099–006

107TH CONGRESS REPT. 107–551 " HOUSE OF REPRESENTATIVES Part 1 !

2d Session 

MEDICARE MODERNIZATION AND PRESCRIPTION DRUG 

ACT OF 2002 (TITLE I: MEDICARE PRESCRIPTION DRUG 

BENEFIT)

JUNE 26, 2002.—Ordered to be printed 

Mr. TAUZIN, from the Committee on Energy and Commerce, 

submitted the following 

R E P O R T 

together with 

DISSENTING VIEWS 

[To accompany H.R. 4984] 

[Including cost estimate of the Congressional Budget Office] 

The Committee on Energy and Commerce, to whom was referred 

the bill (H.R. 4984) to amend title XVIII of the Social Security Act 

to provide for a medicare prescription drug benefit, having considered the same, report favorably thereon without amendment and 

recommend that the bill do pass.

CONTENTS 

Page 

Purpose and Summary ............................................................................................ 2

Background and Need for Legislation .................................................................... 2

Hearings ................................................................................................................... 2

Committee Consideration ........................................................................................ 3

Committee Votes ...................................................................................................... 3

Committee Oversight Findings ............................................................................... 21

Statement of General Performance Goals and Objectives .................................... 21

New Budget Authority, Entitlement Authority, and Tax Expenditures ............. 21

Committee Cost Estimate ....................................................................................... 21

Congressional Budget Office Estimate ................................................................... 21

Federal Mandates Statement ................................................................................. 32

Advisory Committee Statement .............................................................................. 32

Constitutional Authority Statement ...................................................................... 32

Applicability to Legislative Branch ........................................................................ 32

Section-by-Section Analysis of the Legislation ...................................................... 32

Changes in Existing Law Made by the Bill, as Reported ..................................... 41

Dissenting Views ..................................................................................................... 80

2

PURPOSE AND SUMMARY

The purpose of H.R. 4984 is to provide outpatient prescription 

drug coverage to Medicare beneficiaries. The bill creates new Prescription Drug Plans, which will provide this new coverage to any 

Medicare beneficiary wishing to enroll. Plans will charge beneficiaries a modest premium, deductible and co-insurance for this 

coverage. The plans will provide both coverage of all catastrophic 

costs above $3,700, and significant Federal premium and co-insurance subsidies to all beneficiaries with incomes below 175% of the 

Federal Poverty Level. 

BACKGROUND AND NEED FOR LEGISLATION

The Medicare program has not provided a comprehensive outpatient prescription drug benefit since the implementation of the 

program in 1966. Some prescription drugs are reimbursed by Medicare including those administered to beneficiaries in hospitals and 

skilled nursing facilities as well as those administered incident to 

a physician visit that cannot usually be self-administered. This 

means that coverage is generally limited to drugs or biologicals administered by injection. In the last decade, insurance coverage for 

outpatient prescription drugs has become commonplace in the private sector, yet as many as 30 percent of the elderly in the United 

States are without any form of prescription drug coverage. The lack 

of a Medicare prescription drug benefit has placed a significant 

burden on the elderly population without coverage who often have 

substantial out-of-pocket costs related to prescription drugs. This 

legislation provides a comprehensive, voluntary outpatient prescription drug benefit to all Medicare beneficiaries, with subsidies 

available to enrollees with low income to minimize their out-ofpocket costs. 

HEARINGS

The Subcommittee on Health held a hearing on Creating a Medicare Prescription Drug Benefit: Assessing Efforts to Help America’s 

Low-Income Seniors on April 17, 2002. The Subcommittee received 

testimony from The Honorable Mark McClellan, M.D., Ph.D., Member, Council of Economic Advisors; Brian Tyler, M.D., Senior Vice 

President for Business Development and Strategy; Michael 

Hillerby, Deputy Chief of Staff, Nevada Governor Kenny Guinn; 

Craig Fuller, President and CEO, National Association of Chain 

Drug Stores; Patricia Neumann, Sc.D., Director of Kaiser’s Medicare Policy Project, Vice President, Kaiser Family Foundation; Beatrice Braun, M.D., Board of Directors, American Association of Retired Persons; Jeanne Lambrew, Ph.D., Associate Professor, George 

Washington University. 

The Subcommittee on Health held a hearing on Medicare Reform: Providing Prescription Drug Coverage for Seniors on May 16, 

2001. The Subcommittee received testimony from Dan Crippen, Director, Congressional Budget Office; Beatrice Braun, M.D., Member, Board of Directors, AARP; Jeanne Lambrew, Ph.D., Associate 

Professor, Department of Health Services, Management and Policy, 

George Washington University; Robert Chess, Chairman, Inhale 

Therapeutics Systems, on behalf of The Biotechnology Industry. 

3

The Subcommittee on Health held a hearing on Medicare Reform: Providing Prescription Drug Coverage for Seniors on February 16, 2001. The Subcommittee received testimony from Sylvia 

Kessler, National Committee to Preserve Social Security and Medicare; John Jones, Vice President, Legal and Regulatory Affairs, 

PacifiCare Health Systems; Robert Moroni, Assistant Director, 

Health Care Plans, General Motors Corporation; Diane Rowland, 

Kaiser Family Foundation; Bill Weller, Assistant Vice President 

and Chief Actuary, Health Insurance Association of America; Barbara Buckley, Assemblywoman, State of Nevada; James F. Smith, 

R.Ph., Senior Vice President, Health Care Services. 

COMMITTEE CONSIDERATION

On Friday, June 21, 2002, the Full Committee met in open markup session and favorably ordered reported a Committee Print on 

Medicare Prescription Drug Benefit by a record vote of 30 yeas and 

23 nays, as amended, a quorum being present. Chairman Tauzin 

then introduced H.R. 4984 to reflect the Committee’s action. 

COMMITTEE VOTES

Clause 3(b) of rule XIII of the Rules of the House of Representatives requires the Committee to list the record votes on the motion 

to report legislation and amendments thereto. The following are 

the record votes taken on the amendments offered to the measure, 

including the names of those members voting for and against. A 

motion by Mr. Tauzin to order H.R. 4984 reported to the House, 

as amended, was agreed to by a record vote of 30 yeas and 23 nays.

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COMMITTEE OVERSIGHT FINDINGS

Pursuant to clause 3(c)(1) of rule XIII of the Rules of the House 

of Representatives, the Committee has held oversight or legislative 

hearings on this legislation and made findings that are reflected in 

this report. 

STATEMENT OF GENERAL PERFORMANCE GOALS AND OBJECTIVES

H.R. 4984 will create a new, voluntary Medicare outpatient prescription drug benefit, available to all Medicare beneficiaries. 

NEW BUDGET AUTHORITY, ENTITLEMENT AUTHORITY, AND TAX

EXPENDITURES

In compliance with clause 3(c)(2) of rule XIII of the Rules of the 

House of Representatives, the Committee finds that H.R. 4984, to 

amend title XVIII of the Social Security Act to provide for a Medicare prescription drug benefit, would result in no new or increased 

budget authority, entitlement authority, or tax expenditures or revenues. 

COMMITTEE COST ESTIMATE

The Committee adopts as its own the cost estimate prepared by 

the Director of the Congressional Budget Office pursuant to section 

402 of the Congressional Budget Act of 1974. 

CONGRESSIONAL BUDGET OFFICE ESTIMATE

Pursuant to clause 3(c)(3) of rule XIII of the Rules of the House 

of Representatives, the following is the cost estimate provided by 

the Congressional Budget Office pursuant to section 402 of the 

Congressional Budget Act of 1974: 

U.S. CONGRESS, CONGRESSIONAL BUDGET OFFICE, Washington, DC, June 24, 2002. 

Hon. W.J. ‘‘BILLY’’ TAUZIN,

Chairman, Committee on Energy and Commerce, 

House of Representatives, Washington, DC. 

DEAR MR. CHAIRMAN: The Congressional Budget Office has prepared the enclosed cost estimate for the Medicare Modernization 

and Prescription Drug Act of 2002, as ordered reported by the 

Committee on Energy and Commerce on June 21, 2002. 

If you wish further details on this estimate, we will be pleased 

to provide them. The CBO staff contact is Julia Christensen. 

Sincerely, 

STEVEN LIEBERMAN

(For Dan L. Crippen, Director). 

Enclosure.

Medicare Modernization and Prescription Drug Act of 2002

Summary: The bill would establish an outpatient prescription 

drug benefit in Medicare and would modify Medicare’s payment 

rates or coverage rules for many services, including those furnished 

by hospitals, skilled nursing facilities, home health agencies, physiVerDate May 23 2002 04:17 Jul 02, 2002 Jkt 099006 PO 00000 Frm 00021 Fmt 6659 Sfmt 6602 E:\HR\OC\HR551P1.XXX pfrm12 PsN: HR551P1
22

cians, physical and speech therapists, occupational therapists, and 

managed care plans. CBO estimates those provisions would increase direct spending by $4.3 billion in 2003 and by $341 billion 

over the 2003–2012 period. 

The bill would authorize the collection of civil penalties for the 

failure of interstate Internet pharmacies to comply with disclosure 

requirements. Those collections would be classified as revenues 

(i.e., governmental receipts). However, CBO assumes that there 

would be substantial compliance with the disclosure requirements 

and that the effect on revenues would be negligible. Because the 

bill would affect direct spending and revenues, pay-as-you go procedures would apply. 

The bill would also affect discretionary spending. It would require the Centers for Medicare and Medicaid Services to modify 

how Medicare regulations and policies are developed, communicated, and enforced. It also would establish a Medicare Benefits 

Administration to administer the outpatient drug benefit and the 

Medicare+Choice program. The bill also would establish an Office 

of Rare Diseases at the National Institutes of Health, require several studies, and authorize several grant programs. CBO has not 

completed an estimate of the costs of activities subject to appropriations of the necessary amounts. 

The bill contains intergovernmental mandates, including a number of preemptions of state law, as defined in the Unfunded Mandates Reform Act (UMRA). CBO estimates that the preemption of 

state premium taxes would result in revenue losses to states of 

about $70 million in 2005 (the first year the mandate is effective) 

increasing to about $100 million in 2009. Those losses would exceed 

the threshold established in UMRA ($62 million in 2005, adjusted 

annually for inflation). CBO estimates that other mandates and 

preemptions in the bill would impose minimal or no costs on states, 

local, or tribal governments. 

The bill would modify several existing private-sector mandates 

on insurers that offer Medicare supplemental (medigap) coverage 

and would impose new requirements on Internet pharmacies and 

group health plans. CBO estimates that the direct cost of the mandates in the bill would not exceed the threshold specified in UMRA 

($115 million in 2002, adjusted annually for inflation). 

Estimated cost to the Federal Government: The estimated budgetary impact of the bill is summarized in Table 1 and major components of those costs are outlined below. The costs of this legislation 

fall within budget functions 550 (health) and 570 (Medicare). 

Major provisions: The following discussion highlights changes in 

gross outlays directly attributable to provisions of the act. In addition, the estimate includes three interactions: the effect of changes 

in Medicare Part B outlays on receipts from Part B premiums, the 

effect of changes in Part B premiums and cost sharing on federal 

Medicaid spending, and the effect of changes in Medicare payment 

rates on federal Medicaid spending subject to the ‘‘upper payment 

limit’’ (UPL). 

About 25 percent of new Part B outlays would be covered by premium payments by beneficiaries. CBO estimates that those premium payments would total ($4.8 billion from 2003 through 2012. 

Such payments would be recorded as offsetting receipts (a credit 

against direct spending). 

23

Medicaid pays some or all of premiums and cost sharing for individuals dually eligible for Medicaid and Medicare and for other 

low-income Medicare beneficiaries not poor enough to qualify for 

full Medicaid benefits. In addition to changing the Part B premium, 

the bill would change cost sharing for services furnished in hospital 

outpatient departments and would change payment rates for many 

services (which would affect cost sharing). CBO estimates that the 

changes in premiums and cost sharing would increase federal Medicaid costs by about $0.3 billion over the 2003–2012 period.

TABLE 1.—ESTIMATED IMPACT ON DIRECT SPENDING OF THE MEDICARE MODERNIZATION AND 

PRESCRIPTION DRUG ACT OF 2002, AS ORDERED REPORTED BY THE COMMITTEE ON ENERGY 

AND COMMERCE ON JUNE 21, 2002

By fiscal year, outlays in billions of dollars—

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2003–12

MEDICARE OUTLAYS

Title I: Medicare Prescription Drug 

Benefit ......................................... 0 0 22.3 36.1 40.6 45.8 51.3 57.5 64.3 72.4 390.4

Title II: Medicare-Choice: 

201 M+C payment improvements ................................. 0.5 1.1 0.5 0 0 0 0 0 0 0 2.2

211 M+C competition program ................................... 0 0 0.6 0.9 0.9 0.3 ¥0.4 ¥0.6 ¥0.6 ¥0.5 0.7

Other provisions ..................... * ***** * * * * 0.1

Subtotal, title II ................. 05 1.2 1.2 0.9 0.9 0.3 ¥0.4 ¥0.6 ¥0.6 ¥0.5 2.9

Title III: Rural Health Care Improvements: 

302 Disproportionate share 

adjustment ......................... 0.0 0.1 0.1 0.2 0.2 0.2 0.2 0.2 0.2 0.2 1.6

303 Standardized payment 

amount ............................... 0.3 0.6 0.6 0.7 0.7 0.8 0.8 0.9 0.9 1.0 7.2

306 Home Health 10 percent 

rural add-on ....................... 0.1 0.3 0.1 * 0 0 0 0 0 0 0.6

Other provisions ..................... * ***** * * * * 0.1

Subtotal, title III ................ 0.4 1.0 0.9 0.9 0.9 1.0 1.0 1.1 1.2 1.2 9.5

Title IV: Part A: 

401 Hospital update .............. 0.3 0.3 0.3 0.3 0.3 0.4 0.4 0.4 0.4 0.5 3.6

402 Indirect medical education ................................. 0.4 0.3 0 0 0 0 0 0 0 0 0.7

404 Phase-in federal rate in 

Puerto Rico ......................... * * * * * * * * * * 0.2

411 Skilled Nursing Facility 

payment rates .................... 0.4 0.5 0.6 0.1 0 0 0 0 0 0 1.6

421 Hospice Consultation 

Services .............................. 0**** * * * * * 0.2

Other provisions ..................... * ***** 0 0 0 0 0.1

Subtotal, title IV ................ 1.1 1.2 0.9 0.5 0.4 0.4 0.4 0.5 0.5 0.5 6.4

Title V: Part B: 

501 Updates for physicians’ 

services .............................. 1.6 4.4 6.6 5.7 2.9 ¥0.4 ¥2.5 ¥3.0 ¥2.5 ¥1.4 11.5

511 Competitive acquisition .. 0 ¥0.2 ¥0.4 ¥0.7 ¥0.8 ¥0.9 ¥1.0 ¥1.1 ¥1.2 ¥1.3 0.6

512 Ambulance ...................... 0.2 0.2 0.1 0.1 * 0 0 0 0 0 0.6

513 Therapy cap: 2 year extension of moratorium ....... 0.4 0.5 0.1 * * * * * * * 1.0

514 Hospital outpatient services ..................................... 0 0.2 0.5 0.7 0.8 0.8 0.8 1.0 1.8 3.1 9.7

515 Routine physical ............. 0 0.1 0.1 0.1 0.1 0.2 0.2 0.2 0.2 0.2 1.3

516 Renal dialysis services ... * * 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.7

Other provisions ..................... * 0.1 0.1 * * * * * * 0.1 0.2

Subtotal, title V ................. 2.2 5.4 7.2 6.0 3.0 ¥0.3 ¥2.5 ¥2.9 ¥1.6 0.7 17.3

Title VI: Parts A and B: 

Home Health Provisions ......... 0.4 0.2 * ¥0.1 ¥0.1 ¥0.1 ¥0.1 ¥0.1 ¥0.1 ¥0.1 *

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TABLE 1.—ESTIMATED IMPACT ON DIRECT SPENDING OF THE MEDICARE MODERNIZATION AND 

PRESCRIPTION DRUG ACT OF 2002, AS ORDERED REPORTED BY THE COMMITTEE ON ENERGY 

AND COMMERCE ON JUNE 21, 2002—Continued

By fiscal year, outlays in billions of dollars—

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2003–12

611 Limit on high cost medical education programs .... * * ¥0.1 ¥0.2 ¥0.2 ¥0.3 ¥0.3 ¥0.4 ¥0.5 ¥0.5 ¥2.6

612 Redistribute unused residency positions .................. * 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 1.0

Other provisions ..................... 0 ***00 0000*

Subtotal, title VI ................ 0.3 0.3 * ¥0.1 ¥0.2 ¥0.2 ¥0.3 ¥0.4 ¥0.4 ¥0.5 ¥1.6

Title VII: Medicare Benefits Administration ....................................... 0 0 0000 0 0000

Title VIII: Regulatory Reform ........... ***** * * * * * 0.1

Title IX: Medicaid, Public Health, 

and other Provisions ................... 0 00000 00000

Subtotal, Gross Medicare 

Outlays ........................... 4.5 8.9 32.6 44.2 45.7 47.0 49.7 55.1 63.4 73.9 425.0

Premium Collections ........................ ¥0.7 ¥1.6 ¥2.0 ¥1.6 ¥0.9 * 0.7 0.8 0.5 ¥0.1 ¥4.8

Subtotal, Net Medicare 

Outlays ........................... 3.8 7.3 30.6 42.6 44.8 47.0 50.3 55.9 63.9 73.8 420.1

MEDICAID OUTLAYS

Title I: Medicare Prescription Drug 

Benefit ......................................... 0 * ¥3.8 ¥8.2 ¥8.7 ¥9.5 ¥10.6 ¥11.8 ¥13.3 ¥14.8 ¥81.0

902 Disproportionate Share Payments .......................................... 0.4 0.3 0.3 0.2 0.2 0.2 0.2 0.1 0.1 * 2.0

Spending Subject to Upper Payment 

Limit ............................................ 0.1 0.1 0.1 * * * * * * * 0.2

Medicaid Payments of Medicare 

Premiums .................................... 0.1 0.2 0.2 0.2 0.1 * ¥0.1 ¥0.1 ¥0.1 ¥0.1 0.3

Subtotal, Medicaid ............. 0.5 0.6 ¥3.3 ¥7.8 ¥8.4 ¥9.4 ¥10.5 ¥11.8 ¥13.3 ¥14.9 ¥78.3

OTHER DIRECT SPENDING 1

Title I: Medicare Prescription Drug 

Benefit ......................................... 0 0 ¥0.1 ¥0.2 ¥0.2 ¥0.2 ¥0.2 ¥0.3 ¥0.3 ¥0.3 ¥1.7

702 Pharmacy Grant Program * 0.1 0.2 0.2 0.2 * * * * * 0.6

Subtotal, other direct 

spending ........................ * 0.1 0.1 * ¥0.1 ¥0.2 ¥0.2 ¥0.3 ¥0.3 ¥0.3 ¥1.1

TOTAL CHANGES IN DIRECT SPENDING

Estimated Outlays ........................... 4.3 8.0 27.4 34.8 36.3 37.5 39.6 43.9 50.3 58.7 340.7

1 Federal savings in the Federal Employees Health Benefits program. Department of Defense spending on health benefits for Medicare-eligible 

retirees, and spending from the Combined Benefits Funds for the United Mine Workers Association.

Notes: 

*=Between ¥$50 million and $50 million. 

Numbers may not add up to totals because of rounding. 

State Medicaid programs use Medicare payment rates to calculate the maximum amount, known as the upper payment limit, 

that they can pay for services furnished by hospitals and nursing 

homes. In recent years, many states have increased their Medicaid 

payments up to the UPL in order to draw down additional federal 

funds. The bill would raise Medicare payment rates for services 

furnished by hospitals and skilled nursing facilities, thus boosting 

the UPL and allowing states to receive additional federal Medicaid 

funds. CBO estimates that the bill would increase federal Medicaid 

spending subject to the UPL by $0.2 billion over the 2003–2012 period. 

25

TITLE I—MEDICARE OUTPATIENT PRESCRIPTION DRUG BENEFIT

Title I would create a voluntary outpatient prescription drug benefit, beginning in 2005, under a new Part D of the Medicare program. The prescription drug benefit would be offered by competing 

private drug plans that would be a financial risk for covering the 

cost of the benefit. Premiums would be charged to participating 

beneficiaries and subsidized, in part, by the Medicare program. The 

bill would establish a program to subsidize premiums and cost 

sharing for certain low-income beneficiaries, and would reduce federal Medicaid payments to states through 2012 by a proportion of 

the spending for subsidized premiums and cost sharing attributed 

to Medicare enrollees who are entitled to prescription drug coverage under Medicaid. 

CBO estimates that the Part D provision would increase direct 

spending by about $308 billion over the 2003–2012 period (see 

Table 2). Of that 10-year total, $301 billion represents outlays for 

federal payments to plans offering qualified prescription drug coverage and $92 billion is for spending by Medicare for the low-income subsidy program. Those costs would be partially offset by $96 

billion in federal savings associated with the new drug program, 

because Part D would replace or supplement drug coverage that 

some Medicare enrollees obtain through Medicaid, the Federal Employees Health Benefits program, the Department of Defense, or 

the Combined Benefits Funds of the United Mine Workers Association. Other effects of the program—largely the result of increased 

enrollment of Medicare enrollees in Medicaid, offset, in part, by the 

reduction through 2012 in federal Medicaid payments to states—

would increase federal spending by $11 billion through 2012, CBO 

estimates.

TABLE 2.—EFFECT ON DIRECT SPENDING OF ESTABLISHING A PRESCRIPTION DRUG BENEFIT IN 

MEDICARE: TITLE I OF THE MEDICARE MODERNIZATION AND PRESCRIPTION DRUG ACT OF 2002

By fiscal year, outlays in billions of dollars—

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2003– 12

CHANGES IN DIRECT SPENDING

Medicare Spending on Prescription 

Drugs .............................................. 0 0 19 29 32 35 39 44 49 54 301

Spending by Medicaid and Other Programs on Drugs for Medicare Enrollees ............................................. 0 0 ¥4 ¥9 ¥10 ¥12 ¥13 ¥14 ¥16 ¥18 ¥96

Low-income Subsidy ........................... 0 0 4 8 10 11 13 14 16 17 92

Other Direct Spending 1 ...................... 0 * * * * 1 2 2 3 3 11

Total Federal Spending ......... 0 * 18 28 32 36 41 45 51 57 308

Memorandum: 

Monthly Premium ....................... n.a. n.a. $34 $36 $39 $42 $46 $51 $55 $60

Dedutible ................................... n.a. n.a. $250 $276 $303 $333 $364 $398 $435 $475

1 Other Direct spending includes changes in Medicare and Medicaid spending associated with increases in the number of Medicare beneficiaries enrolled in Medicaid and reductions in federal Medicaid payments to states. 

Notes: 

* =Cost or savings of less than $500 million. 

n.a.= not applicable because the benefit would not take effect until 2005. 

Numbers may not add up to tools because of rounding. 

Under the prescription drug benefit, plan sponsors would offer either ‘‘standard coverage’’ or actuarially equivalent coverage, if approved by the Medicare Benefits Administration. For 2005, standVerDate May 23 2002 04:17 Jul 02, 2002 Jkt 099006 PO 00000 Frm 00025 Fmt 6659 Sfmt 6602 E:\HR\OC\HR551P1.XXX pfrm12 PsN: HR551P1
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ard coverage would have a $250 deductible; 20 percent cost sharing 

for cost between $250 and $1,000; and 50 percent cost sharing for 

costs between $1,000 and $2,000. Beneficiaries would be responsible for 100 percent of costs above $2,000 until the beneficiary 

reaches the catastrophic limit at $3,700 in out-of-pocket spending. 

In subsequent years, those amounts would be increased by the percentage change in per-capita spending for outpatient prescription 

drugs among the Medicare population.

The beneficiary would stop paying for covered prescription drugs 

after reaching the catastrophic limit (out-of-pocket spending of 

$3,700 in 2005). However, only payments made by the beneficiary, 

the low-income subsidy, or by Medicaid would count toward that 

catastrophic limit; payments or reimbursements made by other insurance or third-party payers would not count toward that limit. 

Each plan would establish its own premium. CBO estimates that premiums would average about $34 in 2005, increasing to $60 in 

2012. 

The Medicare program would subsidize the drug benefit through 

two payments to plans: reimbursement of 36 percent of the plan’s 

spending for the standard benefit and ‘‘individual reinsurance’’ payments for high-cost beneficiaries that, in aggregate, equal 30 percent of total spending for standard benefits. 

Individuals with incomes below 150 percent of the federal poverty level would be eligible for a full subsidy of the lowest premium 

in the market and the cost sharing for drug spending below $2,000. 

For individuals with incomes between 150 percent and 175 percent 

of the federal poverty level, there would be a full subsidy of cost 

sharing for costs below $2,000 and there would be a sliding-scale 

subsidy of the lowest premium in the market. (In 2002, the federal 

poverty level is $8,860 for an individual and $11,940 for a couple.) 

TITLE II—MEDICARE+CHOICE REVITALIZATION AND COMPETITION

Title II would increase rates paid to Medicare+Choice plans in 

calendar years 2003 and 2004, and would establish a new 

Medicare+Choice payment system based on competitive bidding, 

beginning in 2005. The bill also would extend several expiring programs and demonstration programs involving group plans. CBO estimates the provisions in title II would increase direct spending by 

$0.5 billion in 2003 and by $2.9 billion over the 2003–2012 period. 

CBO estimates that a requirement in current law will hold increases in rates paid to nearly all Medicare+Choice plans to 2 percent in both 2003 and 2004. The bill would eliminate that requirement and modify the payment formula to pay the largest of four 

amounts: a minimum payment amount, a blend of local and national amounts based on inflated historical per-capita costs in the 

fee-for-service sector, estimated current per-capita costs in the feefor-service sector, and a minimum increase of 3 percent. (The minimum payment amounts would be $425 in most counties and $525 

in counties in a metropolitan area with a population greater than 

250,000, updated from 2001 by the increase in per-capita spending 

in the Medicare program.) That provision would affect spending 

during fiscal years 2003 through 2005, increasing outlays by $0.5 

billion in 2003 and by a cumulative total of $2.2 billion. 

The bill would establish a competitive bidding program for 

Medicare+Choice plans, beginning in 2005. Under the program, 

27

plans would submit bids for the cost of providing standard benefits 

under Parts A and B of Medicare and the standard drug benefit 

under Part D. Those bids for standard Part A and Part B benefits 

would be compared to a benchmark amount, which in 2005 through 

2007 would be the larger of the minimum payment amount and estimated current per-capita costs in the fee-for-service sector. Beginning in 2008, the benchmark amount would be the larger of the 

minimum payment amount and 95 percent of per-capita costs in 

the fee-for-service sector. If a plan were to bid below the benchmark amount, Medicare would pay the plan the bid plus an 

amount that would approximate 75 percent of the difference between the bid and the benchmark amount (after adjusting for differences in risk attributable to the health status of the plan’s enrollees). The plans could rebate that additional payment to Medicare enrollees, or could use it to pay for additional benefits. CBO 

estimates that the competition program would increase spending 

during the 2005–2008 period and reduce spending beginning in 

2009, with spending through 2012 increasing by a total of $0.7 billion. 

TITLE III—RURAL HEALTH CARE IMPROVEMENTS

Title III would increase payment rates for inpatient services furnished by hospitals in rural areas or metropolitan areas with a 

population under one million, and for services furnished by home 

health agencies located in rural areas. CBO estimates those provisions would increase spending by $0.4 billion in 2003 and by about 

$9.5 billion through 2012. Two provisions—increasing the standardized payment amount and increasing payments to hospitals that 

qualify for a payment adjustment as a disproportionate share hospital—account for $8.8 billion of that 10-year total. 

TITLE IV—PROVISIONS RELATING TO MEDICARE PART A

Title IV would increase payment rates for inpatient services furnished by hospitals, skilled nursing facilities, and hospices. CBO 

estimates the provisions in title IV would increase spending by $1.1 

billion in 2003 and by $6.4 billion over the 2003–2012 period. 

The bill would increase the 2003 update to payment rates for 

hospital inpatient services paid under the prospective payment system from 0.55 percentage points below the ‘‘market basket index’’

measure of changes in hospital input prices to 0.25 percentage 

points below that index. Hospitals designated as sole community 

hospitals would receive an update in 2003 equal to the market basket index. CBO estimates that provision would increase spending 

by $0.3 billion in 2003 and $3.6 billion over the 2003–2012 period.

Temporary increases in payments to teaching hospitals and 

skilled nursing facilities account for most of the remaining costs of 

title IV. Teaching hospitals would receive higher payments for two 

years, at an estimated cumulative cost of $0.7 billion, and skilled 

nursing facilities would receive higher payment rates for three 

years, at a cumulative cost of $1.6 billion. 

TITLE V—PROVISIONS RELATING TO MEDICARE PART B

CBO estimates that the provisions of title V would increase Medicare spending by $2.2 billion in 2003 and $17.3 billion over 

28

the 2003–2012 period. The provisions with the largest budgetary 

effects include changes in payments for physicians’ services, assumption of some cost sharing for services furnished by hospital 

outpatient departments, establishment of a competitive acquisition 

program for durable medical equipment and certain orthotics, coverage of some routine physical examinations, and a two-year delay 

in the implementation of caps on payments for certain therapy 

services. 

Compared to current law, CBO estimates that the bill would increase payments for services paid under the physician fee schedule 

during 2003 through 2007, with outlays increasing by $1.6 billion 

in 2003 and by $21.3 billion through 2007. However, the bill would 

reduce payments for those services in 2008 and subsequent years, 

with a net increase in spending during the 2003–2012 period of 

$11.5 billion. 

Before the Balanced Budget Act of 1997 (BBA), beneficiaries paid 

cost sharing of 20 percent of charges for hospital outpatient services and the program paid 80 percent of allowed charges. Allowed 

charges generally were a much lower amount than charges. As a 

result, beneficiaries, on average, were paying about half of payments to hospitals for outpatient services. The BBA and subsequent legislation are phasing in increases in payments for outpatient services while limiting cost sharing, with the objective of 

reducing the share paid by beneficiaries to 20 percent. The bill 

would accelerate the Medicare program’s assumption of cost sharing in excess of 20 percent, beginning in 2004. CBO estimates that 

provision would increase spending by $9.7 billion over the 2003–

2012 period. 

The bill would expand and make permanent a demonstration 

project in which certain durable medical equipment and orthotics 

are acquired through competitive bidding instead of paying on the 

basis of a fee schedule. CBO estimates that provision would reduce 

spending by $7.7 billion through 2012. 

Beginning in 2004, the bill would require Medicare to pay for a 

routine physical examination, and associated services, when furnished within six months of when a beneficiary first enrolls in 

Medicare. Beneficiaries already enrolled in Medicare would not be 

eligible for this benefit. CBO estimates this provision would cost 

$1.3 billion over the 2003–2012 period. 

TITLE VI—PROVISIONS RELATING TO MEDICARE PARTS A AND B

Title VI would modify payment rates for home health services, 

limit subsidies to hospitals with graduate medical education (GME) 

programs and permit redistribution of subsidized GME slots, and 

establish several demonstration programs. CBO estimates that the 

provisions of title VI would increase Medicare spending by $0.3 billion in 2003 and would reduce spending by $1.6 billion over the 

2003–2012 period. 

Under current law, there will be a so-called ‘‘15 percent’’ reduction in 2003 in rates paid for services to furnished by home health 

agencies (the actual reduction would be about 7 percent). The bill 

would eliminate the reduction, but would provide for smaller annual updates to payment rates in subsequent years. CBO estimates 

that provision would increase federal spending by $0.4 billion in 

29

2003 and reduce spending by less than $50 million over the 2003–

2012 period. 

Under current law, a limit on subsidies for GMC programs—at 

140 percent of the adjusted national average per-resident amount—

will expire at the end of 2002. The bill would extend that limit 

through 2012, reducing federal spending by about $2.6 billion over 

the 2003–2012 period. Current law caps the number of residency 

slots at each teaching hospital that are eligible for GME subsidies. 

The bill would permit unused residency slots to be redistributed to 

hospitals that have reached their caps. CBO estimates that provision would increase spending by $1 billion over the 2003–2012 period. 

TITLE VII—MEDICARE BENEFITS ADMINISTRATION

The bill would establish a Medicare Benefits Administration 

within the Department of Health and Human Services to administer the Medicare+Choice competition program and the prescription drug benefit. The bill also would provide $150 million a year 

during 2004 through 2007 for a program for grants to pharmacies. 

CBO estimates that title VII would increase direct spending by 

$0.6 billion over the 2003–2012 period.

TITLE VIII—REGULATORY REDUCTION AND CONTRACTING REFORM

Title VIII would establish a procedure for obtaining a determination before a service is furnished whether Medicare will pay for 

that service. CBO estimates that provision would increase direct 

spending by about $0.1 billion over the 2003–2012 period. 

TITLE IX—MEDICAID, PUBLIC HEALTH, AND OTHER HEALTH

PROVISIONS

CBO estimates that the provisions of title IX would have no effect on direct spending. 

Pay-as-you-go considerations: The Balanced Budget and Emergency Deficit Control Act sets up pay-as-you-go procedures for legislation affecting direct spending or receipts. The net changes in 

outlays and governmental receipts that are subject to pay-as-yougo procedures are shown in the following table. For the purposes 

of enforcing pay-as-you-go procedures, only the effects through 

2006 are counted.

By fiscal year, in millions of dollars—

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Changes in outlays ............... 0 4,100 7,700 26,600 34,000 35,700 37,200 39,500 43,700 50,200 58,500

Changes in receipts ............. 0 0 0 0 0 0 0 0 0 0 0

Estimated impact on state, local, and tribal governments: The 

bill contains intergovernmental mandates, including a number of 

preemptions of state law, as defined in the Unfunded Mandates Reform Act. CBO estimates that the preemption of state premium 

taxes would result in revenue losses to states of about $70 million 

in 2005 (the first year the mandate is effective) increasing to about 

$100 million in 2009. Those losses would exceed the threshold established in UMRA ($62 million in 2005, adjusted annually for inflation). CBO estimates that other mandates and preemptions in 

30

the bill would impose minimal or no costs on state, local, or tribal 

governments. Provisions of the bill affecting Medicaid would result 

in net savings to state and local governments of about $48 billion 

over the 2003–2012 period, and additional spending for dispropor- tionate share hospitals would total $1.5 billion over the same period. 

Mandates 

The bill would prohibit states from imposing premium taxes on 

prescription drug plans (PDPs), and this prohibition would be an 

intergovernmental mandate as defined in UMRA. Participation in 

PDPs would result in a shift away from taxable plans. Such a shift, 

in combination with the preemption of state taxing authority for 

the new plans, would result in a loss of tax revenues. CBO estimates that approximately 10 million people would change their insurance coverage for prescription drugs from taxable plans to 

PDPs. As a result, states would be unable to collect premium taxes 

(ranging from 0.2 percent to 3.0 percent of premiums) on those 

plans. CBO estimates that state losses of premium tax revenue as 

a result of this preemption would range from about $70 million in 

2005 to $100 million in 2009. 

The bill also would allow the Secretary of Health and Human 

Services to waive state licensure requirements for PDPs in cases 

where a state fails to act on a license application within 90 days 

or where a state denial is based on discriminatory treatment or solvency requirements that differ from those in the bill. In cases 

where the Secretary waives licensure requirements, states would 

lose fees associated with those licenses. CBO cannot estimate the 

magnitude of such losses because we have no basis for predicting 

the number of cases where a waiver would be possible or would be 

granted. 

Health plans that provide prescription drug coverage, including 

retiree prescription drug plans and state pharmaceutical programs, 

would be required to disclose whether the coverage they offer provides benefits at least equivalent to the benefits under the PDP. 

That disclosure requirement would be an intergovernmental mandate as defined by UMRA; however CBO estimates that the costs 

of the mandate would be minimal. 

The bill would preempt state solvency standards for PDP sponsors and would supercede all state laws governing Medicare+Choice 

plans, with the exception of licensing or solvency requirements. 

While these preemptions would limit the application of state laws, 

they would impose no duties on states that would result in additional spending. 

Other impacts 

The net effect of the bill on state Medicaid spending is expected 

to be savings totaling about $48 billion over the 2003–2012 period. 

On the one hand, state Medicaid programs would benefit as coverage responsibility for individuals that are dually eligible for Medicaid and Medicare shift from Medicaid to Medicare. However, 

some of these savings would be offset by new prescription drug 

spending for new enrollees who are dually eligible for both Medicare and Medicaid. CBO estimates that savings to states from 

these provisions would total about $60 billion over the 2003–2012 

31

period. On the other hand, the federal government would withhold 

funds from states’ quarterly reimbursements for Medicaid, reducing state savings over the same period by about $12 billion. 

States would be required to determine whether an individual 

would be eligible for premium and cost-sharing assistance under 

Medicare. The costs associated with this additional requirement 

would decrease over time because the matching rate from the federal government would increase annually until 2014 when it would 

equal 100 percent. In addition, increased allotments for disproportionate share hospitals in states would increase state Medicaid 

spending by about $1.5 billion. Because states may alter their programmatic and financial responsibilities to offset these costs, they 

would not be intergovernmental mandates as defined in UMRA. 

State and local governments that provide health insurance to 

their employees may benefit from federal reinsurance payments 

provided for in the bill. They may alter their current prescription 

drug plans to qualify for reinsurance payments or they may contract with outside PDPs that qualify. In either case, those governments could realize savings in their health plans for retirees. Because CBO cannot predict how states might restructure the prescription drug component of their health plans, we cannot estimate 

the size of any federal reinsurance payments that would accrue to 

those governments. 

Estimated Impact on the private sector: The bill would modify or 

create a number of mandates on private-sector entities. CBO estimates that the direct cost of the mandates in the bill would not exceed the threshold specified in UMRA ($115 million in 2002, adjusted annually for inflation). 

Section 104 of the bill would modify several existing private-sector mandates on insurers that offer Medicare supplement 

(medigap) coverage. One change would bar insurers from offering 

policies that include prescription drug coverage (policy categories 

H, I, and J) except to beneficiaries currently enrolled in the plans. 

However, insurers would be allowed to offer to beneficiaries who 

enroll in the Part D program two new medigap policies whose coverage would complement the Part D coverage. In addition, insurers 

who sell medigap policies without prescription drug coverage (policy categories A–G) would have to make those policies available, on 

a similar basis as they do to beneficiaries newly eligible to purchase medigap coverage, to any beneficiary who enrolls in the new 

Medicare Part D program and who, at the time of enrollment in 

Part D, held an H, I, or J policy. 

CBO estimates that most Medicare beneficiaries who would purchase medigap plans with prescription drug coverage under current 

law would join the new Part D program under the bill and would 

also purchase one of the two new medigap drug plans. As a result, 

nearly all of the profits lost by insurers due to restrictions on current medigap plans would be offset by profits earned ion the new 

drug plans. 

The bill would also impose three new private-sector mandates. 

Section 1860A would require health plans that provide prescription 

drug coverage, including retiree prescription drug plans and state 

pharmaceutical programs, to certify that the coverage they offer 

provides benefits at least equivalent to the benefits under Part D. 

Such a certification would be needed by enrollees who wanted to 

32

enter the Medicare drug benefit late because they had previously 

obtained coverage from the certifying plan. Section 850 would bar 

group health plans from requiring dental providers to obtain a 

claims determination from Medicare for dental benefits specifically 

excluded from Medicare coverage as a condition for obtaining a 

claims determination for such benefits under the group health 

plan. Section 912 would require pharmacies operating on the Internet to disclose their existence to state licensing boards and to post 

certain information on their web sites. CBO estimates that the direct cost of these mandates would be small. 

Estimate prepared by: Federal Costs: Medicare outpatient prescription drug benefit—Julia Christensen, Jeanne De Sa, and Eric 

Rollins; Rachel Schmidt and Sarah Thomas. Medicare+Choice Competition—Niall Brennan. Other provisions—Alexis Ahlstrom, 

Charles Betley, Niall Brennan, Julia Christensen, Jeanne De Sa, 

Eric Rollins, Christopher Topoleski. Impact on State, Local, and 

Tribal Governments: Leo Lex. Impact on the Private Sector: Stuart 

Hagen. 

Estimate approved by: Peter H. Fontaine, Deputy Assistant Director for Budget Analysis.

FEDERAL MANDATES STATEMENT

The Committee adopts as its own the estimate of Federal mandates prepared by the Director of the Congressional Budget Office 

pursuant to section 423 of the Unfunded Mandates Reform Act. 

ADVISORY COMMITTEE STATEMENT

No advisory committees within the meaning of section 5(b) of the 

Federal Advisory Committee Act were created by this legislation. 

CONSTITUTIONAL AUTHORITY STATEMENT

Pursuant to clause 3(d)(1) of Rule XIII of the Rules of the House 

of Representatives, the Committee finds that the Constitutional authority for this legislation is provided in Article I, section 8, clause 

3, which grants Congress the power to regulate commerce with foreign nations, among the several States, and with the Indian tribes. 

APPLICABILITY TO LEGISLATIVE BRANCH

The Committee finds that the legislation does not relate to the 

terms and conditions of employment or access to public services or 

accommodations within the meaning of section 102(b)(3) of the Congressional Accountability Act. 

SECTION-BY-SECTION ANALYSIS OF THE LEGISLATION

Section 101. Establishment of a Medicare Prescription Drug Benefit 

Section 101 establishes a new Voluntary Prescription Drug Benefit Program under a new Part D of title XVIII of the Social Security Act, as follows: 

Sec. 1860A. Benefits; Eligibility; Enrollment; and Coverage Period 

All beneficiaries entitled to Part A and enrolled in Part B of the 

Medicare program will be eligible to enroll in a qualified prescription drug plan (PDP) offered either through a Medicare+Choice 

33

(M+C) plan or other sponsoring organization such as a Pharmacy 

Benefit Manager. Each beneficiary enrolled in Parts A and B will 

have a choice between two qualified PDPs. 

Beneficiaries can elect to enroll in either Part D or obtain prescription drug coverage offered by a M+C plan under Part C. Beneficiaries who elect to participate in Medicare Part D will select and 

enroll in a plan available in their area through a process similar 

to Part C enrollment. Individuals who are entitled to benefits 

under Part A or are enrolled under Part B as of November 1, 2004 

will have an initial election period of 6 months. Those who are entitled to benefits under Part A or enrolled under Part B after November 1, 2004 will have an election period that is the same as the 

initial enrollment period for Part C. Beneficiaries will be able to 

enroll and change plans during specified election periods thereafter. The election periods would coincide with M+C coverage election periods, including annual coordinated elections periods and 

special election periods. The Secretary will establish special enrollment periods for those who involuntarily lose alternative prescription drug coverage, miss an enrollment deadline due to a process 

error, met exceptional circumstances, or become eligible for prescription drug assistance under Medicaid. 

H.R. 4984 establishes guaranteed issue and community-rating requirements. All eligible beneficiaries who elect to enroll in a PDP 

will not be excluded on the basis of a pre-existing condition or their 

economic status and will be guaranteed continuous coverage while 

enrolled in the program. When a beneficiary is not continuously enrolled in a PDP, a sponsor or M+C plan may adjust the premium 

or impose a pre-existing condition exclusion that is consistent with 

the risk of enrolling that beneficiary. A PDP sponsor is prohibited 

from establishing a service area in a manner that would discriminate based on health or economic status of potential enrollees. 

Elections take effect at the same time that elections take effect 

for M+C plans. The initial period of coverage under the program 

will begin January 1, 2005. The Administrator will provide for the 

termination of an election when coverage is terminated under both 

Parts A and B and in the same instances as is permitted for M+C 

plans to terminate an individual’s election. 

Sec. 1860B. Requirements for Qualified Prescription Drug Coverage 

This section specifies the requirements for qualified prescription 

drug coverage. Qualified coverage is defined as either ‘‘standard 

coverage’’ or actuarially equivalent coverage. All PDP plans will be 

required to make available to their enrollees the benefit of all price 

discounts. They will also provide coverage of outpatient prescription drugs on formulary. 

Requirements for 2005 include an annual deductible of $250, 

beneficiary cost sharing of 20% of the first $1000 of expenditures, 

50% of the next $1000 of expenditures, and a limitation of total 

out-of-pocket expenditures of $3,700—or the actuarial equivalent of 

each. Incurred costs include costs incurred for the annual deductible, cost-sharing, and amounts for which benefits are not provided 

because of application of the initial coverage limits; such costs are 

incurred only if paid by the individual or a direct family member, 

paid on behalf of a low-income individual under the subsidy provisions, or paid under the Medicaid program. In 2006 and subseVerDate May 23 2002 04:17 Jul 02, 2002 Jkt 099006 PO 00000 Frm 00033 Fmt 6659 Sfmt 6602 E:\HR\OC\HR551P1.XXX pfrm12 PsN: HR551P1
34

quently, the annual dollar amounts will be increased by the annual 

percentage increase in average per capita aggregate expenditures 

for covered outpatient drugs for Medicare beneficiaries for the 12– month period ending in July of the previous year. 

A PDP or M+C plan can provide a benefit different from the 

standard coverage requirement as long as it is actuarially equivalent in value, provides for payment of incurred costs up to the initial coverage limit of at least the same percentage of costs under 

standard coverage, and maintains the same stop loss protection as 

under standard coverage. 

Beneficiaries enrolled in either a PDP or a M+C plan offering 

qualifying prescription drug coverage will have access to negotiated 

prices, including discounts. This access will be provided even when 

no benefits are payable because of the application of cost-sharing 

or initial coverage limits. The PDP sponsors or M+C plans will 

fully disclose to the Secretary the degree to which discounts and rebates are passed along to the beneficiaries. Manufacturers would 

be required to disclose pricing information to the Administrator 

under the same conditions currently required for Medicaid.

The Secretary will determine the actuarial valuation of coverage 

including reinsurance subsidy payments. PDP sponsors and M+C 

plans will also be allowed to use qualified independent actuaries to 

establish the valuation of coverage. 

A covered outpatient drug includes prescription drugs and biological products. It excludes drugs or classes of drugs that are excluded from Medicaid covered drugs (except smoking cessation 

drugs) and those drugs that are paid under Parts A or B of Medicare. If a plan meets the beneficiary protection requirements in section 1860C, it could use a formulary for certain covered outpatient 

drugs. A PDP or M+C plan could exclude from coverage, subject to 

reconsideration and appeals, any drug that does not meet Medicare’s definition of medically necessary or was not prescribed in accordance with the plan or Part D. 

Sec. 1860C. Beneficiary Protections for Qualified Prescription Drug 

Coverage 

Plans will be required to provide each enrolled beneficiary information about the plan’s benefit structure, its affiliated networks of 

pharmacy providers, any applicable formulary requirements including cost-sharing schemes and their right to file grievances and/or 

seek benefit appeal. Plans will be required to respond to beneficiary 

inquiries and make available information regarding any changes in 

the plan’s formulary. 

The PDP sponsor will ensure convenient access to a sufficient 

number of pharmacies that dispense drugs to patients, and cannot 

provide mail-order only delivery of drugs. Beneficiaries will also 

have the option of going to a pharmacy out of the network but the 

plan will have the ability to change the cost-sharing associated 

with drugs dispensed by out-of-network pharmacies. Every sponsor 

of a PDP will have a pharmacy and therapeutic committee that will 

develop and maintain a formulary. The formulary will be a list of 

covered drugs including at least two drugs for every therapeutic 

category. 

PDP sponsors will be required to establish and maintain quality 

assurance, utilization management, and medication therapy manVerDate May 23 2002 04:17 Jul 02, 2002 Jkt 099006 PO 00000 Frm 00034 Fmt 6659 Sfmt 6602 E:\HR\OC\HR551P1.XXX pfrm12 PsN: HR551P1
35

agement programs to protect the health and safety of enrollees. 

Utilization management programs will include incentives to use generic drugs and other cost-effective therapeutic alternatives, when 

medically appropriate. 

PDP sponsors will be required to maintain meaningful procedures for hearing and resolving of enrollee grievances. Enrollees 

may appeal to obtain coverage for a prescription drug that is not 

on the plan formulary when the prescribing physician determines 

that the drug on formulary is not as effective or safe for the enrollee. PDP sponsors will protect the confidentiality and accuracy 

of all enrollee records and provide access to expedited coverage determinations. 

The Committee believes that CMS should undertake quality improvement efforts related to outpatient prescription drugs through 

its contracts with the Medicare Quality Improvement Organizations, or other qualified entities. The Administrator of the Medicare 

Benefits Administration should coordinate with the Administrator 

of CMS with regard to these activities and, to the extent available, 

make Part D claims data available to the QIOs or other entities for 

quality improvement efforts. 

Sec. 1860D. Requirements for Prescription Drug Plan (PDP) Sponsors; Contracts; Establishment of Standards 

Sponsors of PDPs will be licensed under State law as a risk bearing entity eligible to offer health insurance or coverage in each 

state in which the plan operates. Plans that contract with the Secretary to provide covered drugs to enrollees will be required to assume full financial risk for such benefits. All PDP sponsors must 

contract with the Secretary and agree to comply with all plan requirements and terms and conditions of payment. 

The Secretary will grant waivers to PDP sponsors who are unlicensed in a state where they offer a PDP if any of the grounds for 

application approval are met. The Secretary will establish financial 

solvency standards for non-licensed sponsors of PDPs by October 1, 

2003. The Secretary will establish regulations for other standards 

in a timely manner. 

The standards established for M+C plans and PDP sponsors 

would override any state law or regulation affecting M+C plans or 

PDP sponsors. 

Sec. 1860E. Process for Beneficiaries to Select Qualified Prescription 

Drug Coverage 

The Administrator will establish a process for beneficiaries to select qualified prescription drug coverage. The selection process will 

include annual, coordinated election periods, dissemination of comparative information regarding price, quality, and other features, 

and the coordination with M+C elections. Enrollees in M+C plans 

offering prescription drug coverage can only elect to receive drug 

coverage through that plan. 

The Administrator will provide a choice of at least two qualifying 

plans in each area. Qualifying plans are defined as PDPs or 

Medicare+Choice plans that include prescription drug coverage. In 

order to guarantee access to coverage, the Administrator may provide financial incentives to plans. These incentives must seek to 

maximize the assumption of risk by PDP or M+C plan sponsors 

36

and cannot underwrite all of the financial risk for any PDP sponsor, nor provide for any underwriting of financial risk for a public 

PDP sponsor. 

Sec. 1860F. Submission of Bids 

PDP sponsors will be required to submit specified bid information, in the same manner as M+C plans are currently required to 

do. This information will describe the qualified drug coverage to be 

provided, the actuarial value of the coverage, the monthly premium 

to be charged for the coverage, the portion of the premium attributable to benefits in excess of the standard coverage and the reduction in the premium resulting from reinsurance subsidies. The Administrator will review this information and use it to negotiate the 

terms and conditions of PDPs. A PDP’s bid may not vary among 

individuals enrolled in the plan in the same service area, except for 

the charging of late enrollment penalties. 

PDP sponsors may encourage enrollees to pay their premiums 

through electronic fund transfer mechanisms and may permit enrollees to deduct premiums from their Social Security checks. PDPs 

will be paid in the same way as M+C plans currently receive payment based upon bid amounts, except that such payments shall be 

made from the Medicare Prescription Drug Trust Fund. 

PDP sponsors, in areas where there is no available standard prescription drug coverage, will accept the benchmark bid amount as 

payment in full for the premium charge for individuals who are eligible for an income-related premium subsidy. Standard prescription 

drug coverage is defined as qualified prescription drug coverage or 

coverage that has an actuarially equivalent value to the standard 

coverage. 

Sec. 1860G. Premium and Cost-Sharing Subsidies for Low-Income 

Individuals 

Individuals with incomes below 150% of the Federal Poverty 

Level (FPL) are entitled to receive a subsidy for the full value of 

the premium and the deductible. Cost-sharing obligations for these 

individuals may not exceed $2 for multiple-source or generic drugs 

and $5 for non-preferred drugs. PDPs may reduce cost sharing to 

zero for generic drugs. 

Individuals with income under 175% of FPL will receive full costsharing assistance. Individuals with incomes between 150 and 

175% of FPL will receive a premium subsidy based on an incomerelated sliding scale. Individuals are eligible for these subsidies if 

they have elected to obtain qualified prescription drug coverage, 

their income is below 175% of FPL and they satisfy a resources requirement. Plans will be allowed to waive or reduce cost-sharing 

amounts. For individuals receiving cost-sharing subsidies, the PDP 

sponsor may not charge more than $5 per prescription. Eligibility 

and income determinations will be made by State Medicaid plans. 

Federal Poverty Level thresholds for determining subsidy eligibility for subsidies will be indexed to increase by an annual percentage that reflects the growth in Medicare prescription drug costs 

per beneficiary for the year involved. 

The premium subsidy amount is the benchmark bid amount for 

qualified prescription drug coverage offered by the PDP or M+C 

plan in which the individual is enrolled. For PDPs, the benchmark 

37

bid amount is defined as the bid amount for enrollment under a 

plan that provides standard coverage or alternative coverage with 

an actuarially equivalent value, without regard to any subsidy or 

late enrollment penalty. For PDPs that offer alternative prescription drug coverage with higher actuarial values than the standard 

coverage, the benchmark bid amount equals the bid for plans with 

standard coverage. For M+C plans the benchmark bid amount is 

the portion of the bid amount that is attributable to the statutory 

drug benefits. 

The Administrator will notify PDP sponsors or M+C plans that 

an individual is eligible for a subsidy and the amount of the subsidy. The sponsor or plan will then reduce the premiums or cost 

sharing, which would otherwise be imposed, by the amount of the 

subsidy. The Administrator will periodically and on a timely basis 

reimburse the sponsor or organization for the amount of the reductions. 

Part D coverage will be the primary payor for the dual eligible 

population. The Administrator will coordinate prescription drug 

benefits under Part D with the benefits provided under Medicaid, 

with particular focus upon coordination of payments and prevention of fraud and abuse. 

Sec. 1860H. Subsidies for All Medicare Beneficiaries for Qualified 

Prescription Drug Coverage 

In order to reduce beneficiary premiums, mitigate adverse selection among PDPs and M+C plans and to promote the participation 

of PDP sponsors, the Administrator will provide subsidies to qualifying entities. The section will constitute budget authority in advance of appropriations and represents the obligation of the Administrator to provide payment of amounts provided under this section. 

The subsidies will include both direct subsidies to PDP and M+C 

plans—which will account for 36% of the total 66% subsidy, and 

subsidies through reinsurance for excess costs incurred in providing qualified prescription drug coverage. 

Entities qualified to receive subsidies will be PDP sponsors, M+C 

plans offering qualifying prescription drug coverage and the sponsor of a qualified retiree prescription drug plan through employment-based retiree health coverage. 

The reinsurance payment amount for PDP and M+C plans will 

be equal to the sum of an amount equal to 30% of allowable costs 

attributable to gross covered drug costs between $1,000 and $2,000 

and 80% of the costs above the annual out-of-pocket cap. 

Allowable costs are defined as the portion of the gross covered 

prescription drug costs that are actually paid by the plan, but 

which cannot be more than the part of the costs that would have 

been paid by the plan if the drug coverage under the plan were 

standard coverage. Gross covered drug costs are defined as the 

costs incurred under the plan for covered prescription drugs dispensed during the year, including costs relating to the deductible, 

whether paid by the enrollee or under the plan, regardless of 

whether the coverage under the plan exceeds standard coverage 

and regardless of when payment for such drugs is made. 

In subsequent years, these dollar amounts are increased by the 

percentage increase in average per capita aggregate expenditures 

38

for drugs. These amounts would be rounded to the nearest multiple 

of $10. 

The Administrator will be required to estimate the total payments to be made throughout the program during the year and the 

total payments to be made by qualifying entities for standard coverage. The Administrator will proportionately adjust payments so 

that the total of the payments made for the year are equal to 65% 

of the total payments to qualified retiree prescription drug plans 

and the ratio of the total of payments for direct subsidies to the 

total of payments for reinsurance for PDPs and M+C organizations 

equals 36 to 30. The Administrator may also adjust payments 

made for direct subsidies, based on specified risk factors, to the extent that the Administrator determines such adjustments are appropriate to avoid risk selection. 

The Administrator will determine the payment method, which 

may include an interim method where payments are based upon 

estimates. Payments will be made from the Medicare Prescription 

Drug Trust Fund. 

A Qualified Retiree Prescription Drug Plan will be defined as employment-based retiree health coverage. The plan sponsor of such 

coverage will annually attest to the Administrator that (1) the coverage meets or exceeds the requirements for qualified prescription 

drug coverage, (2) the plan maintains and affords the Administrator access to records necessary to ensure the adequacy of prescription drug coverage, and (3) the accuracy of the payments 

made. Payments cannot be made for individuals unless they are enrolled under Part D, are covered under the plan, and are entitled 

to obtain coverage through a PDP or M+C plan but elected not to 

do so. 

A Qualifying Covered Individual is defined as an individual who 

is enrolled with a PDP, an M+C plan that provides qualified prescription drug coverage or is covered under a qualified retiree prescription drug plan. 

Sec. 1860I. Medicare Prescription Drug Trust Fund 

This provision creates a new trust fund in the United States 

Treasury. The trust fund will be managed in the same manner as 

the ‘‘Federal Supplementary Medical Insurance Trust Fund.’’ Payments from the trust fund will be made from time to time for: the 

low-income subsidies, the federal subsidies, reinsurance amounts, 

and administrative expenses. 

This provision allows for a transfer of funds from the Medicaid 

account to the Trust Fund in the amount that would have been 

spent for the federal share of Medicaid payments for prescription 

drugs. It also creates appropriations to cover the federal share of 

the prescription drug benefit. 

Sec. 1860J. Definitions; Treatment of References to Provisions in 

Part C 

A ‘‘covered outpatient drug’’ is defined as a drug or biologic that 

is dispensed with a prescription, is not already an excluded drug 

under Medicaid, is approved by the Food and Drug Administration 

(FDA) and is not covered under Medicare Part A or B. 

39

‘‘Initial coverage limit’’ is defined as costs above the $250 deductible up to $2,000 and those costs above $3,700 true out-of- pocket 

expenditure. ‘‘Medicare Prescription Drug Trust Fund’ is defined as the trust 

fund created under section 1860I(a). ‘‘PDP sponsor’’ is defined as an entity that is certified by the Administrator to offer qualified prescription drug coverage. ‘‘Prescription drug plan’’ is defined as health benefits coverage 

that is offered under a policy, contract, or plan by a PDP sponsor 

to Medicare beneficiaries; provides prescription drug coverage; and 

meets the requirements for issuing coverage consistent with the 

new benefit. 

This section applies the provisions of the new prescription drug 

benefit to M+C, if the M+C plan provides qualified prescription 

drug coverage. Any references in current law to Part D are deemed 

a reference to Part E upon enactment. It allows for PDP sponsors 

to negotiate price discounts without being subject to anti-kickback 

violations, and requires the Secretary to submit to Congress legislative proposals to correct any technical and conforming changes 

that may be needed within 6 months of enactment. 

The Administrator must complete a study and make recommendations to Congress by January 1, 2004 on how to move 

Medicare Part B covered drugs into the new Medicare Part D outpatient prescription drug program. 

This section is effective upon enactment. 

Sec. 102. Offering of Qualified Prescription Drug Coverage under 

the Medicare+Choice Program 

This provision requires M+C plans to offer, at a minimum, qualified prescription drug coverage if they wish to offer drug coverage 

to beneficiaries who have elected to receive the new Medicare prescription drug benefit. This does not require M+C plans to offer any 

drug coverage, and they can offer different coverage to Medicare 

beneficiaries that elect not to participate in the new Medicare prescription drug benefit. It requires M+C plans to comply with all the 

same requirements as those that apply to PDP sponsors, and submit the appropriate information to the Administrator except for information that the Administrator determines is duplicative. M+C 

plans that offer qualified coverage to low-income beneficiaries will 

be eligible for premium and cost-sharing subsidies, and for direct 

and re-insurance subsidy payments for all other eligible enrolled 

Medicare beneficiaries. The annual coordinated election period for 

2005 will occur in the six-month period beginning in November 

2004. 

This section applies to coverage provided on or after January 1, 

2005. 

Sec. 103. Medicaid Amendments 

Section 103 adds a new Section 1935 to the Social Security Act 

entitled ‘‘Special Provisions Relating to Medicare Prescription Drug 

Benefit.’’ The provision requires States, as a condition of receiving 

Federal assistance, to make eligibility determinations for premium 

and cost-sharing assistance for Part D, inform the MBA Administrator of cases where eligibility has been established, and otherwise 

provide information to the MBA Administrator as required to carry 

40

out Part D. It also allows for enhanced administrative payments for 

the purpose of determining eligibility for the low- income benefit. 

The provision provides for a phased-in Federal assumption of the 

costs associated with providing dual-eligible Medicaid beneficiaries 

qualified drug coverage under Medicare Part D. Over a ten-year period the Federal Government would assume the state share of Medicaid costs related to premium and cost-sharing assistance for 

Medicare dually eligible individuals. 

The provision includes clarification that when individuals are dually entitled to prescription drug coverage under Part D and drug 

coverage under Medicaid, Medicare will be the primary payor. The 

provision allows States to require, as a condition for receipt of Medicaid drug benefits, that a dually-entitled individual elect qualified 

prescription drug coverage under Medicare. Territories will be able to get low-income funds, beginning at $20 

million a year and escalating by the annual percentage increase in 

prescription drug costs for Medicare beneficiaries. In order to obtain these funds, Territories would be required to formulate a plan 

on how they would dedicate the funds to assist low-income Medicare beneficiaries in obtaining covered outpatient prescription 

drugs. 

This section is effective upon enactment. 

Section 104. Medigap Transition 

Section 104 specifies that no new Medigap prescription drug policies can be sold on or after January 1, 2005. Beneficiaries who have 

current Medigap prescription drug insurance can maintain such 

coverage. Individuals who currently have Medigap policies with 

prescription drug coverage, who elect to terminate such coverage 

and enroll in Part D, would be able to enroll in a Medigap policy 

without prescription drug coverage within 63 days of the termination of prior coverage. In providing such plans, the Medigap 

issuer may not deny or condition the issuance of such plans, may 

not discriminate in the pricing of such policy based upon health 

status, claims experience, receipt of health care, or medical condition and may not impose an exclusion of benefits based upon a preexisting condition. Two new Medigap policies will also be created, 

the first of which will cover 50% of the cost sharing except for preventative benefits, when the percentage of coverage will be 100%. 

This plan will also limit annual out-of-pocket expenditures to 

$4,000 in 2005, with that number subsequently adjusted for inflation. The second new plan would be similar to the first plan, but 

would replace 50% cost sharing with 75% and set the limit on annual out-of-pocket expenditures at $2,000. 

This section is effective upon enactment. 

Section 105. Medicare Prescription Drug Discount Card Endorsement Program 

Section 105 requires the Secretary to establish a program to endorse prescription drug discount card programs and provide information regarding such programs to Medicare beneficiaries. 

The Secretary cannot endorse a prescription drug discount card 

program unless it (1) passes on discounts on prescription drugs, including those negotiated with drug manufacturers; (2) prohibits 

mail-order only delivery of drugs; (3) provides pharmaceutical supVerDate May 23 2002 04:17 Jul 02, 2002 Jkt 099006 PO 00000 Frm 00040 Fmt 6659 Sfmt 6602 E:\HR\OC\HR551P1.XXX pfrm12 PsN: HR551P1
41

port services; (4) provides information to beneficiaries necessary for 

them to make informed choices among endorsed programs; (5) demonstrates experience in operating such a program; (6) has adequate 

procedures to assure quality service; and, (7) meets additional requirements relating to other beneficiary protections that may be 

identified by the Secretary. 

The Secretary will operate the program in such a way as to promote informed choices by beneficiaries, oversee compliance with the 

requirements of the program, disqualify plans that do not comply 

with these requirements, and prevent a Medicare beneficiary from 

being enrolled in more than one endorsed program at a time. 

The Secretary will provide for an appropriate transition and 

eventual discontinuance of this program at the time that prescription drug benefits become available under Part D. 

This section is effective upon enactment. 

Section 106. GAO Study of the Effectiveness of the New Prescription 

Drug Program 

Section 106 directs the Comptroller General to study the effectiveness of the prescription drug program provided under Part D 

and submit a report to Congress by January 1, 2006.

CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

In compliance with clause 3(e) of rule XIII of the Rules of the 

House of Representatives, changes in existing law made by the bill, 

as reported, are shown as follows (existing law proposed to be omitted is enclosed in black brackets, new matter is printed in italic, 

existing law in which no change is proposed is shown in roman): 

SOCIAL SECURITY ACT 

* * * * * * *

TITLE XI—GENERAL PROVISIONS, PEER REVIEW, AND 

ADMINISTRATIVE SIMPLIFICATION 

* * * * * * *

PART A—GENERAL PROVISIONS

* * * * * * *

SEC. 1108. ADDITIONAL GRANTS TO PUERTO RICO, THE VIRGIN ISLANDS, GUAM, AND AMERICAN SAMOA; LIMITATION ON 

TOTAL PAYMENTS. 

(a) * * *

* * * * * * *

(f) Subject to subsection (g) and section 1935(e)(1)(B), the total 

amount certified by the Secretary under title XIX with respect to 

a fiscal year for payment to— (1) * * *

* * * * * * *

CRIMINAL PENALTIES FOR ACTS INVOLVING FEDERAL HEALTH CARE

PROGRAMS

SEC. 1128B. (a)***

42

(b)(1)***

* * * * * * *

(3) Paragraphs (1) and (2) shall not apply to— (A) * * *

* * * * * * *

(E) any payment practice specified by the Secretary in regulations promulgated pursuant to section 14(a) of the Medicare 

and Medicaid Patient and Program Protection Act of 1987; 

øand¿

(F) any remuneration between an organization and an individual or entity providing items or services, or a combination 

thereof, pursuant to a written agreement between the organization and the individual or entity if the organization is an eligible organization under section 1876 or if the written agreement, through a risk-sharing arrangement, places the individual or entity at substantial financial risk for the cost or utilization of the items or services, or a combination thereof, 

which the individual or entity is obligated to provideø.¿; and

(G) the waiver or reduction of any cost-sharing imposed 

under part D of title XVIII.

* * * * * * *

TITLE XVIII—HEALTH INSURANCE FOR THE AGED AND 

DISABLED 

* * * * * * *

MEDICARE PRESCRIPTION DRUG DISCOUNT CARD ENDORSEMENT

PROGRAM

SEC. 1807. (a) IN GENERAL.—The Secretary (or the Medicare Benefits Administrator pursuant to section 1808(c)(3)(C)) shall establish 

a program—

(1) to endorse prescription drug discount card programs that 

meet the requirements of this section; and 

(2) to make available to medicare beneficiaries information 

regarding such endorsed programs. 

(b) REQUIREMENTS FOR ENDORSEMENT.—The Secretary may not 

endorse a prescription drug discount card program under this section unless the program meets the following requirements: 

(1) SAVINGS TO MEDICARE BENEFICIARIES.—The program 

passes on to medicare beneficiaries who enroll in the program 

discounts on prescription drugs, including discounts negotiated 

with manufacturers. 

(2) PROHIBITION ON APPLICATION ONLY TO MAIL ORDER.—The 

program applies to drugs that are available other than solely 

through mail order. 

(3) BENEFICIARY SERVICES.—The program provides pharmaceutical support services, such as education and counseling, 

and services to prevent adverse drug interactions. 

(4) INFORMATION.—The program makes available to medicare 

beneficiaries through the Internet and otherwise information, 

including information on enrollment fees, prices charged to 

beneficiaries, and services offered under the program, that the 

43

Secretary identifies as being necessary to provide for informed 

choice by beneficiaries among endorsed programs. 

(5) DEMONSTRATED EXPERIENCE.—The entity operating the 

program has demonstrated experience and expertise in operating such a program or a similar program. 

(6) QUALITY ASSURANCE.—The entity has in place adequate 

procedures for assuring quality service under the program. 

(7) ADDITIONAL BENEFICIARY PROTECTIONS.—The program 

meets such additional requirements as the Secretary identifies 

to protect and promote the interest of medicare beneficiaries, including requirements that ensure that beneficiaries are not 

charged more than the lower of the negotiated retail price or the 

usual and customary price. 

(c) PROGRAM OPERATION.—The Secretary shall operate the program under this section consistent with the following: 

(1) PROMOTION OF INFORMED CHOICE.—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 in a manner coordinated with the dissemination 

of educational information on Medicare+Choice plans under 

part C. 

(2) OVERSIGHT.—The Secretary shall provide appropriate 

oversight to ensure compliance of endorsed programs with the 

requirements of this section, including verification of the discounts and services provided. 

(3) 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 program and programs endorsed under this section. 

(4) DISQUALIFICATION FOR ABUSIVE PRACTICES.—The Secretary shall 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. 

(5) ENROLLMENT PRACTICES.—A medicare beneficiary may 

not be enrolled in more than one endorsed program at any time. 

(d) TRANSITION.—The Secretary shall provide for an appropriate 

transition and discontinuation of the program under this section at 

the time prescription drug benefits first become available under part 

D. 

(e) AUTHORIZATION OF APPROPRIATIONS.—There are authorized to 

be appropriated such sums as may be necessary to carry out the program under this section.

* * * * * * *

PART C—MEDICARE+CHOICE PROGRAM

ELIGIBILITY, ELECTION, AND ENROLLMENT

SEC. 1851. (a) CHOICE OF MEDICARE BENEFITS THROUGH

MEDICARE+CHOICE PLANS.—

(1) IN GENERAL.—Subject to the provisions of this section, 

each Medicare+Choice eligible individual (as defined in paraVerDate May 23 2002 04:17 Jul 02, 2002 Jkt 099006 PO 00000 Frm 00043 Fmt 6659 Sfmt 6601 E:\HR\OC\HR551P1.XXX pfrm12 PsN: HR551P1
44

graph (3)) is entitled to elect to receive benefits (other than 

qualified prescription drug benefits) under this title— (A) through the original medicare fee-for-service program under parts A and B, or 

(B) through enrollment in a Medicare+Choice plan under 

this partø.¿, and may elect qualified prescription drug coverage in accordance with section 1860A.

* * * * * * *

(g) GUARANTEED ISSUE AND RENEWAL.— (1) IN GENERAL.—Except as provided in this subsection and 

section 1860A(c)(2)(B), a Medicare+Choice organization shall 

provide that at any time during which elections are accepted 

under this section with respect to a Medicare+Choice plan offered by the organization, the organization will accept without 

restrictions individuals who are eligible to make such election. 

* * * * * * *

(j) AVAILABILITY OF PRESCRIPTION DRUG BENEFITS.— (1) OFFER OF QUALIFIED PRESCRIPTION DRUG COVERAGE.— (A) IN GENERAL.—A Medicare+Choice organization may 

not offer prescription drug coverage (other than that required under parts A and B) to an enrollee under a 

Medicare+Choice plan unless such drug coverage is at least 

qualified prescription drug coverage and unless the requirements of this subsection with respect to such coverage are 

met. 

(B) CONSTRUCTION.—Nothing in this subsection shall be 

construed as— (i) requiring a Medicare+Choice plan to include coverage of qualified prescription drug coverage; or 

(ii) permitting a Medicare+Choice organization from 

providing such coverage to an individual who has not 

elected such coverage under section 1860A(b). 

For purposes of this part, an individual who has not elected qualified prescription drug coverage under section 

1860A(b) shall be treated as being ineligible to enroll in a 

Medicare+Choice plan under this part that offers such coverage. 

(2) COMPLIANCE WITH ADDITIONAL BENEFICIARY PROTECTIONS.—With respect to the offering of qualified prescription 

drug coverage by a Medicare+Choice organization under a 

Medicare+Choice plan, the organization and plan shall meet 

the requirements of section 1860C, including requirements relating to information dissemination and grievance and appeals, 

in the same manner as they apply to a PDP sponsor and a prescription drug plan under part D and shall submit to the Administrator the information described in section 1860F(a)(2). 

The Administrator shall waive such requirements to the extent 

the Administrator determines that such requirements duplicate 

requirements otherwise applicable to the organization or plan 

under this part. 

(3) AVAILABILITY OF PREMIUM AND COST-SHARING SUBSIDIES

FOR LOW-INCOME ENROLLEES AND DIRECT AND REINSURANCE

SUBSIDY PAYMENTS FOR ORGANIZATIONS.—For provisions—

45

(A) providing premium and cost-sharing subsidies to lowincome individuals receiving qualified prescription drug 

coverage through a Medicare+Choice plan, see section 

1860G; and 

(B) providing a Medicare+Choice organization with direct and insurance subsidy payments for providing qualified prescription drug coverage under this part, see section 

1860H. 

(4) TRANSITION IN INITIAL ENROLLMENT PERIOD.—Notwithstanding any other provision of this part, the annual, coordinated election period under subsection (e)(3)(B) for 2005 shall 

be the 6-month period beginning with November 2004. 

(5) QUALIFIED PRESCRIPTION DRUG COVERAGE; STANDARD COV- ERAGE.—For purposes of this part, the terms ‘‘qualified prescription drug coverage’’ and ‘‘standard coverage’’ have the 

meanings given such terms in section 1860B. 

* * * * * * *

PART D—VOLUNTARY PRESCRIPTION DRUG BENEFIT PROGRAM

SEC. 1860A. BENEFITS; ELIGIBILITY; ENROLLMENT; AND COVERAGE 

PERIOD. 

(a) PROVISION OF QUALIFIED PRESCRIPTION DRUG COVERAGE

THROUGH ENROLLMENT IN PLANS.—Subject to the succeeding provisions of this part, each individual who is entitled to benefits under 

part A or is enrolled under part B is entitled to obtain qualified prescription drug coverage (described in section 1860B(a)) as follows: 

(1) MEDICARE+CHOICE PLAN.—If the individual is eligible to 

enroll in a Medicare+Choice plan that provides qualified prescription drug coverage under section 1851(j), the individual 

may enroll in the plan and obtain coverage through such plan. 

(2) PRESCRIPTION DRUG PLAN.—If the individual is not enrolled in a Medicare+Choice plan that provides qualified prescription drug coverage, the individual may enroll under this 

part in a prescription drug plan (as defined in section 

1860J(a)(5)). 

Such individuals shall have a choice of such plans under section 

1860E(d). 

(b) GENERAL ELECTION PROCEDURES.—

(1) IN GENERAL.—An individual eligible to make an election 

under subsection (a) may elect to enroll in a prescription drug 

plan under this part, or elect the option of qualified prescription 

drug coverage under a Medicare+Choice plan under part C, 

and to change such election only in such manner and form as 

may be prescribed by regulations of the Administrator of the 

Medicare Benefits Administration (appointed under section 

1808(b)) (in this part referred to as the ‘‘Medicare Benefits Administrator’’) and only during an election period prescribed in 

or under this subsection. 

(2) ELECTION PERIODS.—

(A) IN GENERAL.—Except as provided in this paragraph, 

the election periods under this subsection shall be the same 

as the coverage election periods under the Medicare+Choice 

program under section 1851(e), including—

(i) annual coordinated election periods; and 

46

(ii) special election periods. 

In applying the last sentence of section 1851(e)(4) (relating 

to discontinuance of a Medicare+Choice election during the 

first year of eligibility) under this subparagraph, in the 

case of an election described in such section in which the 

individual had elected or is provided qualified prescription 

drug coverage at the time of such first enrollment, the individual shall be permitted to enroll in a prescription drug 

plan under this part at the time of the election of coverage 

under the original fee-for-service plan. 

(B) INITIAL ELECTION PERIODS.— (i) INDIVIDUALS CURRENTLY COVERED.—In the case of 

an individual who is entitled to benefits under part A 

or enrolled under part B as of November 1, 2004, there 

shall be an initial election period of 6 months beginning on that date. 

(ii) INDIVIDUAL COVERED IN FUTURE.—In the case of 

an individual who is first entitled to benefits under 

part A or enrolled under part B after such date, there 

shall be an initial election period which is the same as 

the initial enrollment period under section 1837(d). 

(C) ADDITIONAL SPECIAL ELECTION PERIODS.—The Administrator shall establish special election periods— (i) in cases of individuals who have and involuntarily lose prescription drug coverage described in subsection (c)(2)(C); 

(ii) in cases described in section 1837(h) (relating to 

errors in enrollment), in the same manner as such section applies to part B; 

(iii) in the case of an individual who meets such exceptional conditions (including conditions provided 

under section 1851(e)(4)(D)) as the Administrator may 

provide; and 

(iv) in cases of individuals (as determined by the Administrator) who become eligible for prescription drug 

assistance under title XIX under section 1935(d). 

(c) GUARANTEED ISSUE; COMMUNITY RATING; AND NON- DISCRIMINATION.— (1) GUARANTEED ISSUE.— (A) IN GENERAL.—An eligible individual who is eligible to 

elect qualified prescription drug coverage under a prescription drug plan or Medicare+Choice plan at a time during 

which elections are accepted under this part with respect to 

the plan shall not be denied enrollment based on any 

health status-related factor (described in section 2702(a)(1) 

of the Public Health Service Act) or any other factor. 

(B) MEDICARE+CHOICE LIMITATIONS PERMITTED.—The 

provisions of paragraphs (2) and (3) (other than subparagraph (C)(i), relating to default enrollment) of section 

1851(g) (relating to priority and limitation on termination 

of election) shall apply to PDP sponsors under this subsection. 

(2) COMMUNITY-RATED PREMIUM.—

(A) IN GENERAL.—In the case of an individual who maintains (as determined under subparagraph (C)) continuous 

47

prescription drug coverage since the date the individual 

first qualifies to elect prescription drug coverage under this 

part, a PDP sponsor or Medicare+Choice organization offering a prescription drug plan or Medicare+Choice plan that 

provides qualified prescription drug coverage and in which 

the individual is enrolled may not deny, limit, or condition 

the coverage or provision of covered prescription drug benefits or increase the premium under the plan based on any 

health status-related factor described in section 2702(a)(1) 

of the Public Health Service Act or any other factor. 

(B) LATE ENROLLMENT PENALTY.—In the case of an individual who does not maintain such continuous prescription 

drug coverage (as described in subparagraph (C)), a PDP 

sponsor or Medicare+Choice organization may (notwithstanding any provision in this title) adjust the premium 

otherwise applicable or impose a pre-existing condition exclusion with respect to qualified prescription drug coverage 

in a manner that reflects additional actuarial risk involved. Such a risk shall be established through an appropriate actuarial opinion of the type described in subparagraphs (A) through (C) of section 2103(c)(4). 

(C) CONTINUOUS PRESCRIPTION DRUG COVERAGE.—An individual is considered for purposes of this part to be maintaining continuous prescription drug coverage on and after 

the date the individual first qualifies to elect prescription 

drug coverage under this part if the individual establishes 

that as of such date the individual is covered under any of 

the following prescription drug coverage and before the 

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

on the date of termination of the particular prescription 

drug coverage involved (regardless of whether the individual subsequently obtains any of the following prescription drug coverage): 

(i) COVERAGE UNDER PRESCRIPTION DRUG PLAN OR

MEDICARE+CHOICE PLAN.—Qualified prescription drug 

coverage under a prescription drug plan or under a 

Medicare+Choice plan. 

(ii) MEDICAID PRESCRIPTION DRUG COVERAGE.—Prescription drug coverage under a medicaid plan under 

title XIX, including through the Program of All-inclusive Care for the Elderly (PACE) under section 1934, 

through a social health maintenance organization (referred to in section 4104(c) of the Balanced Budget Act 

of 1997), or through a Medicare+Choice project that 

demonstrates the application of capitation payment 

rates for frail elderly medicare beneficiaries through 

the use of a interdisciplinary team and through the 

provision of primary care services to such beneficiaries 

by means of such a team at the nursing facility involved. 

(iii) PRESCRIPTION DRUG COVERAGE UNDER GROUP

HEALTH PLAN.—Any outpatient prescription drug coverage under a group health plan, including a health 

benefits plan under the Federal Employees Health Benefit Plan under chapter 89 of title 5, United States 

48

Code, and a qualified retiree prescription drug plan as 

defined in section 1860H(f)(1), but only if (subject to 

subparagraph (E)(ii)) the coverage provides benefits at 

least equivalent to the benefits under a qualified prescription drug plan. 

(iv) PRESCRIPTION DRUG COVERAGE UNDER CERTAIN

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)), but only if the policy was 

in effect on January 1, 2005, and if (subject to subparagraph (E)(ii)) the coverage provides benefits at 

least equivalent to the benefits under a qualified prescription drug plan. 

(v) STATE PHARMACEUTICAL ASSISTANCE PROGRAM.— Coverage of prescription drugs under a State pharmaceutical assistance program, but only if (subject to subparagraph (E)(ii)) the coverage provides benefits at 

least equivalent to the benefits under a qualified prescription drug plan. 

(vi) VETERANS’ COVERAGE OF PRESCRIPTION DRUGS.— Coverage of prescription drugs for veterans under 

chapter 17 of title 38, United States Code, but only if 

(subject to subparagraph (E)(ii)) the coverage provides 

benefits at least equivalent to the benefits under a 

qualified prescription drug plan. 

(D) CERTIFICATION.—For purposes of carrying out this 

paragraph, the certifications of the type described in sections 2701(e) of the Public Health Service Act and in section 9801(e) of the Internal Revenue Code shall also include 

a statement for the period of coverage of whether the individual involved had prescription drug coverage described 

in subparagraph (C). 

(E) DISCLOSURE.— (i) IN GENERAL.—Each entity that offers coverage of 

the type described in clause (iii), (iv), (v), or (vi) of subparagraph (C) shall provide for disclosure, consistent 

with standards established by the Administrator, of 

whether such coverage provides benefits at least equivalent to the benefits under a qualified prescription 

drug plan. 

(ii) WAIVER OF LIMITATIONS.—An individual may 

apply to the Administrator to waive the requirement 

that coverage of such type provide benefits at least 

equivalent to the benefits under a qualified prescription 

drug plan, if the individual establishes that the individual was not adequately informed that such coverage 

did not provide such level of benefits. 

(F) CONSTRUCTION.—Nothing in this section shall be construed as preventing the disenrollment of an individual 

from a prescription drug plan or a Medicare+Choice plan 

based on the termination of an election described in section 

1851(g)(3), including for non-payment of premiums or for 

other reasons specified in subsection (d)(3), which takes 

49

into account a grace period described in section 

1851(g)(3)(B)(i). 

(3) NONDISCRIMINATION.—A PDP sponsor offering a prescription drug plan shall not establish a service area in a manner 

that would discriminate based on health or economic status of 

potential enrollees. 

(d) EFFECTIVE DATE OF ELECTIONS.— (1) IN GENERAL.—Except as provided in this section, the Administrator shall provide that elections under subsection (b) 

take effect at the same time as the Administrator provides that 

similar elections under section 1851(e) take effect under section 

1851(f). 

(2) NO ELECTION EFFECTIVE BEFORE 2005.—In no case shall 

any election take effect before January 1, 2005. 

(3) TERMINATION.—The Administrator shall provide for the 

termination of an election in the case of— (A) termination of coverage under both part A and part 

B; and 

(B) termination of elections described in section 

1851(g)(3) (including failure to pay required premiums). 

SEC. 1860B. REQUIREMENTS FOR QUALIFIED PRESCRIPTION DRUG 

COVERAGE. 

(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 COVERAGE WITH ACCESS TO NEGOTIATED

PRICES.—Standard coverage (as defined in subsection (b)) 

and access to negotiated prices under subsection (d). 

(B) ACTUARIALLY EQUIVALENT COVERAGE WITH ACCESS TO

NEGOTIATED PRICES.—Coverage of covered outpatient drugs 

which meets the alternative coverage requirements of subsection (c) and access to negotiated prices under subsection 

(d), but only if it is approved by the Administrator, as provided under subsection (c). 

(2) PERMITTING ADDITIONAL OUTPATIENT PRESCRIPTION DRUG

COVERAGE.—

(A) IN GENERAL.—Subject to subparagraph (B), nothing 

in this part shall be construed as preventing qualified prescription drug coverage from including coverage of covered 

outpatient drugs that exceeds the coverage required under 

paragraph (1), but any such additional coverage shall be 

limited to coverage of covered outpatient drugs. 

(B) DISAPPROVAL AUTHORITY.—The Administrator shall 

review the offering of qualified prescription drug coverage 

under this part or part C. If the Administrator finds that, 

in the case of a qualified prescription drug coverage under 

a prescription drug plan or a Medicare+Choice plan, that 

the organization or sponsor offering the coverage is engaged 

in activities intended to discourage enrollment of classes of 

eligible medicare beneficiaries obtaining coverage through 

the plan on the basis of their higher likelihood of utilizing 

prescription drug coverage, the Administrator may terminate the contract with the sponsor or organization under 

this part or part C. 

50

(3) 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. 

(b) STANDARD COVERAGE.—For purposes of this part, the ‘‘standard coverage’’ is coverage of covered outpatient drugs (as defined in 

subsection (f)) that meets the following requirements: 

(1) DEDUCTIBLE.—The coverage has an annual deductible—

(A) for 2005, that is equal to $250; or 

(B) 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. 

Any amount determined under subparagraph (B) that is not a 

multiple of $10 shall be rounded to the nearest multiple of $10. 

(2) LIMITS ON COST-SHARING.—

(A) IN GENERAL.—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)) as follows: 

(i) FIRST COPAYMENT RANGE.—For costs above the 

annual deductible specified in paragraph (1) and up to 

amount specified in subparagraph (C), the cost-sharing—

(I) is equal to 20 percent; or 

(II) is actuarially equivalent (using processes established under subsection (e)) to an average expected payment of 20 percent of such costs. 

(ii) SECONDARY COPAYMENT RANGE.—For costs above 

the amount specified in subparagraph (C) and up to 

the initial coverage limit, the cost-sharing—

(I) is equal to 50 percent; or 

(II) is actuarially consistent (using processes established under subsection (e)) with an average expected payment of 50 percent of such costs. 

(B) USE OF TIERED COPAYMENTS.—Nothing in this part 

shall be construed as preventing a PDP sponsor from applying tiered copayments, so long as such tiered copayments 

are consistent with subparagraph (A). 

(C) INITIAL COPAYMENT THRESHOLD.—The amount specified in this subparagraph—

(i) for 2005, is equal to $1,000; 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. 

Any amount determined under clause (ii) that is not a multiple of $10 shall be rounded to the nearest multiple of $10. 

(3) INITIAL COVERAGE LIMIT.—Subject to paragraph (4), the 

coverage has an initial coverage limit on the maximum costs 

that may be recognized for payment purposes (above the annual 

deductible)—

(A) for 2005, that is equal to $2,000; or 

(B) for a subsequent year, that is equal to the amount 

specified in this paragraph for the previous year, increased 

51

by the annual percentage increase described in paragraph 

(5) for the year involved. 

Any amount determined under subparagraph (B) that is not a 

multiple of $25 shall be rounded to the nearest multiple of $25. 

(4) CATASTROPHIC PROTECTION.—

(A) IN GENERAL.—Notwithstanding paragraph (3), the 

coverage provides benefits with no cost-sharing after the individual has incurred costs (as described in subparagraph 

(C)) for covered outpatient drugs in a year equal to the annual out-of-pocket threshold specified in subparagraph (B). 

(B) ANNUAL OUT-OF-POCKET THRESHOLD.—For purposes 

of this part, the ‘‘annual out-of-pocket threshold’’ specified 

in this subparagraph—

(i) for 2005, 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. 

Any amount determined under clause (ii) that is not a multiple of $100 shall be rounded to the nearest multiple of 

$100. 

(C) APPLICATION.—In applying subparagraph (A)—

(i) incurred costs shall only include costs incurred 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); and 

(ii) such costs shall be treated as incurred only if 

they are paid by the individual (or by another individual, such as a family member, on behalf of the individual), under section 1860G, or under title XIX and 

the individual (or other individual) is not reimbursed 

through insurance or otherwise, a group health plan, 

or other third-party payment arrangement for such 

costs. 

(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 outpatient drugs 

in the United States for medicare beneficiaries, as determined 

by the Administrator for the 12-month period ending in July of 

the previous year. 

(c) ALTERNATIVE COVERAGE REQUIREMENTS.—A prescription drug 

plan or Medicare+Choice plan may provide a different prescription 

drug benefit design from the standard coverage described in subsection (b) so long as the Administrator determines (based on an actuarial analysis by the Administrator) 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 COVERAGE.—

(A) ASSURING EQUIVALENT VALUE OF TOTAL COVERAGE.—

The actuarial value of the total coverage (as determined 

52

under subsection (e)) is at least equal to the actuarial value 

(as so determined) of standard coverage. 

(B) ASSURING EQUIVALENT UNSUBSIDIZED VALUE OF COV- ERAGE.—The unsubsidized value of the coverage is at least 

equal to the unsubsidized value of standard 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 (e)) exceeds the 

actuarial value of the subsidy payments under section 

1860H 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 (e)), to provide for the payment, 

with respect to costs incurred that are equal to the initial 

coverage limit under subsection (b)(3), of an amount equal 

to at least the sum of the following products: 

(i) FIRST COPAYMENT RANGE.—The product of— (I) the amount by which the initial copayment 

threshold described in subsection (b)(2)(C) exceeds 

the deductible described in subsection (b)(1); and 

(II) 100 percent minus the cost-sharing percentage specified in subsection (b)(2)(A)(i)(I). 

(ii) SECONDARY COPAYMENT RANGE.—The product 

of— (I) the amount by which the initial coverage 

limit described in subsection (b)(3) exceeds the initial copayment threshold described in subsection 

(b)(2)(C); and 

(II) 100 percent minus the cost-sharing percentage specified in subsection (b)(2)(A)(ii)(I). 

(2) CATASTROPHIC PROTECTION.—The coverage provides for 

beneficiaries the catastrophic protection described in subsection 

(b)(4). 

(d) ACCESS TO NEGOTIATED PRICES.— (1) IN GENERAL.—Under qualified prescription drug coverage 

offered by a PDP sponsor or a Medicare+Choice organization, 

the sponsor or organization shall provide beneficiaries with access to negotiated prices (including applicable discounts) used 

for payment for covered outpatient drugs, regardless of the fact 

that no benefits may be payable under the coverage with respect 

to such drugs because of the application of cost-sharing or an 

initial coverage limit (described in subsection (b)(3)). Insofar as 

a State elects to provide medical assistance under title XIX for 

a drug based on the prices negotiated by a prescription drug 

plan under this part, the requirements of section 1927 shall not 

apply to such drugs. The prices negotiated by a prescription 

drug plan under this part, by a Medicare+Choice plan with respect to covered outpatient drugs, or by a qualified retiree prescription drug plan (as defined in section 1860H(f)(1)) with respect to such drugs on behalf of individuals entitled to benefits 

under part A or enrolled under part B, 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). 

53

(2) DISCLOSURE.—The PDP sponsor or Medicare+Choice organization shall disclose to the Administrator (in a manner 

specified by the Administrator) the extent to which discounts or 

rebates made available to the sponsor 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. 

(e) ACTUARIAL VALUATION; DETERMINATION OF ANNUAL PERCENT- AGE 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 coverage and 

of the reinsurance subsidy payments under section 

1860H; 

(ii) the use of generally accepted actuarial principles 

and methodologies; and 

(iii) applying the same methodology for determinations of alternative coverage under subsection (c) as is 

used with respect to determinations of standard coverage under subsection (b); and 

(B) for determining annual percentage increases described in subsection (b)(5). 

(2) USE OF OUTSIDE ACTUARIES.—Under the processes under 

paragraph (1)(A), PDP sponsors and Medicare+Choice 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). 

(f) COVERED OUTPATIENT DRUGS DEFINED.—

(1) IN GENERAL.—Except as provided in this subsection, for 

purposes of this part, the term ‘‘covered outpatient drug’’ means—

(A) a drug that may be dispensed only upon a prescription and that is described in subparagraph (A)(i) or (A)(ii) 

of section 1927(k)(2); or 

(B) a biological product described in clauses (i) through 

(iii) of subparagraph (B) of such section or 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 outpatient drug for a medically accepted indication (as defined in 

section 1927(k)(6)). 

(2) EXCLUSIONS.—

(A) IN GENERAL.—Such term 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). 

(B) AVOIDANCE OF DUPLICATE COVERAGE.—A drug prescribed for an individual that would otherwise be a covered 

54

outpatient drug under this part shall not be so considered 

if payment for such drug is available under part A or B for 

an individual entitled to benefits under part A and enrolled 

under part B. 

(3) APPLICATION OF FORMULARY RESTRICTIONS.—A drug prescribed for an individual that would otherwise be a covered outpatient 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 appealed under section 

1860C(f)(2). 

(4) APPLICATION OF GENERAL EXCLUSION PROVISIONS.—A prescription drug plan or Medicare+Choice plan may exclude from 

qualified prescription drug coverage any covered outpatient 

drug—

(A) for which payment would not be made if section 

1862(a) applied to part D; or 

(B) which are not prescribed in accordance with the plan 

or this part. 

Such exclusions are determinations subject to reconsideration 

and appeal pursuant to section 1860C(f). 

SEC. 1860C. BENEFICIARY PROTECTIONS FOR QUALIFIED PRESCRIPTION DRUG COVERAGE. 

(a) GUARANTEED ISSUE, COMMUNITY-RELATED PREMIUMS, ACCESS

TO NEGOTIATED PRICES, AND NONDISCRIMINATION.—For provisions 

requiring guaranteed issue, community-rated premiums, access to 

negotiated prices, and nondiscrimination, see sections 1860A(c)(1), 

1860A(c)(2), 1860B(d), and 1860F(b), respectively. 

(b) DISSEMINATION OF INFORMATION.— (1) GENERAL INFORMATION.—A PDP sponsor shall disclose, in 

a clear, accurate, and standardized form to each enrollee with 

a prescription drug plan offered by the sponsor under this part 

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 outpatient drugs, including access 

through pharmacy networks. 

(B) How any formulary used by the sponsor functions. 

(C) Co-payments and deductible requirements, including 

the identification of the tiered or other co-payment level applicable to each drug (or class of drugs). 

(D) Grievance and appeals procedures. 

(2) DISCLOSURE UPON REQUEST OF GENERAL COVERAGE, UTILIZATION, AND GRIEVANCE INFORMATION.—Upon request of an individual eligible to enroll under a prescription drug plan, the 

PDP sponsor shall provide the information described in section 

1852(c)(2) (other than subparagraph (D)) to such individual. 

(3) RESPONSE TO BENEFICIARY QUESTIONS.—Each PDP sponsor offering a prescription drug plan shall have a mechanism 

for providing specific information to enrollees upon request. The 

sponsor shall make available on a timely basis, through an 

Internet website and in writing upon request, information on 

specific changes in its formulary. 

(4) CLAIMS INFORMATION.—Each PDP sponsor offering a prescription drug plan must furnish to enrolled individuals in a 

form easily understandable to such individuals an explanation 

55

of benefits (in accordance with section 1806(a) or in a comparable manner) and a notice of the benefits in relation to initial coverage limit and annual out-of-pocket threshold for the 

current year, whenever prescription drug benefits are provided 

under this part (except that such notice need not be provided 

more often than monthly). 

(c) ACCESS TO COVERED BENEFITS.— (1) ASSURING PHARMACY ACCESS.— (A) IN GENERAL.—The PDP sponsor of the 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 under 

section 1860D(e) that ensure such convenient access. 

(B) USE OF POINT-OF-SERVICE SYSTEM.—A PDP sponsor 

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 premiums and copayments any additional 

costs associated with the point-of-service option. 

The additional copayments so charged shall not count toward the application of section 1860B(b). 

(2) USE OF STANDARDIZED TECHNOLOGY.— (A) IN GENERAL.—The PDP sponsor of a prescription 

drug plan shall issue (and reissue, as appropriate) such a 

card (or other technology) that may be used by an enrolled 

beneficiary to assure access to negotiated prices under section 1860B(d) for the purchase of prescription drugs for 

which coverage is not otherwise provided under the prescription drug plan. 

(B) STANDARDS.— (i) DEVELOPMENT.—The Administrator shall provide 

for the development of national standards relating to a 

standardized format for the card or other technology 

referred to in subparagraph (A). Such standards shall 

be compatible with standards established under part C 

of title XI. 

(ii) APPLICATION OF ADVISORY TASK FORCE.—The advisory task force established under subsection 

(d)(3)(B)(ii) shall provide recommendations to the Administrator under such subsection regarding the standards developed under clause (i). 

(3) REQUIREMENTS ON DEVELOPMENT AND APPLICATION OF

FORMULARIES.—If a PDP sponsor of a prescription drug plan 

uses a formulary, the following requirements must be met: 

(A) PHARMACY AND THERAPEUTIC (P&T) COMMITTEE.—The 

sponsor must establish a pharmacy and therapeutic committee that develops and reviews the formulary. Such committee shall include at least one physician and at least one 

pharmacist both with expertise in the care of elderly or disVerDate May 23 2002 04:17 Jul 02, 2002 Jkt 099006 PO 00000 Frm 00055 Fmt 6659 Sfmt 6603 E:\HR\OC\HR551P1.XXX pfrm12 PsN: HR551P1
56

abled persons and a majority of its members shall consist 

of individuals who are a physician or a 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 

such other information as the committee determines to be 

appropriate. 

(C) INCLUSION OF DRUGS IN ALL THERAPEUTIC CAT- EGORIES.—The formulary must include drugs within each 

therapeutic category and class of covered outpatient drugs 

(although not necessarily for all drugs within such categories and classes). 

(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 FOR- MULARY.—Any removal of a drug from a formulary shall 

take effect only after appropriate notice is made available 

to beneficiaries and physicians. 

(F) GRIEVANCES AND APPEALS RELATING TO APPLICATION

OF FORMULARIES.—For provisions relating to grievances 

and appeals of coverage, see subsections (e) and (f). 

(d) COST AND UTILIZATION MANAGEMENT; QUALITY ASSURANCE; 

MEDICATION THERAPY MANAGEMENT PROGRAM.— (1) IN GENERAL.—The PDP sponsor shall have in place with 

respect to covered outpatient drugs— (A) an effective cost and drug utilization management 

program, including medically appropriate incentives to use 

generic drugs and therapeutic interchange, when appropriate; 

(B) quality assurance measures and systems to reduce 

medical errors and adverse drug interactions, including a 

medication therapy management program described in 

paragraph (2) and for years beginning with 2006, an electronic prescription program described in paragraph (3); 

and 

(C) a program to control fraud, abuse, and waste. 

Nothing in this section shall be construed as impairing a PDP 

sponsor 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, 

and congestive heart failure) or multiple prescriptions, that 

covered outpatient drugs under the prescription drug plan 

are appropriately used to achieve therapeutic goals and reduce the risk of adverse events, including adverse drug 

interactions. 

57

(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 pharmacists and physicians. 

(D) CONSIDERATIONS IN PHARMACY FEES.—The PDP 

sponsor of a prescription drug program 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) ELECTRONIC PRESCRIPTION PROGRAM.—

(A) IN GENERAL.—An electronic prescription drug program described in this paragraph is a program that includes at least the following components, consistent with 

national standards established under subparagraph (B): 

(i) ELECTRONIC TRANSMITTAL OF PRESCRIPTIONS.—

Prescriptions are only received electronically, except in 

emergency cases and other exceptional circumstances 

recognized by the Administrator. 

(ii) PROVISION OF INFORMATION TO PRESCRIBING

HEALTH CARE PROFESSIONAL.—The program provides, 

upon transmittal of a prescription by a prescribing 

health care professional, for transmittal by the pharmacist to the professional of information that includes—

(I) information (to the extent available and feasible) on the drugs being prescribed for that patient and other information relating to the medical 

history or condition of the patient that may be relevant to the appropriate prescription for that patient; 

(II) cost-effective alternatives (if any) for the use 

of the drug prescribed; and 

(III) information on the drugs included in the 

applicable formulary. 

To the extent feasible, such program shall permit the 

prescribing health care professional to provide (and be 

provided) related information on an interactive, realtime basis. 

(B) STANDARDS.—

(i) DEVELOPMENT.—The Administrator shall provide 

for the development of national standards relating to 

the electronic prescription drug program described in 

subparagraph (A). Such standards shall be compatible 

with standards established under part C of title XI. 

58

(ii) ADVISORY TASK FORCE.—In developing such 

standards and the standards described in subsection 

(c)(2)(B)(i) the Administrator shall establish a task 

force that includes representatives of physicians, hospitals, pharmacists, and technology experts and representatives of the Departments of Veterans Affairs and 

Defense and other appropriate Federal agencies to provide recommendations to the Administrator on such 

standards, including recommendations relating to the 

following: 

(I) The range of available computerized prescribing software and hardware and their costs to 

develop and implement. 

(II) The extent to which such systems reduce 

medication errors and can be readily implemented 

by physicians and hospitals. 

(III) Efforts to develop a common software platform for computerized prescribing. 

(IV) The cost of implementing such systems in 

the range of hospital and physician office settings, 

including hardware, software, and training costs. 

(V) Implementation issues as they relate to part 

C of title XI, and current Federal and State prescribing laws and regulations and their impact on 

implementation of computerized prescribing. 

(iii) DEADLINES.— (I) The Administrator shall constitute the task 

force under clause (ii) by not later than April 1, 

2003. 

(II) Such task force shall submit recommendations to Administrator by not later than January 

1, 2004. 

(III) The Administrator shall develop and promulgate the national standards referred to in 

clause (ii) by not later than July 1, 2004. 

(C) REFERENCE TO AVAILABILITY OF GRANT FUNDS.— Grant funds are authorized under section 399O of the Public Health Service Act to provide assistance to health care 

providers in implementing electronic prescription drug programs. 

(4) TREATMENT OF ACCREDITATION.—Section 1852(e)(4) (relating to treatment of accreditation) shall apply to prescription 

drug plans under this part with respect to the following requirements, in the same manner as they apply to Medicare+Choice 

plans under part C with respect to the requirements described 

in a clause of section 1852(e)(4)(B): 

(A) Paragraph (1) (including quality assurance), including medication therapy management program under paragraph (2). 

(B) Subsection (c)(1) (relating to access to covered benefits). 

(C) Subsection (g) (relating to confidentiality and accuracy of enrollee records). 

(5) PUBLIC DISCLOSURE OF PHARMACEUTICAL PRICES FOR

EQUIVALENT DRUGS.—Each PDP sponsor shall provide that 

59

each pharmacy or other dispenser that arranges for the dispensing of a covered outpatient 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. 

(e) GRIEVANCE MECHANISM, COVERAGE DETERMINATIONS, AND

RECONSIDERATIONS.—

(1) IN GENERAL.—Each PDP sponsor shall provide meaningful procedures for hearing and resolving grievances between the 

organization (including any entity or individual through which 

the sponsor provides covered benefits) and enrollees with prescription drug plans of the sponsor under this part in accordance with section 1852(f). 

(2) APPLICATION OF COVERAGE DETERMINATION AND RECONSIDERATION PROVISIONS.—A PDP sponsor shall meet the requirements of paragraphs (1) through (3) of section 1852(g) 

with respect to covered benefits under the prescription drug 

plan it offers under this part 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. 

(3) REQUEST FOR REVIEW OF TIERED FORMULARY DETERMINATIONS.—In the case of a prescription drug plan offered by a 

PDP sponsor 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. 

(f) APPEALS.—

(1) IN GENERAL.—Subject to paragraph (2), a PDP sponsor 

shall meet the requirements of paragraphs (4) and (5) of section 

1852(g) with respect to drugs not included on any formulary 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. 

(2) FORMULARY DETERMINATIONS.—An individual who is enrolled in a prescription drug plan offered by a PDP sponsor 

may appeal to obtain coverage for a covered outpatient drug 

that is not on a formulary of the sponsor 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. 

(g) CONFIDENTIALITY AND ACCURACY OF ENROLLEE RECORDS.—A 

PDP sponsor shall meet the requirements of section 1852(h) with respect to enrollees under this part in the same manner as such requirements apply to a Medicare+Choice organization with respect to 

enrollees under part C. 

60

SEC. 1860D. REQUIREMENTS FOR PRESCRIPTION DRUG PLAN (PDP) 

SPONSORS; CONTRACTS; ESTABLISHMENT OF STANDARDS. 

(a) GENERAL REQUIREMENTS.—Each PDP sponsor of a prescription drug plan shall meet the following requirements: 

(1) LICENSURE.—Subject to subsection (c), the sponsor 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 prescription drug plan. 

(2) ASSUMPTION OF FINANCIAL RISK.— (A) IN GENERAL.—Subject to subparagraph (B) and section 1860E(d)(2), the entity assumes full financial risk on 

a prospective basis for qualified prescription drug coverage 

that it offers under a prescription drug plan and that is not 

covered under section 1860H. 

(B) REINSURANCE PERMITTED.—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 SPONSORS.—In the case of a 

sponsor that is not described in paragraph (1), the sponsor 

shall meet solvency standards established by the Administrator 

under subsection (d). 

(b) CONTRACT REQUIREMENTS.— (1) IN GENERAL.—The Administrator shall not permit the 

election under section 1860A of a prescription drug plan offered 

by a PDP sponsor under this part, and the sponsor shall not 

be eligible for payments under section 1860G or 1860H, unless 

the Administrator has entered into a contract under this subsection with the sponsor with respect to the offering of such 

plan. Such a contract with a sponsor may cover more than one 

prescription drug plan. Such contract shall provide that the 

sponsor 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. 

(2) NEGOTIATION REGARDING TERMS AND CONDITIONS.—The 

Administrator shall have the same authority to negotiate the 

terms and conditions of prescription drug plans under this part 

as the Director of the Office of Personnel Management has with 

respect to health benefits plans under chapter 89 of title 5, 

United States Code. In negotiating the terms and conditions regarding premiums for which information is submitted under 

section 1860F(a)(2), the Administrator shall take into account 

the subsidy payments under section 1860H and the adjusted 

community rate (as defined in section 1854(f)(3)) for the benefits 

covered. 

(3) INCORPORATION OF CERTAIN MEDICARE+CHOICE CONTRACT

REQUIREMENTS.—The following provisions of section 1857 shall 

apply, subject to subsection (c)(5), to contracts under this section 

in the same manner as they apply to contracts under section 

1857(a): 

(A) MINIMUM ENROLLMENT.—Paragraphs (1) and (3) of 

section 1857(b). 

(B) CONTRACT PERIOD AND EFFECTIVENESS.—Paragraphs 

(1) through (3) and (5) of section 1857(c). 

(C) PROTECTIONS AGAINST FRAUD AND BENEFICIARY PROTECTIONS.—Section 1857(d). 

61

(D) ADDITIONAL CONTRACT TERMS.—Section 1857(e); except that in applying section 1857(e)(2) under this part— (i) such section shall be applied separately to costs 

relating to this part (from costs under part C); 

(ii) in no case shall the amount of the fee established 

under this subparagraph for a plan exceed 20 percent 

of the maximum amount of the fee that may be established under subparagraph (B) of such section; and 

(iii) no fees shall be applied under this subparagraph 

with respect to Medicare+Choice plans. 

(E) INTERMEDIATE SANCTIONS.—Section 1857(g). 

(F) PROCEDURES FOR TERMINATION.—Section 1857(h). 

(4) RULES OF APPLICATION FOR INTERMEDIATE SANCTIONS.— In applying paragraph (3)(E)— (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. 

(c) WAIVER OF CERTAIN REQUIREMENTS TO EXPAND CHOICE.— (1) IN GENERAL.—In the case of an entity that seeks to offer 

a 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) has been met. 

(2) GROUNDS FOR APPROVAL.—The grounds for approval 

under this paragraph are the grounds for approval described in 

subparagraph (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) LICENSURE DOES NOT SUBSTITUTE FOR OR CONSTITUTE

CERTIFICATION.—The fact that an entity is licensed in accordance with subsection (a)(1) does not deem the entity to meet 

other requirements imposed under this part for a PDP sponsor. 

(5) REFERENCES TO CERTAIN PROVISIONS.—For purposes of 

this subsection, in applying provisions of section 1855(a)(2) 

under this subsection to prescription drug plans and PDP sponsors—

(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 shall be treated 

as a reference to solvency standards established under subsection (d). 

(d) SOLVENCY STANDARDS FOR NON-LICENSED SPONSORS.— (1) ESTABLISHMENT.—The Administrator shall establish, by 

not later than October 1, 2003, financial solvency and capital 

adequacy standards that an entity that does not meet the requirements of subsection (a)(1) must meet to qualify as a PDP 

sponsor under this part. 

62

(2) COMPLIANCE WITH STANDARDS.—Each PDP sponsor 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 PDP sponsors with respect to such 

solvency standards in the manner described in section 

1855(c)(2). 

(e) OTHER STANDARDS.—The Administrator shall establish by regulation other standards (not described in subsection (d)) for PDP 

sponsors and plans consistent with, and to carry out, this part. The 

Administrator shall publish such regulations by October 1, 2003. 

(f) RELATION TO STATE LAWS.— (1) IN GENERAL.—The standards established under this part 

shall supersede any State law or regulation (other than State 

licensing laws or State laws relating to plan solvency, except as 

provided in subsection (d)) with respect to prescription drug 

plans which are offered by PDP sponsors under this part. 

(2) PROHIBITION OF STATE IMPOSITION OF PREMIUM TAXES.— No State may impose a premium tax or similar tax with respect 

to premiums paid to PDP sponsors for prescription drug plans 

under this part, or with respect to any payments made to such 

a sponsor by the Administrator under this part. 

SEC. 1860E. PROCESS FOR BENEFICIARIES TO SELECT QUALIFIED PRESCRIPTION DRUG COVERAGE. 

(a) IN GENERAL.—The Administrator shall establish a process for 

the selection of the prescription drug plan or Medicare+Choice plan 

which offer qualified prescription drug coverage through which eligible individuals elect qualified prescription drug coverage under 

this part. 

(b) ELEMENTS.—Such process shall include the following: 

(1) Annual, coordinated election periods, in which such individuals can change the qualifying plans through which they obtain coverage, in accordance with section 1860A(b)(2). 

(2) Active dissemination of information to promote an informed selection among qualifying plans based upon price, 

quality, and other features, in the manner described in (and in 

coordination with) section 1851(d), including the provision of 

annual comparative information, maintenance of a toll-free hotline, and the use of non-Federal entities. 

(3) Coordination of elections through filing with a 

Medicare+Choice organization or a PDP sponsor, in the manner 

described in (and in coordination with) section 1851(c)(2). 

(c) MEDICARE+CHOICE ENROLLEE IN PLAN OFFERING PRESCRIPTION DRUG COVERAGE MAY ONLY OBTAIN BENEFITS THROUGH THE

PLAN.—An individual who is enrolled under a Medicare+Choice 

plan that offers qualified prescription drug coverage may only elect 

to receive qualified prescription drug coverage under this part 

through such plan. 

(d) ASSURING ACCESS TO A CHOICE OF QUALIFIED PRESCRIPTION

DRUG COVERAGE.—

(1) CHOICE OF AT LEAST TWO PLANS IN EACH AREA.—

(A) IN GENERAL.—The Administrator shall assure that 

each individual who is entitled to benefits under part A or 

enrolled under part B and who is residing in an area in 

63

the United States has available, consistent with subparagraph (B), a choice of enrollment in at least two qualifying 

plans (as defined in paragraph (5)) in the area in which 

the individual resides, at least one of which is a prescription drug plan. 

(B) REQUIREMENT FOR DIFFERENT PLAN SPONSORS.—The 

requirement in subparagraph (A) is not satisfied with respect to an area if only one PDP sponsor or 

Medicare+Choice organization offers all the qualifying 

plans in the area. 

(2) GUARANTEEING ACCESS TO COVERAGE.—In order to assure 

access under paragraph (1) and consistent with paragraph (3), 

the Administrator may provide financial incentives (including 

partial underwriting of risk) for a PDP sponsor to expand the 

service area under an existing prescription drug plan to adjoining or additional areas or to establish such a plan (including 

offering such a plan on a regional or nationwide basis), but 

only so long as (and to the extent) necessary to assure the access 

guaranteed under paragraph (1). 

(3) LIMITATION ON AUTHORITY.—In exercising authority under 

this subsection, the Administrator—

(A) shall not provide for the full underwriting of financial risk for any PDP sponsor; 

(B) shall not provide for any underwriting of financial 

risk for a public PDP sponsor with respect to the offering 

of a nationwide prescription drug plan; and 

(C) shall seek to maximize the assumption of financial 

risk by PDP sponsors or Medicare+Choice organizations. 

(4) REPORTS.—The Administrator shall, in each annual report to Congress under section 1808(f), include information on 

the exercise of authority under this subsection. The Administrator also shall include such recommendations as may be appropriate to minimize the exercise of such authority, including 

minimizing the assumption of financial risk. 

(5) QUALIFYING PLAN DEFINED.—For purposes of this subsection, the term ‘‘qualifying plan’’ means a prescription drug 

plan or a Medicare+Choice plan that includes qualified prescription drug coverage. 

SEC. 1860F. SUBMISSION OF BIDS. 

(a) SUBMISSION OF BIDS AND RELATED INFORMATION.—

(1) IN GENERAL.—Each PDP sponsor shall submit to the Administrator information of the type described in paragraph (2) 

in the same manner as information is submitted by a 

Medicare+Choice organization under section 1854(a)(1). 

(2) TYPE OF INFORMATION.—The information described in this 

paragraph is the following: 

(A) Information on the qualified prescription drug coverage to be provided. 

(B) Information on the actuarial value of the coverage. 

(C) Information on the bid for the coverage, including an 

actuarial certification of—

(i) the actuarial basis for such bid; 

(ii) the portion of such bid attributable to benefits in 

excess of standard coverage; and 

64

(iii) the reduction in such bid resulting from the subsidy payments provided under section 1860H. 

(D) Such other information as the Administrator may require to carry out this part. 

(3) REVIEW.—The Administrator shall review the information 

filed under paragraph (2) for the purpose of conducting negotiations under section 1860D(b)(2). 

(b) UNIFORM BID.—

(1) IN GENERAL.—The bid for a prescription drug plan under 

this section may not vary among individuals enrolled in the 

plan in the same service area. 

(2) CONSTRUCTION.—Nothing in paragraph (1) shall be construed as preventing the imposition of a late enrollment penalty 

under section 1860A(c)(2)(B). 

(c) COLLECTION.—

(1) USE OF ELECTRONIC FUNDS TRANSFER MECHANISM OR, AT

BENEFICIARY’S OPTION, WITHHOLDING FROM SOCIAL SECURITY

PAYMENT.—In accordance with regulations, a PDP sponsor may 

encourage that enrollees under a plan make payment of the premium established by the plan under this part through an electronic funds transfer mechanism, such as automatic charges of 

an account at a financial institution or a credit or debit card 

account, or, at the option of an enrollee, through withholding 

from benefit payments in the manner provided under section 

1840 with respect to monthly premiums under section 1839. All 

such amounts shall be credited to the Medicare Prescription 

Drug Trust Fund. 

(2) OFFSETTING.—Reductions in premiums for coverage under 

parts A and B as a result of a selection of a Medicare+Choice 

plan may be used to reduce the premium otherwise imposed 

under paragraph (1). 

(3) PAYMENT OF PLANS.—PDP plans shall receive payment 

based on bid amounts in the same manner as Medicare+Choice 

organizations receive payment based on bid amounts under section 1853(a)(1)(A)(ii) except that such payment shall be made 

from the Medicare Prescription Drug Trust Fund. 

(d) ACCEPTANCE OF BENCHMARK AMOUNT AS FULL PREMIUM FOR

SUBSIDIZED LOW-INCOME INDIVIDUALS IF NO STANDARD (OR EQUIVALENT) COVERAGE IN AN AREA.—

(1) IN GENERAL.—If there is no standard prescription drug 

coverage (as defined in paragraph (2)) offered in an area, in the 

case of an individual who is eligible for a premium subsidy 

under section 1860G and resides in the area, the PDP sponsor 

of any prescription drug plan offered in the area (and any 

Medicare+Choice organization that offers qualified prescription 

drug coverage in the area) shall accept the benchmark bid 

amount (under section 1860G(b)(2)) as payment in full for the 

premium charge for qualified prescription drug coverage. 

(2) STANDARD PRESCRIPTION DRUG COVERAGE DEFINED.—For 

purposes of this subsection, the term ‘‘standard prescription 

drug coverage’’ means qualified prescription drug coverage that 

is standard coverage or that has an actuarial value equivalent 

to the actuarial value for standard coverage. 

65

SEC. 1860G. PREMIUM AND COST-SHARING SUBSIDIES FOR LOW-INCOME INDIVIDUALS. 

(a) INCOME-RELATED SUBSIDIES FOR INDIVIDUALS WITH INCOME

BELOW 150 PERCENT OF FEDERAL POVERTY LEVEL.—

(1) FULL PREMIUM SUBSIDY AND REDUCTION OF COST-SHARING

FOR INDIVIDUALS WITH INCOME BELOW 150 PERCENT OF FEDERAL

POVERTY LEVEL.—In the case of a subsidy eligible individual (as 

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

that does not exceed 150 percent of the Federal poverty level, the 

individual is entitled under this section—

(A) to an income-related premium subsidy equal to 100 

percent of the amount described in subsection (b)(1); and 

(B) subject to subsection (c), to the substitution for the 

beneficiary cost-sharing described in paragraphs (1) and 

(2) of section 1860B(b) (up to the initial coverage limit specified in paragraph (3) of such section) of amounts that do 

not exceed $2 for a multiple source or generic drug (as described in section 1927(k)(7)(A)) and $5 for a non-preferred 

drug. 

(2) SLIDING SCALE PREMIUM SUBSIDY AND REDUCTION OF

COST-SHARING FOR INDIVIDUALS WITH INCOME ABOVE 150, BUT

BELOW 175 PERCENT, OF FEDERAL POVERTY LEVEL.—In the case 

of a subsidy eligible individual who is determined to have income that exceeds 150 percent, but does not exceed 175 percent, 

of the Federal poverty level, the individual is entitled under this 

section to—

(A) an income-related premium subsidy determined on a 

linear sliding scale ranging from 100 percent of the amount 

described in subsection (b)(1) for individuals with incomes 

at 150 percent of such level to 0 percent of such amount for 

individuals with incomes at 175 percent of such level; and 

(B) subject to subsection (c), to the substitution for the 

beneficiary cost-sharing described in paragraphs (1) and 

(2) of section 1860B(b) (up to the initial coverage limit specified in paragraph (3) of such section) of amounts that do 

not exceed $2 for a multiple source or generic drug (as described in section 1927(k)(7)(A)) and $5 for a non-preferred 

drug. 

(3) CONSTRUCTION.—Nothing in this section shall be construed as preventing a PDP sponsor from reducing to 0 the costsharing otherwise applicable to generic drugs. 

(4) DETERMINATION OF ELIGIBILITY.— (A) SUBSIDY ELIGIBLE INDIVIDUAL DEFINED.—For purposes of this section, subject to subparagraph (D), the term 

‘‘subsidy eligible individual’’ means an individual who—

(i) is eligible to elect, and has elected, to obtain 

qualified prescription drug coverage under this part; 

(ii) has income below 175 percent of the Federal poverty line; and 

(iii) meets the resources requirement described in section 1905(p)(1)(C). 

(B) DETERMINATIONS.—The determination of whether an 

individual residing in a State is a subsidy eligible individual and the amount of such individual’s income shall be 

determined under the State medicaid plan for the State 

66

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. 

(C) INCOME DETERMINATIONS.—For purposes of applying 

this section— (i) income shall be determined in the manner described in section 1905(p)(1)(B); and 

(ii) the term ‘‘Federal poverty line’’ means the official 

poverty line (as defined by the Office of Management 

and Budget, and revised annually in accordance with 

section 673(2) of the Omnibus Budget Reconciliation 

Act of 1981) applicable to a family of the size involved. 

(D) TREATMENT OF TERRITORIAL RESIDENTS.—In the case 

of an individual who is not a resident of the 50 States or 

the District of Columbia, the individual is not eligible to be 

a subsidy eligible individual but may be eligible for financial assistance with prescription drug expenses under section 1935(e). 

(E) TREATMENT OF CONFORMING MEDIGAP POLICIES.—For 

purposes of this section, the term ‘‘qualified prescription 

drug coverage’’ includes a medicare supplemental policy described in section 1860H(b)(4). 

(5) INDEXING DOLLAR AMOUNTS.— (A) FOR 2006.—The dollar amounts applied under paragraphs (1)(B) and (2)(B) for 2006 shall be the dollar 

amounts specified in such paragraph increased by the annual percentage increase described in section 1860B(b)(5) 

for 2006. 

(B) FOR SUBSEQUENT YEARS.—The dollar amounts applied under paragraphs (1)(B) and (2)(B) for a year after 

2006 shall be the amounts (under this paragraph) applied 

under paragraph (1)(B) or (2)(B) for the preceding year increased by the annual percentage increase described in section 1860B(b)(5) (relating to growth in medicare prescription drug costs per beneficiary) for the year involved. 

(b) PREMIUM SUBSIDY AMOUNT.— (1) IN GENERAL.—The premium subsidy amount described in 

this subsection for an individual residing in an area is the 

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

plan or the Medicare+Choice plan in which the individual is 

enrolled. 

(2) BENCHMARK BID AMOUNT DEFINED.—For purposes of this 

subsection, the term ‘‘benchmark bid amount’’ means, with respect to qualified prescription drug coverage offered under—

(A) a prescription drug plan that—

(i) provides standard coverage (or alternative prescription drug coverage the actuarial value is equivalent to that of standard coverage), the bid amount for 

enrollment under the plan under this part (determined 

without regard to any subsidy under this section or 

any late enrollment penalty under section 

1860A(c)(2)(B)); or 

67

(ii) provides alternative prescription drug coverage 

the actuarial value of which is greater than that of 

standard coverage, the bid amount described in clause 

(i) multiplied by the ratio of (I) the actuarial value of 

standard coverage, to (II) the actuarial value of the alternative coverage; or 

(B) a Medicare+Choice plan, the portion of the bid 

amount that is attributable to statutory drug benefits (described in section 1853(a)(1)(A)(ii)(II)). 

(c) RULES IN APPLYING COST-SHARING SUBSIDIES.— (1) IN GENERAL.—In applying subsections (a)(1)(B) and 

(a)(2)(B), nothing in this part shall be construed as preventing 

a plan or provider from waiving or reducing the amount of costsharing otherwise applicable. 

(2) LIMITATION ON CHARGES.—In the case of an individual receiving cost-sharing subsidies under subsection (a)(1)(B) or 

(a)(2)(B), the PDP sponsor may not charge more than $5 per 

prescription. 

(3) APPLICATION OF INDEXING RULES.—The provisions of subsection (a)(4) shall apply to the dollar amount specified in paragraph (2) in the same manner as they apply to the dollar 

amounts specified in subsections (a)(1)(B) and (a)(2)(B). 

(d) ADMINISTRATION OF SUBSIDY PROGRAM.—The Administrator 

shall provide a process whereby, in the case of an individual who 

is determined to be a subsidy eligible individual and who is enrolled in prescription drug plan or is enrolled in a Medicare+Choice 

plan under which qualified prescription drug coverage is provided— (1) the Administrator provides for a notification of the PDP 

sponsor or Medicare+Choice organization involved that the individual is eligible for a subsidy and the amount of the subsidy 

under subsection (a); 

(2) the sponsor or organization involved reduces the premiums or 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 sponsor or organization for the amount of such reductions. 

The reimbursement under paragraph (3) with respect to cost-sharing subsidies 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. 

(e) RELATION TO MEDICAID PROGRAM.—

(1) IN GENERAL.—For provisions providing for eligibility determinations, and additional financing, under the medicaid 

program, see section 1935. 

(2) MEDICAID PROVIDING WRAP AROUND BENEFITS.—The coverage provided under this part is primary payor to benefits for 

prescribed drugs provided under the medicaid program under 

title XIX. 

(3) COORDINATION.—The Administrator shall develop and implement a plan for the coordination of prescription drug benefits under this part with the benefits provided under the medicaid program under title XIX, with particular attention to insuring coordination of payments and prevention of fraud and 

68

abuse. In developing and implementing such plan, the Administrator shall involve the Secretary, the States, the data processing industry, pharmacists, and pharmaceutical manufacturers, and other experts. 

SEC. 1860H. SUBSIDIES FOR ALL MEDICARE BENEFICIARIES FOR 

QUALIFIED PRESCRIPTION DRUG COVERAGE. 

(a) SUBSIDY PAYMENT.—In order to reduce premium levels applicable to qualified prescription drug coverage for all medicare beneficiaries consistent with an overall subsidy level of 66 percent, to reduce adverse selection among prescription drug plans and 

Medicare+Choice plans that provide qualified prescription drug coverage, and to promote the participation of PDP sponsors under this 

part, the Administrator shall provide in accordance with this section for payment to a qualifying entity (as defined in subsection (b)) 

of the following subsidies: 

(1) DIRECT SUBSIDY.—In the case of an individual enrolled in 

a prescription drug plan, Medicare+Choice plan that provides 

qualified prescription drug coverage, or qualified retiree prescription drug plan, a direct subsidy equal to 36 percent of the 

total payments made by a qualifying entity for standard drug 

coverage provided under the respective plan. 

(2) SUBSIDY THROUGH REINSURANCE.—The reinsurance payment amount (as defined in subsection (c)), which in the aggregate is 30 percent of such total payments, for excess costs incurred in providing qualified prescription drug coverage— (A) for individuals enrolled with a prescription drug plan 

under this part; 

(B) for individuals enrolled with a Medicare+Choice plan 

that provides qualified prescription drug coverage under 

part C; and 

(C) for individuals who are enrolled in a qualified retiree 

prescription drug plan. 

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) QUALIFYING ENTITY DEFINED.—For purposes of this section, 

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: 

(1) A PDP sponsor offering a prescription drug plan under 

this part. 

(2) A Medicare+Choice organization that provides qualified 

prescription drug coverage under a Medicare+Choice plan 

under part C. 

(3) The sponsor of a qualified retiree prescription drug plan 

(as defined in subsection (f)). 

(c) REINSURANCE PAYMENT AMOUNT.—

(1) IN GENERAL.—Subject to subsection (d)(2) and paragraph 

(4), the reinsurance payment amount under this subsection for 

a qualifying covered individual (as defined in subsection (g)(1)) 

for a coverage year (as defined in subsection (g)(2)) is equal to 

the sum of the following: 

(A) For the portion of the individual’s gross covered prescription drug costs (as defined in paragraph (3)) for the 

69

year that exceeds the initial copayment threshold specified 

in section 1860B(b)(2)(C), but does not exceed the initial 

coverage limit specified in section 1860B(b)(3), an amount 

equal to 30 percent of the allowable costs (as defined in 

paragraph (2)) attributable to such gross covered prescription drug costs. 

(B) For the portion of the individual’s gross covered prescription drug costs for the year that exceeds the annual 

out-of-pocket threshold specified in 1860B(b)(4)(B), an 

amount equal to 80 percent of the allowable costs attributable to such gross covered prescription drug costs. 

(2) ALLOWABLE COSTS.—For purposes of this section, the term 

‘‘allowable costs’’ means, with respect to gross covered prescription drug costs under a plan described in subsection (b) offered 

by a qualifying entity, the part of such costs that are actually 

paid (net of average percentage rebates) under the plan, but in 

no case more than the part of such costs that would have been 

paid under the plan if the prescription drug coverage under the 

plan were standard coverage. 

(3) GROSS COVERED PRESCRIPTION DRUG COSTS.—For purposes of this section, the term ‘‘gross covered prescription drug 

costs’’ means, with respect to an enrollee with a qualifying entity under a plan described in subsection (b) during a coverage 

year, the costs incurred under the plan (including costs attributable to administrative costs) for covered prescription drugs 

dispensed during the year, including costs relating to the deductible, whether paid by the enrollee or under the plan, regardless of whether the coverage under the plan exceeds standard coverage and regardless of when the payment for such 

drugs is made. 

(4) INDEXING DOLLAR AMOUNTS.—

(A) AMOUNTS FOR 2005.—The dollar amounts applied 

under paragraph (1) for 2005 shall be the dollar amounts 

specified in such paragraph. 

(B) FOR 2006.—The dollar amounts applied under paragraph (1) for 2006 shall be the dollar amounts specified in 

such paragraph increased by the annual percentage increase described in section 1860B(b)(5) for 2006. 

(C) FOR SUBSEQUENT YEARS.—The dollar amounts applied under paragraph (1) for a year after 2006 shall be the 

amounts (under this paragraph) applied under paragraph 

(1) for the preceding year increased by the annual percentage increase described in section 1860B(b)(5) (relating to 

growth in medicare prescription drug costs per beneficiary) 

for the year involved. 

(D) ROUNDING.—Any amount, determined under the preceding provisions of this paragraph for a year, which is not 

a multiple of $10 shall be rounded to the nearest multiple 

of $10. 

(d) ADJUSTMENT OF PAYMENTS.—

(1) ADJUSTMENT OF REINSURANCE PAYMENTS TO ASSURE 30

PERCENT LEVEL OF SUBSIDY THROUGH REINSURANCE.—

(A) ESTIMATION OF PAYMENTS.—The Administrator shall 

estimate—

70

(i) the total payments to be made (without regard to 

this subsection) during a year under subsections (a)(2) 

and (c); and 

(ii) the total payments to be made by qualifying entities for standard coverage under plans described in 

subsection (b) during the year. 

(B) ADJUSTMENT.—The Administrator shall proportionally adjust the payments made under subsections (a)(2) and 

(c) for a coverage year in such manner so that the total of 

the payments made under such subsections for the year is 

equal to 30 percent of the total payments described in subparagraph (A)(ii). 

(2) RISK ADJUSTMENT FOR DIRECT SUBSIDIES.—To the extent 

the Administrator determines it appropriate to avoid risk selection, the payments made for direct subsidies under subsection 

(a)(1) are subject to adjustment based upon risk factors specified by the Administrator. Any such risk adjustment shall be 

designed in a manner as to not result in a change in the aggregate payments made under such subsection. 

(e) 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 Medicare Prescription Drug Trust Fund. 

(f) QUALIFIED RETIREE PRESCRIPTION DRUG PLAN DEFINED.— (1) IN GENERAL.—For purposes of this section, the term ‘‘qualified retiree prescription drug plan’’ means employmentbased retiree health coverage (as defined in paragraph (3)(A)) 

if, with respect to an individual enrolled (or eligible to be enrolled) under this part who is covered under the plan, the following requirements are met: 

(A) 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. 

(B) AUDITS.—The sponsor (and the plan) shall maintain, 

and afford the Administrator access to, such records as the 

Administrator may require for purposes of audits and other 

oversight activities necessary to ensure the adequacy of prescription drug coverage, and the accuracy of payments 

made. 

(C) PROVISION OF CERTIFICATION OF PRESCRIPTION DRUG

COVERAGE.—The sponsor of the plan shall provide for 

issuance of certifications of the type described in section 

1860A(c)(2)(D). 

(2) LIMITATION ON BENEFIT ELIGIBILITY.—No payment shall 

be provided under this section with respect to an individual 

who is enrolled under a qualified retiree prescription drug plan 

unless the individual is— (A) enrolled under this part; 

(B) is covered under the plan; and 

71

(C) is eligible to obtain qualified prescription drug coverage under section 1860A but did not elect such coverage 

under this part (either through a prescription drug plan or 

through a Medicare+Choice plan). 

(3) DEFINITIONS.—As used in this section: 

(A) EMPLOYMENT-BASED RETIREE HEALTH COVERAGE.— The term ‘‘employment-based retiree health coverage’’ means health insurance or other coverage of health care 

costs for individuals enrolled under this part (or for such 

individuals and their spouses and dependents) based on 

their status as former employees or labor union members. 

(B) SPONSOR.—The term ‘‘sponsor’’ means a plan sponsor, as defined in section 3(16)(B) of the Employee Retirement Income Security Act of 1974. 

(g) GENERAL DEFINITIONS.—For purposes of this section: 

(1) QUALIFYING COVERED INDIVIDUAL.—The term ‘‘qualifying 

covered individual’’ means an individual who— (A) is enrolled with a prescription drug plan under this 

part; 

(B) is enrolled with a Medicare+Choice plan that provides qualified prescription drug coverage under part C; or 

(C) is enrolled for benefits under this title and is covered 

under a qualified retiree prescription drug plan. 

(2) COVERAGE YEAR.—The term ‘‘coverage year’’ means a calendar year in which covered outpatient drugs are dispensed if 

a claim for payment is made under the plan for such drugs, regardless of when the claim is paid. 

SEC. 1860I. MEDICARE PRESCRIPTION DRUG TRUST FUND. 

(a) IN GENERAL.—There is created on the books of the Treasury 

of the United States a trust fund to be known as the ‘‘Medicare Prescription Drug Trust Fund’’ (in this section referred to as the ‘‘Trust 

Fund’’). The Trust Fund shall consist of such gifts and bequests as 

may be made as provided in section 201(i)(1), and such amounts as 

may be deposited in, or appropriated to, such fund as provided in 

this part. Except as otherwise provided in this section, the provisions of subsections (b) through (i) of section 1841 shall apply to the 

Trust Fund in the same manner as they apply to the Federal Supplementary Medical Insurance Trust Fund under such section. 

(b) PAYMENTS FROM TRUST FUND.— (1) IN GENERAL.—The Managing Trustee shall pay from time 

to time from the Trust Fund such amounts as the Administrator certifies are necessary to make—

(A) payments under section 1860G (relating to low-income subsidy payments); 

(B) payments under section 1860H (relating to subsidy 

payments); and 

(C) payments with respect to administrative expenses 

under this part in accordance with section 201(g). 

(2) TRANSFERS TO MEDICAID ACCOUNT FOR INCREASED ADMINISTRATIVE COSTS.—The Managing Trustee shall transfer from 

time to time from the Trust Fund to the Grants to States for 

Medicaid account amounts the Administrator certifies are attributable to increases in payment resulting from the application of a higher Federal matching percentage under section 

1935(b). 

72

(c) DEPOSITS INTO TRUST FUND.—

(1) LOW-INCOME TRANSFER.—There is hereby transferred to 

the Trust Fund, from amounts appropriated for Grants to 

States for Medicaid, amounts equivalent to the aggregate 

amount of the reductions in payments under section 1903(a)(1) 

attributable to the application of section 1935(c). 

(2) APPROPRIATIONS TO COVER GOVERNMENT CONTRIBUTIONS.—There are authorized to be appropriated from time to 

time, out of any moneys in the Treasury not otherwise appropriated, to the Trust Fund, an amount equivalent to the amount 

of payments made from the Trust Fund under subsection (b), 

reduced by the amount transferred to the Trust Fund under 

paragraph (1). 

(d) RELATION TO SOLVENCY REQUIREMENTS.—Any provision of 

law that relates to the solvency of the Trust Fund under this part 

shall take into account the Trust Fund and amounts receivable by, 

or payable from, the Trust Fund. 

SEC. 1860J. DEFINITIONS; TREATMENT OF REFERENCES TO PROVISIONS IN PART C. 

(a) DEFINITIONS.—For purposes of this part: 

(1) COVERED OUTPATIENT DRUGS.—The term ‘‘covered outpatient drugs’’ is defined in section 1860B(f). 

(2) INITIAL COVERAGE LIMIT.—The term ‘‘initial coverage 

limit’’ means such limit as established under section 

1860B(b)(3), or, in the case of coverage that is not standard coverage, the comparable limit (if any) established under the coverage. 

(3) MEDICARE PRESCRIPTION DRUG TRUST FUND.—The term 

‘‘Medicare Prescription Drug Trust Fund’’ means the Trust 

Fund created under section 1860I(a).except in emergency cases 

and other exceptional circumstances recognized by the Administrator. 

(4) PDP SPONSOR.—The term ‘‘PDP sponsor’’ means an entity 

that is certified under this part as meeting the requirements 

and standards of this part for such a sponsor. 

(5) PRESCRIPTION DRUG PLAN.—The term ‘‘prescription drug 

plan’’ means health benefits coverage that—

(A) is offered under a policy, contract, or plan by a PDP 

sponsor pursuant to, and in accordance with, a contract between the Administrator and the sponsor under section 

1860D(b); 

(B) provides qualified prescription drug coverage; and 

(C) meets the applicable requirements of the section 

1860C for a prescription drug plan. 

(6) QUALIFIED PRESCRIPTION DRUG COVERAGE.—The term 

‘‘qualified prescription drug coverage’’ is defined in section 

1860B(a). 

(7) STANDARD COVERAGE.—The term ‘‘standard coverage’’ is 

defined in section 1860B(b). 

(b) APPLICATION OF MEDICARE+CHOICE PROVISIONS UNDER THIS

PART.—For purposes of applying provisions of part C under this 

part with respect to a prescription drug plan and a PDP sponsor, 

unless otherwise provided in this part such provisions shall be applied as if—

73

(1) any reference to a Medicare+Choice plan included a reference to a prescription drug plan; 

(2) any reference to a provider-sponsored organization included a reference to a PDP sponsor; 

(3) any reference to a contract under section 1857 included a 

reference to a contract under section 1860D(b); and 

(4) any reference to part C included a reference to this part.

PART øD¿ E—MISCELLANEOUS PROVISIONS

DEFINITIONS OF SERVICES, INSTITUTIONS, ETC. 

SEC. 1861. For purposes of this title—

Spell of Illness 

(a) * * *

* * * * * * *

CERTIFICATION OF MEDICARE SUPPLEMENTAL HEALTH INSURANCE

POLICIES

SEC. 1882. (a)***

* * * * * * *

(v) COVERAGE OF PRESCRIPTION DRUGS.—

(1) IN GENERAL.—Notwithstanding any other provision of 

law, except as provided in paragraph (3) no new medicare supplemental policy that provides coverage of expenses for prescription drugs may be issued under this section on or after January 

1, 2005, to an individual unless it replaces a medicare supplemental policy that was issued to that individual and that provided some coverage of expenses for prescription drugs. 

(2) ISSUANCE OF SUBSTITUTE POLICIES IF OBTAIN 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’’, 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 not later than 63 days 

after the date of the termination of enrollment described in 

such paragraph and who submits evidence of the date of 

termination or disenrollment along with the application for 

such medicare supplemental policy. 

(B) INDIVIDUAL COVERED.—An individual described in 

this subparagraph is an individual who—

74

(i) enrolls in a prescription drug plan 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’’ 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 paragraph (4) of 

subsection (s) shall apply with respect to the requirements 

of this paragraph in the same manner as they apply to the 

requirements of such subsection. 

(3) NEW STANDARDS.—In applying subsection (p)(1)(E) (including permitting the NAIC to revise its model regulations in 

response to changes in law) with respect to the change in benefits resulting from title I of the Medicare Modernization and 

Prescription Drug Act of 2002, with respect to policies issued to 

individuals who are enrolled under part D, the changes in 

standards shall provide only provide for substituting for the 

benefit packages that included coverage for prescription drugs 

two benefit packages that may provide for coverage of cost-sharing with respect to qualified prescription drug coverage under 

such part, except that such coverage may not cover the prescription drug deductible under such part. The two benefit packages 

shall be consistent with the following: 

(A) FIRST NEW POLICY.—The policy described in this subparagraph has the following benefits, notwithstanding any 

other provision of this section relating to a core benefit 

package: 

(i) Coverage of 50 percent of the cost-sharing otherwise applicable, except coverage of 100 percent of any 

cost-sharing otherwise applicable for preventive benefits. 

(ii) No coverage of the part B deductible. 

(iii) Coverage for all hospital coinsurance for long 

stays (as in the current core benefit package). 

(iv) A limitation on annual out-of-pocket expenditures to $4,000 in 2005 (or, in a subsequent year, to 

such limitation for the previous year increased by an 

appropriate inflation adjustment specified by the Secretary). 

(B) SECOND NEW POLICY.—The policy described in this 

subparagraph has the same benefits as the policy described 

in subparagraph (A), except as follows: 

(i) Substitute ‘‘75 percent’’ for ‘‘50 percent’’ in clause 

(i) of such subparagraph. 

(ii) Substitute ‘‘$2,000’’ for ‘‘$4,000’’ in clause (iv) of 

such subparagraph. 

(4) CONSTRUCTION.—Any provision in this section or in a 

medicare supplemental policy relating to guaranteed renewability of coverage shall be deemed to have been met through 

the offering of other coverage under this subsection.

* * * * * * *

75

TITLE XIX—GRANTS TO STATES FOR MEDICAL ASSISTANCE 

PROGRAMS 

* * * * * * *

STATE PLANS FOR MEDICAL ASSISTANCE

SEC. 1902. (a) A State plan for medical assistance must— (1) * * *

* * * * * * *

(64) provide, not later than 1 year after the date of the enactment of this paragraph, a mechanism to receive reports 

from beneficiaries and others and compile data concerning alleged instances of waste, fraud, and abuse relating to the operation of this title; øand¿

(65) provide that the State shall issue provider numbers for 

all suppliers of medical assistance consisting of durable medical equipment, as defined in section 1861(n), and the State 

shall not issue or renew such a supplier number for any such 

supplier unless— (A) * * *

* * * * * * *

(B) a surety bond in a form specified by the Secretary 

under section 1834(a)(16)(B) and in an amount that is not 

less than $50,000 or such comparable surety bond as the 

Secretary may permit under the second sentence of such 

sectionø.¿; and

(66) provide for making eligibility determinations under section 1935(a).

* * * * * * *

PAYMENT TO STATES

SEC. 1903. (a) From the sums appropriated therefor, the Secretary (except as otherwise provided in this section) shall pay to 

each State which has a plan approved under this title, for each 

quarter, beginning with the quarter commencing January 1, 1966—

(1) an amount equal to the Federal medical assistance percentage (as defined in section 1905(b), subject to subsections (g) 

and (j) of this section and subsection 1923(f)) of the total 

amount expended during such quarter as medical assistance 

under the State plan, reduced by the amount computed under 

section 1935(c)(1) for the State and the quarter; plus 

* * * * * * *

PAYMENT FOR COVERED OUTPATIENT DRUGS

SEC. 1927. (a)***

* * * * * * *

(c) DETERMINATION OF AMOUNT OF REBATE.—

(1) BASIC REBATE FOR SINGLE SOURCE DRUGS AND INNOVATOR

MULTIPLE SOURCE DRUGS.—

(A) * * *

* * * * * * *

(C) BEST PRICE DEFINED.—For purposes of this section—

76

(i) IN GENERAL.—The term ‘‘best price’’ means, with 

respect to a single source drug or innovator multiple 

source drug of a manufacturer, the lowest price available from the manufacturer during the rebate period 

to any wholesaler, retailer, provider, health maintenance organization, nonprofit entity, or governmental 

entity within the United States, excluding— (I) * * *

* * * * * * *

(III) any prices used under a State pharmaceutical assistance program; øand¿

(IV) any depot prices and single award contract 

prices, as defined by the Secretary, of any agency 

of the Federal Governmentø.¿; and

(V) any prices charged which are negotiated by 

a prescription drug plan under part D of title 

XVIII, by a Medicare+Choice plan under part C of 

such title with respect to covered outpatient drugs, 

or by a qualified retiree prescription drug plan (as 

defined in section 1860H(f)(1)) with respect to such 

drugs on behalf of individuals entitled to benefits 

under part A or enrolled under part B of such title.

* * * * * * *

SPECIAL PROVISIONS RELATING TO MEDICARE PRESCRIPTION DRUG

BENEFIT

SEC. 1935. (a) REQUIREMENT FOR MAKING ELIGIBILITY DETER- MINATIONS 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) subject to subsection (e), a State shall— (1) make determinations of eligibility for premium and costsharing subsidies under (and in accordance with) section 

1860G; 

(2) inform the Administrator of the Medicare Benefits Administration of such determinations in cases in which such eligibility is established; and 

(3) otherwise provide such Administrator with such information as may be required to carry out part D of title XVIII (including section 1860G). 

(b) PAYMENTS FOR ADDITIONAL ADMINISTRATIVE COSTS.—

(1) IN GENERAL.—The amounts expended by a State in carrying out subsection (a) are, subject to paragraph (2), expenditures reimbursable under the appropriate paragraph of section 

1903(a); except that, notwithstanding any other provision of 

such section, the applicable Federal matching rates with respect 

to such expenditures under such section shall be increased as 

follows (but in no case shall the rate as so increased exceed 100 

percent): 

(A) For expenditures attributable to costs incurred during 

2005, the otherwise applicable Federal matching rate shall 

be increased by 10 percent of the percentage otherwise payable (but for this subsection) by the State. 

77

(B)(i) For expenditures attributable to costs incurred during 2006 and each subsequent year through 2013, the otherwise applicable Federal matching rate shall be increased 

by the applicable percent (as defined in clause (ii)) of the 

percentage otherwise payable (but for this subsection) by 

the State. 

(ii) For purposes of clause (i), the ‘‘applicable percent’’ for— (I) 2006 is 20 percent; or 

(II) a subsequent year is the applicable percent under 

this clause for the previous year increased by 10 percentage points. 

(C) For expenditures attributable to costs incurred after 

2013, the otherwise applicable Federal matching rate shall 

be increased to 100 percent. 

(2) COORDINATION.—The State shall provide the Administrator with such information as may be necessary to properly 

allocate administrative expenditures described in paragraph (1) 

that may otherwise be made for similar eligibility determinations. 

(c) FEDERAL ASSUMPTION OF MEDICAID PRESCRIPTION DRUG

COSTS FOR DUALLY-ELIGIBLE BENEFICIARIES.— (1) IN GENERAL.—For purposes of section 1903(a)(1) subject to 

subsection (e), for a State that is one of the 50 States or the District of Columbia for a calendar quarter in a year (beginning 

with 2005) the amount computed under this subsection is equal 

to the product of the following: 

(A) MEDICARE SUBSIDIES.—The total amount of payments 

made in the quarter under section 1860G (relating to premium and cost-sharing prescription drug subsidies for lowincome medicare beneficiaries) that are attributable to individuals who are residents of the State and are entitled to 

benefits with respect to prescribed drugs under the State 

plan under this title (including such a plan operating 

under a waiver under section 1115). 

(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.—The phase-out proportion 

(as defined in paragraph (2)) for the quarter. 

(2) PHASE-OUT PROPORTION.—For purposes of paragraph 

(1)(C), the ‘‘phase-out proportion’’ for a calendar quarter in—

(A) 2005 is 90 percent; 

(B) a subsequent year before 2014, is the phase-out proportion for calendar quarters in the previous year decreased 

by 10 percentage points; or 

(C) a year after 2013 is 0 percent. 

(d) ADDITIONAL PROVISIONS.— (1) MEDICAID AS SECONDARY PAYOR.—In the case of an individual who is entitled to qualified prescription drug coverage 

under a prescription drug plan under part D of title XVIII (or 

under a Medicare+Choice plan under part C of such title) and 

medical assistance for prescribed drugs under this title, medical 

assistance shall continue to be provided under this title for preVerDate May 23 2002 04:17 Jul 02, 2002 Jkt 099006 PO 00000 Frm 00077 Fmt 6659 Sfmt 6603 E:\HR\OC\HR551P1.XXX pfrm12 PsN: HR551P1
78

scribed drugs to the extent payment is not made under the prescription drug plan or the Medicare+Choice plan selected by the 

individual. 

(2) CONDITION.—A State may require, as a condition for the 

receipt of medical assistance under this title with respect to prescription drug benefits for an individual eligible to obtain 

qualified prescription drug coverage described in paragraph (1), 

that the individual elect qualified prescription drug coverage 

under section 1860A. 

(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) (for providing medical assistance with respect to the 

provision of prescription drugs to medicare beneficiaries), 

the amount otherwise determined under section 1108(f) (as 

increased under section 1108(g)) for the State shall be increased by the amount specified in 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 outpatient drugs (as defined in section 

1860B(f)) to low-income medicare beneficiaries; and 

(B) assures 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 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) 2005, is equal to $20,000,000; or 

(ii) a subsequent year, is equal to the aggregate 

amount specified in this subparagraph for the previous 

year increased by annual percentage increase specified 

in section 1860B(b)(5) for the year involved. 

(4) REPORT.—The Administrator shall submit to Congress a 

report on the application of this subsection and may include in 

the report such recommendations as the Administrator deems 

appropriate.

REFERENCES TO LAWS DIRECTLY AFFECTING MEDICAID PROGRAM

SEC. ø1935.¿ 1936. (a) AUTHORITY OR REQUIREMENTS TO COVER

ADDITIONAL INDIVIDUALS.—For provisions of law which make additional individuals eligible for medical assistance under this title, 

see the following: 

79

(1) * * *

* * * * * * *

(80)

DISSENTING VIEWS 

The bill ordered reported from this Committee solely by a vote 

of its Republican Members falls far short of what is needed to provide meaningful prescription drug coverage to the Nation’s 40 million senior citizens and individuals with disabilities who depend on 

Medicare. The Congressional Budget Office estimates that drug 

spending on behalf of beneficiaries will total $1.6 trillion during the 

time the Republican drug benefit is in effect. Yet the $310 billion 

Committee-passed bill covers only 19% of the anticipated spending 

during that time period. This means that most Medicare beneficiaries will continue to pay far more for prescription drugs than 

they can afford. 

Republicans claimed in Committee that they could not afford to 

do more and criticized the Democratic substitute for its cost. A prescription drug benefit, however, that adequately meets beneficiaries’ needs is achievable; it is only a matter of priorities. Senior 

citizens were not a priority for Republicans last year; almost half 

of all elderly households received absolutely no benefit from the 

$1.7 trillion tax cut package. Now this year, they are unwilling to 

devote even half of what they spent on tax cuts to provide meaningful prescription drug coverage for seniors. In 2012 alone, the tax 

cut would cost $229 billion—more than three times the amount 

that Republicans are willing to dedicate to prescription drugs in 

that year. 

H.R. 4984 lays the groundwork for the Republicans’ ultimate goal 

to privatize Medicare. Beneficiaries will not have the option to receive drug coverage through the Medicare program, but instead 

will have to enroll in a private insurance plan. Private insurance 

plans will make decisions about beneficiary co-insurance, and premiums as well as which drugs are included in the plan formulary. 

In short, the Republican majority has chosen to push for a complex plan that puts the interests of HMOs and the drug industry 

ahead of the interests of beneficiaries. Its key flaws are: 

1. INADEQUATE BENEFIT

• Pay more and get less. For most seniors in the Republican 

plan, the more you spend, the less coverage you get. The design of 

the Committee bill forces the elderly to pay a higher percentage of 

costs as their needs increase. Once the initial $250 deductible is 

met, beneficiaries have to pay 20% of the cost until there has been 

$1,000 in drug spending. Then the co-payment increases to 50% for 

spending between $1,000 and $2,000. And then the beneficiary has 

to pay 100% after $2,000 in drug spending. Beneficiaries are forced 

to pay all of their drug costs for spending between $2,000 and 

$4,800, while continuing to pay premiums. (Note: The Republican 

$3,700 out-of- pocket cap translates into $4,800 in total drug spending.) 

81

• Coverage Stops Mid-Year. Nearly 50% of Medicare beneficiaries 

will get no drug coverage for part of the year under the Republican 

bill. An elderly woman who spends $400 per month on drugs would 

receive no coverage after May—yet she would still have to pay pre- miums for a full year. A disabled man who spent $200 per month 

on drugs would not have coverage begin until February and would 

see his coverage end in October. This falls far short of what seniors 

get today in Medicare and short of what we get as Members of 

Congress under our health plan. 

2. NO GUARANTEED DRUG BENEFIT—NO PREDICTABLE COSTS

• No guaranteed premium. Insurers determine what premium 

beneficiaries will pay. While Republicans claim that the premium 

will be $35, which is 40% higher than the premium in the Democratic plan, there is nothing in the legislation to support that claim. 

In fact, there are no limits or guidelines regarding the setting of 

the premium. This is a dramatic change from Medicare today 

where Part B premiums are set in statute as a percentage of program costs. Under the Republican proposal, premiums will vary by 

plan and place. • No standard benefit. The benefits outlined in the Republican 

bill are merely suggestions. Private plans can vary the deductible 

and co-insurance as well as the premium in both the ‘‘standard coverage’’ option and in the ‘‘alternative coverage’’ option. In fact, 

there is not even a requirement in the Republican legislation that 

any plan offer the ‘‘standard’’ benefit package. This is an invitation 

for plans to design benefits that ‘‘cherry pick’’ low-cost, healthy enrollees. It is also a recipe for beneficiary confusion. This model represents a retreat from the Medigap reforms of the early 1990s that 

standardized benefits, thus ensuring that plans compete on price 

and quality and not prey on consumer confusion. Finally, there is 

nothing in the bill that would ensure beneficiaries can depend on 

the plans remaining in their area or providing the same benefits 

from year-to-year. This invites the annual chaos that Congress has 

witnessed with the Medicare+Choice program in recent years. • Not a real entitlement. The benefit outlined in the bill is not 

a true Medicare entitlement. Under Medicare today, beneficiaries 

are entitled to a set of benefits defined in law, regardless of where 

they live or what it costs to deliver the benefits. For example, beneficiaries in Milwaukee and Miami pay a $100 deductible for Part 

B and 20% co-insurance for Part B services. Beneficiaries in Bakersfield and Boston are guaranteed the same coverage for hospital 

care and home health services. Under the Republican plan, there 

is no such entitlement. • Limits access to specific drugs and pharmacies. Under the bill, 

private plans can refuse to cover needed medications. The private 

plans decide what specific drugs are on their formulary and whether to provide any coverage for non-formulary drugs. Plans are not 

required to disclose the formulary to prospective enrollees, and 

plans are allowed to change the formulary during the year with 

‘‘adequate’’ notice. Private plans also pick and choose which pharmacies are in their network; there is no requirement that all pharmacies that meet the standards be allowed to participate. This 

means that senior citizens could have to stop going to the pharVerDate May 23 2002 04:17 Jul 02, 2002 Jkt 099006 PO 00000 Frm 00081 Fmt 6604 Sfmt 6602 E:\HR\OC\HR551P1.XXX pfrm12 PsN: HR551P1
82

macy that has been serving their needs for decades unless they 

purchase a separate point-of-service insurance plan with higher 

premiums and cost-sharing. And, because the Republican plan uses 

the Medicare+Choice enrollment procedures, beneficiaries will be 

locked into the private plan for the entire year—even if the plan 

drops a needed drug or local pharmacy. • Encourages Erosion of Employer-Sponsored Coverage. The bill 

strictly limits the dollars that count toward the out-of-pocket cap 

by specifying that only costs which are paid by the individual and 

are ‘‘not reimbursed (through insurance or otherwise) by another 

person’’ count toward the out-of-pocket limit. In other words, if a 

beneficiary receives any assistance—other than low-income assistance—with his or her drug costs, those costs do not count toward the $3,700 limit. The bill was amended to clarify that beneficiaries 

would not be penalized if they received assistance from family 

members with the cost of their drugs; however, the definition of 

‘‘true’’ out-of-pocket costs puts employers, unions, and others who 

provide retiree coverage in a bind. Employers would be forced to 

drop or cap coverage for retirees to wrap-around the Medicare drug 

benefit, because each dollar spent would not be counted toward catastrophic coverage. Retirees would lose a valuable benefit that 

many employers provide today. 

3. INADEQUATE INVESTMENT FOR PRESCRIPTION DRUGS

• H.R. 4984 covers less than 20% of seniors’ drug costs over the 

next ten years. This is the exact opposite of the coverage seniors 

receive in Medicare Part B today where Medicare covers 80% of the 

cost of services. Congress needs to act to make senior citizens a priority on the agenda. If seniors are truly a priority, there is no excuse not to provide a comprehensive prescription drug benefit that 

meets seniors’ needs. 

4. PRIVATIZES MEDICARE

• No alternative but private insurance plans. The Republican 

plan forces Medicare into private insurance plans in order to get 

prescription drugs. There is no option under the Republican bill for 

a senior to have Medicare provide coverage for their drugs like it 

provides coverage for doctor visits, hospital care, or other health 

services today. The bill vests private insurance companies with the 

power to determine what benefits get offered and for how much. 

This is dramatically different from Medicare today, where senior 

citizens and individuals with disabilities are guaranteed affordable 

health care. 

• Flawed private-market model. The Republican plan relies on a 

model that is largely untested. The State of Nevada experimented 

with private drug-only insurance plans for low-income elderly and 

found that even with state subsidies, the $85 premium was beyond 

the reach of seniors. Drugs commonly used by seniors were excluded from plan formularies. Multiple benefit offerings were confusing to beneficiaries. Relying on a private insurance system will 

increase the costs to the beneficiary and the government due to the 

additional expenses related to product development, marketing, administration, and profit. Developing a new private insurance product market would be difficult in sparsely populated rural areas, 

83

where the need is greatest, risk pools are smaller and costs often 

higher. Rather than use Medicare beneficiaries as guinea pigs, we 

should build on the Medicare model that we know works. 

By rejecting the Democratic substitute, the Committee missed its 

opportunity to provide an affordable, comprehensive prescription 

drug benefit under Medicare. We urge the House to take a different 

position and pass the Democratic alternative. 

Our plan is an entitlement that would guarantee all beneficiaries 

the option to purchase affordable, dependable, comprehensive prescription drug coverage at a uniform price. The program would be 

administered and managed through pharmacy contractors, much 

like carriers and fiscal intermediaries do for the rest of Medicare 

today. Starting in 2005, under our plan, beneficiaries would pay a 

$25 monthly premium, $100 annual deductible and not more than 

20% co-insurance until they spend $2,000. After $2,000, the government would pay 100% of the drug costs. 

Low-income beneficiaries receive additional assistance under our 

proposal. Those with incomes up to 150% of poverty ($13,290 for 

one person) will pay nothing. Those with incomes between 150– 175% of poverty ($13,290—$15,505 for a single person) will not pay 

any cost-sharing but will pay premiums on a sliding scale. 

The Democratic substitute also substantially reduces the soaring 

costs that seniors currently pay for prescription drugs. Under our 

plan, the Secretary would leverage the collective bargaining power 

of 40 million beneficiaries to negotiate with manufacturers for 

lower drug prices. Secretary Thompson recently demonstrated the 

effectiveness of similar bargaining power when he negotiated an 

80% discount off the list price of the antibiotic Cipro during the anthrax scare last year. Pharmacy contractors would also negotiate 

additional savings. The savings from these negotiations would be 

required to be directly passed on to beneficiaries through lower 

prices. Pharmacy contractors would be held accountable for achieving promised discounts for beneficiaries. 

The Democratic substitute guarantees senior citizens and those 

with disabilities the choices that matter—choice of drugs and 

choice of pharmacy. Under our plan, Medicare would pay toward 

the cost of every prescription drug. The Democratic substitute also 

assures access to pharmacies by prohibiting pharmacy contractors 

from refusing to contract with a pharmacy that agreed to meet its 

standards. These are the choices people want and need. 

Most importantly, unlike the Republican plan, our plan will 

never force seniors into an HMO or similar private plan in order 

to get a prescription drug benefit. 

JOHN D. DINGELL. 

SHERROD BROWN. 

HENRY A. WAXMAN. 

RICK BOUCHER. 

EDOLPHUS TOWNS. 

GENE GREEN. FRANK PALLONE, Jr. 

MIKE DOYLE. 

KAREN MCCARTHY. TOM BARRETT. 

CHRIS JOHN. 

84

BOBBY L. RUSH. TED STRICKLAND. ANNA G. ESHOO. LOIS CAPPS. PETER DEUTSCH. ELIOT L. ENGEL. BART STUPAK. TOM SAWYER. DIANA DEGETTE. BART GORDON.

(85)

DISSENTING VIEWS OF REPRESENTATIVES MARKEY, 

DINGELL, AND WAXMAN 

We are concerned about the privacy implications of the prescription drug discount card program endorsement provision of H.R. 

4954, the Medicine Modernization and Prescription Drug Act of 

2002. The discount card program fails to prevent the private medical information of seniors from being used for purposes other than 

operation of the discount card program without prior authorization 

by the beneficiary. Privatizing prescription drug benefits for seniors 

is itself misguided; privatizing these benefits without protecting the 

personal information of the beneficiary is even worse. 

Contrary to the view expressed by the Majority during the Committee’s markup, many of these discount card sponsors would not 

be covered under the existing restrictions mandated by the Health 

Insurance Portability and Accountability Act (HIPAA). HIPAA only 

applies to health care providers, health insurers, and health care 

clearinghouses. Since many of the drug card sponsors fit into none 

of these categories, they are exempt from the existing regulations. 

In addition, the March 6, 2002 rule published by the Centers for 

Medicare and Medicaid Services (CMS), which first proposed the 

creation of the prescription drug discount card program, contains 

no reference whatsoever to the applicability of the HIPAA privacy 

rule to these card programs. So there is no guarantee, nor even the 

promise of one, that a senior’s medical history will not be sold by 

a drug discount card sponsor to those who would use that sensitive 

information to prey upon vulnerable seniors. 

In addition, the bill also stipulates that these card program sponsors may

Encourage that enrollees under a plan make payment of 

the premium established by the plan through an electronic 

funds transfer mechanism, such as automatic charges of 

an account at a financial institution or a credit or debit 

card account, or, at the option of an enrollee, through withholding from benefit payments.

Thus, the drug card sponsor will not only have full access to a senior’s medical history and know what medications he or she is taking, they may also know the senior’s: 

1. Checking account number; 

2. Savings account number; 

3. Credit card number; 

4. Brokerage money market account number; 

5. Social Security number; and 

6. Private annuity account number. 

High-pressure telemarketers who seek to prey upon vulnerable 

seniors would have all the information needed to target them. 

These telemarketers could offer the seniors ‘‘miracle’’ cures for canVerDate May 23 2002 04:17 Jul 02, 2002 Jkt 099006 PO 00000 Frm 00085 Fmt 6604 Sfmt 6604 E:\HR\OC\HR551P1.XXX pfrm12 PsN: HR551P1
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cer or Alzheimer’s or other diseases. They could try to sell the seniors other services or products that do not work or that they do not 

need. In short, they could rob seniors blind using their special access to a senior’s health information and their knowledge of that 

senior’s financial information. 

The Markey amendment, which was defeated in Committee, 

sought to ensure that the discount card sponsors are subject to reasonable privacy regulations, such as the requirement that prior authorization be obtained before any sensitive information is used or 

disclosed for any purpose unrelated to the operation of the drug 

discount card program. Yet, as approved by the Committee, the 

prescription drug discount card sponsors may receive the endorsement of the Secretary of Health and Human Services without being 

subject to reasonable privacy regulations. 

The Committee’s rejection of the Markey amendment enables the 

drug card sponsors to buy and sell seniors’ most intimate personal 

information as if it were a commodity, and to do so with the endorsement of the Secretary of Health and Human Services. 

We respectfully dissent. 

ED MARKY. JOHN D. DINGELL. HENRY A. WAXMAN.

Æ