h)(2) of the Social Security Act, as added by 
        subsection (c)) filed on or after the date of enactment of this 
        Act.

                     Subtitle C--Contracting Reform

SEC. 521. INCREASED FLEXIBILITY IN MEDICARE ADMINISTRATION.

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

          ``contracts with medicare administrative contractors

    ``Sec. 1874A. (a) Authority.--
            ``(1) Authority to enter into contracts.--The Secretary may 
        enter into contracts with any eligible entity to serve as a 
        medicare administrative contractor with respect to the 
        performance of any or all of the functions described in 
        paragraph (4) or parts of those functions (or, to the extent 
        provided in a contract, to secure performance thereof by other 
        entities).
            ``(2) Eligibility of entities.--An entity is eligible to 
        enter into a contract with respect to the performance of a 
        particular function described in paragraph (4) only if--
                    ``(A) the entity has demonstrated capability to 
                carry out such function;
                    ``(B) the entity complies with such conflict of 
                interest standards as are generally applicable to 
                Federal acquisition and procurement;
                    ``(C) the entity has sufficient assets to 
                financially support the performance of such function; 
                and
                    ``(D) the entity meets such other requirements as 
                the Secretary may impose.
            ``(3) Medicare administrative contractor defined.--For 
        purposes of this title and title XI--
                    ``(A) In general.--The term `medicare 
                administrative contractor' means an agency, 
                organization, or other person with a contract under 
                this section.
                    ``(B) Appropriate medicare administrative 
                contractor.--With respect to the performance of a 
                particular function in relation to an individual 
                entitled to benefits under part A or enrolled under 
                part B, or both, a specific provider of services, 
                physician, practitioner, facility, or supplier (or 
                class of such providers of services, physicians, 
                practitioners, facilities, or suppliers), the 
                `appropriate' medicare administrative contractor is the 
                medicare administrative contractor that has a contract 
                under this section with respect to the performance of 
                that function in relation to that individual, provider 
                of services, physician, practitioner, facility, or 
                supplier or class of provider of services, physician, 
                practitioner, facility, or supplier.
            ``(4) Functions described.--The functions referred to in 
        paragraphs (1) and (2) are payment functions (including the 
        function of developing local coverage determinations, as 
        defined in section 1869(f)(2)(B)), provider services functions, 
        and beneficiary services functions as follows:
                    ``(A) Determination of payment amounts.--
                Determining (subject to the provisions of section 1878 
                and to such review by the Secretary as may be provided 
                for by the contracts) the amount of the payments 
                required pursuant to this title to be made to providers 
                of services, physicians, practitioners, facilities, 
                suppliers, and individuals.
                    ``(B) Making payments.--Making payments described 
                in subparagraph (A) (including receipt, disbursement, 
                and accounting for funds in making such payments).
                    ``(C) Beneficiary education and assistance.--
                Serving as a center for, and communicating 
to individuals entitled to benefits under part A or enrolled under part 
B, or both, with respect to education and outreach for those 
individuals, and assistance with specific issues, concerns, or problems 
of those individuals.
                    ``(D) Provider consultative services.--Providing 
                consultative services to institutions, agencies, and 
                other persons to enable them to establish and maintain 
                fiscal records necessary for purposes of this title and 
                otherwise to qualify as providers of services, 
                physicians, practitioners, facilities, or suppliers.
                    ``(E) Communication with providers.--Serving as a 
                center for, and communicating to providers of services, 
                physicians, practitioners, facilities, and suppliers, 
                any information or instructions furnished to the 
                medicare administrative contractor by the Secretary, 
                and serving as a channel of communication from such 
                providers, physicians, practitioners, facilities, and 
                suppliers to the Secretary.
                    ``(F) Provider education and technical 
                assistance.--Performing the functions described in 
                subsections (e) and (f), relating to education, 
                training, and technical assistance to providers of 
                services, physicians, practitioners, facilities, and 
                suppliers.
                    ``(G) Additional functions.--Performing such other 
                functions, including (subject to paragraph (5)) 
                functions under the Medicare Integrity Program under 
                section 1893, as are necessary to carry out the 
                purposes of this title.
            ``(5) Relationship to mip contracts.--
                    ``(A) Nonduplication of activities.--In entering 
                into contracts under this section, the Secretary shall 
                assure that activities of medicare administrative 
                contractors do not duplicate activities carried out 
                under contracts entered into under the Medicare 
                Integrity Program under section 1893. The previous 
                sentence shall not apply with respect to the activity 
                described in section 1893(b)(5) (relating to prior 
                authorization of certain items of durable medical 
                equipment under section 1834(a)(15)).
                    ``(B) Construction.--An entity shall not be treated 
                as a medicare administrative contractor merely by 
                reason of having entered into a contract with the 
                Secretary under section 1893.
            ``(6) Application of federal acquisition regulation.--
        Except to the extent inconsistent with a specific requirement 
        of this title, the Federal Acquisition Regulation applies to 
        contracts under this title.
    ``(b) Contracting Requirements.--
            ``(1) Use of competitive procedures.--
                    ``(A) In general.--Except as provided in laws with 
                general applicability to Federal acquisition and 
                procurement, the Federal Acquisition Regulation, or in 
                subparagraph (B), the Secretary shall use competitive 
                procedures when entering into contracts with medicare 
                administrative contractors under this section.
                    ``(B) Renewal of contracts.--The Secretary may 
                renew a contract with a medicare administrative 
                contractor under this section from term to term without 
                regard to section 5 of title 41, United States Code, or 
                any other provision of law requiring competition, if 
                the medicare administrative contractor has met or 
                exceeded the performance requirements applicable with 
                respect to the contract and contractor, except that the 
                Secretary shall provide for the application of 
                competitive procedures under such a contract not less 
                frequently than once every 6 years.
                    ``(C) Transfer of functions.--The Secretary may 
                transfer functions among medicare administrative 
                contractors without regard to any provision of law 
                requiring competition. The Secretary shall ensure that 
                performance quality is considered in such transfers. 
                The Secretary shall provide notice (whether in the 
                Federal Register or otherwise) of any such transfer 
                (including a description of the functions so 
                transferred and contact information for the contractors 
involved) to providers of services, physicians, practitioners, 
facilities, and suppliers affected by the transfer.
                    ``(D) Incentives for quality.--The Secretary may 
                provide incentives for medicare administrative 
                contractors to provide quality service and to promote 
                efficiency.
            ``(2) Compliance with requirements.--No contract under this 
        section shall be entered into with any medicare administrative 
        contractor unless the Secretary finds that such medicare 
        administrative contractor will perform its obligations under 
        the contract efficiently and effectively and will meet such 
        requirements as to financial responsibility, legal authority, 
        and other matters as the Secretary finds pertinent.
            ``(3) Performance requirements.--
                    ``(A) Development of specific performance 
                requirements.--The Secretary shall develop contract 
                performance requirements to carry out the specific 
                requirements applicable under this title to a function 
                described in subsection (a)(4) and shall develop 
                standards for measuring the extent to which a 
                contractor has met such requirements. In developing 
                such performance requirements and standards for 
                measurement, the Secretary shall consult with providers 
                of services, organizations representative of 
                beneficiaries under this title, and organizations and 
                agencies performing functions necessary to carry out 
                the purposes of this section with respect to such 
                performance requirements. The Secretary shall make such 
                performance requirements and measurement standards 
                available to the public.
                    ``(B) Considerations.--The Secretary shall include, 
                as 1 of the standards, provider and beneficiary 
                satisfaction levels.
                    ``(C) Inclusion in contracts.--All contractor 
                performance requirements shall be set forth in the 
                contract between the Secretary and the appropriate 
                medicare administrative contractor. Such performance 
                requirements--
                            ``(i) shall reflect the performance 
                        requirements published under subparagraph (A), 
                        but may include additional performance 
                        requirements;
                            ``(ii) shall be used for evaluating 
                        contractor performance under the contract; and
                            ``(iii) shall be consistent with the 
                        written statement of work provided under the 
                        contract.
            ``(4) Information requirements.--The Secretary shall not 
        enter into a contract with a medicare administrative contractor 
        under this section unless the contractor agrees--
                    ``(A) to furnish to the Secretary such timely 
                information and reports as the Secretary may find 
                necessary in performing his functions under this title; 
                and
                    ``(B) to maintain such records and afford such 
                access thereto as the Secretary finds necessary to 
                assure the correctness and verification of the 
                information and reports under subparagraph (A) and 
                otherwise to carry out the purposes of this title.
            ``(5) Surety bond.--A contract with a medicare 
        administrative contractor under this section may require the 
        medicare administrative contractor, and any of its officers or 
        employees certifying payments or disbursing funds pursuant to 
        the contract, or otherwise participating in carrying out the 
        contract, to give surety bond to the United States in such 
        amount as the Secretary may deem appropriate.
            ``(6) Retaining diversity of local coverage 
        determinations.--A contract with a medicare administrative 
        contractor under this section to perform the function of 
        developing local coverage determinations (as defined in section 
        1869(f)(2)(B)) shall provide that the contractor shall--
                    ``(A) designate at least 1 different individual to 
                serve as medical director for each State for which such 
                contract performs such function;
                    ``(B) utilize such medical director in the 
                performance of such function; and
                    ``(C) appoint a contractor advisory committee with 
                respect to each such State to provide a formal 
                mechanism for physicians in the State to be informed 
                of, and participate in, the development of a local 
                coverage determination in an advisory capacity.
    ``(c) Terms and Conditions.--
            ``(1) In general.--Subject to subsection (a)(6), a contract 
        with any medicare administrative contractor under this section 
        may contain such terms and conditions as the Secretary finds 
        necessary or appropriate and may provide for advances of funds 
        to the medicare administrative contractor for the making of 
        payments by it under subsection (a)(4)(B).
            ``(2) Prohibition on mandates for certain data 
        collection.--The Secretary may not require, as a condition of 
        entering into, or renewing, a contract under this section, that 
        the medicare administrative contractor match data obtained 
        other than in its activities under this title with data used in 
        the administration of this title for purposes of identifying 
        situations in which the provisions of section 1862(b) may 
        apply.
    ``(d) Limitation on Liability of Medicare Administrative 
Contractors and Certain Officers.--
            ``(1) Certifying officer.--No individual designated 
        pursuant to a contract under this section as a certifying 
        officer shall, in the absence of the reckless disregard of the 
        individual's obligations or the intent by that individual to 
defraud the United States, be liable with respect to any payments 
certified by the individual under this section.
            ``(2) Disbursing officer.--No disbursing officer shall, in 
        the absence of the reckless disregard of the officer's 
        obligations or the intent by that officer to defraud the United 
        States, be liable with respect to any payment by such officer 
        under this section if it was based upon an authorization (which 
        meets the applicable requirements for such internal controls 
        established by the Comptroller General) of a certifying officer 
        designated as provided in paragraph (1) of this subsection.
            ``(3) Liability of medicare administrative contractor.--No 
        medicare administrative contractor shall be liable to the 
        United States for a payment by a certifying or disbursing 
        officer unless, in connection with such a payment, the medicare 
        administrative contractor acted with reckless disregard of its 
        obligations under its medicare administrative contract or with 
        intent to defraud the United States.
            ``(4) Relationship to false claims act.--Nothing in this 
        subsection shall be construed to limit liability for conduct 
        that would constitute a violation of sections 3729 through 3731 
        of title 31, United States Code (commonly known as the ``False 
        Claims Act'').
            ``(5) Indemnification by secretary.--
                    ``(A) In general.--Notwithstanding any other 
                provision of law and subject to the succeeding 
                provisions of this paragraph, in the case of a medicare 
                administrative contractor (or a person who is a 
                director, officer, or employee of such a contractor or 
                who is engaged by the contractor to participate 
                directly in the claims administration process) who is 
                made a party to any judicial or administrative 
                proceeding arising from, or relating directly to, the 
                claims administration process under this title, the 
                Secretary may, to the extent specified in the contract 
                with the contractor, indemnify the contractor (and such 
                persons).
                    ``(B) Conditions.--The Secretary may not provide 
                indemnification under subparagraph (A) insofar as the 
                liability for such costs arises directly from conduct 
                that is determined by the Secretary to be criminal in 
                nature, fraudulent, or grossly negligent.
                    ``(C) Scope of indemnification.--Indemnification by 
                the Secretary under subparagraph (A) may include 
                payment of judgments, settlements (subject to 
                subparagraph (D)), awards, and costs (including 
                reasonable legal expenses).
                    ``(D) Written approval for settlements.--A 
                contractor or other person described in subparagraph 
                (A) may not propose to negotiate a settlement or 
                compromise of a proceeding described in such 
                subparagraph without the prior written approval of the 
                Secretary to negotiate a settlement. Any 
                indemnification under subparagraph (A) with respect to 
                amounts paid under a settlement are conditioned upon 
                the Secretary's prior written approval of the final 
                settlement.
                    ``(E) Construction.--Nothing in this paragraph 
                shall be construed--
                            ``(i) to change any common law immunity 
                        that may be available to a medicare 
                        administrative contractor or person described 
                        in subparagraph (A); or
                            ``(ii) to permit the payment of costs not 
                        otherwise allowable, reasonable, or allocable 
                        under the Federal Acquisition Regulations.''.
            (2) Consideration of incorporation of current law 
        standards.--In developing contract performance requirements 
        under section 1874A(b) of the Social Security Act (as added by 
        paragraph (1)) the Secretary shall consider inclusion of the 
        performance standards described in sections 1816(f)(2) of such 
        Act (relating to timely processing of reconsiderations and 
        applications for exemptions) and section 1842(b)(2)(B) of such 
        Act (relating to timely review of determinations and fair 
        hearing requests), as such sections were in effect before the 
        date of enactment of this Act.
    (b) Conforming Amendments to Section 1816 (Relating to Fiscal 
Intermediaries).--Section 1816 (42 U.S.C. 1395h) is amended as follows:
            (1) The heading is amended to read as follows:

        ``provisions relating to the administration of part a''.

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

        ``provisions relating to the administration of part b''.

            (2) Subsection (a) is amended to read as follows:
    ``(a) The administration of this part shall be conducted through 
contracts with medicare administrative contractors under section 
1874A.''.
            (3) Subsection (b) is amended--
                    (A) by striking paragraph (1);
                    (B) in paragraph (2)--
                            (i) by striking subparagraphs (A) and (B);
                            (ii) in subparagraph (C), by striking 
                        ``carriers'' and inserting ``medicare 
                        administrative contractors''; and
                            (iii) by striking subparagraphs (D) and 
                        (E);
                    (C) in paragraph (3)--
                            (i) in the matter before subparagraph (A), 
                        by striking ``Each such contract shall provide 
                        that the carrier'' and inserting ``The 
                        Secretary'';
                            (ii) by striking ``will'' the first place 
                        it appears in each of subparagraphs (A), (B), 
                        (F), (G), (H), and (L) and inserting ``shall'';
                            (iii) in subparagraph (B), in the matter 
                        before clause (i), by striking ``to the 
                        policyholders and subscribers of the carrier'' 
                        and inserting ``to the policyholders and 
                        subscribers of the medicare administrative 
                        contractor'';
                            (iv) by striking subparagraphs (C), (D), 
                        and (E);
                            (v) in subparagraph (H)--
                                    (I) by striking ``if it makes 
                                determinations or payments with respect 
                                to physicians' services,''; and
                                    (II) by striking ``carrier'' and 
                                inserting ``medicare administrative 
                                contractor'';
                            (vi) by striking subparagraph (I);
                            (vii) in subparagraph (L), by striking the 
                        semicolon and inserting a period;
                            (viii) in the first sentence, after 
                        subparagraph (L), by striking ``and shall 
                        contain'' and all that follows through the 
                        period; and
                            (ix) in the seventh sentence, by inserting 
                        ``medicare administrative contractor,'' after 
                        ``carrier,'';
                    (D) by striking paragraph (5);
                    (E) in paragraph (6)(D)(iv), by striking 
                ``carrier'' and inserting ``medicare administrative 
                contractor''; and
                    (F) in paragraph (7), by striking ``the carrier'' 
                and inserting ``the Secretary'' each place it appears.
            (4) Subsection (c) is amended--
                    (A) by striking paragraph (1);
                    (B) in paragraph (2), by striking ``contract under 
                this section which provides for the disbursement of 
                funds, as described in subsection (a)(1)(B),'' and 
                inserting ``contract under section 1874A that provides 
                for making payments under this part'';
                    (C) in paragraph (3)(A), by striking ``subsection 
                (a)(1)(B)'' and inserting ``section 1874A(a)(3)(B)'';
                    (D) in paragraph (4), by striking ``carrier'' and 
                inserting ``medicare administrative contractor'';
                    (E) in paragraph (5), by striking ``contract under 
                this section which provides for the disbursement of 
                funds, as described in subsection (a)(1)(B), shall 
                require the carrier'' and ``carrier responses'' and 
                inserting ``contract under section 1874A that provides 
                for making payments under this part shall require the 
                medicare administrative contractor'' and ``contractor 
                responses'', respectively; and
                    (F) by striking paragraph (6).
            (5) Subsections (d), (e), and (f) are repealed.
            (6) Subsection (g) is amended by striking ``carrier or 
        carriers'' and inserting ``medicare administrative contractor 
        or contractors''.
            (7) Subsection (h) is amended--
                    (A) in paragraph (2)--
                            (i) by striking ``Each carrier having an 
                        agreement with the Secretary under subsection 
                        (a)'' and inserting ``The Secretary''; and
                            (ii) by striking ``Each such carrier'' and 
                        inserting ``The Secretary'';
                    (B) in paragraph (3)(A)--
                            (i) by striking ``a carrier having an 
                        agreement with the Secretary under subsection 
                        (a)'' and inserting ``medicare administrative 
                        contractor having a contract under section 
                        1874A that provides for making payments under 
                        this part''; and
                            (ii) by striking ``such carrier'' and 
                        inserting ``such contractor'';
                    (C) in paragraph (3)(B)--
                            (i) by striking ``a carrier'' and inserting 
                        ``a medicare administrative contractor'' each 
                        place it appears; and
                            (ii) by striking ``the carrier'' and 
                        inserting ``the contractor'' each place it 
                        appears; and
                    (D) in paragraphs (5)(A) and (5)(B)(iii), by 
                striking ``carriers'' and inserting ``medicare 
                administrative contractors'' each place it appears.
            (8) Subsection (l) is amended--
                    (A) in paragraph (1)(A)(iii), by striking 
                ``carrier'' and inserting ``medicare administrative 
                contractor''; and
                    (B) in paragraph (2), by striking ``carrier'' and 
                inserting ``medicare administrative contractor''.
            (9) Subsection (p)(3)(A) is amended by striking ``carrier'' 
        and inserting ``medicare administrative contractor''.
            (10) Subsection (q)(1)(A) is amended by striking 
        ``carrier''.
    (d) Effective Date; Transition Rule.--
            (1) Effective date.--
                    (A) In general.--Except as otherwise provided in 
                this subsection, the amendments made by this section 
                shall take effect on October 1, 2005, and the Secretary 
                is authorized to take such steps before such date as 
                may be necessary to implement such amendments on a 
                timely basis.
                    (B) Construction for current contracts.--Such 
                amendments shall not apply to contracts in effect 
                before the date specified under subparagraph (A) that 
                continue to retain the terms and conditions in effect 
                on such date (except as otherwise provided under this 
                title, other than under this section) until such date 
                as the contract is let out for competitive bidding 
                under such amendments.
                    (C) Deadline for competitive bidding.--The 
                Secretary shall provide for the letting by competitive 
                bidding of all contracts for functions of medicare 
                administrative contractors for annual contract periods 
                that begin on or after October 1, 2011.
            (2) General transition rules.--
                    (A) Authority to continue to enter into new 
                agreements and contracts and waiver of provider 
                nomination provisions during transition.--Prior to the 
                date specified in paragraph (1)(A), the Secretary may, 
                consistent with subparagraph (B), continue to enter 
                into agreements under section 1816 and contracts under 
                section 1842 of the Social Security Act (42 U.S.C. 
                1395h, 1395u). The Secretary may enter into new 
                agreements under section 1816 during the time period 
                without regard to any of the provider nomination 
                provisions of such section.
                    (B) Appropriate transition.--The Secretary shall 
                take such steps as are necessary to provide for an 
                appropriate transition from agreements under section 
                1816 and contracts under section 1842 of the Social 
                Security Act (42 U.S.C. 1395h, 1395u) to contracts 
                under section 1874A, as added by subsection (a)(1).
            (3) Authorizing continuation of mip activities under 
        current contracts and agreements and under transition 
        contracts.--The provisions contained in the exception in 
        section 1893(d)(2) of the Social Security Act (42 U.S.C. 
        1395ddd(d)(2)) shall continue to apply notwithstanding the 
        amendments made by this section, and any reference in such 
        provisions to an agreement or contract shall be deemed to 
        include agreements and contracts entered into pursuant to 
        paragraph (2)(A).
    (e) References.--On and after the effective date provided under 
subsection (d)(1), any reference to a fiscal intermediary or carrier 
under title XI or XVIII of the Social Security Act (or any regulation, 
manual instruction, interpretative rule, statement of policy, or 
guideline issued to carry out such titles) shall be deemed a reference 
to an appropriate medicare administrative contractor (as provided under 
section 1874A of the Social Security Act).
    (f) Secretarial Submission of Legislative Proposal.--Not later than 
6 months after the date of enactment of this Act, the Secretary shall 
submit to the appropriate committees of Congress a legislative proposal 
providing for such technical and conforming amendments in the law as 
are required by the provisions of this section.
    (g) Reports on Implementation.--
            (1) Proposal for implementation.--At least 1 year before 
        the date specified in subsection (d)(1)(A), the Secretary shall 
        submit a report to Congress and the Comptroller General of the 
        United States that describes a plan for an appropriate 
        transition. The Comptroller General shall conduct an evaluation 
        of such plan and shall submit to Congress, not later than 6 
        months after the date the report is received, a report on such 
        evaluation and shall include in such report such 
        recommendations as the Comptroller General deems appropriate.
            (2) Status of implementation.--The Secretary shall submit a 
        report to Congress not later than October 1, 2008, that 
        describes the status of implementation of such amendments and 
        that includes a description of the following:
                    (A) The number of contracts that have been 
                competitively bid as of such date.
                    (B) The distribution of functions among contracts 
                and contractors.
                    (C) A timeline for complete transition to full 
                competition.
                    (D) A detailed description of how the Secretary has 
                modified oversight and management of medicare 
                contractors to adapt to full competition.

            Subtitle D--Education and Outreach Improvements

SEC. 531. PROVIDER EDUCATION AND TECHNICAL ASSISTANCE.

    (a) Coordination of Education Funding.--
            (1) In general.--The Social Security Act is amended by 
        inserting after section 1888 the following new section:

             ``provider education and technical assistance

    ``Sec. 1889. (a) Coordination of Education Funding.--The Secretary 
shall coordinate the educational activities provided through medicare 
contractors (as defined in subsection (e), including under section 
1893) in order to maximize the effectiveness of Federal education 
efforts for providers of services, physicians, practitioners, and 
suppliers.''.
            (2) Effective date.--The amendment made by paragraph (1) 
        shall take effect on the date of enactment of this Act.
            (3) Report.--Not later than October 1, 2004, the Secretary 
        shall submit to Congress a report that includes a description 
        and evaluation of the steps taken to coordinate the funding of 
        provider education under section 1889(a) of the Social Security 
        Act, as added by paragraph (1).
    (b) Incentives To Improve Contractor Performance.--
            (1) In general.--Section 1874A, as added by section 
        521(a)(1), is amended by adding at the end the following new 
        subsection:
    ``(e) Incentives To Improve Contractor Performance in Provider 
Education and Outreach.--
            ``(1) Methodology to measure contractor error rates.--In 
        order to give medicare contractors (as defined in paragraph 
        (3)) an incentive to implement effective education and outreach 
        programs for providers of services, physicians, practitioners, 
        and suppliers, the Secretary shall develop and implement by 
        October 1, 2004, a methodology to measure the specific claims 
        payment error rates of such contractors in the processing or 
        reviewing of medicare claims.
            ``(2) GAO review of methodology.--The Comptroller General 
        of the United States shall review, and make recommendations to 
        the Secretary, regarding the adequacy of such methodology.
            ``(3) Medicare contractor defined.--For purposes of this 
        subsection, the term `medicare contractor' includes a medicare 
        administrative contractor, a fiscal intermediary with a 
        contract under section 1816, and a carrier with a contract 
        under section 1842.''.
            (2) Report.--The Secretary shall submit to Congress a 
        report that describes how the Secretary intends to use the 
        methodology developed under section 1874A(e)(1) of the Social 
        Security Act, as added by paragraph (1), in assessing medicare 
        contractor performance in implementing effective education and 
        outreach programs, including whether to use such methodology as 
        a basis for performance bonuses.
    (c) Improved Provider Education and Training.--
            (1) Increased funding for enhanced education and training 
        through medicare integrity program.--Section 1817(k)(4) (42 
        U.S.C. 1395i(k)(4)) is amended--
                    (A) in subparagraph (A), by striking ``subparagraph 
                (B)'' and inserting ``subparagraphs (B) and (C)'';
                    (B) in subparagraph (B), by striking ``The amount 
                appropriated'' and inserting ``Subject to subparagraph 
                (C), the amount appropriated''; and
                    (C) by adding at the end the following new 
                subparagraph:
                    ``(C) Enhanced provider education and training.--
                            ``(i) In general.--In addition to the 
                        amount appropriated under subparagraph (B), the 
                        amount appropriated under subparagraph (A) for 
                        a fiscal year (beginning with fiscal year 2004) 
is increased by $35,000,000.
                            ``(ii) Use.--The funds made available under 
                        this subparagraph shall be used only to 
                        increase the conduct by medicare contractors of 
                        education and training of providers of 
                        services, physicians, practitioners, and 
                        suppliers regarding billing, coding, and other 
                        appropriate items and may also be used to 
                        improve the accuracy, consistency, and 
                        timeliness of contractor responses to written 
                        and phone inquiries from providers of services, 
                        physicians, practitioners, and suppliers.''.
            (2) Tailoring education and training for small providers or 
        suppliers.--
                    (A) In general.--Section 1889, as added by 
                subsection (a), is amended by adding at the end the 
                following new subsection:
    ``(b) Tailoring Education and Training Activities for Small 
Providers or Suppliers.--
            ``(1) In general.--Insofar as a medicare contractor 
        conducts education and training activities, it shall take into 
        consideration the special needs of small providers of services 
        or suppliers (as defined in paragraph (2)). Such education and 
        training activities for small providers of services and 
        suppliers may include the provision of technical assistance 
        (such as review of billing systems and internal controls to 
        determine program compliance and to suggest more efficient and 
        effective means of achieving such compliance).
            ``(2) Small provider of services or supplier.--In this 
        subsection, the term `small provider of services or supplier' 
        means--
                    ``(A) an institutional provider of services with 
                fewer than 25 full-time-equivalent employees; or
                    ``(B) a physician, practitioner, or supplier with 
                fewer than 10 full-time-equivalent employees.''.
                    (B) Effective date.--The amendment made by 
                subparagraph (A) shall take effect on January 1, 2004.
    (d) Additional Provider Education Provisions.--
            (1) In general.--Section 1889, as added by subsection (a) 
        and as amended by subsection (c)(2), is amended by adding at 
        the end the following new subsections:
    ``(c) Encouragement of Participation in Education Program 
Activities.--A medicare contractor may not use a record of attendance 
at (or failure to attend) educational activities or other information 
gathered during an educational program conducted under this section or 
otherwise by the Secretary to select or track providers of services, 
physicians, practitioners, or suppliers for the purpose of conducting 
any type of audit or prepayment review.
    ``(d) Construction.--Nothing in this section or section 1893(g) 
shall be construed as providing for disclosure by a medicare 
contractor--
            ``(1) of the screens used for identifying claims that will 
        be subject to medical review; or
            ``(2) of information that would compromise pending law 
        enforcement activities or reveal findings of law enforcement-
        related audits.
    ``(e) Definitions.--For purposes of this section and section 
1817(k)(4)(C), the term `medicare contractor' includes the following:
            ``(1) A medicare administrative contractor with a contract 
        under section 1874A, a fiscal intermediary with a contract 
        under section 1816, and a carrier with a contract under section 
        1842.
            ``(2) An eligible entity with a contract under section 
        1893.
Such term does not include, with respect to activities of a specific 
provider of services, physician, practitioner, or supplier an entity 
that has no authority under this title or title XI with respect to such 
activities and such provider of services, physician, practitioner, or 
supplier.''.
            (2) Effective date.--The amendment made by paragraph (1) 
        shall take effect on the date of enactment of this Act.

SEC. 532. ACCESS TO AND PROMPT RESPONSES FROM MEDICARE CONTRACTORS.

    (a) In General.--Section 1874A, as added by section 521(a)(1) and 
as amended by section 531(b)(1), is amended by adding at the end the 
following new subsection:
    ``(f) Communicating With Beneficiaries and Providers.--
            ``(1) Communication process.--The Secretary shall develop a 
        process for medicare contractors to communicate with 
        beneficiaries and with providers of services, physicians, 
        practitioners, and suppliers under this title.
            ``(2) Response to written inquiries.--Each medicare 
        contractor (as defined in paragraph (5)) shall provide general 
        written responses (which may be through electronic 
        transmission) in a clear, concise, and accurate manner to 
        inquiries by beneficiaries, providers of services, physicians, 
        practitioners, and suppliers concerning the programs under this 
        title within 45 business days of the date of receipt of such 
        inquiries.
            ``(3) Response to toll-free lines.--The Secretary shall 
        ensure that medicare contractors provide a toll-free telephone 
        number at which beneficiaries, providers, physicians, 
        practitioners, and suppliers may obtain information regarding 
        billing, coding, claims, coverage, and other appropriate 
        information under this title.
            ``(4) Monitoring of contractor responses.--
                    ``(A) In general.--Each medicare contractor shall, 
                consistent with standards developed by the Secretary 
                under subparagraph (B)--
                            ``(i) maintain a system for identifying who 
                        provides the information referred to in 
                        paragraphs (2) and (3); and
                            ``(ii) monitor the accuracy, consistency, 
                        and timeliness of the information so provided.
                    ``(B) Development of standards.--
                            ``(i) In general.--The Secretary shall 
                        establish (and publish in the Federal Register) 
                        standards regarding the accuracy, consistency, 
                        and timeliness of the information provided in 
                        response to inquiries under this subsection. 
                        Such standards shall be consistent with the 
                        performance requirements established under 
                        subsection (b)(3).
                            ``(ii) Evaluation.--In conducting 
                        evaluations of individual medicare contractors, 
                        the Secretary shall consider the results of the 
                        monitoring conducted under subparagraph (A) 
                        taking into account as performance requirements 
                        the standards established under clause (i). The 
                        Secretary shall, in consultation with 
                        organizations representing providers of 
                        services, suppliers, and individuals entitled 
                        to benefits under part A or enrolled under part 
                        B, or both, establish standards relating to the 
                        accuracy, consistency, and timeliness of the 
                        information so provided.
                    ``(C) Direct monitoring.--Nothing in this paragraph 
                shall be construed as preventing the Secretary from 
                directly monitoring the accuracy, consistency, and 
                timeliness of the information so provided.
            ``(5) Medicare contractor defined.--For purposes of this 
        subsection, the term `medicare contractor' has the meaning 
        given such term in subsection (e)(3).''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
take effect October 1, 2004.

SEC. 533. RELIANCE ON GUIDANCE.

    (a) In General.--Section 1871(d), as added by section 502(a), is 
amended by adding at the end the following new paragraph:
    ``(2) If--
            ``(A) a provider of services, physician, practitioner, or 
        other supplier follows written guidance provided--
                    ``(i) by the Secretary; or
                    ``(ii) by a medicare contractor (as defined in 
                section 1889(e) and whether in the form of a written 
                response to a written inquiry under section 
1874A(f)(1) or otherwise) acting within the scope of the contractor's 
contract authority,
        in response to a written inquiry with respect to the furnishing 
        of items or services or the submission of a claim for benefits 
        for such items or services;
            ``(B) the Secretary determines that--
                    ``(i) the provider of services, physician, 
                practitioner, or supplier has accurately presented the 
                circumstances relating to such items, services, and 
                claim to the Secretary or the contractor in the written 
                guidance; and
                    ``(ii) there is no indication of fraud or abuse 
                committed by the provider of services, physician, 
                practitioner, or supplier against the program under 
                this title; and
            ``(C) the guidance was in error;
the provider of services, physician, practitioner, or supplier shall 
not be subject to any penalty or interest under this title (or the 
provisions of title XI insofar as they relate to this title) relating 
to the provision of such items or service or such claim if the provider 
of services, physician, practitioner, or supplier reasonably relied on 
such guidance. In applying this paragraph with respect to guidance in 
the form of general responses to frequently asked questions, the 
Secretary retains authority to determine the extent to which such 
general responses apply to the particular circumstances of individual 
claims.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to penalties imposed on or after the date of enactment of this 
Act.

SEC. 534. MEDICARE PROVIDER OMBUDSMAN.

    (a) Medicare Provider Ombudsman.--Section 1868 (42 U.S.C. 1395ee) 
is amended--
            (1) by adding at the end of the heading the following: ``; 
        medicare provider ombudsman'';
            (2) by inserting ``Practicing Physicians Advisory 
        Council.--(1)'' after ``(a)'';
            (3) in paragraph (1), as so redesignated under paragraph 
        (2), by striking ``in this section'' and inserting ``in this 
        subsection'';
            (4) by redesignating subsections (b) and (c) as paragraphs 
        (2) and (3), respectively; and
            (5) by adding at the end the following new subsection:
    ``(b) Medicare Provider Ombudsman.--
            ``(1) In general.--By not later than 1 year after the date 
        of enactment of the Prescription Drug and Medicare Improvement 
        Act of 2003, the Secretary shall appoint a Medicare Provider 
        Ombudsman.
            ``(2) Duties.--The Medicare Provider Ombudsman shall--
                    ``(A) provide assistance, on a confidential basis, 
                to entities and individuals providing items and 
                services, including covered drugs under part D, under 
                this title with respect to complaints, grievances, and 
                requests for information concerning the programs under 
                this title (including provisions of title XI insofar as 
                they relate to this title and are not administered by 
                the Office of the Inspector General of the Department 
                of Health and Human Services) and in the resolution of 
                unclear or conflicting guidance given by the Secretary 
                and medicare contractors to such providers of services 
                and suppliers regarding such programs and provisions 
                and requirements under this title and such provisions; 
                and
                    ``(B) submit recommendations to the Secretary for 
                improvement in the administration of this title and 
                such provisions, including--
                            ``(i) recommendations to respond to 
                        recurring patterns of confusion in this title 
                        and such provisions (including recommendations 
                        regarding suspending imposition of sanctions 
                        where there is widespread confusion in program 
                        administration), and
                            ``(ii) recommendations to provide for an 
                        appropriate and consistent response (including 
                        not providing for audits) in cases of self-
identified overpayments by providers of services and suppliers.
            ``(3) Staff.--The Secretary shall provide the Medicare 
        Provider Ombudsman with appropriate staff.''.
    (b) Funding.--There are authorized to be appropriated to the 
Secretary (in appropriate part from the Federal Hospital Insurance 
Trust Fund and the Federal Supplementary Medical Insurance Trust Fund 
(including the Prescription Drug Account)) to carry out the provisions 
of subsection (b) of section 1868 of the Social Security Act (42 U.S.C. 
1395ee) (relating to the Medicare Provider Ombudsman), as added by 
subsection (a)(5), such sums as are necessary for fiscal year 2004 and 
each succeeding fiscal year.

SEC. 535. BENEFICIARY OUTREACH DEMONSTRATION PROGRAMS.

    (a) Demonstration on the Provision of Advice and Assistance to 
Medicare Beneficiaries at Local Offices of the Social Security 
Administration.--
            (1) Establishment.--The Secretary shall establish a 
        demonstration program (in this subsection referred to as the 
        ``demonstration program'') under which medicare specialists 
        employed by the Department of Health and Human Services provide 
        advice and assistance to medicare beneficiaries at the location 
        of existing local offices of the Social Security 
        Administration.
            (2) Locations.--
                    (A) In general.--The demonstration program shall be 
                conducted in at least 6 offices or areas. Subject to 
                subparagraph (B), in selecting such offices and areas, 
                the Secretary shall provide preference for offices with 
                a high volume of visits by medicare beneficiaries.
                    (B) Assistance for rural beneficiaries.--The 
                Secretary shall provide for the selection of at least 2 
                rural areas to participate in the demonstration 
                program. In conducting the demonstration program in 
                such rural areas, the Secretary shall provide for 
                medicare specialists to travel among local offices in a 
                rural area on a scheduled basis.
            (3) Duration.--The demonstration program shall be conducted 
        over a 3-year period.
            (4) Evaluation and report.--
                    (A) Evaluation.--The Secretary shall provide for an 
                evaluation of the demonstration program. Such 
                evaluation shall include an analysis of--
                            (i) utilization of, and beneficiary 
                        satisfaction with, the assistance provided 
                        under the program; and
                            (ii) the cost-effectiveness of providing 
                        beneficiary assistance through out-stationing 
                        medicare specialists at local social security 
                        offices.
                    (B) Report.--The Secretary shall submit to Congress 
                a report on such evaluation and shall include in such 
                report recommendations regarding the feasibility of 
                permanently out-stationing Medicare specialists at 
                local social security offices.
    (b) Demonstration on Providing Prior Determinations.--
            (1) Establishment.--By not later than 1 year after the date 
        of enactment of this Act, the Secretary shall establish a 
        demonstration project to test the administrative feasibility of 
        providing a process for medicare beneficiaries and entities and 
        individuals furnishing such beneficiaries with items and 
        services under title XVIII of the Social Security Act program 
        to make a request for, and receive, a determination (after an 
        advance beneficiary notice is issued with respect to the item 
        or service involved but before such item or service is 
        furnished to the beneficiary) as to whether the item or service 
        is covered under such title consistent with the applicable 
        requirements of section 1862(a)(1)(A) of such Act (42 U.S.C. 
        1395y(a)(1)(A)) (relating to medical necessity).
            (2) Evaluation and report.--
                    (A) Evaluation.--The Secretary shall provide for an 
                evaluation of the demonstration program conducted under 
                paragraph (1).
                    (B) Report.--By not later than January 1, 2006, the 
                Secretary shall submit to Congress a report on such 
                evaluation together with recommendations for such 
                legislation and administrative actions as the Secretary 
                considers appropriate.

          Subtitle E--Review, Recovery, and Enforcement Reform

SEC. 541. PREPAYMENT REVIEW.

    (a) In General.--Section 1874A, as added by section 521(a)(1) and 
as amended by sections 531(b)(1) and 532(a), is amended by adding at 
the end the following new subsection:
    ``(g) Conduct of Prepayment Review.--
            ``(1) Standardization of random prepayment review.--A 
        medicare administrative contractor shall conduct random 
        prepayment review only in accordance with a standard protocol 
        for random prepayment audits developed by the Secretary.
            ``(2) Limitations on initiation of nonrandom prepayment 
        review.--A medicare administrative contractor may not initiate 
        nonrandom prepayment review of a provider of services, 
        physician, practitioner, or supplier based on the initial 
        identification by that provider of services, physician, 
        practitioner, or supplier of an improper billing practice 
        unless there is a likelihood of sustained or high level of 
        payment error (as defined by the Secretary).
            ``(3) Termination of nonrandom prepayment review.--The 
        Secretary shall establish protocols or standards relating to 
        the termination, including termination dates, of nonrandom 
        prepayment review. Such regulations may vary such a termination 
        date based upon the differences in the circumstances triggering 
        prepayment review.
            ``(4) Construction.--Nothing in this subsection shall be 
        construed as preventing the denial of payments for claims 
        actually reviewed under a random prepayment review. In the case 
        of a provider of services, physician, practitioner, or supplier 
        with respect to which amounts were previously overpaid, nothing 
        in this subsection shall be construed as limiting the ability 
        of a medicare administrative contractor to request the periodic 
        production of records or supporting documentation for a limited 
        sample of submitted claims to ensure that the previous practice 
        is not continuing.
            ``(5) Random prepayment review defined.--For purposes of 
        this subsection, the term `random prepayment review' means a 
        demand for the production of records or documentation absent 
        cause with respect to a claim.''.
    (b) Effective Date.--
            (1) In general.--Except as provided in this subsection, the 
        amendment made by subsection (a) shall take effect on the date 
        of enactment of this Act.
            (2) Deadline for promulgation of certain regulations.--The 
        Secretary shall first issue regulations under section 1874A(g) 
        of the Social Security Act, as added by subsection (a), by not 
        later than 1 year after the date of enactment of this Act.
            (3) Application of standard protocols for random prepayment 
        review.--Section 1874A(g)(1) of the Social Security Act, as 
        added by subsection (a), shall apply to random prepayment 
        reviews conducted on or after such date (not later than 1 year 
        after the date of enactment of this Act) as the Secretary shall 
        specify. The Secretary shall develop and publish the standard 
        protocol under such section by not later than 1 year after the 
        date of enactment of this Act.

SEC. 542. RECOVERY OF OVERPAYMENTS.

    (a) In General.--Section 1874A, as added by section 521(a)(1) and 
as amended by sections 531(b)(1), 532(a), and 541(a), is amended by 
adding at the end the following new subsection:
    ``(h) Recovery of Overpayments.--
            ``(1) Use of repayment plans.--
                    ``(A) In general.--If the repayment, within the 
                period otherwise permitted by a provider of services, 
                physician, practitioner, or other supplier, of an 
                overpayment under this title meets the standards 
                developed under subparagraph (B), subject to 
                subparagraph (C), and the provider, physician, 
                practitioner, or supplier requests the Secretary to 
                enter into a repayment plan with respect to such 
                overpayment, the Secretary shall enter into a plan with 
                the provider, physician, practitioner, or supplier for 
                the offset or repayment (at the election of the 
                provider, physician, practitioner, or supplier) of such 
                overpayment over a period of at least 1 year, but not 
                longer than 3 years. Interest shall accrue on the 
                balance through the period of repayment. The repayment 
                plan shall meet terms and conditions determined to be 
                appropriate by the Secretary.
                    ``(B) Development of standards.--The Secretary 
                shall develop standards for the recovery of 
                overpayments. Such standards shall--
                            ``(i) include a requirement that the 
                        Secretary take into account (and weigh in favor 
                        of the use of a repayment plan) the reliance 
                        (as described in section 1871(d)(2)) by a 
                        provider of services, physician, practitioner, 
                        and supplier on guidance when determining 
                        whether a repayment plan should be offered; and
                            ``(ii) provide for consideration of the 
                        financial hardship imposed on a provider of 
                        services, physician, practitioner, or supplier 
                        in considering such a repayment plan.
                In developing standards with regard to financial 
                hardship with respect to a provider of services, 
                physician, practitioner, or supplier, the Secretary 
                shall take into account the amount of the proposed 
                recovery as a proportion of payments made to that 
                provider, physician, practitioner, or supplier.
                    ``(C) Exceptions.--Subparagraph (A) shall not apply 
                if--
                            ``(i) the Secretary has reason to suspect 
                        that the provider of services, physician, 
                        practitioner, or supplier may file for 
                        bankruptcy or otherwise cease to do business or 
                        discontinue participation in the program under 
                        this title; or
                            ``(ii) there is an indication of fraud or 
                        abuse committed against the program.
                    ``(D) Immediate collection if violation of 
                repayment plan.--If a provider of services, physician, 
                practitioner, or supplier fails to make a payment in 
                accordance with a repayment plan under this paragraph, 
                the Secretary may immediately seek to offset or 
                otherwise recover the total balance outstanding 
                (including applicable interest) under the repayment 
                plan.
                    ``(E) Relation to no fault provision.--Nothing in 
                this paragraph shall be construed as affecting the 
                application of section 1870(c) (relating to no 
                adjustment in the cases of certain overpayments).
            ``(2) Limitation on recoupment.--
                    ``(A) No recoupment until reconsideration 
                exercised.--In the case of a provider of services, 
                physician, practitioner, or supplier that is determined 
                to have received an overpayment under this title and 
                that seeks a reconsideration of such determination by a 
                qualified independent contractor under section 1869(c), 
                the Secretary may not take any action (or authorize any 
                other person, including any Medicare contractor, as 
                defined in subparagraph (C)) to recoup the overpayment 
                until the date the decision on the reconsideration has 
                been rendered.
                    ``(B) Payment of interest.--
                            ``(i) Return of recouped amount with 
                        interest in case of reversal.--Insofar as such 
                        determination on appeal against the provider of 
                        services, physician, practitioner, or supplier 
                        is later reversed, the Secretary shall provide 
for repayment of the amount recouped plus interest for the period in 
which the amount was recouped.
                            ``(ii) Interest in case of affirmation.--
                        Insofar as the determination on such appeal is 
                        against the provider of services, physician, 
                        practitioner, or supplier, interest on the 
                        overpayment shall accrue on and after the date 
                        of the original notice of overpayment.
                            ``(iii) Rate of interest.--The rate of 
                        interest under this subparagraph shall be the 
                        rate otherwise applicable under this title in 
                        the case of overpayments.
                    ``(C) Medicare contractor defined.--For purposes of 
                this subsection, the term `medicare contractor' has the 
                meaning given such term in section 1889(e).
            ``(3) Payment audits.--
                    ``(A) Written notice for post-payment audits.--
                Subject to subparagraph (C), if a medicare contractor 
                decides to conduct a post-payment audit of a provider 
                of services, physician, practitioner, or supplier under 
                this title, the contractor shall provide the provider 
                of services, physician, practitioner, or supplier with 
                written notice (which may be in electronic form) of the 
                intent to conduct such an audit.
                    ``(B) Explanation of findings for all audits.--
                Subject to subparagraph (C), if a medicare contractor 
                audits a provider of services, physician, practitioner, 
                or supplier under this title, the contractor shall--
                            ``(i) give the provider of services, 
                        physician, practitioner, or supplier a full 
                        review and explanation of the findings of the 
                        audit in a manner that is understandable to the 
                        provider of services, physician, practitioner, 
                        or supplier and permits the development of an 
                        appropriate corrective action plan;
                            ``(ii) inform the provider of services, 
                        physician, practitioner, or supplier of the 
                        appeal rights under this title as well as 
                        consent settlement options (which are at the 
                        discretion of the Secretary); and
                            ``(iii) give the provider of services, 
                        physician, practitioner, or supplier an 
                        opportunity to provide additional information 
                        to the contractor.
                    ``(C) Exception.--Subparagraphs (A) and (B) shall 
                not apply if the provision of notice or findings would 
                compromise pending law enforcement activities, whether 
                civil or criminal, or reveal findings of law 
                enforcement-related audits.
            ``(4) Notice of over-utilization of codes.--The Secretary 
        shall establish, in consultation with organizations 
        representing the classes of providers of services, physicians, 
        practitioners, and suppliers, a process under which the 
        Secretary provides for notice to classes of providers of 
        services, physicians, practitioners, and suppliers served by a 
        medicare contractor in cases in which the contractor has 
        identified that particular billing codes may be overutilized by 
        that class of providers of services, physicians, practitioners, 
        or suppliers under the programs under this title (or provisions 
        of title XI insofar as they relate to such programs).
            ``(5) Standard methodology for probe sampling.--The 
        Secretary shall establish a standard methodology for medicare 
        administrative contractors to use in selecting a sample of 
        claims for review in the case of an abnormal billing pattern.
            ``(6) Consent settlement reforms.--
                    ``(A) In general.--The Secretary may use a consent 
                settlement (as defined in subparagraph (D)) to settle a 
                projected overpayment.
                    ``(B) Opportunity to submit additional information 
                before consent settlement offer.--Before offering a 
                provider of services, physician, practitioner, or 
                supplier a consent settlement, the Secretary shall--
                            ``(i) communicate to the provider of 
                        services, physician, practitioner, or supplier 
                        in a nonthreatening manner that, based on a 
                        review of the medical records requested by the 
                        Secretary, a preliminary evaluation of those 
                        records indicates that there would be an 
                        overpayment; and
                            ``(ii) provide for a 45-day period during 
                        which the provider of services, physician, 
                        practitioner, or supplier may furnish 
                        additional information concerning the medical 
                        records for the claims that had been reviewed.
                    ``(C) Consent settlement offer.--The Secretary 
                shall review any additional information furnished by 
                the provider of services, physician, practitioner, or 
                supplier under subparagraph (B)(ii). Taking into 
                consideration such information, the Secretary shall 
                determine if there still appears to be an overpayment. 
                If so, the Secretary--
                            ``(i) shall provide notice of such 
                        determination to the provider of services, 
                        physician, practitioner, or supplier, including 
                        an explanation of the reason for such 
                        determination; and
                            ``(ii) in order to resolve the overpayment, 
                        may offer the provider of services, physician, 
                        practitioner, or supplier--
                                    ``(I) the opportunity for a 
                                statistically valid random sample; or
                                    ``(II) a consent settlement.
                The opportunity provided under clause (ii)(I) does not 
                waive any appeal rights with respect to the alleged 
                overpayment involved.
                    ``(D) Consent settlement defined.--For purposes of 
                this paragraph, the term `consent settlement' means an 
                agreement between the Secretary and a provider of 
                services, physician, practitioner, or supplier whereby 
                both parties agree to settle a projected overpayment 
                based on less than a statistically valid sample of 
                claims and the provider of services, physician, 
                practitioner, or supplier agrees not to appeal the 
                claims involved.''.
    (b) Effective Dates and Deadlines.--
            (1) Not later than 1 year after the date of enactment of 
        this Act, the Secretary shall first--
                    (A) develop standards for the recovery of 
                overpayments under section 1874A(h)(1)(B) of the Social 
                Security Act, as added by subsection (a);
                    (B) establish the process for notice of 
                overutilization of billing codes under section 
                1874A(h)(4) of the Social Security Act, as added by 
                subsection (a); and
                    (C) establish a standard methodology for selection 
                of sample claims for abnormal billing patterns under 
                section 1874A(h)(5) of the Social Security Act, as 
                added by subsection (a).
            (2) Section 1874A(h)(2) of the Social Security Act, as 
        added by subsection (a), shall apply to actions taken after the 
        date that is 1 year after the date of enactment of this Act.
            (3) Section 1874A(h)(3) of the Social Security Act, as 
        added by subsection (a), shall apply to audits initiated after 
        the date of enactment of this Act.
            (4) Section 1874A(h)(6) of the Social Security Act, as 
        added by subsection (a), shall apply to consent settlements 
        entered into after the date of enactment of this Act.

SEC. 543. PROCESS FOR CORRECTION OF MINOR ERRORS AND OMISSIONS ON 
              CLAIMS WITHOUT PURSUING APPEALS PROCESS.

    (a) In General.--The Secretary shall develop, in consultation with 
appropriate medicare contractors (as defined in section 1889(e) of the 
Social Security Act, as added by section 531(d)(1)) and representatives 
of providers of services, physicians, practitioners, facilities, and 
suppliers, a process whereby, in the case of minor errors or omissions 
(as defined by the Secretary) that are detected in the submission of 
claims under the programs under title XVIII of such Act, a provider of 
services, physician, practitioner, facility, or supplier is given an 
opportunity to correct such an error or omission without the need to 
initiate an appeal. Such process shall include the ability to resubmit 
corrected claims.
    (b) Deadline.--Not later than 1 year after the date of enactment of 
this Act, the Secretary shall first develop the process under 
subsection (a).

SEC. 544. AUTHORITY TO WAIVE A PROGRAM EXCLUSION.

    The first sentence of section 1128(c)(3)(B) (42 U.S.C. 1320a-
7(c)(3)(B)) is amended to read as follows: ``Subject to subparagraph 
(G), in the case of an exclusion under subsection (a), the minimum 
period of exclusion shall be not less than 5 years, except that, upon 
the request of an administrator of a Federal health care program (as 
defined in section 1128B(f)) who determines that the exclusion would 
impose a hardship on beneficiaries of that program, the Secretary may, 
after consulting with the Inspector General of the Department of Health 
and Human Services, waive the exclusion under subsection (a)(1), 
(a)(3), or (a)(4) with respect to that program in the case of an 
individual or entity that is the sole community physician or sole 
source of essential specialized services in a community.''.

                       TITLE VI--OTHER PROVISIONS

SEC. 601. INCREASE IN MEDICAID DSH ALLOTMENTS FOR FISCAL YEARS 2004 AND 
              2005.

    (a) In General.--Section 1923(f)(4) (42 U.S.C. 1396r-4(f)(4)) is 
amended--
            (1) in the paragraph heading, by striking ``fiscal years 
        2001 and 2002'' and inserting ``certain fiscal years'';
            (2) in subparagraph (A)--
                    (A) in clause (i)--
                            (i) by striking ``paragraph (2)'' and 
                        inserting ``paragraphs (2) and (3)''; and
                            (ii) by striking ``and'' at the end;
                    (B) in clause (ii), by striking the period and 
                inserting a semicolon; and
                    (C) by adding at the end the following:
                            ``(iii) for fiscal year 2004, shall be the 
                        DSH allotment determined under paragraph (3) 
                        for that fiscal year increased by the amount 
                        equal to the product of 0.50 and the difference 
                        between--
                                    ``(I) the amount that the DSH 
                                allotment would be if the DSH allotment 
                                for the State determined under clause 
                                (ii) were increased, subject to 
                                subparagraph (B) and paragraph (5), by 
                                the percentage change in the Consumer 
                                Price Index for all urban consumers 
                                (all items; U.S. city average) for each 
                                of fiscal years 2002 and 2003; and
                                    ``(II) the DSH allotment determined 
                                under paragraph (3) for the State for 
                                fiscal year 2004; and
                            ``(iv) for fiscal year 2005, shall be the 
                        DSH allotment determined under paragraph (3) 
                        for that fiscal year increased by the amount 
                        equal to the product of 0.50 and the difference 
                        between--
                                    ``(I) the amount that the DSH 
                                allotment would be if the DSH allotment 
                                for the State determined under clause 
                                (ii) were increased, subject to 
                                subparagraph (B) and paragraph (5), by 
                                the percentage change in the Consumer 
                                Price Index for all urban consumers 
                                (all items; U.S. city average) for each 
                                of fiscal years 2002, 2003, and 2004; 
                                and
                                    ``(II) the DSH allotment determined 
                                under paragraph (3) for the State for 
                                fiscal year 2005.''; and
            (3) in subparagraph (C)--
                    (A) in the subparagraph heading, by striking 
                ``after fiscal year 2002'' and inserting ``for other 
                fiscal years''; and
                    (B) by striking ``2003 or'' and inserting ``2003, 
                fiscal year 2006, or''.
    (b) DSH Allotment for the District of Columbia.--Section 1923(f)(4) 
(42 U.S.C. 1396r-4(f)(4)), as amended by paragraph (1), is amended--
            (1) in subparagraph (A), by inserting ``and except as 
        provided in subparagraph (C)'' after ``paragraph (2)'';
            (2) by redesignating subparagraph (C) as subparagraph (D); 
        and
            (3) by inserting after subparagraph (B) the following:
                    ``(C) DSH allotment for the district of columbia.--
                            ``(i) In general.--Notwithstanding 
                        subparagraph (A), the DSH allotment for the 
                        District of Columbia for fiscal year 2004, 
                        shall be determined by substituting ``49'' for 
                        ``32'' in the item in the table contained in 
                        paragraph (2) with respect to the DSH allotment 
                        for FY 00 (fiscal year 2000) for the District 
                        of Columbia, and then increasing such 
                        allotment, subject to subparagraph (B) and 
                        paragraph (5), by the percentage change in the 
                        Consumer Price Index for all urban consumers 
                        (all items; U.S. city average) for each of 
                        fiscal years 2000, 2001, 2002, and 2003.
                            ``(ii) No application to allotments after 
                        fiscal year 2004.--The DSH allotment for the 
                        District of Columbia for fiscal year 2003, 
                        fiscal year 2005, or any succeeding fiscal year 
                        shall be determined under paragraph (3) without 
                        regard to the DSH allotment determined under 
                        clause (i).''.
    (c) Conforming Amendment.--Section 1923(f)(3) of such Act (42 
U.S.C. 1396r-4(f)(3)) is amended by inserting ``, paragraph (4),'' 
after ``subparagraph (B)''.

SEC. 602. INCREASE IN FLOOR FOR TREATMENT AS AN EXTREMELY LOW DSH STATE 
              UNDER THE MEDICAID PROGRAM FOR FISCAL YEARS 2004 AND 
              2005.

    (a) In General.--Section 1923(f)(5) (42 U.S.C. 1396r-4(f)(5)) is 
amended--
            (1) by striking ``In the case of'' and inserting the 
        following:
                    ``(A) In general.--In the case of''; and
            (2) by adding at the end the following:
                    ``(B) Increase in floor for fiscal years 2004 and 
                2005.--
                            ``(i) Fiscal year 2004.--In the case of a 
                        State in which the total expenditures under the 
                        State plan (including Federal and State shares) 
                        for disproportionate share hospital adjustments 
                        under this section for fiscal year 2000, as 
                        reported to the Administrator of the Centers 
                        for Medicare and Medicaid Services as of August 
                        31, 2003, is greater than 0 but less than 3 
                        percent of the State's total amount of 
                        expenditures under the State plan for medical 
                        assistance during the fiscal year, the DSH 
                        allotment for fiscal year 2004 shall be 
                        increased to 3 percent of the State's total 
                        amount of expenditures under such plan for such 
                        assistance during such fiscal year.
                            ``(ii) Fiscal year 2005.--In the case of a 
                        State in which the total expenditures under the 
                        State plan (including Federal and State shares) 
                        for disproportionate share hospital adjustments 
                        under this section for fiscal year 2001, as 
                        reported to the Administrator of the Centers 
                        for Medicare and Medicaid Services as of August 
                        31, 2004, is greater than 0 but less than 3 
                        percent of the State's total amount of 
                        expenditures under the State plan for medical 
                        assistance during the fiscal year, the DSH 
                        allotment for fiscal year 2005 shall be the DSH 
                        allotment determined for the State for fiscal 
                        year 2004 (under clause (i) or paragraph (4) 
                        (as applicable)), increased by the percentage 
                        change in the consumer price index for all 
                        urban consumers (all items; U.S. city average) 
                        for fiscal year 2004.
                            ``(iii) No application to allotments after 
                        fiscal year 2005.--The DSH allotment for any 
                        State for fiscal year 2006 or any succeeding 
                        fiscal year shall be determined under this 
                        subsection without regard to the DSH allotments 
                        determined under this subparagraph.''.
    (b) Allotment Adjustment.--
            (1) In general.--Section 1923(f) of the Social Security Act 
        (42 U.S.C. 1396r-4(f)) is amended--
                    (A) by redesignating paragraph (6) as paragraph 
                (7); and
                    (B) by inserting after paragraph (5) the following:
            ``(6) Allotment adjustment.--Only with respect to fiscal 
        year 2004 or 2005, if a statewide waiver under section 1115 
        that was implemented on January 1, 1994, is revoked or 
        terminated before the end of either such fiscal year, the 
        Secretary shall--
                    ``(A) permit the State whose waiver was revoked or 
                terminated to submit an amendment to its State plan 
                that would describe the methodology to be used by the 
                State (after the effective date of such revocation or 
                termination) to identify and make payments to 
                disproportionate share hospitals, including children's 
                hospitals and institutions for mental diseases or other 
                mental health facilities (other than State-owned 
                institutions or facilities), on the basis of the 
                proportion of patients served by such hospitals that 
                are low-income patients with special needs; and
                    ``(B) provide for purposes of this subsection for 
                computation of an appropriate DSH allotment for the 
                State for fiscal year 2004 or 2005 (or both) that 
                provides for the maximum amount (permitted 
consistent with paragraph (3)(B)(ii)) that does not result in greater 
expenditures under this title than would have been made if such waiver 
had not been revoked or terminated.''.
            (2) Treatment of institutions for mental diseases.--Section 
        1923(h)(1) of the Social Security Act (42 U.S.C. 1396r-4(h)(1)) 
        is amended--
                    (A) in paragraph (1), in the matter preceding 
                subparagraph (A), by inserting ``(subject to paragraph 
                (3))'' after ``the lesser of the following''; and
                    (B) by adding at the end the following new 
                paragraph:
            ``(3) Special rule.--The limitation of paragraph (1) shall 
        not apply in the case of a State to which subsection (f)(6) 
        applies.''.

SEC. 603. INCREASED REPORTING REQUIREMENTS TO ENSURE THE 
              APPROPRIATENESS OF PAYMENT ADJUSTMENTS TO 
              DISPROPORTIONATE SHARE HOSPITALS UNDER THE MEDICAID 
              PROGRAM.

    Section 1923 (42 U.S.C. 1396r-4) is amended by adding at the end 
the following new subsection:
    ``(j) Annual Reports Regarding Payment Adjustments.--With respect 
to fiscal year 2004 and each fiscal year thereafter, the Secretary 
shall require a State, as a condition of receiving a payment under 
section 1903(a)(1) with respect to a payment adjustment made under this 
section, to submit an annual report that--
            ``(1) identifies each disproportionate share hospital that 
        received a payment adjustment under this section for the 
        preceding fiscal year and the amount of the payment adjustment 
        made to such hospital for the preceding fiscal year; and
            ``(2) includes such other information as the Secretary 
        determines necessary to ensure the appropriateness of the 
        payment adjustments made under this section for the preceding 
        fiscal year.''.

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.

    (a) In General.--Section 1927(c)(1)(C)(i)(I) of the Social Security 
Act (42 U.S.C. 1396r-8(c)(1)(C)(i)(I)) is amended by inserting before 
the semicolon the following: ``(including inpatient prices charged to 
hospitals described in section 340B(a)(4)(L) of the Public Health 
Service Act)''.
    (b) Anti-Diversion Protection.--Section 1927(c)(1)(C) of the Social 
Security Act (42 U.S.C. 1396r-8(c)(1)(C)) is amended by adding at the 
end the following:
                            ``(iii) Application of auditing and 
                        recordkeeping requirements.--With respect to a 
                        covered entity described in section 
                        340B(a)(4)(L) of the Public Health Service Act, 
                        any drug purchased for inpatient use shall be 
                        subject to the auditing and recordkeeping 
                        requirements described in section 340B(a)(5)(C) 
                        of the Public Health Service Act.''.
    (c) Effective Date.--The amendments made by this section take 
effect on October 1, 2003.

SEC. 605. ASSISTANCE WITH COVERAGE OF LEGAL IMMIGRANTS UNDER THE 
              MEDICAID PROGRAM AND SCHIP.

    (a) Medicaid Program.--Section 1903(v) (42 U.S.C. 1396b(v)) is 
amended--
            (1) in paragraph (1), by striking ``paragraph (2)'' and 
        inserting ``paragraphs (2) and (4)''; and
            (2) by adding at the end the following new paragraph:
    ``(4)(A) With respect to any or all of fiscal years 2005 through 
2007, a State may elect (in a plan amendment under this title) to 
provide medical assistance under this title (including under a waiver 
authorized by the Secretary) for aliens who are lawfully residing in 
the United States (including battered aliens described in section 
431(c) of such Act) and who are otherwise eligible for such assistance, 
within either or both of the following eligibility categories:
            ``(i) Pregnant women.--Women during pregnancy (and during 
        the 60-day period beginning on the last day of the pregnancy).
            ``(ii) Children.--Children (as defined under such plan), 
        including optional targeted low-income children described in 
        section 1905(u)(2)(B).
    ``(B)(i) In the case of a State that has elected to provide medical 
assistance to a category of aliens under subparagraph (A), no debt 
shall accrue under an affidavit of support against any sponsor of such 
an alien on the basis of provision of assistance to such category and 
the cost of such assistance shall not be considered as an unreimbursed 
cost.
    ``(ii) The provisions of sections 401(a), 402(b), 403, and 421 of 
the Personal Responsibility and Work Opportunity Reconciliation Act of 
1996 shall not apply to a State that makes an election under 
subparagraph (A).''.
    (b) SCHIP.--Section 2107(e)(1) (42 U.S.C. 1397gg(e)(1)) is amended 
by redesignating subparagraphs (C) and (D) as subparagraph (D) and (E), 
respectively, and by inserting after subparagraph (B) the following new 
subparagraph:
                    ``(C) Section 1903(v)(4) (relating to optional 
                coverage of categories of permanent resident alien 
                children), but only if the State has elected to apply 
                such section to the category of children under title 
                XIX and only with respect to any or all of fiscal years 
                2005 through 2007.''.

SEC. 606. ESTABLISHMENT OF CONSUMER OMBUDSMAN ACCOUNT.

    (a) In General.--Section 1817 (42 U.S.C. 1395i) is amended by 
adding at the end the following new subsection:
    ``(i) Consumer Ombudsman Account.--
            ``(1) Establishment.--There is hereby established in the 
        Trust Fund an expenditure account to be known as the `Consumer 
Ombudsman Account' (in this subsection referred to as the `Account').
            ``(2) Appropriated amounts to account for health insurance 
        information, counseling, and assistance grants.--
                    ``(A) In general.--There are hereby appropriated to 
                the Account from the Trust Fund for each fiscal year 
                beginning with fiscal year 2005, the amount described 
                in subparagraph (B) for such fiscal year for the 
                purpose of making grants under section 4360 of the 
                Omnibus Budget Reconciliation Act of 1990.
                    ``(B) Amount described.--For purposes of 
                subparagraph (A), the amount described in this 
                subparagraph for a fiscal year is the amount equal to 
                the product of--
                            ``(i) $1; and
                            ``(ii) the total number of individuals 
                        receiving benefits under this title for the 
                        calendar year ending on December 31 of the 
                        preceding fiscal year.''.
    (b) Conforming Amendment.--Section 4360(g) of the Omnibus Budget 
Reconciliation Act of 1990 (42 U.S.C. 1395b-4(g)) is amended to read as 
follows:
    ``(g) Funding.--The Secretary shall use amounts appropriated to the 
Consumer Ombudsman Account in accordance with section 1817(i) of the 
Social Security Act for a fiscal year for making grants under this 
section for that fiscal year.''.

SEC. 607. GAO STUDY REGARDING IMPACT OF ASSETS TEST FOR LOW-INCOME 
              BENEFICIARIES.

    (a) Study.--The Comptroller General of the United States shall 
conduct a study to determine the extent to which drug utilization and 
access to covered drugs for an individual described in subsection (b) 
differs from the drug utilization and access to covered drugs of an 
individual who qualifies for the transitional assistance prescription 
drug card program under section 1807A of the Social Security Act (as 
added by section 111) or for the premiums and cost-sharing subsidies 
applicable to a qualified medicare beneficiary, a specified low-income 
medicare beneficiary, or a qualifying individual under section 1860D-19 
of the Social Security Act (as added by section 101).
    (b) Individual Described.--An individual is described in this 
subsection if the individual does not qualify for the transitional 
assistance prescription drug card program under section 1807A of the 
Social Security Act or for the premiums and cost-sharing subsidies 
applicable to a qualified medicare beneficiary, a specified low-income 
medicare beneficiary, or a qualifying individual under section 1860D-19 
of the Social Security Act solely as a result of the application of an 
assets test to the individual.
    (c) Report.--Not later than September 30, 2007, the Comptroller 
General shall submit a report to Congress on the study conducted under 
subsection (a) that includes such recommendations for legislation as 
the Comptroller General determines are appropriate.
    (d) Definitions.--In this section:
            (1) Covered drugs.--The term ``covered drugs'' has the 
        meaning given that term in section 1860D(a)(D) of the Social 
        Security Act.
            (2) Qualified medicare beneficiary; specified low-income 
        medicare beneficiary; qualifying individual.--The terms 
        ``qualified medicare beneficiary'', ``specified low-income 
        medicare beneficiary'' and ``qualifying individual'' have the 
        meaning given those terms under section 1860D-19 of the Social 
        Security Act.

SEC. 608. HEALTH CARE INFRASTRUCTURE IMPROVEMENT.

    At the end of the Social Security Act, add the following new title:

          ``TITLE XXII--HEALTH CARE INFRASTRUCTURE IMPROVEMENT

``SEC. 2201. DEFINITIONS.

    ``In this title, the following definitions apply:
            ``(1) Eligible project costs.--The term `eligible project 
        costs' means amounts substantially all of which are paid by, or 
        for the account of, an obligor in connection with a project, 
        including the cost of--
                    ``(A) development phase activities, including 
                planning, feasibility analysis, revenue forecasting, 
                environmental study and review, permitting, 
                architectural engineering and design work, and other 
                preconstruction activities;
                    ``(B) construction, reconstruction, rehabilitation, 
                replacement, and acquisition of facilities and real 
                property (including land related to the project and 
                improvements to land), environmental mitigation, 
                construction contingencies, and acquisition of 
                equipment;
                    ``(C) capitalized interest necessary to meet market 
                requirements, reasonably required reserve funds, 
                capital issuance expenses, and other carrying costs 
                during construction;
                    ``(D) major medical equipment determined to be 
                appropriate by the Secretary; and
                    ``(E) refinancing projects or activities that are 
                otherwise eligible for financial assistance under 
                subparagraphs (A) through (D).
            ``(2) Federal credit instrument.--The term `Federal credit 
        instrument' means a secured loan, loan guarantee, or line of 
        credit authorized to be made available under this title with 
        respect to a project.
            ``(3) Investment-grade rating.--The term `investment-grade 
        rating' means a rating category of BBB minus, Baa3, or higher 
        assigned by a rating agency to project obligations offered into 
        the capital markets.
            ``(4) Lender.--The term `lender' means any non-Federal 
        qualified institutional buyer (as defined in section 
        230.144A(a) of title 17, Code of Federal Regulations (or any 
        successor regulation), known as Rule 144A(a) of the Securities 
        and Exchange Commission and issued under the Securities Act of 
        1933 (15 U.S.C. 77a et seq.)), including--
                    ``(A) a qualified retirement plan (as defined in 
                section 4974(c) of the Internal Revenue Code of 1986) 
                that is a qualified institutional buyer; and
                    ``(B) a governmental plan (as defined in section 
                414(d) of the Internal Revenue Code of 1986) that is a 
                qualified institutional buyer.
            ``(5) Line of credit.--The term `line of credit' means an 
        agreement entered into by the Secretary with an obligor under 
        section 2204 to provide a direct loan at a future date upon the 
        occurrence of certain events.
            ``(6) Loan guarantee.--The term `loan guarantee' means any 
        guarantee or other pledge by the Secretary to pay all or part 
        of the principal of and interest on a loan or other debt 
        obligation issued by an obligor and funded by a lender.
            ``(7) Local servicer.--The term `local servicer' means a 
        State or local government or any agency of a State or local 
        government that is responsible for servicing a Federal credit 
        instrument on behalf of the Secretary.
            ``(8) Obligor.--The term `obligor' means a party primarily 
        liable for payment of the principal of or interest on a Federal 
        credit instrument, which party may be a corporation, 
        partnership, joint venture, trust, or governmental entity, 
        agency, or instrumentality.
            ``(9) Project.--The term `project' means any project that 
        is designed to improve the health care infrastructure, 
        including the construction, renovation, or other capital 
        improvement of any hospital, medical research facility, or 
        other medical facility or the purchase of any equipment to be 
        used in a hospital, research facility, or other medical 
        research facility.
            ``(10) Project obligation.--The term `project obligation' 
        means any note, bond, debenture, lease, installment sale 
        agreement, or other debt obligation issued or entered into by 
        an obligor in connection with the financing of a project, other 
        than a Federal credit instrument.
            ``(11) Rating agency.--The term `rating agency' means a 
        bond rating agency identified by the Securities and Exchange 
        Commission as a Nationally Recognized Statistical Rating 
        Organization.
            ``(12) Secured loan.--The term `secured loan' means a 
        direct loan or other debt obligation issued by an obligor and 
        funded by the Secretary in connection with the financing of a 
        project under section 2203.
            ``(13) State.--The term `State' has the meaning given the 
        term in section 101 of title 23, United States Code.
            ``(14) Subsidy amount.--The term `subsidy amount' means the 
        amount of budget authority sufficient to cover the estimated 
        long-term cost to the Federal Government of a Federal credit 
        instrument, calculated on a net present value basis, excluding 
        administrative costs and any incidental effects on governmental 
        receipts or outlays in accordance with the provisions of the 
        Federal Credit Reform Act of 1990 (2 U.S.C. 661 et seq.).
            ``(15) Substantial completion.--The term `substantial 
        completion' means the opening of a project to patients or for 
        research purposes.

``SEC. 2202. DETERMINATION OF ELIGIBILITY AND PROJECT SELECTION.

    ``(a) Eligibility.--To be eligible to receive financial assistance 
under this title, a project shall meet the following criteria:
            ``(1) Application.--A State, a local servicer identified 
        under section 2205(a), or the entity undertaking a project 
        shall submit a project application to the Secretary.
            ``(2) Eligible project costs.--To be eligible for 
        assistance under this title, a project shall have total 
        eligible project costs that are reasonably anticipated to equal 
        or exceed $40,000,000.
            ``(3) Sources of repayments.--Project financing shall be 
        repayable, in whole or in part, from reliable revenue sources 
        as described in the application submitted under paragraph (1).
            ``(4) Public sponsorship of private entities.--In the case 
        of a project that is undertaken by an entity that is not a 
        State or local government or an agency or instrumentality of a 
        State or local government, the project that the entity is 
        undertaking shall be publicly sponsored or sponsored by an 
        entity that is described in section 501(c)(3) of the Internal 
        Revenue Code of 1986 and exempt from tax under section 501(a) 
        of such Code.
    ``(b) Selection Among Eligible Projects.--
            ``(1) Establishment.--The Secretary shall establish 
        criteria for selecting among projects that meet the eligibility 
        criteria specified in subsection (a).
            ``(2) Selection criteria.--
                    ``(A) In general.--The selection criteria shall 
                include the following:
                            ``(i) The extent to which the project is 
                        nationally or regionally significant, in terms 
                        of expanding or improving the health care 
                        infrastructure of the United States or the 
                        region or in terms of the medical benefit that 
                        the project will have.
                            ``(ii) The creditworthiness of the project, 
                        including a determination by the Secretary that 
                        any financing for the project has appropriate 
                        security features, such as a rate covenant, 
                        credit enhancement requirements, or debt 
                        services coverages, to ensure repayment.
                            ``(iii) The extent to which assistance 
                        under this title would foster innovative 
                        public-private partnerships and attract private 
                        debt or equity investment.
                            ``(iv) The likelihood that assistance under 
                        this title would enable the project to proceed 
                        at an earlier date than the project would 
                        otherwise be able to proceed.
                            ``(v) The extent to which the project uses 
                        or results in new technologies.
                            ``(vi) The amount of budget authority 
                        required to fund the Federal credit instrument 
                        made available under this title.
                            ``(vii) The extent to which the project 
                        helps maintain or protect the environment.
                    ``(B) Specific requirements.--The selection 
                criteria shall require that a project applicant--
                            ``(i) be engaged in research in the causes, 
                        prevention, and treatment of cancer;
                            ``(ii) be designated as a cancer center for 
                        the National Cancer Institute or be designated 
                        by the State as the official cancer institute 
                        of the State; and
                            ``(iii) be located in a State that, on the 
                        date of enactment of this title, has a 
                        population of less than 3,000,000 individuals.
                    ``(C) Rating letter.--For purposes of subparagraph 
                (A)(ii), the Secretary shall require each project 
                applicant to provide a rating letter from at least 1 
                rating agency indicating that the project's senior 
                obligations have the potential to achieve an 
                investment-grade rating with or without credit 
                enhancement.

``SEC. 2203. SECURED LOANS.

    ``(a) In General.--
            ``(1) Agreements.--Subject to paragraphs (2) through (4), 
        the Secretary may enter into agreements with 1 or more obligors 
        to make secured loans, the proceeds of which shall be used--
                    ``(A) to finance eligible project costs;
                    ``(B) to refinance interim construction financing 
                of eligible project costs; or
                    ``(C) to refinance existing debt or prior project 
                obligations;
        of any project selected under section 2202.
            ``(2) Limitation on refinancing of interim construction 
        financing.--A loan under paragraph (1) shall not refinance 
        interim construction financing under paragraph (1)(B) later 
        than 1 year after the date of substantial completion of the 
        project.
            ``(3) Risk assessment.--Before entering into an agreement 
        for a secured loan under this subsection, the Secretary, in 
        consultation with each rating agency providing a rating letter 
        under section 2202(b)(2)(B), shall determine an appropriate 
        capital reserve subsidy amount for each secured loan, taking 
        into account such letter.
            ``(4) Investment-grade rating requirement.--The funding of 
        a secured loan under this section shall be contingent on the 
        project's senior obligations receiving an investment-grade 
        rating, except that--
                    ``(A) the Secretary may fund an amount of the 
                secured loan not to exceed the capital reserve subsidy 
                amount determined under paragraph (3) prior to the 
                obligations receiving an investment-grade rating; and
                    ``(B) the Secretary may fund the remaining portion 
                of the secured loan only after the obligations have 
                received an investment-grade rating by at least 1 
                rating agency.
    ``(b) Terms and Limitations.--
            ``(1) In general.--A secured loan under this section with 
        respect to a project shall be on such terms and conditions and 
        contain such covenants, representations, warranties, and 
        requirements (including requirements for audits) as the 
        Secretary determines appropriate.
            ``(2) Maximum amount.--The amount of the secured loan shall 
        not exceed 100 percent of the reasonably anticipated eligible 
        project costs.
            ``(3) Payment.--The secured loan--
                    ``(A) shall--
                            ``(i) be payable, in whole or in part, from 
                        reliable revenue sources; and
                            ``(ii) include a rate covenant, coverage 
                        requirement, or similar security feature 
                        supporting the project obligations; and
                    ``(B) may have a lien on revenues described in 
                subparagraph (A) subject to any lien securing project 
                obligations.
            ``(4) Interest rate.--The interest rate on the secured loan 
        shall be not less than the yield on marketable United States 
        Treasury securities of a similar maturity to the maturity of 
        the secured loan on the date of execution of the loan 
        agreement.
            ``(5) Maturity date.--The final maturity date of the 
        secured loan shall be not later than 30 years after the date of 
        substantial completion of the project.
            ``(6) Nonsubordination.--The secured loan shall not be 
        subordinated to the claims of any holder of project obligations 
        in the event of bankruptcy, insolvency, or liquidation of the 
        obligor.
            ``(7) Fees.--The Secretary may establish fees at a level 
        sufficient to cover all or a portion of the costs to the 
        Federal Government of making a secured loan under this section.
    ``(c) Repayment.--
            ``(1) Schedule.--The Secretary shall establish a repayment 
        schedule for each secured loan under this section based on the 
        projected cash flow from project revenues and other repayment 
        sources.
            ``(2) Commencement.--Scheduled loan repayments of principal 
        or interest on a secured loan under this section shall commence 
        not later than 5 years after the date of substantial completion 
        of the project.
            ``(3) Sources of repayment funds.--The sources of funds for 
        scheduled loan repayments under this section shall include any 
        revenue generated by the project.
            ``(4) Deferred payments.--
                    ``(A) Authorization.--If, at any time during the 10 
                years after the date of substantial completion of the 
                project, the project is unable to generate sufficient 
                revenues to pay the scheduled loan repayments of 
                principal and interest on the secured loan, the 
                Secretary may, subject to subparagraph (C), allow the 
                obligor to add unpaid principal and interest to the 
                outstanding balance of the secured loan.
                    ``(B) Interest.--Any payment deferred under 
                subparagraph (A) shall--
                            ``(i) continue to accrue interest in 
                        accordance with subsection (b)(4) until fully 
                        repaid; and
                            ``(ii) be scheduled to be amortized over 
                        the remaining term of the loan beginning not 
                        later than 10 years after the date of 
                        substantial completion of the project in 
                        accordance with paragraph (1).
                    ``(C) Criteria.--
                            ``(i) In general.--Any payment deferral 
                        under subparagraph (A) shall be contingent on 
                        the project meeting criteria established by the 
                        Secretary.
                            ``(ii) Repayment standards.--The criteria 
                        established under clause (i) shall include 
                        standards for reasonable assurance of 
                        repayment.
            ``(5) Prepayment.--
                    ``(A) Use of excess revenues.--Any excess revenues 
                that remain after satisfying scheduled debt service 
                requirements on the project obligations and secured 
                loan and all deposit requirements under the terms of 
                any trust agreement, bond resolution, reimbursement 
                agreement, credit agreement, loan agreement, or similar 
                agreement securing project obligations may be applied 
                annually to prepay the secured loan without penalty.
                    ``(B) Use of proceeds of refinancing.--The secured 
                loan may be prepaid at any time without penalty, 
                regardless of whether such repayment is from the 
                proceeds of refinancing from non-Federal funding 
                sources.
            ``(6) Forgiveness of indebtedness.--The Secretary may 
        forgive a loan secured under this title under terms and 
        conditions that are analogous to the loan forgiveness provision 
        for student loans under part D of title IV of the Higher 
        Education Act of 1965 (20 U.S.C. 1087a et seq.), except that 
        the Secretary shall condition such forgiveness on the 
        establishment by the project of--
                    ``(A) an outreach program for cancer prevention, 
                early diagnosis, and treatment that provides services 
                to a substantial majority of the residents of a State 
                or region, including residents of rural areas;
                    ``(B) an outreach program for cancer prevention, 
                early diagnosis, and treatment that provides services 
                to multiple Indian tribes; and
                    ``(C)(i) unique research resources (such as 
                population databases); or
                    ``(ii) an affiliation with an entity that has 
                unique research resources.
    ``(d) Sale of Secured Loans.--
            ``(1) In general.--Subject to paragraph (2), as soon as 
        practicable after substantial completion of a project and after 
        notifying the obligor, the Secretary may sell to another entity 
        or reoffer into the capital markets a secured loan for the 
        project if the Secretary determines that the sale or reoffering 
        can be made on favorable terms.
            ``(2) Consent of obligor.--In making a sale or reoffering 
        under paragraph (1), the Secretary may not change the original 
        terms and conditions of the secured loan without the written 
        consent of the obligor.
    ``(e) Loan Guarantees.--
            ``(1) In general.--The Secretary may provide a loan 
        guarantee to a lender in lieu of making a secured loan if the 
        Secretary determines that the budgetary cost of the loan 
        guarantee is substantially the same as that of a secured loan.
            ``(2) Terms.--The terms of a guaranteed loan shall be 
        consistent with the terms set forth in this section for a 
        secured loan, except that the rate on the guaranteed loan and 
        any prepayment features shall be negotiated between the obligor 
        and the lender, with the consent of the Secretary.

``SEC. 2204. LINES OF CREDIT.

    ``(a) In General.--
            ``(1) Agreements.--Subject to paragraphs (2) through (4), 
        the Secretary may enter into agreements to make available lines 
        of credit to 1 or more obligors in the form of direct loans to 
        be made by the Secretary at future dates on the occurrence of 
        certain events for any project selected under section 2202.
            ``(2) Use of proceeds.--The proceeds of a line of credit 
        made available under this section shall be available to pay 
        debt service on project obligations issued to finance eligible 
        project costs, extraordinary repair and replacement costs, 
        operation and maintenance expenses, and costs associated with 
        unexpected Federal or State environmental restrictions.
            ``(3) Risk assessment.--Before entering into an agreement 
        for a secured loan under this subsection, the Secretary, in 
        consultation with each rating agency providing a rating letter 
        under section 2202(b)(2)(B), shall determine an appropriate 
        subsidy amount for each secured loan, taking into account such 
        letter.
            ``(4) Investment-grade rating requirement.--The funding of 
        a line of credit under this section shall be contingent on the 
        project's senior obligations receiving an investment-grade 
        rating from at least 1 rating agency.
    ``(b) Terms and Limitations.--
            ``(1) In general.--A line of credit under this section with 
        respect to a project shall be on such terms and conditions and 
        contain such covenants, representations, warranties, and 
        requirements (including requirements for audits) as the 
        Secretary determines appropriate.
            ``(2) Maximum amounts.--
                    ``(A) Total amount.--The total amount of the line 
                of credit shall not exceed 33 percent of the reasonably 
                anticipated eligible project costs.
                    ``(B) 1-year draws.--The amount drawn in any 1 year 
                shall not exceed 20 percent of the total amount of the 
                line of credit.
            ``(3) Draws.--Any draw on the line of credit shall 
        represent a direct loan and shall be made only if net revenues 
        from the project (including capitalized interest, any debt 
        service reserve fund, and any other available reserve) are 
        insufficient to pay the costs specified in subsection (a)(2).
            ``(4) Interest rate.--The interest rate on a direct loan 
        resulting from a draw on the line of credit shall be not less 
        than the yield on 30-year marketable United States Treasury 
        securities as of the date on which the line of credit is 
        obligated.
            ``(5) Security.--The line of credit--
                    ``(A) shall--
                            ``(i) be payable, in whole or in part, from 
                        reliable revenue sources; and
                            ``(ii) include a rate covenant, coverage 
                        requirement, or similar security feature 
                        supporting the project obligations; and
                    ``(B) may have a lien on revenues described in 
                subparagraph (A) subject to any lien securing project 
                obligations.
            ``(6) Period of availability.--The line of credit shall be 
        available during the period beginning on the date of 
        substantial completion of the project and ending not later than 
        10 years after that date.
            ``(7) Rights of third-party creditors.--
                    ``(A) Against federal government.--A third-party 
                creditor of the obligor shall not have any right 
                against the Federal Government with respect to any draw 
                on the line of credit.
                    ``(B) Assignment.--An obligor may assign the line 
                of credit to 1 or more lenders or to a trustee on the 
                lenders' behalf.
            ``(8) Nonsubordination.--A direct loan under this section 
        shall not be subordinated to the claims of any holder of 
        project obligations in the event of bankruptcy, insolvency, or 
        liquidation of the obligor.
            ``(9) Fees.--The Secretary may establish fees at a level 
        sufficient to cover all or a portion of the costs to the 
        Federal Government of providing a line of credit under this 
        section.
            ``(10) Relationship to other credit instruments.--A project 
        that receives a line of credit under this section also shall 
        not receive a secured loan or loan guarantee under section 2203 
        of an amount that, combined with the amount of the line of 
        credit, exceeds 100 percent of eligible project costs.
    ``(c) Repayment.--
            ``(1) Terms and conditions.--The Secretary shall establish 
        repayment terms and conditions for each direct loan under this 
        section based on the projected cash flow from project revenues 
        and other repayment sources.
            ``(2) Timing.--All scheduled repayments of principal or 
        interest on a direct loan under this section shall commence not 
        later than 5 years after the end of the period of availability 
        specified in subsection (b)(6) and be fully repaid, with 
        interest, by the date that is 25 years after the end of the 
        period of availability specified in subsection (b)(6).
            ``(3) Sources of repayment funds.--The sources of funds for 
        scheduled loan repayments under this section shall include 
        reliable revenue sources.

``SEC. 2205. PROJECT SERVICING.

    ``(a) Requirement.--The State in which a project that receives 
financial assistance under this title is located may identify a local 
servicer to assist the Secretary in servicing the Federal credit 
instrument made available under this title.
    ``(b) Agency; Fees.--If a State identifies a local servicer under 
subsection (a), the local servicer--
            ``(1) shall act as the agent for the Secretary; and
            ``(2) may receive a servicing fee, subject to approval by 
        the Secretary.
    ``(c) Liability.--A local servicer identified under subsection (a) 
shall not be liable for the obligations of the obligor to the Secretary 
or any lender.
    ``(d) Assistance From Expert Firms.--The Secretary may retain the 
services of expert firms in the field of project finance to assist in 
the underwriting and servicing of Federal credit instruments.

``SEC. 2206. STATE AND LOCAL PERMITS.

    ``The provision of financial assistance under this title with 
respect to a project shall not--
            ``(1) relieve any recipient of the assistance of any 
        obligation to obtain any required State or local permit or 
        approval with respect to the project;
            ``(2) limit the right of any unit of State or local 
        government to approve or regulate any rate of return on private 
        equity invested in the project; or
            ``(3) otherwise supersede any State or local law (including 
        any regulation) applicable to the construction or operation of 
        the project.

``SEC. 2207. REGULATIONS.

    ``The Secretary may issue such regulations as the Secretary 
determines appropriate to carry out this title.

``SEC. 2208. FUNDING.

    ``(a) Funding.--
            ``(1) In general.--There are authorized to be appropriated 
        to carry out this title, $49,000,000 to remain available during 
        the period beginning on July 1, 2004 and ending on September 
        30, 2008.
            ``(2) Administrative costs.--From funds made available 
        under paragraph (1), the Secretary may use, for the 
        administration of this title, not more than $2,000,000 for each 
        of fiscal years 2004 through 2008.
    ``(b) Contract Authority.--Notwithstanding any other provision of 
law, approval by the Secretary of a Federal credit instrument that uses 
funds made available under this title shall be deemed to be acceptance 
by the United States of a contractual obligation to fund the Federal 
credit instrument.
    ``(c) Availability.--Amounts appropriated under this section shall 
be available for obligation on July 1, 2004.

``SEC. 2209. REPORT TO CONGRESS.

    ``Not later than 4 years after the date of enactment of this title, 
the Secretary shall submit to Congress a report summarizing the 
financial performance of the projects that are receiving, or have 
received, assistance under this title, including a recommendation as to 
whether the objectives of this title are best served--
            ``(1) by continuing the program under the authority of the 
        Secretary;
            ``(2) by establishing a Government corporation or 
        Government-sponsored enterprise to administer the program; or
            ``(3) by phasing out the program and relying on the capital 
        markets to fund the types of infrastructure investments 
        assisted by this title without Federal participation.''.

SEC. 609. CAPITAL INFRASTRUCTURE REVOLVING LOAN PROGRAM.

    (a) In General.--Part A of title XVI of the Public Health Service 
Act (42 U.S.C. 300q et seq.) is amended by adding at the end the 
following new section:

            ``capital infrastructure revolving loan program

    ``Sec. 1603. (a) Authority To Make and Guarantee Loans.--
            ``(1) Authority to make loans.--The Secretary may make 
        loans from the fund established under section 1602(d) to any 
        rural entity for projects for capital improvements, including--
                    ``(A) the acquisition of land necessary for the 
                capital improvements;
                    ``(B) the renovation or modernization of any 
                building;
                    ``(C) the acquisition or repair of fixed or major 
                movable equipment; and
                    ``(D) such other project expenses as the Secretary 
                determines appropriate.
            ``(2) Authority to guarantee loans.--
                    ``(A) In general.--The Secretary may guarantee the 
                payment of principal and interest for loans made to 
                rural entities for projects for any capital improvement 
                described in paragraph (1) to any non-Federal lender.
                    ``(B) Interest subsidies.--In the case of a 
                guarantee of any loan made to a rural entity under 
                subparagraph (A), the Secretary may pay to the holder 
                of such loan, for and on behalf of the project for 
                which the loan was made, amounts sufficient to reduce 
                (by not more than 3 percent) the net effective interest 
                rate otherwise payable on such loan.
    ``(b) Amount of Loan.--The principal amount of a loan directly made 
or guaranteed under subsection (a) for a project for capital 
improvement may not exceed $5,000,000.
    ``(c) Funding Limitations.--
            ``(1) Government credit subsidy exposure.--The total of the 
        Government credit subsidy exposure under the Credit Reform Act 
        of 1990 scoring protocol with respect to the loans outstanding 
        at any time with respect to which guarantees have been issued, 
        or which have been directly made, under subsection (a) may not 
        exceed $50,000,000 per year.
            ``(2) Total amounts.--Subject to paragraph (1), the total 
        of the principal amount of all loans directly made or 
        guaranteed under subsection (a) may not exceed $250,000,000 per 
        year.
    ``(d) Capital Assessment and Planning Grants.--
            ``(1) Nonrepayable grants.--Subject to paragraph (2), the 
        Secretary may make a grant to a rural entity, in an amount not 
        to exceed $50,000, for purposes of capital assessment and 
        business planning.
            ``(2) Limitation.--The cumulative total of grants awarded 
        under this subsection may not exceed $2,500,000 per year.
    ``(e) Termination of Authority.--The Secretary may not directly 
make or guarantee any loan under subsection (a) or make a grant under 
subsection (d) after September 30, 2008.''.
    (b) Rural Entity Defined.--Section 1624 of the Public Health 
Service Act (42 U.S.C. 300s-3) is amended by adding at the end the 
following new paragraph:
            ``(14)(A) The term `rural entity' includes--
                    ``(i) a rural health clinic, as defined in section 
                1861(aa)(2) of the Social Security Act;
                    ``(ii) any medical facility with at least 1 bed, 
                but with less than 50 beds, that is located in--
                            ``(I) a county that is not part of a 
                        metropolitan statistical area; or
                            ``(II) a rural census tract of a 
                        metropolitan statistical area (as determined 
                        under the most recent modification of the 
                        Goldsmith Modification, originally published in 
                        the Federal Register on February 27, 1992 (57 
                        Fed. Reg. 6725));
                    ``(iii) a hospital that is classified as a rural, 
                regional, or national referral center under section 
                1886(d)(5)(C) of the Social Security Act; and
                    ``(iv) a hospital that is a sole community hospital 
                (as defined in section 1886(d)(5)(D)(iii) of the Social 
                Security Act).
            ``(B) For purposes of subparagraph (A), the fact that a 
        clinic, facility, or hospital has been geographically 
        reclassified under the medicare program under title XVIII of 
        the Social Security Act shall not preclude a hospital from 
        being considered a rural entity under clause (i) or (ii) of 
        subparagraph (A).''.
    (c) Conforming Amendments.--Section 1602 of the Public Health 
Service Act (42 U.S.C. 300q-2) is amended--
            (1) in subsection (b)(2)(D), by inserting ``or 
        1603(a)(2)(B)'' after ``1601(a)(2)(B)''; and
            (2) in subsection (d)--
                    (A) in paragraph (1)(C), by striking ``section 
                1601(a)(2)(B)'' and inserting ``sections 1601(a)(2)(B) 
                and 1603(a)(2)(B)''; and
                    (B) in paragraph (2)(A), by inserting ``or 
                1603(a)(2)(B)'' after ``1601(a)(2)(B)''.

SEC. 610. FEDERAL REIMBURSEMENT OF EMERGENCY HEALTH SERVICES FURNISHED 
              TO UNDOCUMENTED ALIENS.

    (a) Total Amount Available for Allotment.--There is appropriated, 
out of any funds in the Treasury not otherwise appropriated, 
$250,000,000 for each of fiscal years 2005 through 2008, for the 
purpose of making allotments under this section to States described in 
paragraph (1) or (2) of subsection (b). Funds appropriated under the 
preceding sentence shall remain available until expended.
    (b) State Allotments.--
            (1) Based on percentage of undocumented aliens.--
                    (A) In general.--Out of the amount appropriated 
                under subsection (a) for a fiscal year, the Secretary 
                shall use $167,000,000 of such amount to make 
                allotments for such fiscal year in accordance with 
                subparagraph (B).
                    (B) Formula.--The amount of the allotment for each 
                State for a fiscal year shall be equal to the product 
                of--
                            (i) the total amount available for 
                        allotments under this paragraph for the fiscal 
                        year; and
                            (ii) the percentage of undocumented aliens 
                        residing in the State with respect to the total 
                        number of such aliens residing in all States, 
                        as determined by the Statistics Division of the 
                        Immigration and Naturalization Service, as of 
                        January 2003, based on the 2000 decennial 
                        census.
            (2) Based on number of undocumented alien apprehension 
        states.--
                    (A) In general.--Out of the amount appropriated 
                under subsection (a) for a fiscal year, the Secretary 
                shall use $83,000,000 of such amount to make allotments 
                for such fiscal year for each of the 6 States with the 
                highest number of undocumented alien apprehensions for 
                such fiscal year.
                    (B) Determination of allotments.--The amount of the 
                allotment for each State described in subparagraph (A) 
                for a fiscal year shall bear the same ratio to the 
                total amount available for allotments under this 
                paragraph for the fiscal year as the ratio of the 
                number of undocumented alien apprehensions in the State 
                in that fiscal year bears to the total of such numbers 
                for all such States for such fiscal year.
                    (C) Data.--For purposes of this paragraph, the 
                highest number of undocumented alien apprehensions for 
                a fiscal year shall be based on the 4 most recent 
                quarterly apprehension rates for undocumented aliens in 
                such States, as reported by the Immigration and 
                Naturalization Service.
            (3) Rule of construction.--Nothing in this section shall be 
        construed as prohibiting a State that is described in both of 
        paragraphs (1) and (2) from receiving an allotment under both 
        paragraphs for a fiscal year.
    (c) Use of Funds.--
            (1) Authority to make payments.--From the allotments made 
        for a State under subsection (b) for a fiscal year, the 
        Secretary shall pay directly to local governments, hospitals, 
        or other providers located in the State (including providers of 
        services received through an Indian Health Service facility 
        whether operated by the Indian Health Service or by an Indian 
        tribe or tribal organization) that provide uncompensated 
        emergency health services furnished to undocumented aliens 
during that fiscal year, and to the State, such amounts (subject to the 
total amount available from such allotments) as the local governments, 
hospitals, providers, or State demonstrate were incurred for the 
provision of such services during that fiscal year.
            (2) Limitation on state use of funds.--Funds paid to a 
        State from allotments made under subsection (b) for a fiscal 
        year may only be used for making payments to local governments, 
        hospitals, or other providers for costs incurred in providing 
        emergency health services to undocumented aliens or for State 
        costs incurred with respect to the provision of emergency 
        health services to such aliens.
            (3) Inclusion of costs incurred with respect to certain 
        aliens.--Uncompensated emergency health services furnished to 
        aliens who have been allowed to enter the United States for the 
        sole purpose of receiving emergency health services may be 
        included in the determination of costs incurred by a State, 
        local government, hospital, or other provider with respect to 
        the provision of such services.
    (d) Applications; Advance Payments.--
            (1) Deadline for establishment of application process.--
                    (A) In general.--Not later than September 1, 2004, 
                the Secretary shall establish a process under which 
                States, local governments, hospitals, or other 
                providers located in the State may apply for payments 
                from allotments made under subsection (b) for a fiscal 
                year for uncompensated emergency health services 
                furnished to undocumented aliens during that fiscal 
                year.
                    (B) Inclusion of measures to combat fraud.--The 
                Secretary shall include in the process established 
                under subparagraph (A) measures to ensure that 
                fraudulent payments are not made from the allotments 
                determined under subsection (b).
            (2) Advance payment; retrospective adjustment.--The process 
        established under paragraph (1) shall allow for making payments 
        under this section for each quarter of a fiscal year on the 
        basis of advance estimates of expenditures submitted by 
        applicants for such payments and such other investigation as 
        the Secretary may find necessary, and for making reductions or 
        increases in the payments as necessary to adjust for any 
        overpayment or underpayment for prior quarters of such fiscal 
        year.
    (e) Definitions.--In this section:
            (1) Hospital.--The term ``hospital'' has the meaning given 
        such term in section 1861(e) of the Social Security Act (42 
        U.S.C. 1395x(e)).
            (2) Indian tribe; tribal organization.--The terms ``Indian 
        tribe'' and ``tribal organization'' have the meanings given 
        such terms in section 4 of the Indian Health Care Improvement 
        Act (25 U.S.C. 1603).
            (3) Provider.--The term ``provider'' includes a physician, 
        any other health care professional licensed under State law, 
        and any other entity that furnishes emergency health services, 
        including ambulance services.
            (4) Secretary.--The term ``Secretary'' means the Secretary 
        of Health and Human Services.
            (5) State.--The term ``State'' means the 50 States and the 
        District of Columbia.

SEC. 611. INCREASE IN APPROPRIATION TO THE HEALTH CARE FRAUD AND ABUSE 
              CONTROL ACCOUNT.

    Section 1817(k)(3)(A) (42 U.S.C. 1395i(k)(3)(A)) is amended--
            (1) in clause (i)--
                    (A) in subclause (II), by striking ``and'' at the 
                end; and
                    (B) by striking subclause (III), and inserting the 
                following new subclauses:
                                    ``(III) for fiscal year 2004, the 
                                limit for fiscal year 2003 increased by 
                                $10,000,000;
                                    ``(IV) for fiscal year 2005, the 
                                limit for fiscal year 2003 increased by 
                                $15,000,000;
                                    ``(V) for fiscal year 2006, the 
                                limit for fiscal year 2003 increased by 
                                $25,000,000; and
                                    ``(VI) for each fiscal year after 
                                fiscal year 2006, the limit for fiscal 
                                year 2003.''; and
            (2) in clause (ii)--
                    (A) in subclause (VI), by striking ``and'' at the 
                end;
                    (B) in subclause (VII)--
                            (i) by striking ``each fiscal year after 
                        fiscal year 2002'' and inserting ``fiscal year 
                        2003''; and
                            (ii) by striking the period and inserting a 
                        semicolon; and
            (3) by adding at the end the following:
                                    ``(VIII) for fiscal year 2004, 
                                $170,000,000;
                                    ``(IX) for fiscal year 2005, 
                                $175,000,000;
                                    ``(X) for fiscal year 2006, 
                                $185,000,000; and
                                    ``(XI) for each fiscal year after 
                                fiscal year 2006, not less than 
                                $150,000,000 and not more than 
                                $160,000,000.''.

SEC. 612. INCREASE IN CIVIL PENALTIES UNDER THE FALSE CLAIMS ACT.

    (a) In General.--Section 3729(a) of title 31, United States Code, 
is amended--
            (1) by striking ``$5,000'' and inserting ``$7,500''; and
            (2) by striking ``$10,000'' and inserting ``$15,000''.
    (b) Effective Date.--The amendments made by subsection (a) shall 
apply to violations occurring on or after January 1, 2004.

SEC. 613. INCREASE IN CIVIL MONETARY PENALTIES UNDER THE SOCIAL 
              SECURITY ACT.

    (a) In General.--Section 1128A(a) (42 U.S.C. 1320a-7a(a)), in the 
matter following paragraph (7), is amended--
            (1) by striking ``$10,000'' each place it appears and 
        inserting ``$12,500'';
            (2) by striking ``$15,000'' and inserting ``$18,750''; and
            (3) striking ``$50,000'' and inserting ``$62,500''.
    (b) Effective Date.--The amendments made by subsection (a) shall 
apply to violations occurring on or after January 1, 2004.

SEC. 614. EXTENSION OF CUSTOMS USER FEES.

    Section 13031(j)(3) of the Consolidated Omnibus Budget 
Reconciliation Act of 1985 (19 U.S.C. 58c(j)(3)) is amended by striking 
``September 30, 2003'' and inserting ``September 30, 2013''.

            TITLE VII--ACCESS TO AFFORDABLE PHARMACEUTICALS

SEC. 701. SHORT TITLE.

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

SEC. 702. 30-MONTH STAY-OF-EFFECTIVENESS PERIOD.

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

SEC. 703. FORFEITURE OF 180-DAY EXCLUSIVITY PERIOD.

    (a) In General.--Section 505(j)(5) of the Federal Food, Drug, and 
Cosmetic Act (21 U.S.C. 355(j)(5)) (as amended by section ____02) is 
amended--
            (1) in subparagraph (B), by striking clause (iv) and 
        inserting the following:
            ``(iv) 180-day exclusivity period.--
                    ``(I) Definitions.--In this paragraph:
                            ``(aa) 180-day exclusivity period.--The 
                        term `180-day exclusivity period' means the 
                        180-day period ending on the day before the 
                        date on which an application submitted by an 
                        applicant other than a first applicant could 
                        become effective under this clause.
                            ``(bb) First applicant.--The term `first 
                        applicant' means an applicant that, on the 
                        first day on which a substantially complete 
                        application containing a certification 
                        described in paragraph (2)(A)(vii)(IV) is 
                        submitted for approval of a drug, submits a 
                        substantially complete application containing a 
                        certification described in paragraph 
                        (2)(A)(vii)(IV) for the drug.
                            ``(cc) Substantially complete 
                        application.--The term `substantially complete 
                        application' means an application under this 
                        subsection that on its face is sufficiently 
                        complete to permit a substantive review and 
                        contains all the information required by 
                        paragraph (2)(A).
                            ``(dd) Tentative approval.--
                                    ``(AA) In general.--The term 
                                `tentative approval' means notification 
                                to an applicant by the Secretary that 
                                an application under this subsection 
                                meets the requirements of paragraph 
                                (2)(A), but cannot receive effective 
                                approval because the application does 
                                not meet the requirements of this 
                                subparagraph, there is a period of 
                                exclusivity for the listed drug under 
                                subparagraph (E) or section 505A, or 
                                there is a 7-year period of exclusivity 
                                for the listed drug under section 527.
                                    ``(BB) Limitation.--A drug that is 
                                granted tentative approval by the 
                                Secretary is not an approved drug and 
                                shall not have an effective approval 
                                until the Secretary issues an approval 
                                after any necessary additional review 
                                of the application.
                    ``(II) Effectiveness of application.--Subject to 
                subparagraph (D), if the application contains a 
                certification described in paragraph (2)(A)(vii)(IV) 
                and is for a drug for which a first applicant has 
                submitted an application containing such a 
                certification, the application shall be made effective 
                on the date that is 180 days after the date of the 
                first commercial marketing of the drug (including the 
commercial marketing of the listed drug) by any first applicant.''; and
            (2) by inserting after subparagraph (C) the following:
                    ``(D) Forfeiture of 180-day exclusivity period.--
                            ``(i) Definition of forfeiture event.--In 
                        this subparagraph, the term `forfeiture event', 
                        with respect to an application under this 
                        subsection, means the occurrence of any of the 
                        following:
                                    ``(I) Failure to market.--The first 
                                applicant fails to market the drug by 
                                the later of--
                                            ``(aa) the earlier of the 
                                        date that is--

                                                    ``(AA) 75 days 
                                                after the date on which 
                                                the approval of the 
                                                application of the 
                                                first applicant is made 
                                                effective under 
                                                subparagraph (B)(iii); 
                                                or

                                                    ``(BB) 30 months 
                                                after the date of 
                                                submission of the 
                                                application of the 
                                                first applicant; or

                                            ``(bb) with respect to the 
                                        first applicant or any other 
                                        applicant (which other 
                                        applicant has received 
                                        tentative approval), the date 
                                        that is 75 days after the date 
                                        as of which, as to each of the 
                                        patents with respect to which 
                                        the first applicant submitted a 
                                        certification qualifying the 
                                        first applicant for the 180-day 
                                        exclusivity period under 
                                        subparagraph (B)(iv), at least 
                                        1 of the following has 
                                        occurred:

                                                    ``(AA) In an 
                                                infringement action 
                                                brought against that 
                                                applicant with respect 
                                                to the patent or in a 
                                                declaratory judgment 
                                                action brought by that 
                                                applicant with respect 
                                                to the patent, a court 
                                                enters a final decision 
                                                from which no appeal 
                                                (other than a petition 
                                                to the Supreme Court 
                                                for a writ of 
                                                certiorari) has been or 
                                                can be taken that the 
                                                patent is invalid or 
                                                not infringed.

                                                    ``(BB) In an 
                                                infringement action or 
                                                a declaratory judgment 
                                                action described in 
                                                subitem (AA), a court 
                                                signs a settlement 
                                                order or consent decree 
                                                that enters a final 
                                                judgment that includes 
                                                a finding that the 
                                                patent is invalid or 
                                                not infringed.

                                                    ``(CC) The patent 
                                                expires.

                                                    ``(DD) The patent 
                                                is withdrawn by the 
                                                holder of the 
                                                application approved 
                                                under subsection (b).

                                    ``(II) Withdrawal of application.--
                                The first applicant withdraws the 
                                application or the Secretary considers 
                                the application to have been withdrawn 
                                as a result of a determination by the 
                                Secretary that the application does not 
                                meet the requirements for approval 
                                under paragraph (4).
                                    ``(III) Amendment of 
                                certification.--The first applicant 
                                amends or withdraws the certification 
                                for all of the patents with respect to 
                                which that applicant submitted a 
                                certification qualifying the applicant 
                                for the 180-day exclusivity period.
                                    ``(IV) Failure to obtain tentative 
                                approval.--The first applicant fails to 
                                obtain tentative approval of the 
                                application within 30 months after the 
                                date on which the application is filed, 
                                unless the failure is caused by a 
                                change in or a review of the 
                                requirements for approval of the 
                                application imposed after the date on 
                                which the application is filed.
                                    ``(V) Agreement with another 
                                applicant, the listed drug application 
                                holder, or a patent owner.--The first 
                                applicant enters into an agreement with 
                                another applicant under this subsection 
                                for the drug, the holder of the 
                                application for the listed drug, or an 
                                owner of the patent that is the subject 
                                of the certification under paragraph 
                                (2)(A)(vii)(IV), the Federal Trade 
                                Commission or the Attorney General 
                                files a complaint, and there is a final 
                                decision of the Federal Trade 
                                Commission or the court with regard to 
                                the complaint from which no appeal 
                                (other than a petition to the Supreme 
                                Court for a writ of certiorari) has 
                                been or can be taken that the agreement 
                                has violated the antitrust laws (as 
                                defined in section 1 of the Clayton Act 
                                (15 U.S.C. 12), except that the term 
                                includes section 5 of the Federal Trade 
                                Commission Act (15 U.S.C. 45) to the 
                                extent that that section applies to 
                                unfair methods of competition).
                                    ``(VI) Expiration of all patents.--
                                All of the patents as to which the 
                                applicant submitted a certification 
                                qualifying it for the 180-day 
                                exclusivity period have expired.
                            ``(ii) Forfeiture.--The 180-day exclusivity 
                        period described in subparagraph (B)(iv) shall 
                        be forfeited by a first applicant if a 
                        forfeiture event occurs with respect to that 
                        first applicant.
                            ``(iii) Subsequent applicant.--If all first 
                        applicants forfeit the 180-day exclusivity 
                        period under clause (ii)--
                                    ``(I) approval of any application 
                                containing a certification described in 
                                paragraph (2)(A)(vii)(IV) shall be made 
                                effective in accordance with 
                                subparagraph (B)(iii); and
                                    ``(II) no applicant shall be 
                                eligible for a 180-day exclusivity 
                                period.''.
    (b) Effective Date.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendment made by subsection (a) shall be effective only with 
        respect to an application filed under section 505(j) of the 
        Federal Food, Drug, and Cosmetic Act (21 U.S.C. 355(j)) after 
        the date of enactment of this Act for a listed drug for which 
        no certification under section 505(j)(2)(A)(vii)(IV) of that 
        Act was made before the date of enactment of this Act.
            (2) Collusive agreements.--If a forfeiture event described 
        in section 505(j)(5)(D)(i)(V) of that Act occurs in the case of 
        an applicant, the applicant shall forfeit the 180-day period 
        under section 505(j)(5)(B)(iv) of that Act without regard to 
        when the first certification under section 
        505(j)(2)(A)(vii)(IV) of that Act for the listed drug was made.
            (3) Decision of a court when the 180-day exclusivity period 
        has not been triggered.--With respect to an application filed 
        before, on, or after the date of enactment of this Act for a 
        listed drug for which a certification under section 
        505(j)(2)(A)(vii)(IV) of that Act was made before the date of 
        enactment of this Act and for which neither of the events 
        described in subclause (I) or (II) of section 505(j)(5)(B)(iv) 
        of that Act (as in effect on the day before the date of 
        enactment of this Act) has occurred on or before the date of 
        enactment of this Act, the term ``decision of a court'' as used 
        in clause (iv) of section 505(j)(5)(B) of that Act means a 
        final decision of a court from which no appeal (other than a 
        petition to the Supreme Court for a writ of certiorari) has 
        been or can be taken.

SEC. 704. BIOAVAILABILITY AND BIOEQUIVALENCE.

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

SEC. 705. REMEDIES FOR INFRINGEMENT.

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

SEC. 706. CONFORMING AMENDMENTS.

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

             TITLE VIII--IMPORTATION OF PRESCRIPTION DRUGS

SEC. 801. IMPORTATION OF PRESCRIPTION DRUGS.

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

``SEC. 804. IMPORTATION OF PRESCRIPTION DRUGS.

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