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[House Report 107-551]
[From the U.S. Government Publishing Office]

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

                          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-of- pocket 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.
    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, NationalCommittee 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.

                      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, physicians, 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).
    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              0.4      0.5      0.1        *        *        *         *         *         *         *       1.0
     moratorium.................................
    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         *
    611 Limit on high cost medical education            *        *     -0.1     -0.2     -0.2     -0.3      -0.3      -0.4      -0.5      -0.5      -2.6
     programs...................................
    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        *        *        *        0        0         0         0         0         0         *
                                                 -------------------------------------------------------------------------------------------------------
      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        0        0        0        0         0         0         0         0         0
Title VIII: Regulatory Reform...................        *        *        *        *        *        *         *         *         *         *       0.1
Title IX: Medicaid, Public Health, and other            0        0        0        0        0        0         0         0         0         0         0
 Provisions.....................................
                                                 -------------------------------------------------------------------------------------------------------
      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.

         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         0       0      -4      -9     -10     -12     -13     -14     -16     -18      -96
 Enrollees.....................................................
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, standard 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 fee-for-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, 
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 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 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-you-go 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 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 disproportionate 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 bothMedicare and Medicaid. CBO 
estimates that savings to states from these provisions would total 
about $60 billion over the 2003-2012 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 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 (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 subsequently, 
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 management 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 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 coverageis 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 
cost-sharing assistance. Individuals with incomes between 150 
and 175% of FPL will receive a premium subsidy based on an 
income- related 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 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 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-incomesubsidies, 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.
    ``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 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 costsrelated 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 pre-
existing 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 support 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) * * *
  (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; [and]
          (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 
        provide[.]; 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 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 paragraph (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 part[.],
        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--
                  (A) providing premium and cost-sharing 
                subsidies to low-income 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 
        coverage.--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
                          (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 
Nondiscrimination.--
          (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 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 
                        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 
                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.
          (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 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 under subsection (e)) 
                is at least equal to the actuarial value (as so 
                determined) of standard coverage.
                  (B) Assuring equivalent unsubsidized value of 
                coverage.--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).
          (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 Percentage 
Increases.--
          (1) Processes.--For purposes of this section, the 
        Administrator shall establish processes and methods--
                  (A) for determining the actuarial valuation 
                of prescription drug coverage, including--
                          (i) an actuarial valuation of 
                        standard 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 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 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 disabled 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 
                categories.--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 
                formulary.--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.
                  (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, real-time 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.
                          (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 
        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.

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).
                  (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.
          (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 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
                          (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.

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 cost-sharing 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 
                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
                          (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 cost-sharing 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 
        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 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--
                          (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 
        employment-based 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
                  (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).
  (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--
          (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 [D] 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--
                          (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.

           *       *       *       *       *       *       *

      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; [and]
          (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 
                section[.]; 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--
                          (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; [and]
                                  (IV) any depot prices and 
                                single award contract prices, 
                                as defined by the Secretary, of 
                                any agency of the Federal 
                                Government[.]; 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 
Determinations for Low-Income Subsidies.--As a condition of its 
State plan under this title under section 1902(a)(66) and 
receipt of any Federal financial assistance under section 
1903(a) subject to subsection (e), a State shall--
          (1) make determinations of eligibility for premium 
        and cost-sharing 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.
                  (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 low-income 
                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 
        prescribed 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. [1935.] 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:
          (1) * * *

           *       *       *       *       *       *       *

                            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.)
     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 premiums 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 
meetthe standards be allowed to participate. This means that 
senior citizens could have to stop going to the pharmacy 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, 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.
                                   Bobby L. Rush.
                                   Ted Strickland.
                                   Anna G. Eshoo.
                                   Lois Capps.
                                   Peter Deutsch.
                                   Eliot L. Engel.
                                   Bart Stupak.
                                   Tom Sawyer.
                                   Diana DeGette.
                                   Bart Gordon.

    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 cancer 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.

                                  
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